Does compliance have a dark side?

Many years ago, the CEO of a client company told me that he wanted to fire another corporate officer there. I asked him what basis he had for this contemplated action and he said it was that the officer had failed to take mandatory compliance training. I responded by asking if he – the CEO – had taken the training, to which he replied (without a trace of irony)  that he had not. (The officer kept his job – for the moment.”)

In her draft book chapter “The Dark Side of Compliance,”  to be published in the forthcoming Cambridge Handbook on Compliance  – Prof. J. S. Nelson of Villanova Law School  writes: “Compliance systems …can be abused. The fact that the positive image of compliance justifies the establishment of tentacles throughout an organization, for example, enables surveillance and invasive monitoring of the workforce. It also allows management to push employees to cut corners, thereby creating conditions ripe for widespread corporate wrongdoing.”

Nelson also notes:

– “There must be control and obedience to rules. But, as we discover from social science literature, adherence to rules may actually be counter-productive in encouraging pro-social behavior. Ethics defined more broadly as doing the right thing by others can be at odds with control and measurement.”

– “Because specific-directive-based compliance seems to engender these problems, there is a new interest in broader tools of culture … But culture as part of compliance, if not tethered to explicitly ethical goals can also be dangerous. Indeed, compliance, with its roots in ‘comply’ can have an even more insidious implications in a cultural context. As cultural compliance is even more powerful at controlling behavior within groups than rule-based compliance, the danger of it suppressing and punishing non-conforming but helpful individual contributions may be greater.”

– “Workers should not merely be sent the message that they are to enhance management’s profits. Changing why that message is sent within corporations will have to be part of a broader movement to re-conceive corporate purpose as more focused on creating social value and respecting corporate stakeholders.”

This is an informative and persuasive piece and I encourage you to read the full chapter.

Some more specific thoughts:

First, I think that the concern regarding monitoring is more acutely felt in the financial services field than elsewhere  (at least in my experience). This is not to minimize it – it is indeed important – but readers from other business sectors should be cautioned as to the extent of its potential applicability to theirs. I also wonder whether many of the monitoring systems would still exist for various operational reasons , more or less, even in the absence of applicable compliance mandates. (E.g., a know-your-customer regime for a bank is not only necessary from a compliance perspective but as a business matter too. The same is true with sales training.)

I am also unclear on how much employees in fact object to monitoring. As noted in a prior post, in my nearly thirty years in the field I can’t recall learning of anything suggesting that the employees of client organizations wanted more choice when it comes to C&E-related matters. And, I have seen and heard much to the contrary, as countless individuals have praised their employer organizations for providing clear instructions – backed up by strict enforcement measures – on how to act when faced with C&E challenges. As one C&E practitioner said about what employees at his company asked from him: “They want me to tell them what to do.”

Second, the concern that “cultural compliance is even more powerful at controlling behavior within groups than rule-based compliance” is not one that I had previously heard in this context, and it makes sense to me as suggesting the possibility of a dark side. (This is particularly so when an organization’s culture is built around loyalty, which – ethically speaking – can operate as a two-edged sword.) However, for the most part of the benefits of cultural compliance should strongly outweigh the perils, given what a cultural approach to compliance generally entails. Still, her point is worth bearing in mind, so that compliance professionals can be aware of and seek to minimize unintended consequences of this sort.

Third, as to Nelson’s point about re-conceiving corporate purpose, she notes that “Such changes may slowly be coming.” Here, I may be more optimistic that she is – since I do think the grave environmental and other societal perils we increasingly face may make corporate ethics and compliance important to employees (and other corporate stakeholders} in a way that has never been the case before. Indeed, this potential to reach beyond the traditional boundaries of compliance with messages and methods for promoting good more broadly may be seen as the sunny side of compliance.

Finally, a thought about another possible type of dark side to compliance. That is, just as Churchill noted that (in wartime) “truth is so precious that she should always be attended by a bodyguard of lies,” protecting a lie (meaning wrongdoing) with a bodyguard of truth (meaning a seemingly strong compliance program) might be seen as an effective strategy for committing crimes while avoiding liability. I should add that this concern is based mostly on speculation – but not entirely.

 

One Comment
  1. Jason Lunday 9 months ago

    I’ve believed for some time that the financial industry is terrific on compliance but not so forward-thinking regarding ethics. Your analysis provides some support for this idea. Nonetheless, as compliance continues to evolve, more of the ethics components are getting built in, making the “dark side” of compliance harder to conceal.

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