Interests

Not every interest matters for COI purposes. In this section of the blog we will identify situations and principles illuminating this aspect of the COI field, with sub-categories devloted to various of the most common types of interests considered for COI purposes.

Nonmonetary conflicts of interest

In “Using behavioral ethics to curb corruption” – recently published in Behavioral Science & Policy – Yuval Feldman of Bar-Ilan University notes  that “Classic studies on the corrupting power of money focus on politicians influenced by campaign donations and on physicians whose health care decisions are affected by the receipt of drug industry money and perks. In contrast, more recent studies have analyzed situations where a government regulator has no financial ties to a private entity being regulated but does have social ties to the organization or its members, such as sharing a group identity, a professional background, a social class, or an ideological perspective. In that situation, regulators were likely to treat those being regulated more leniently. Thus, even relatively benign seeming tendencies that regulations tend to ignore—such as giving preference to people having a shared social identity—could be as corrupting as the financial ties that are so heavily regulated in most legal regimes.”

Feldman cites two studies that support this view: “In 2014… investigators in the Netherlands showed that regulators in the financial sector who had previously worked in that sector were less inclined to enforce regulations against employees who shared their background. Similarly, in a 2013 look at the regulation of the U.S. financial industry before the 2008 crisis, James Kwak noted that the weak regulation at the time was not strictly a case of regulatory capture, in which regulatory agencies serve the industry they were meant to police without concern for the public good. Some regulators, he argued, intended to protect the public, but cultural similarities with those being regulated, such as having graduated from the same schools, prevented regulators from doing their job effectively. In such instances, people often convince themselves that their responses to nonmonetary influences are legitimate, mistakenly thinking that because such influences usually go unregulated, they are unlikely to be ethically problematic.”

I agree that the danger posed by nonmonetary COIs tend to be underappreciated and have tried to make this point in prior posts. Included are: glory as a conflict of interest,  and friendship and COIs (discussed in the second case in this post).

But perhaps the most interesting case of a nonmonetary COI to appear in this blog  concerned an issue of “director independence in an internal investigation [that] arose several years ago in a case brought by the shareholders of Oracle [against the company’s board]. There, the Delaware Court of Chancery ruled that a board special litigation committee consisting of two Stanford professors could not be considered independent in an internal investigation concerning alleged insider trading by fellow board members, because the target directors had close ties to that university: ‘It is no easy task to decide whether to accuse a fellow director of insider trading,’ the court wrote, and for the company to have compounded ‘that difficulty by requiring [special litigation committee] members to consider accusing a fellow professor and two large benefactors of their university’ of a criminal act was ‘inconsistent with the concept of independence recognized by our law.’”

Feldman closes his discussion of this issue with a call for “[a]dditional controlled research … on  the ways that nonmonetary influences cause corruption and on how they can lead people to engage unwittingly in wrongdoing.” I agree, but also think using the research that is already available, compliance and ethics officers can deploy internal education about nonmonetary COIs into policies, training and other C&E communications and investigation/discipline protocols.

Compliance & ethics officers in the realm of bias

Bias and conflicts of interest are, of course, related to each other;  but they also differ, in that the former can be based purely on thoughts (or feelings or beliefs) whereas the latter generally requires something truly tangible, such as an economic or familial relationship. Prior postings on bias – particularly those underpinning the field of behavioral ethics – can be found here. But, the world of bias is a vast one, and there is much to be explored about it.

A study recently summarized on the Harvard Law School Forum on Corporate Governance and Financial Regulation offers an interesting example of one type of bias among CEOs. The author of the study – Scott E. Yonker, of Cornell University – sought to determine “Do Managers Give Hometown Labor an Edge?”, based on a review of certain employment-related decisions affecting company operations of varying distances from the hometowns of the companies’ respective CEO’s. The answer – somewhat unsurprisingly, at least to me – was Yes: “The results show that following periods of industry distress, units located near CEOs’ hometowns experience fewer employment and pay reductions, and are less likely to be divested relative to other units within the same firm. Units located closer to CEO birthplaces experience 4.1% greater employment growth and 2.4% greater wage growth compared to similar units. Since employment and wages fall by 3.0% at the average firm unit following industry distress, these findings suggest that hometown units are largely spared. Moreover, these differences have seemingly permanent effects, the wage differences last at least three years, while employment differences revert about three years after industry downturns. With regard to divestitures, units that are more distant from CEO birthplaces are about 6% more likely to be divested.”

Is this at all relevant to the work of compliance & ethics professionals? I think the answer to that is Yes, as well. Or more accurately, It should be.

Of course, “hometown” forms of bias are not as pernicious as are those concerning race, gender and other categories of individuals who have historically been the victims of societal oppression. But the true promise of C&E programs extends to addressing all forms of unfairness, both because non-merit-based decision making in the workplace is (from an economic  efficiency perspective) presumptively bad for businesses (i.e., an inefficient use of resources); and because such decisions can lead to demoralization of a workforce (adversely impacting, among other things, the ethical conduct of those so affected).

Ultimately, for a company to have not only a strong compliance program but also an ethics one, the CEO and other leaders would empower the C&E officer to identify and challenge decisions that may be based on bias. (Note that I don’t mean literally  all such decisions, but those that are significant in potential impact and have a meaningful  ethics/fairness dimension.) The leaders would do so because they would understand that being fair is not just a matter of good intentions; rather, it can  also require expertise and effort – both  of which the C&E officer can bring to a challenging set of circumstances.

The C&E movement has  made a lot of progress in the past quarter century, but we are a long way from getting to such a place. Still, as is often said, it is good to have a goal.

Behavioral Ethics and Compliance Index – 2017 Edition

It is that time of year – time to update the Behavioral Ethics and Compliance Index.  As with past editions, I have linked each  post to only one index topic, but most of them are relevant to several topics.

Also, in the coming month, Ethical Systems will be publishing an e-book on behavioral ethics and compliance that I co-authored with their CEO Azish Filabi.  I’ll post an announcement when that happens.

INTRODUCTION 

– Business ethics research for your whole company (with Jon Haidt)

– Overview of the need for behavioral ethics and compliance

Behavioral ethics and compliance: strong and specific medicine

– Behavioral C&E and its limits

Another piece on limits

– Behavioral compliance: the will and the way

Behavioral ethics: back to school edition

BEHAVIORAL ETHICS AND COMPLIANCE PROGRAM COMPONENTS

Risk assessment

–  Being rushed as a risk

–  Too big for ethical failure?

– “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? 

– Risk assessment and “morality science”

 Advanced tone at the top

Communications and training

– “Point of risk” compliance

–  Publishing annual C&E reports

– Behavioral ethics and just-in-time communications

– Values, culture and effective compliance communications

– Behavioral ethics teaching and training

– Moral intuitionism and ethics training

Reverse behavioral ethics

The shockingly low price of virtue

Positioning the C&E office

– What can be done about “framing” risks

Accountability

– Behavioral Ethics and Management Accountability for Compliance and Ethics Failures

– Redrawing corporate fault lines using behavioral ethics

– The “inner voice” telling us that someone may be watching

–  The Wells Fargo case and behavioral ethics

Whistle-blowing

– Include me out: whistle-blowing 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

– Is Wall Street a bad ethical neighborhood?

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

–  Ethical culture and ethical instincts

Values-based approach to C&E

 A core value for our behavioral age

– Values, structural compliance, behavioral ethics …and Dilbert

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

– COIs and “magical thinking”

– Inherent conflicts of interest

Specialty bias

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

– New proof that good ethics is good business

How ethically confident should we be?

– An ethical duty of open-mindedness?

– How many ways can behavioral ethics improve compliance?

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

– Behavioral ethics and reality-based law

A core value for our behavioral age

Groucho Marx famously said: “Those are my principles, and if you don’t like them… well, I have others.” When it comes to companies committing to follow key principles to guide their behavior – what are often called “core values” – there is clearly no shortage of options. Indeed, this posting on the Threads web site offers 500 ideas for those in the market for values.

One value that I see occasionally (but not frequently) selected for “core” status is humility. Kellogg, for instance, includes humility among several other core values.  Humility is not principally about ethics – Kellogg embraces an integrity value too (as is the case with a large number of companies). But I do see humility as having an important role to play in promoting compliance and ethics in business organizations, in several ways.

First, humility is a logical and arguably inevitable response to the vast body of behavioral ethics research showing “we are not as ethical as we think.”  Thinking and acting with humility is indeed a way of operationalizing behavioral ethics. (For a list of behavioral ethics and compliance posts click here. Also, please see this recent article in the NY Times on behavioral ethics and the notion of “servant leadership.”)

Second, humility is well suited for addressing ethical challenges that are based not on the purposeful failure to be honest but on the less well-appreciated dangers of being careless. (For a post on that click here.) Recognizing the limits of one’s abilities – which is part of being humble –  should help underscore the need for carefulness.

Finally, humility has the potential to resonate deeply in our political, as well as business, culture. By this I mean humility can help form part of a broader mutually supporting relationship between business ethics and what might be called societal ethics of the sort described in other posts.

From a professional viewpoint the benefits to the business side are of most immediate interest to me, but as a citizen (hopefully in the broad sense) I know that the societal dimension is of greater importance. So, let me close by quoting what is one of the best (albeit largely forgotten) expressions of humility’s role in societal ethics, which  can be found in Learned Hand’s “Spirit of Liberty” speech: “The spirit of liberty is the spirit that is not too sure that it is right [and] which seeks to understand the minds of other men and women…”  Delivered in 1944 – when the US and other democracies were engaged in a truly existential battle for survival – these words have never been more compelling than they are today.

Moral hazard: the final compliance frontier?

Moral hazard exists when there is a gap between the interests of those who can create risks and those who bear the consequences of risk taking. Moral hazard is not the same as conflict of interest, but is conflict like. As described in various prior posts,  C&E programs need to take moral hazard into account in identifying and mitigating risk.

This week, the Society of Corporate Compliance & Ethics  published the results of a survey which showed that “despite the importance of compensation in affecting risk compliance [personnel] rarely play[] a role in evaluating incentive programs” at their respective companies.  The report noted: “just 23% report reviewing the plan prior to the plan’s approval. Just 8% do so after it is approved, and 52% report that the compliance team never reviews the plan. The balance did not know whether the incentive plan is reviewed.”

While disappointing, these numbers are not surprising. Indeed, based on what I have seen at many companies, I would have expected that the percentage of those who reviewed an incentive plan prior to its approval to be even lower than the survey results.

But practices in this key area could change, given – as the SCCE survey notes – the recent publication of  the Department of Justice’s compliance program evaluation guidance document which suggests that prosecutors assessing programs ask (among other questions):  How has the company considered the potential negative compliance implications of its incentives and rewards? Of course, the question does not necessarily mean that compliance professionals need to be part of this determination. But surely the consideration would be seen by the government as more serious (and more informed) if they were involved.

As well, involving the compliance staff in this determination can be seen as empowering them. Such involvement – if made known throughout the company, as it should be – enhances Compliance’s “clout,” which has long been viewed by Justice as fundamental to an effective C&E program.

Also,, note that there are many other ways that C&E can be incented – as described in this post from the FCPA Blog. But all companies, in my view, should involve Compliance in reviewing incentive plans.

Finally, I recently suggested that ethical thinking from the business realm can fortify ethics at the societal level. Understanding the pernicious effects of moral hazard in the two  highly consequential areas of climate change and irresponsible fiscal policies may be a way in which such fortification can work. (For a related post on “Two conflicts of the apocalypse” click here.) Indeed, while the notion of moral hazard being a final frontier has one meaning in terms of C&E program practices, it has a more urgent significance when thought of in terms of these risks.

Trump Princelings?

The most recent post on this blog concerned the possibility of President Elect Trump putting his assets in a trust which would be managed by his children to avoid conflicts of interest that could arise from his management and ownership of such assets while in office. Since then an unrelated legal development has occurred which further underscores the challenge facing Trump: the announcement that JP Morgan was settling the “Princeling” case, which involved the bank’s hiring the sons and daughters of important Chinese officials in return for business. The case (which will likely be followed by others of its sort) is a timely reminder that helping one’s children can inspire corruption – and not just in China.

A famous instance of this sort from the 1980s concerned the hiring (by a former Miss America) of a NY judge’s daughter to influence the judge’s decision on a pending case. And then there are the immortal words of the first Mayor Daley who, in speaking to colleagues on the  Cook County Democratic Committee, defended his having directed a million dollars of insurance business to an agency on behalf of his son John by saying: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”

Indeed, helping one’s children might  be a more powerful source for wrongdoing than is pure self-centered greed, for the very reason that it seems to spring from a sense of duty. (An old saying goes that if you’re not stealing from your company you’re stealing from your family.)

Note that I’m not suggesting that Trump would use his influence to get jobs for his kids or direct government business to them. But if they are running his far-flung, secretive and complex business empire  he will have plenty of opportunities to use his influence to benefit them.

None of this means that Trump’s children are destined to serve as “princelings.” I should also stress that I have no reason to think they would do anything unethical. Seriously.

Rather, the focus of this post (and indeed this blog generally) is more about structures and circumstances than it is individual personalities. In effect, the princeling analysis is part of risk assessment, even if it is speculative; it is not an accusation.  More specifically, the JP Morgan case reminds us that in designing (or agreeing to)  an approach to address the COIs relating to his assets, Trump needs to  have procedures that will help  avoid not only direct COIs but those involving his sons and daughters as well – and give the public comfort that those procedures are up to the task at hand.

Reverse behavioral ethics

I am a member of LinkedIn and for the past few months have periodically received a message saying: “2 people in your network are using LinkedIn Sales Navigator to be more effective.” Given that I have – as I assume is the case with many members – more than 500 people in my network (most of whom I don’t actually know), this piece of information may be less persuasive than LinkedIn presumably intends it to be. Indeed, the apparent strategy of telling all members about how many in their network are using “Sales Navigator” – regardless of how small that number is – might actually be hurting Linked In.

As described on the Ethical Systems website,  the work of Professor Robert Cialdini has shown that communicating how many people are engaged in undesirable activity can increase that number by suggesting that “everyone is doing it.” I imagine the same dynamic applies to communicating how few people are engaged in desirable conduct, i.e., what LinkedIn is doing.

But this dynamic can also be a force for good, including compliance-related good. As described in this 2012 article from Reuters: “Applying [Cialdini’s] insight, the British tax agency, Her Majesty’s Revenue and Customs (HMRC), has tested different form letters on delinquent taxpayers. In one letter, this sentence – ‘Nine out of 10 people in the UK pay their tax on time’- increased positive response by 1.5 percent. Adding another sentence – ‘You are one of the few who have not paid us yet’ – raised the success rate 3.9 percent. HMRC also found compliance rose 6.8 percent when taxpayers were told they were one of few delinquents in their hometowns.”

Of course, LinkedIn would presumably love to be able to have statistics like these to use in promoting Sales Navigator. But in the absence of such it might be better to say nothing on the subject, and follow the old adage to “always tell the truth but don’t always be telling it.”

For compliance and ethics people, the opportunities to tell the truth in an effective way may be numerous. Among other areas, the good news can concern code of conduct certifications, training completions, conflict of interest disclosures, helpline use and audit results – as some companies have already found.  But the first rule for all in the persuasion business – which includes C&E professionals, as well as marketers –  is to do no harm.

 

The Wells Fargo Bank case and behavioral ethics

In 1170 King Henry II of England, unhappy with Archbishop Thomas Becket, asked of his knights: “Will no one rid me of the meddlesome priest?” Taking his words (the specifics of which have been the subject of historical dispute) as royal instruction, several of those knights assassinated the clergyman. Correctly or not, the story is often used as an example of how a powerful person can cause others to engage in wrongdoing without himself  being provably guilty.

Late last week, the Consumer Financial Protection Bureau and several other agencies announced a settlement involving Wells Fargo Bank arising from sales practices abuses  – a settlement which was condemned from many corners. As noted in the American Banker : “It’s become an all-too-familiar story – a big bank is caught doing something bad, it pays a fine, some lower-level employees are let go while higher-level executives appear to get off scot-free and no criminal charges are assessed. Wells Fargo became the latest example of that cycle this week, when it paid $190 million in fines and restitution after some 5,300 employees were caught opening more than 2 million unauthorized bank and credit card accounts.” The American Banker piece also reported: “Wells insisted the problems were not systemic.”

The notion that 5300 employees could be involved in this sort of wrongdoing but the problem not be systemic is laughable. Indeed, it calls to mind a classic Doonesbury strip about the trial of China’s “Gang of Four,” in which the defendants claimed that they had not committed mass murder but “34,375 unrelated acts of passion.”

The bank’s contention is also contradicted by this account from the Charlotte Observer (among others): “Julie Miller was working in Pennsylvania for Wachovia when Wells Fargo took over the Charlotte bank in 2008 and began changing more than the name on its branches. Miller said she watched with dismay as Wells Fargo increased her branch’s sales goals and lowered bonuses for meeting the new targets…That’s when she also started noticing Wells Fargo customers complaining they were being signed up for products they never asked for.”

The understanding that undue pressure can lead otherwise good people to engage in wrongdoing is, of course, common sense. It is also one of the central tenets of “behavioral ethics.” Indeed, in one landmark experiment from more than forty years ago, individuals put under time pressure were about six times more likely to engage in unethical conduct than were those not under such pressure. I should emphasize that behavioral ethics didn’t create this understanding of human nature. But it does prove the point with a force that anecdote cannot match.

To my mind, results such as these (of which there are many) must inform how we seek to promote lawful and ethical conduct in banks and indeed business organizations of all kinds. For the government, it means pursuing enforcement strategies based not only on direct involvement by executives in wrongdoing but those who use the modern day equivalent  of the indirect approach apparently taken by King Henry.  For companies it means doing the same when it comes to internal investigations and disciplinary decisions.

Finally, for companies faced with a scandal where there is a temptation to protect the executives, consider how the apparent Wells Fargo approach is likely to discourage employees from reporting wrongdoing internally.  And the related question for audit committees:  if your company takes this route and suggests that compliance is only for the “little people,” how can you meet your Caremark obligation to have an effective  whistleblower system?

“Tailoring” the duty of loyalty

A prior post provided an overview of “corporate opportunities” – an important and somewhat distinct type of COI. Last week, writing in the Harvard Corporate Governance Blog, Gabriel Rauterberg of Michigan Law School and Eric Talley of Columbia Law School described some fascinating research they conducted regarding companies allowing their respective directors and officers to engage in conduct that would otherwise violate the corporate opportunities doctrine. The full paper is available for download here.

By way of introduction, they note that the duty of loyalty is widely perceived as “’immutable’—impervious to private efforts to dilute, tailor, or eliminate it.” However, the authors state: “That perception is false: Beginning in 2000, Delaware dramatically departed from longstanding tradition, amending its statutes to enable corporations to waive a critical component of loyalty—the corporate opportunity doctrine—which forbids corporate fiduciaries from appropriating new business prospects for themselves without first offering them to the company. From that moment forward, Delaware corporations and managers were free to contract out of a significant portion of the duty of loyalty…”

Rauterberg and Talley studied the experience of public companies that took this route. They found that literally thousands of companies adopted such waivers, showing: “Public companies have an enormous appetite for tailoring the duty of loyalty when freed to do so.” They further note that “there are…several plausible economic rationales for a corporation to embrace a COW [corporate opportunity waiver] for the sake of shareholder value. Indeed, in the years leading up to Delaware’s initial reform, a growing chorus of critics argued that the exacting requirements of the duty of loyalty had begun to impede corporations’ ability to raise capital, build efficient investor bases, and secure optimal management arrangements. This claim was based in part on the recognition that many then-emerging sources of capital, such as private equity, venture capital, or spin-off transactions may subject their financial sponsors to fiduciary duties in profound conflict with either their larger business plans or with fiduciary obligations they owe to other business entities.” The authors found as well that “COW adopters … tend to deliver larger overall market returns to their capital investors by comparison to other public companies….it does not appear that companies that execute waivers are systematically the unscrupulous bottom feeders of the corporate ecosystem.”  Finally, they assessed “whether the adoption of a waiver tends to add or dilute value on the margin, by analyzing market reactions to issuers’ first public disclosure of a COW. [Their] event study analysis reveals that market reactions are generally favorable, resulting in an average positive abnormal stock return of between 1.0 and 1.5 percent in the days immediately surrounding the announcement date…The positive market response does not seem sensitive to whether the waiver also covers officers and/or dominant shareholders…”

All told, Rauterberg and Talley present corporate opportunities waivers as often desirable based on the logic born of an efficient markets perspective.  This largely makes sense to me (although, as noted below, I have do have one area of concern about their analysis). Indeed, in an earlier post I argued that waivers of the duty of loyalty involving board representatives of joint venture partners were not troublesome, given that such partners can be seen as “consenting adults” in deciding whether a full-fledged duty of loyalty was indeed desirable in any given JV . Somewhat similarly, I’ve previously argued that client COIs arising from advertising agency mergers can readily be addressed by market forces.  (However, in other situations – particularly involving financial services professionals giving investment advice to retail clients – cutting back on the duty of loyalty seems less defensible.)

But, I am troubled by the above-noted part of the authors’ findings about officers, given that the legitimate need for a waiver should be less significant for an officer than for an outside director – as the latter is presumably more likely have business roles with other companies involving identifying business opportunities.  Also, I think (though am not sure) that the likelihood of harm flowing from a director’s usurpation of a corporate opportunity is less than that of an officer’s doing so, in that officers tend to be more knowledgeable about a company’s operations than are directors – and so on average would have the greater chance to misuse such knowledge in the pursuit of the corporate opportunity in question.

In effect, this aspect of the study’s findings can be seen as an effort to gauge the compliance and ethics risk assessment implicitly undertaken by shareholders of publicly traded companies when they learn of a COW.  Given how difficult  C&E risk assessments are even for professionals in the field, I wouldn’t view these particular findings as the final word on the downside of corporate opportunity waivers. Put otherwise, some markets are more efficient than others – and the C&E information market seems pretty inefficient to me, at least at this level of granularity.

Finally, a practice pointer for C&E officers. NYSE listing requirements (section 303A.10) strongly encourage (but do not actually require) companies to have corporate opportunities provisions in their codes of conduct, and a great many codes do this. However, if a company has adopted a COW then presumably it should  not to have such a provision, which could make the code seem deceptive.  For more on possible liability for making false claims about a company’s compliance standards  see this post.

Behavioral compliance: back to school edition

In the waning days of summer, here is a roundup of some recent  notable writings about using behavioral ethics to enhance corporate compliance efforts.

First is a post on the Compliance and Enforcement web site by Timothy Lindon, the Chief Compliance Officer of Philip Morris International. In it, he suggests that companies should start down this path by establishing “an in-house compliance curriculum to educate the compliance function and others about relevant research and learnings. At a minimum, the curriculum should include discussion of research in behavioral ethics, behavioral economics, and psychology. Other relevant topics include organizational theory and case studies of notable disasters such as the NASA Space Shuttle explosion and the Fukushima nuclear meltdown, which demonstrate the role of power and hierarchy. Another useful topic,” he suggests,“is corporate lingo given the use of euphemisms such as ‘creative accounting’ and ‘technical violation’ in companies to hide and rationalize misconduct.”

Lindon further recommends: “Once the company’s compliance professionals are trained on academic research,” seek to determine if “they routinely use these learnings in all aspects of the company’s compliance program? This can include revising a Code of Conduct to harness the power of peer influence; anticipating the problem of ethical fading though just-in-time training or training which places employees in real life ethical dilemmas while under business pressure; and developing a communications toolbox to drive employee behavior and minimize employees’ rationalizations of misconduct.” Finally, he suggests that companies use data analytics “to check on and enhance the behavioral approach…” These are all good ideas from my perspective.

Second, writing in Compliance Week in last Spring, Jose Tabuena argues that compliance program auditors should act as behavioral scientists: “In the field of behavioral economics, priming has proven to be an effective tool to subtly encourage honest behavior. Priming occurs when an individual is exposed to a specific stimulus that influences his or her ensuing actions. In studies by behavioral economist, Dan Ariely, experiments were designed to influence honest behavior when researchers ‘primed’ people with a stimulus that involved morality and then observed how often cheating occurred when solving small math problems. When the participants were asked to recall the Ten Commandments, cheating significantly decreased compared with those who were instead asked to recall the names of Shakespeare’s sonnets.” Tabuena also notes: “Similar studies provide additional behavioral insights. It is easier to be just a little dishonest. Experiments show that we are more likely to cheat over a small amount of money than a large amount. People also tend to find it harder to be dishonest when interacting with another person than with an impersonal mechanism. The belief that we make rational decisions is a myth that belies the complexity of human behavior.”

Auditors play an important (but not always appreciated) role in C&E programs. Hopefully, Tabuena’s article will help “recruit” more of them to the behavioral perspective, particularly given that he is one of the true experts in the field of C&E auditing.

Finally, in an interview in the August issue of Compliance & Ethics Professional (available to SCCE members on that organization’s web site), Joel Rogers of Compliance Wave speaks about a behavioral approach to C&E marketing, particularly  the role that conditioned responses play in spawning unethical conduct, and how C&E marketing campaigns can provide “pattern interrupts” to such forces. Among other things, such a campaign can help mitigate the phenomenon, noted by Ariely and others, that people do “tend to forget moral and ethical reminders really quickly.”

This interview was conducted by the SCCE’s Adam Turtletaub, who – like Rogers – is a long-time champion of the behavioral approach to C&E. I recommend the interview to you, not only for its behavioral-related insights but also for the ideas and information it has about the C&E field generally.