Behavioral ethics and compliance: strong and specific medicine

Last week, the Ethical Systems initiative, together with the Behavioral Science Policy Association, held a fascinating and well-received conference at NYU’s Stern School of Business on “Ethics By Design,” some of which was devoted to a favorite topic of this blog – “behavioral ethics and compliance.”  While still in its infancy, this field increasingly has the potential (in my view) to contribute significantly to society’s effort to reduce wrongdoing by business organizations, and indeed ultimately to change how we think of good citizen companies. The Ethical Systems conference provides a fitting occasion to look at this area from a big picture perspective and to consider its eco-system.

Behavioral E&C rests on three pillars: recognizing and articulating E&C needs (e.g., protecting whistleblowers);  conducting scientific research that can help companies meet  those  needs, even if the purpose of the research is not E&C focused; and using field-based knowledge to apply the scientific knowledge in an effective manner, i.e., to make it as relevant as possible to E&C. The first of these is to a large extent the realm of the government, at least the “C” part of E&C; the second is clearly the domain of scholars; and the third is the territory of E&C practitioners and also scholars,  (e.g., Behavioral Ethics, Behavioral Compliance,” by Professor Donald C. Langevoort of the Georgetown University Law Center).

To take one example, the government has for a long time indicated that not only those engaged in active wrongdoing but also supervisors who culpably failed to prevent or detect such wrongdoing should be disciplined. This need was first articulated in 1991,when the Federal Sentencing Guidelines for Organizations went into effect and has been repeated as recently as April in a pilot policy of the Fraud Division, which stated that E&C programs should include: “Appropriate discipline of employees, including those identified by the corporation as responsible for the misconduct, and a system that provides for the possibility of disciplining others with oversight of the responsible individuals, and considers how compensation is affected by both disciplinary infractions and failure to supervise adequately…” (emphasis added). The work of behavioral ethics scholars helps companies address this need through the notion of “motivated blindness.” As described by Max Bazerman and Ann Tenbrunsel in a piece from the Harvard Business Review Blog Network : “mounting research shows that we often fail to notice others’ unethical behavior if it’s in our interest not to notice. This failure of oversight — called ‘motivated blindness’ — is unconscious and common.” Note that what behavioral ethics research is doing here is not so much telling companies the specifics of how to meet the need  in question (indeed, the authors’ focus was not on disciplinary policies at all) but, rather, making a more general point which helps show that however this is done will require strong medicine. The role of E&C practitioners in this example is to identify what that medicine should be, as described in this earlier post: “To meet this important expectation, companies may wish to take the following measures: build the notion of supervisory accountability into their policies – e.g., in the managers’ duties section of a code of conduct; speak forcefully to the issue in C&E training and other communications for managers; train investigators on the notion of managerial accountability and address it in the forms they use so that they are required to determine in all inquiries if a manager’s being asleep at the switch led to the violation in question; publicize (in an appropriate way) that managers have in fact been disciplined for supervisory lapses; and have auditors take these requirements into account in their audits of investigative and disciplinary records.” Of course, companies could take these steps without the contribution of behavioral ethics, particularly as some recommended measures are obvious. But many do not because, in my view, they do not believe that they need “strong medicine.” Behavioral ethics can help E&C officers make the sale to skeptical managers.

In a somewhat different type of example behavioral ethics researchers not only identify the need for strong medicine generally but also help companies identify the specific type of medicine needed to address the government’s expectation in question. For instance, a series of experiments (briefly described in this post) helped show that having employees sign an ethics-related certification just before (rather than after) engaging in risk-related activity can help reduce the likelihood of wrongdoing, a phenomena  sometimes called “just-in-time” compliance.” But even in these sort of examples there is a role for E&C professionals in finding opportunities to extend the core behavioral insight to other settings. E.g., and as described in the above post: “Opportunities for new or enhanced just-in-time communications exist for many C&E areas including (but definitely not limited to): anti-corruption – before interactions with government officials and third-party intermediaries; competition law – before meetings with competitors (e.g., at trade association events); insider trading/Reg FD – during key transactions, before preparing earnings reports; protection of confidential information – when receiving such information from third parties pursuant to an NDA; conflicts of interest – around procurement decisions; accuracy of sales/marketing – in connection with developing advertising, making pitches; and employment law – while conducting performance reviews.”

Both the “strong medicine” and the “specific medicine” types of behavioral ethics knowledge are important to E&C programs.  Note that there are many more examples of the first type than the second.  Hopefully, through the work of Ethical Systems collaborators and others, that imbalance will begin to be addressed.

A final point about the “three pillars,” which is that in the above examples the identification and articulation of need comes from the government and the researchers and E&C practitioners are essentially in a responsive posture vis a vis such needs. But part of the promise of behavioral E&C is that the “flow” could begin to run the other way too. For instance, viewing E&C as not just about catching criminals but encouraging pro-social behavior – an important behavioral ethics idea (see sources here) – could, in my opinion, significantly improve the field. I wouldn’t expect this to happen in the short term, but as the three pillars begin to work more closely together in support of their many current common goals it certainly seems possible in the medium run. This, as much as the cases of strong and specific medicine, may be the best chance for behavioral E&C to change the world.

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