Bias

Two very different types of bias topics will be examined in the blog: A) Under what situations involving business organizations should bias be treated like a traditional COI. B) How often-unrecognized biases can inhibit ethical decision making, which is one of the principal teachings from behavioral ethics (i.e., “cognitive biases.”)

Behavioral ethics and reality-based law

Historically, one of the ways law has advanced is by becoming more “reality based” in general and accepting of social science information and ideas in particular. This is a legacy of the great Louis Brandeis.

In the latest issue of Compliance & Ethics Professional (on the second page of  the PDF) I ask whether behavioral ethics can play a role of this kind – by providing the social science basis for more C&E friendly law.  Another way to ask this: Is behavioral ethics and compliance ready for a “Brandeis moment”?

I hope you find it interesting.

Operational transparency and internal selling of C&E programs

While all companies try to “sell” their  C&E programs, often such efforts are  not particularly robust. And that’s too bad, because the need for effective C&E program selling measures is considerable.  This is due in part to the behavioral ethics/psychology-related phenomenon that we tend to overestimate how ethical we are, which leads us to underestimate how much we need the kind of help that C&E programs can provide.  Also relevant here is the moral hazard/economics-related phenomenon that leads to a misalignment of risk vis a vis rewards in many companies when it comes to C&E, meaning that the internal “market” for C&E services in many companies is not an efficient one.  On top of both of these challenges is, at least in some companies, a growing sense of  “compliance fatigue.” With all these forces aligned against them, what should C&E professionals do to sell their programs in an effective manner?

A few years ago, in a paper published in Management Science – “The Labor Illusion: How Operational Transparency Increases Perceived Value”  – Ryan W. Buell and Michael I. Norton, both of the Harvard Business  School, reviewed the results of experiments involving  the near-ubiquitous experience of consumers reacting to wait times on web sites. They found that “when websites engage in operational transparency by signaling that they are exerting effort, people can actually prefer websites with longer waits to those that return instantaneous results—even when those results are identical.”   While the context is obviously not at all specific to C&E work, the general learning about individuals valuing services more positively when they understand the amount of effort involved in providing those services seems broadly applicable,  and worth considering for possible lessons to those seeking to “sell” C&E programs.

Operational transparency can, of course, play a role in C&E programs in various ways – most obviously through the day–to-day work of compliance officers in training on and otherwise communicating about a company’s standards of business conduct, work which is presumably well understood in a company.  Beyond this, employees generally have some understanding that a C&E officer receives and responds to reports of suspected wrongdoing. But there is, of course,  much more to a C&E program than these two functions, the depth and breadth of which is often unknown to (or under-appreciated by)  its  “customers”  – meaning the employees.

For some companies, what is needed to make a strong and positive impression on the work force is an annual C&E report.  Such reports typically summarize major efforts and accomplishments  of  a company’s C&E department in a given year, and thereby hopefully have the kind of impact that will make employees truly value what goes into the program.  To my mind, the opportunity to publish reports of this kind should be seen as “low hanging fruit” in more than a few companies – and I hope that C&E officers who don’t currently engage in this practice will revisit the issue at some point soon.

There are, however, two caveats to this suggestion.  First, in publicizing the work of a C&E department, one must be careful not to do anything that might indicate that the promise of confidentiality in responding to helpline calls and undertaking other sensitive inquiries could be compromised.   Second, as the authors of the paper state: “Whereas operational transparency involves firms being clearer in demonstrating the effort they exert on behalf of their customers—an ethically unproblematic strategy—inducing the illusion of labor moves closer to an ethical boundary,…” to which I would add that this should indeed be seen as over the line for any C&E professional.  More broadly, while C&E officers often should make greater efforts to sell themselves and what they do, they must be mindful of restraints that are particularly relevant to (with apologies to The Godfather) “the business [they have] chosen.”

For further reading see this post on annual C&E reports in Corporate Compliance Insights.

Conflicts of interest, compliance programs and “magical thinking”

An article earlier this week in the New York Times takes on the issue of “Doctors’ Magical Thinking about Conflicts of Interest.”  The piece was prompted by a just-published study  which examined “the voting behavior and financial interests of almost 1,400 F.D.A. advisory committee members who took part in decisions for the Center for Drug and Evaluation Research from 1997 to 2011” and found a powerful correlation between a committee member having a  financial interest (e.g., a consulting relationship or ownership interest ) in a drug company whose product was up for review and the member’s voting in favor of the company – at least in circumstances where the member did not also have interests in the company’s competitors.

Of course, this is hardly a surprise, and the Times piece also recounts the findings of earlier studies showing strong correlations between financial connections (e.g., receiving gifts, entertainment or  travel from a pharma company) and professional decision making (e.g., prescribing that company’s drug). Nonetheless, some physicians “believe that they should be responsible for regulating themselves.”

However, such self regulation can’t work, the article notes,  because “our thinking about conflicts of interest isn’t always rational. A study of radiation oncologists  found that only 5 percent thought that they might be affected by gifts. But a third of them thought that other radiation oncologists would be affected.  Another study asked medical residents similar questions. More than 60 percent of them said that gifts could not influence their behavior; only 16 percent believed that other residents could remain uninfluenced. This ‘magical thinking’ that somehow we, ourselves, are immune to what we are sure will influence others is why conflict of interest regulations exist in the first place. We simply cannot be accurate judges of what’s affecting us.”

While the findings of these and similar studies are, of course, most relevant to conflicts involving doctors and life science companies, there is a broader learning here which, I think, is vitally important to C&E programs generally.  That is, they help to show that “we are not as ethical as we think” – a condition hardly limited to the field of medicine or to conflicts of interest, as has been discussed in various prior postings on this blog.

One of the overarching implications of this body of knowledge is that we humans need structures – for business organizations this means  C&E programs, but more broadly these have been called “ethical systems” – to help save us from falling victim to our seemingly innate sense of ethical over-confidence.  So, to make that case, C&E professionals should – in training or otherwise communicating with employees (particularly managers) and directors  – address the issue of “magical thinking” head-on.

Moreover, using the example of COIs to prove the larger point here may be an effective strategy, because employees are more likely to have experience with ethical challenges in this area  than with other major risks, such as corruption, competition law or fraud – which indeed may be so scary as to be largely unimaginable to many employees.  I.e., these and other “hard-core” C&E risk areas might be subject to an even greater amount of magical thinking than is done regarding COIs.  So, at least in some companies,  discussing COIs might offer the most accessible “gateway” to addressing the larger topic of ethical over-confidence.

Conflicts of interest and “the social nature of humans”

Private supply chain auditing continues to serve an increasingly important role in compliance and ethics efforts worldwide.  A recent working paper from the Harvard Business School  – “Monitoring the Monitors: How Social Factors Influence Supply Chain Auditors,” by  Jodi Short, Professor of Law at the University of California Hastings College of the Law; Michael Toffel of the Technology and Operations Management Unit at the Harvard Business School; and Andrea Hugill of the Strategy Unit at the Harvard Business School – examines various factors that impact the efficacy of such audits.  The paper can be downloaded from SSRN and a summary of it can be found on the Harvard Corporate Governance web site.

For this study, the authors conducted a review of “data for thousands of code-of-conduct audits conducted in over 60 countries between 2004 and 2009 by one of the world’s largest social auditing companies, …”  They found that “auditors’ decisions are shaped not only by the financial conflicts of interest that have been the focus of research to date, but also by social factors, including auditors’ experience, professional training, and gender; the gender diversity of their teams; and their repeated interactions with those whom they audit.”  The authors state that this  “finer-grained picture suggests that audit designers should moderate potential bias and increase audit reliability by considering the auditors’ characteristics and relationships that we found significantly influencing their decisions,” and also that these findings “should likewise inform the broader literature on private gatekeepers such as accountants and credit rating agencies.”

Indeed, and beyond the scope of the paper, a focus on social – and not just economic – ties may be key to assessing various  independence issues regarding boards of directors.  In an important decision from 2003 involving a derivative action brought by shareholders of Oracle Corp., then Vice Chancellor Leo Strine noted: “Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement.  Homo sapiens is not merely homo economicus.  We may be thankful that an array of other motivations exist that influence human behavior; not all are any better than greed or avarice, think of envy, to name just one.  But also think of motives like love, friendship, and collegiality, think of those among us who direct their behavior as best they can on a guiding creed or set of moral values,” adding, “[n]or should our law ignore the social nature of humans.”

Finally, thanks to friend of the blog Scott Killingsworth for recently reminding me of the Oracle decision;  here’s an earlier post about the Oracle case, albeit with a different focus; and here is a post briefly discussing (and linking to) a paper by Jon Haidt and colleagues about business ethics implications of a model of human nature called “Homo Duplex,”  a term coined by the sociologist/psychologist/philosopher Emile Durkheim, which posits that we operate on (or shift between) two levels: a lower one – which he deemed “the profane,” in which we largely pursue individual interests; and a higher – more group-focused – level, which he called “the sacred.”

Friendship – and the ties that blind (directors to conflicts of interest)

King Herod the Great had something of a problem: he had backed the losing side in the contest between Marc Antony and Octavian to rule Rome,  and now fully expected to lose his life for it.  But, as described in Jerusalem: the  Biography, by Simon Sebag Montefiore,  when they met he cleverly asked Octavian “not to consider whose friend he had been but ‘what sort of friend I am.’”  Octavian was evidently persuaded by this, for not only was Herod’s life spared but the size of his kingdom was increased.

Loyalty is, of course, fundamental to friendship.  But, while potentially more physically dangerous in the Roman Empire than it is today, friendship in our world can be ethically treacherous.

In “Will Disclosure of Friendship Ties between Directors and CEOs Yield Perverse Effects?”  (to be published in the July 2014 issue of the Accounting Review), Jacob M. Rose, Anna M. Rose, Carolyn Strand Norman and Cheri R. Mazza  describe how they conducted thought experiments involving both actual corporate directors and MBA students to determine  whether “directors who have  friendship ties with the CEO [are more likely that are directors without such friendships] to manage earnings to benefit the CEO in the short term while potentially sacrificing the welfare of the company in the long term” and also whether “public disclosure of friendship ties mitigate or exacerbate such behavior, and will disclosure of friendship ties influence investors’ perceptions of director decisions.”

Sadly but not surprisingly, their research  found “that friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses that cause earnings to rise enough to meet the CEO’s minimum bonus target more often than  when the directors and CEO were not friends.” Seemingly more of a surprise, they also found that “disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses than not disclosing friendship ties.”

But this latter finding is not so surprising – given other  behavioral research showing that disclosure can “morally license” individuals  to act inappropriately when faced with a conflict of interest ( as discussed in this   and other prior posts.) As described in a recent piece in the NY Times  by Gretchen Morgenson, one of the study’s authors explained: “When you disclose things, it may make you feel you’ve met your obligations…They’re not all that worried about doing something to help out the C.E.O. because everyone has had a fair warning.”

Morgenson added: “There are two messages in this study. One is for regulators: Simply disclosing a conflict or friendship does not eliminate its potential to create problems. The other,” again quoting one of the study’s authors (but echoing Herod) “is for investors: ‘Shareholders should take a more active role in finding out what kinds of relationships their boards and C.E.O.s have…and recognize the potential traps created by them’.”

For more on conflicts of interest and directors see the posts collected here .

 

Values, structural compliance, behavioral ethics and…Dilbert

Back in the mid-1990’s, the incomparable business ethicist Dilbert asked his boss: “Can you explain how the company’s new ‘Statement of Core Values’ will change my behavior? I was planning to poison the town’s water supply. But wait! It’s against our core values!”

The debate over the value of values is nearly as old as the C&E field itself.  Harvard Business School professor Lynn Sharp Paine argued  twenty years ago that commitment to company values and values-supporting systems could  do more to promote responsible conduct than could what she described as a legal compliance model.  But sounding a note of caution then was Win Swenson, the principal draftsperson of the Federal Sentencing Guidelines for Organizations, who wrote in a compliance treatise that while “[t]he legal vs. integrity-based dichotomy helps us think about different approaches companies can take….there is a danger in seeing the actual choice companies confront as a stark ‘either/or’ one,” and with each approach by itself having significant limitations.

The debate continues to this day, and was most recently joined by two other Harvard Business School professors  (Francesca Gino and Max Bazerman) and a graduate student (Ting Zhang) in a paper that posits a somewhat similar – but  certainly not identical – dichotomy between “(1) values-oriented approaches that broadly appeal to individuals’ preferences to be more moral, and (2) structure-oriented approaches that redesign specific incentives, tasks, and decisions to reduce temptations to cheat in the environment.”

With respect to values-oriented approaches, the authors describe a wealth of recent research findings from the field of behavioral ethics that, among many things, demonstrates the strong potential to impact behavior in desirable ways of “reminding individuals of their personal moral self-concept.”  However, the authors note that values-based approaches can have limitations and undesired consequences too: “[f]or instance, organizations that promote ethical mission statements while failing to adjust unrealistic goals that routinely place employees in ethical dilemmas.”

The authors also describe research showing that “structuring the incentives, task, or set of choices to reduce or even eliminate the temptation to act unethically,” can likewise affect behavior in various desirable ways.  But here, as well, the news is mixed – as behavioral ethics studies also suggest, among other things, that “using incentives to highlight the negative side to unethical behavior could lead to even more wrongdoing as doing so may prevent individuals from perceiving their decisions as ethically-relevant.”

Thus, and “[g]iven the strengths and weaknesses of values- and structure-oriented approaches on their own, [the authors argue] …incorporating both approaches can compensate for each approach’s unique set of limitations and dampen the risk of adverse effects.” Their paper describes strategies for doing this – including checking for incompatibilities in implementing either approach; aligning the timing of values-related reminders with that of potentially risky decisions; “evaluating decisions jointly rather than separately”; “encourag[ing] mental and social contemplation”; and “designing a structure-oriented intervention [that] includes implementing changes in the environment to induce self-awareness and highlight the link between behaviors and the moral self.”

I should emphasize that while some of the recommendations can be applied in the context of C&E programs that is not the case with all of them. However, this isn’t intended as a criticism of the paper, which does not purport to be addressed to C&E officers but, rather, mainly to other organizational scholars.  Moreover, because this is one of the few behavioral ethics papers published to date where the focus is on finding ways to prevent – as opposed merely  to identify the causes of – wrongdoing,  it should be welcomed by C&E practitioners.  (As discussed in an earlier blog post, for various reasons behavioral ethicists and C&E practitioners should work more closely together, and this paper is an important step in that direction.)

Another comment from a C&E practitioner’s perspective is that while the two approaches identified in the paper are indeed distinct as a conceptual matter, the perception “on the ground” may be somewhat more of a blend.  That is, regularly seeing one’s company take meaningful steps to promote ethicality and law abidance – through incentives, process controls, discipline for violations and other structure-oriented approaches – may itself serve as a potent reminder to employees of their own moral preferences, and possibly  a more effective one than traditional communications.  Indeed, from my more than twenty years of interviewing employees of client organizations about the perceived ethicality of their respective companies I have been impressed with how much values-oriented individuals appreciate strong compliance/structural approaches.  Like Dilbert (as well as Zhang and her colleagues), they seem to know the difference between preaching and practicing.

___

Some related readings:

Another best-of-both-worlds approach to values and compliance –specifically on how compliance can bring “body” to ethics and ethics can bring “soul” to compliance.   

– Scott Killingsworth’s paper, ‘C’ is for Crucible: Behavioral Ethics, Culture, and the Board’s Role in C-Suite Compliance.

– An index of posts of what behavioral ethics could mean for C&E programs.  

An exchange with Steve Priest on C&E “checking,”which includes a discussion of embedding C&E into everyday business operations – an emerging form of structural compliance  which could, I believe, play a powerful  role in reminding employees of their moral preferences on a timely basis.

Behavioral ethics and compliance: an index

The COI Blog was launched two and a-half years ago today – and since then has been devoted primarily to examining conflicts of interest. But it has also run a number of posts on what behavioral ethics might mean for corporate compliance programs and, because of the ever increasing interest in this area,  I thought that having  a topical  index to these latter posts could be useful – particularly for those new to either behavioral ethics or corporate compliance, with the topics in question being principally compliance tools and risk areas. Note, however, that to keep this list to a reasonable length I’ve put each post under only one topic, but many in fact relate to multiple topics (particularly the risk assessment ones).

INTRODUCTION 

Overview of the need for behavioral ethics and compliance

BEHAVIORAL ETHICS AND COMPLIANCE PROGRAM COMPONENTS

Risk assessment

“Inner controls”

– Is the Road to Risk Paved with Good Intentions?

Slippery slopes

Senior managers

Long-term relationships

– How does your compliance and ethics program deal with “conformity bias”? 

– Money and morals: Can behavioral ethics help “Mister Green” behave himself? 

Communications and training

Behavioral ethics and just-in-time communications

Values, culture and effective compliance communications

Behavioral ethics teaching and training

Moral intuitionism and ethics training

Accountability

– Behavioral Ethics and Management Accountability for Compliance and Ethics Failures

– Redrawing corporate fault lines using behavioral ethics

Whistleblowing

– Include me out: whistleblowing and a “larger loyalty”

Incentives/personnel measures

– Hiring, promotions and other personnel measures for ethical organizations

Board oversight of compliance

Behavioral ethics and C-Suite behavior

– Behavioral ethics and compliance: what the board of directors should ask

Corporate culture

– Too close to the line: a convergence of culture, law and behavioral ethics

Appropriate responses to violations

Exemplary ethical recoveries

BEHAVIORAL ETHICS AND SUBSTANTIVE AREAS OF COMPLIANCE RISK

Conflicts of interest/corruption

– Does disclosure really mitigate conflicts of interest?

Disclosure and COIs (Part Two)

Other people’s COI standards

Gifts, entertainment and “soft-core” corruption

– The science of disclosure gets more interesting – and useful for C&E programs

Gamblers, strippers, loss aversion and conflicts of interest

Insider trading

– Insider trading, behavioral ethics and effective “inner controls” 

Insider trading, private corruption and behavioral ethics

Legal ethics

Using behavioral ethics to reduce legal ethics risks

OTHER POSTS ABOUT BEHAVIORAL ETHICS AND COMPLIANCE

An ethical duty of open-mindedness?

How many ways can behavioral ethics improve compliance?

– Meet “Homo Duplex” – a new ethics super-hero?

 

Hiring, promotions and other personnel measures for ethical organizations

Years ago, two young lawyers at a firm sat in the office of a senior partner who was on the phone conducting a reference check for a potential hire, waiting for the call to end so they could begin the meeting they had planned with him. They listened silently as the partner went down the list of the questions that one asks in these calls – Is the candidate hard working?  Is he smart?  Does he have the potential to attract business?  – but when he  inquired whether the candidate was honest, one of the young attorneys turned to the other and cynically asked in a whisper: “What’s the right answer?”

Today, when business ethics has become part of the corporate mainstream, it is more difficult (though not impossible) to imagine a conversation like this happening.  Indeed, organizations of all kinds routinely proclaim that ethics matters in the context of hiring – and the related settings of deciding promotions and compensation.  But what does that actually mean?

In an excellent post last week in Slaw, which was responding to an article summarizing various studies that showed that “legal employers rank ‘integrity, honesty and trustworthiness’ as a crucial quality in a prospective lawyer hire,…” Professor Alice Woolley of the University of Calgary Law School wrote: “While I  can’t help but be pleased to see this apparent consensus on the importance of ethics and professionalism to legal practice, I think the conversation as framed has the potential to lead us astray… by [among  other things] assuming that it is ethical actors who create ethical behavior…” In fact, she argued:  “the kind of person I am will affect my behaviour in a far less significant way than will the circumstances in which I find myself, ” and she notes further that “there is far greater consistency of behaviour by different people within a single situation than there is from the same person across different situations.”

I completely agree with Professor Woolley’s behaviorist analysis and, as described in a series of earlier posts,  have suggested that behavioral ethics supports the need for strong corporate compliance programs. That is, such programs a) are predicated on the assumption that most individuals are in fact vulnerable to pressures/temptations to engage in wrongdoing – i.e., what Woolley calls situations; and b) can play a crucial role in minimizing the risk causing potential of such situations. Moreover, it is also the case that many of the ways in which compliance programs attempt do this – e.g., propounding standards and procedures, training on these and auditing/ monitoring to ensure they are followed  –  are not directed at hiring the ethically fit and barring others from one’s organization.

However, focusing on ethics in hiring and other personnel decisions – particularly when reinforced by other compliance program efforts –  does have a role to play in mitigating ethics risk, in that these measures can help individuals:

– make the right decisions when faced with a risky situation; or

– better yet, take steps to prevent such situations from occurring in the first instance.

Here are some thoughts (including “practice pointers”) on how to do this.

With respect to hiring, business organizations generally conduct some due diligence on candidates but – while generally necessary – these sorts of efforts serve limited purposes. By contrast, too few companies ask ethics-related questions in employment interviews – e.g., “Describe an ethical challenge you’ve faced and how you dealt with it?”  The point of asking this (or  similar) questions is less about identifying individuals of strong ethical character – something which, as noted above, behavioral ethics teaches us doesn’t matter much in determining how people respond to actual ethical challenges.  Rather, its principal benefit is in conveying that ethics matters in tangible ways (which hiring decisions clearly are) to a company – which can positively impact not only the job candidate but the interviewer as well.  A practice pointer: it can be helpful to reinforce in compliance training for managers the importance of ethics-related job interviewing – as this helps convey the larger message that managers are responsible for the conduct of those who report to them.

Note that this sort of inquiry is most important for more senior-level positions.  In particular, in hiring (or approving the hires of) candidates for senior posts, boards of directors should ask what was the “ethics component” of the process – a question which can reinforce their company’s expectations for the new hire, the other senior executives… and the board itself.  Moreover, this topic should be included in board ethics training.

Turning from hiring to promotion/compensation/recognition, the most common tool for making ethics count in these types of personnel-related matters is the performance evaluation.   In my experience, this is an area of struggle (and under-performance)  for a great many companies.   A practice pointer: the key to success here  can be tailoring ethics-related criteria in performance evaluations to different positions/functions, rather than painting with a broad brush.

Some companies do give direct financial awards for exemplary ethical behavior – amounts which are often, but not always, nominal.   Practices of this sort have been around for a long time – indeed, Bear Stearns had an internal compliance  “bounty” system as far back as the 1990’s, at least for certain types of violations – and they have been the subject of much controversy, with many people taking the position that it is flat-out wrong to pay employees to do what is right. I don’t have such a completely negative view on it, but do think that appealing  to the “pro-social” side of human nature may be more effective than giving cash for ethics.  A practice pointer:  as part of the management training mentioned earlier, managers should be shown how to identify acts of truly exemplary ethical behavior and compliment the employees involved (including when to let other employees know about this).

Finally, most companies have means to weed out genuine bad actors in the promotion process, but too few have a mechanism to identify those who are merely weak when it comes to ethics, e.g., supervisors who convey the message that required ethics training is a “necessary evil.”  A practice pointer: companies should have a requirement for promotions to ranks above a certain (typically high) level that the decision makers must receive the input of the compliance & ethics officer.  Not only can this be a helpful tool for ensuring that promotions reflect company values, but the very act of putting the C&E officer in this position of power can  – like some of the other strategies described in this post – help shape in a positive way the sorts of situations to which Woolley refers.

(Thanks to the recently launched Behavioral Legal Ethics Blog  for alerting me to Woolley’s post.)

Behavioral ethics and compliance: what the board of directors should ask

In “Behavioral Ethics: Can It Help Lawyers (and Others) Be Their Best Selves?” – a preliminary draft of a paper which has been accepted for publication by the Notre Dame Journal of Law, Ethics & Public Policy –  Robert A. Prentice  of the University of Texas at Austin’s McCombs School of Business reviews various findings of behavioral ethics research and presents ideas for how individuals and businesses can help address the challenges posed by these findings, including:

– the use of communications strategies to counter “ethical fading”;

– the importance of punishing even minor instances of bad behavior to mitigate the danger of “incrementalism”;

– rigorous enforcement of conflict of interest polices and “setting reasonable rather than extravagant incentive structures for their employees” – both to  limit the harm cause by the “self serving bias”;

– monitoring the use of euphemisms by employees to address the often  pernicious impact of rationalizations;

– a number of measures to mitigate the powerful contextual factors that can serve as a breeding ground for unethical conduct – e.g., treating employees well, given that behavioral ethics studies have shown that “[e]mployees are more likely to act unethically if they are exhausted, time-crunched, or feel they have been mistreated”; and

– use of  a company’s “organizational reward and control systems [to] boost moral ownership…[and] create feelings of [moral] efficacy.”

For those considering how to apply behavioral ethics to strengthen compliance programs, Prentice’s piece is a very good place to start.  I also recommend Scott Killingsworth’s paper on C-suite behavior and note that over the years the COI Blog has discussed various ways of using compliance program mechanisms – such as risk assessment –  as a device for delivering behavioral ethics thinking into business organizations.

But separate from the issue of how behavioral ethics can be deployed in companies is the threshold question of how to get companies to move in this direction, i.e. persuading them of the “why to” as opposed to the “how to.”   In this connection note that:

– while some of the experiments in this field are fairly recent, the core learning of behavioral ethics – that context, as opposed to character, plays a greatly underestimated role in dictating how ethically we act – is more than forty years old; but

– notwithstanding this, it appears (from a wide range of sources) that relatively few companies consider behavioral ethics as much more than a subject of curiosity  – or what one colleague recently referred to as “parlor games.”  Another colleague recently wrote to me that people in the C&E field “just do not accept behavioral science as real” – although he added the hopeful word “yet” at the end of his e-mail. And from a review of the agenda of the many C&E conferences that have been held over the past few years behavioral ethics seems much more like an extracurricular activity than it does part of the “core curriculum” of the field.

In a way this is not a surprise.  Those managing compliance and ethics programs often struggle just to accomplish the basic goals of their jobs on a daily basis – e.g., trying to get all the sales people to take the code of conduct training or completing the due diligence of a new distributor on a rush basis – and simply may not have the bandwidth to grapple with the implications for their programs of a new view of human nature.  In addition, compliance managers are rarely challenged by senior management to be innovative to the degree that traditional business functions (e.g., R&D, sales and marketing) are.

This is where the board of directors can play a key role.  Although they cannot be expected to immerse themselves in all the research on this subject, they can and should ask management a simple question:  What are we doing about behavioral ethics in our company?  

Based on my experience, the right question from a board member can often make things happen – and happen quickly – in a company’s C&E program.  An inquiry from the board can be the catalyst for strategic thinking in a field dominated by tactical considerations.  And, in this case, if enough boards ask this question, it could be what is necessary for behavioral ethics to begin to live up to its full promise in improving behavior by businesses.

(For more on the importance of boards asking C&E questions, see this piece from the FCPA Blog.)

 

Meet “Homo Duplex” – a new ethics super-hero?

In “Behavioral Ethics for Homo Economicus, Homo Heuristicus and Homo Duplex” – which is published in the March 2004 issue of Organizational Behavior and Human Decision Processes   –  Jesse Kluver, Rebecca Frazier and Jonathan Haidt describe three views of human nature and consider the implications of each for the field of business ethics:

–          The traditionally dominant “Homo economicus” model, which sees human nature as based  on “rational self-interested actors within systems of economic or social exchange” and which views incentive alignment as the key motivator for human behavior.

–          A more recently emerged “Homo heuristicus” approach, which posits that heuristics (ingrained mental short cuts) and biases “drive decision making behavior, including ethical decision and behavior.” The authors view this model as more psychologically realistic than the Homo economicus approach and believe it offers a variety of insights that can be useful for shaping “ethical systems” (including, presumably, C&E programs).

–          “Homo duplex,” a term coined by the sociologist/psychologist/philosopher Emile Durkheim, which posits that we operate on (or shift between) two levels: a lower one – which he deemed “the profane,” in which we largely pursue individual interests; and a higher – more group-focused – level, which he called “the sacred.”  The authors see this view as an extension – not as a contradiction – of Homo heuristicus.

This last model has considerable potential, the authors believe, for promoting ethical behavior.  That is because various studies have shown that “some of the neurobiological adaptations humans have developed for moral behavior work explicitly at the group level rather than the individual level,” “above and beyond what might be expected under the Homo economicus or Homo heuristicus models.”   Yet, the authors argue, Homo duplex has received far too little attention to date, and the paper offers  ways in which this model of human behavior could be used to promote ethical conduct in businesses and also suggests avenues for further research.

There is much more to this paper  – concerning, among other things,  lessons for organizations seeking to build what Haidt calls “moral capital,” as well as  the importance of designing “ethical systems” to bring employees of an organization  to the above-described higher state, and I wholeheartedly commend the piece to readers of the COI Blog.  Indeed, I hope to explore some of these possibilities in future posts.

Having said all this, I should note that there may be limits to how far this thinking can take a company in promoting ethical and compliant behavior, given that so many major business crimes emanate from the “C-Suite,” the inhabitants  of which may be both less likely to act ethically as a  general matter (as discussed in this post ) and less inclined to participate in what the authors call “ego-dissolving activities” – i.e., the basis for Homo duplex’s  higher level – than are the rank-and-file.  Indeed, the most famous corporate example involving an attempt to build team spirit is, the authors note, “Wal-Mart, where each day employees participate in the Wal-Mart chant…”  While presumably effective in reducing the rate of petty theft by store employees, based on various press accounts, this doesn’t appear to have done much to deter massive bribery by the company, which on some level seems to have involved some of its senior managers.

In a related vein, while I am a big fan of Homo heuristicus (as reflected in my many earlier posts on “behavioral ethics and compliance”), and (based partly on my deep admiration of Haidt’s landmark book, The Righteous Mind), while I embrace the authors’ agenda of conducting more research into how a Homo duplex view can be used to promote ethical behavior, I think it important to continue to work with the central insight of the much-maligned Homo economicus framework too (and believe that the authors – who note that we do not need to rely solely on an one view of human nature – would agree with this). That is, while the incentive-based approach to promoting ethical behavior is as old as the Code of Hammurabi, at least in the modern corporate crime setting it has been hobbled by moral-hazard-related infirmities – i.e., it has not , in my view, had a real chance to live up to its  own potential to be an ethical super-hero.

For further reading see:

Scott Killingsworth’s excellent paper, on C-Suite behavior, discussed and linked to in this earlier post

My recent “Ethics Exchange” with Steve Priest about “Ethics, Compliance and Human Nature” on ECOA Connects.