Ben Franklin – Behavioral ethicist?

The behavioral phenomenon of victim distance posits that an individual is more likely to act unethically in making a decision where the likely impact of such decision is distant.  Beyond its obvious application to the area of charitable giving, the phenomenon may be relevant to a broader range of ethics issues, and, for instance, can help explain the relative ease with which so many individuals engage in offenses where the victims are not identifiable.  

One example of this is insider trading – a crime which, although widely known to be wrong, seems utterly pervasive (based, among other things, on the extent of trading in securities right before public disclosure of market moving events).  A behavioral ethics perspective suggests that (at least part of) the reason for this “inner controls” failure is that the victims of insider trading are essentially anonymous market participants. 

Another offense of this sort is government contracting fraud (where the victims tend to be everyone), and indeed Ben Franklin famously described the risks of an ethics shortfall here as well as anyone could: “There is no kind of dishonesty into which otherwise good people more easily and more frequently fall than that of defrauding the government.”   Understanding why “otherwise good people” do bad things is much of what behavioral ethics is about.

From a C&E risk assessment perspective, the combination of behavioral ethics data and Franklin’s (eerily prescient) insight suggests that companies should take extra measures (e.g., through training, auditing and other C&E tools)  to prevent and detect wrongdoing  in situations where legal or ethical violations would seem to be victimless – and hence where our “inner controls” could be weak . 

But what about COIs (the focus of this blog)? The picture there is mixed, as some COIs do involve identifiable victims – such as the job applicant who does not get hired because the position was filled by the boss’s son. Similarly, an organization might suffer identifiable harm when its procurement process is corrupted by a COI – e.g., paying too much or getting too little.

However, with other sorts of COIs the harm is less apparent but nonethess potent. Key here is the damage to trust in various relationships, which can be very harmful.

For this reason, organizations might consider including the following question in their COI resolution protocols: “How likely would it be at that the COI would diminish the trust that stakeholders (shareholders, employees, customers, business partners, suppliers or regulators) would have in the Company or otherwise adversely impact the Company’s reputation?”

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