Edited by Jeff Kaplan
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Conflict of Interest Blog
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In A Behavioural Economics Perspective on Compliance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3929624 Sheheryar Banuri (of the University of East Anglia) “reviews the behavioural economics perspective on compliance with rules (broadly) and with whistle-blowing and antitrust compliance (more specifically) culminating in a series of recommendations for organizations seeking to improve employee compliance and detection of potential infringements of the law.” The author focuses on: “four main points: First, is the importance of voluntary compliance (as opposed to enforced compliance). This is important because it carries a broader set of actions than enforced compliance (which typically pertains to behaviour that is observable). Highlighting non-pecuniary rewards, such as benefits to society, reputational gains, and career impacts, are critical. Second, is the importance of perceptions and beliefs. Focusing on whistle-blower protections and correcting beliefs regarding the risks (and potential losses) associated with reporting are critical. Third, beliefs are typically the result of social norms: shared expectations of behaviour. Collecting information on norms and correcting misperceptions is an important way to increase compliance. Fourth, selecting the right workers. Selecting workers with strong preferences for compliance (those that are more pro-socially motivated) allows for increases in compliance without the need of strong monetary incentives.”
This issue “remains largely unaddressed in the literature on compliance, is the role of selection.”
More can be done regarding this area.
In an earlier post I noted that companies should create or enhance ethics questions for employment interviews.
In some companies hiring interviews include a C&E component. A typical question of this sort is to ask the interviewee to describe a C&E challenge that she faced and how she addressed it. Of course, in doing this the questioner should make it clear that she is not asking for confidential information about any other company. Another approach is to present the interviewee with a hypothetical ethics quandary and to ask how she would deal with it.
This practice has several benefits:
– It helps the employer determine whether ethics is a strength or weakness for the candidate, which could impact the decision of whether to hire her.
– It sends a message to employment candidates that C&E is important to the company, which hopefully they will remember if they get the job.
– It sends a message within the company generally – and particularly to those who conduct interviews – that C&E is important to the company. ,.
In my view this is a good practice. I also believe it should be a two-way street, meaning employees should also ask questions of their prospective employers.
This might be a question about the C&E program generally: Is it strong? Is the tone at the top healthy? Or, how does the workforce generally view C&E?
Another approach is to ask about risks of misconduct in the company’s industry. Even where a company seems ethical, one might want to do extra due diligence if the company’s competitors as well as others with whom they deal (customers, suppliers and others) are routinely engaging in corrupt dealings. Also, note that that the questions – whether posed by the candidate or employer – should vary by position, at least for higher-ups. Certainly this would be true with interviews of board members, and maybe others near “the top.” There are many other topics the candidates might ask about but one should not be seen as conducting an investigation. A balance should be struck.
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In Behavioral Ethics Perspective on the Theory of Criminal Law & Punishment Hadar Dancig Rosenberg and Yuval Feldman of Bar-Ilan University identify ways in which behavioral ethics ideas and information can inform an understanding of risk. https://ssrn.com/abstract=4222232 While addressed to the realm of criminal law they are applicable to the design and management of compliance and ethics (“C&E”) programs too.
First, they pose the question of “whether misconduct that is easier to self-justify should be punished more harshly than unjustifiable misconduct. Intuitively, from a retributive perspective criminal law scholars and laypersons might believe that the more serious and harder to justify the wrongdoing is, the harsher the punishment should be. Yet, from the perspective of deterrence, which focuses on the likelihood of a greater proportion of the population engaging in such wrongdoings prior to legal intervention, behavioral ethics mechanisms might support the opposite conclusion. The behavioral ethics approach may suggest that actions with greater normative ambiguity, which are therefore easier for more people to self-justify, should warrant harsher punishment.”
A second set of questions they suggest concerns motivations for the wrongdoing at issue, with “conventional criminal law theory suggest that punishment might be mitigated and reduced in cases where the motive for committing the crime is an altruistic one. By contrast, the view of behavioral ethics research, which focuses on the mechanisms through which people can misperceive the morality of their own behavior, suggests that ‘good people’ might find it easier to cheat and be dishonest when the consequences of their wrongdoing is shared with others or reduced. This – like other aspects of behavioral research – argues in favor of other of stricter punishment in cases of virtuous motivations, the opposite of received wisdom.
Third, they discuss how “we should treat negligent parties who inadvertently takes unreasonable risks. They note the potential relevancy of behavioral ethics to the normative controversy over … justifications for criminalizing the negligent.” More on negligence and behavioral ethics can be found here. http://conflictofinterestblog.com/2022/06/the-full-promise-of-co”fmpliance-and-ethics-programs.html
A fourth example concerns the contagiousness potential of a certain act as a justification for harsher punishment: “People whose behavior is on the borderline between criminal and non-criminal are more likely to blur or cross this line, thereby expanding the acceptability and permissibility of acts which otherwise were more clearly perceived to be criminal. This, then, encourages others to follow suit. The unique danger of such misconduct derives from its potential to cause others to engage in activities that would otherwise be perceived as anti-social.”
The last context they discuss “involves the recognition that behavioral ethics highlights the strong effect of the circumstances of organizational settings on the likelihood of individuals committing wrongdoing. Understanding the magnitude of this effect might justify imposing criminal liability on organizations for using out-come oriented incentives as part of their pay structure.” There is lots to be said about this last point – particularly concerning recent compliance program guidance from the US Department of Justice.
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In a recent post I noted that “the various investigations into President Trump and members of his administration and others have focused attention on an age-old debate whether careless wrongdoing is as reprehensible as is the intentional sort.”
The answer is, I believe, yes.
I further noted that “I do not have quantitative data on this issue but do have the wise observation of Samuel Johnson who once said: “It is more from carelessness about truth than from intentionally lying that there is so much falsehood in the world.”
Further, as the economy becomes more complex the need to fully address negligence risks will likely become even greater. There will, I think, be more things to get wrong, and thus more of a need to make things right.
Some companies do a good job in educating managers on the need for carefulness on C&E matters, but many others could and should do more. The same is true of governmental bodies.
What else can be said about dealing with “ethics slobs”?
First, the suggestion here is not to be taken too literally. A company should not, as a general matter, formally designate its employees as “ethics slobs, (unless they are being terminated). But using a more dignified approach to calling out to this issue one can achieve a similar result.
Second, C&E personnel should keep track of “carelessness cases” that arise at the company. This could include violations of law or applicable policy that led to harmful activity even though there was no intentionally wrongful conduct.
Third, based on this inventory of “carelessness cases” one should address this area in company-wide training, other (e.g., targeted) training and other communications.
Fourth, company compensation schemes should be reviewed for carelessness risk. Indeed, the importance of incentives has been been recently reenforced by Justice Department memoranda on C&E programs.
Finally, the pitfalls of being an ethics slob should be addressed in auditing, monitoring and risk assessment. Here – and elsewhere – what measures is what counts.
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The various investigations into President Trump and members of his administration and others has focused attention on an age-old debate: whether careless wrongdoing is as reprehensible as is the intentional sort.
The answer is Yes.
I do not have data on this. But I do have the wise observation of Samuel Johnson who once said: “It is more from carelessness about truth than from intentionally lying that there is so much falsehood in the world.”
And as the economy becomes more complex the need to fully address negligence will in all likelihood become even greater.
Some companies do a good job in educating managers on the need for carefulness on C&E matters, but many others could and should do more.. The same is true of governmental bodies.
Lots of low hanging fruit for use by C&E professionals.
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Based on reporting over the past few days it appears to be reasonably likely (but certainly not certain) that Congress will pass and President Biden will soon sign a comprehensive climate change bill. If true, this would be truly great news.
Saving the planet is indeed as good as news gets. But as discussed in a recent post, the true promise of C&E programs goes beyond the purely business realm to include nurturing habits of mind that address a wider range of challenges than just business-related ones (e.g. those concerning family/personal life and governmental). Among other things, such habits of mind could include (but would not be limited to) – thinking systematically about risk – having a deep appreciation of the interests of other individuals and organization – insisting on transparency where it is reasonable to do so – meaningful approaches to accountability for doing what is right and for stopping what is wrong, and – protecting truth telling at all costs. (This is particularly important in the climate change realm. )
None of these ways of thinking were invented (to my knowledge) by C&E practitioners. But for many millions of Americans and others there is now a steady reminder through C&E programs and otherwise of the importance of thinking in these and other related ways. This, in turn, could provide a foundation for promoting greater ethicality in the broader societal realm.
One critically important area of this sort is truth telling. Good citizen companies often place considerable emphasis on truth telling. They do so in codes of conduct, policies, training/communications, and investigations and discipline, among other things.
Does this make it more likely that those who have good C&E habits of mind around truth telling in the business would also be ethical in other spheres? I don’t know and indeed it may be too soon to tell given that strong C&E is of largely recent origin. But it seems like a good area to explore and it could offer genuine C&E leveraging and be the “next frontier” in the field.
Of course, there is a possible advantage to “staying in your lane.” But on balance I think each area can support the others, and should consider doing so.
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In his Devil’s Dictionary short story writer Ambrose Bierce defined ‘law suit” to mean: ‘A machine which you go into as a pig and come out of as a sausage.”
I have always loved this definition, particularly, given that it was made more than a century ago.
But does the basic idea belong in a C&E program?
I think so, at least at a high level. While not in the heartland of such programs, the unexpected costliness of bringing bad faith lawsuits is worth treating as a risk, and one where the C&E office can in some circumstances make a positive contribution.
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Learned Hand – considered by many to be the greatest of all US judges – once famously said: “The spirit of liberty is the spirit which is not too sure that it is right.” This is a spirit which sadly seems as distant from us today as it ever has been before.
I believe that – at least for some companies – humility should be a core value. (I do see it at some companies, but not many.)
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. (Posts on behavioral ethics are cataloged in the index to this blog.)
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. Recognizing the limits of one’s abilities – which is part of being humble – should help underscore the need for carefulness.
Third, 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 ethics in other realms.
Finally, humility can support relationships of trust. As described in a recent post, such relationships can be an essential foundation for prosperity in many ways.
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The full promise of compliance and ethics programs goes beyond the purely business realm to include nurturing habits of mind that address a wider range of challenges than just business-related ones (e.g. those concerning family/personal life and governmental).
Among other things, such habits of mind could include (but would not be limited to):
– thinking systematically about risk,
– having a deep appreciation of the interests of other individuals and organizations,
– insisting on transparency where it is reasonable to do so,
– embracing meaningful approaches to accountability for doing what is right and for stopping what is wrong, and
– protecting truth telling at all costs.
None of these ways of thinking were invented (to my knowledge) by C&E practitioners. But for many millions of Americans and others there is now a steady reminder through C&E programs of the importance of thinking in these and other related ways. This, in turn, could provide a foundation for promoting greater ethicality in the broader societal realm.
One critically important area of this sort is truth telling. Good citizen companies often place considerable emphasis on truth telling. They do so in codes of conduct, policies, training/communications, and investigations and discipline, among other things.
Does this make it more likely that those who have good C&E habits of mind around truth telling in the business would also be ethical in other spheres? I don’t know and indeed it may be too soon to tell given that strong C&E is of largely recent origin. But it seems like a good area to explore and it could offer genuine C&E leveraging and be the “next frontier” in the field.
Of course, there is a possible advantage to “staying in your lane.” But on balance I think each area can support the others, and should consider doing so.
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My most recent posting looks at COI issues that can arise when government officials use their office to benefit their spouses. “Caesar’s wife should be above suspicion,” the great man famously (and allegedly) said.
But what about Caesar’s children?
Children can, of course, be the source of potent COIs. There are no shortage of examples of this potency. My all-time favorite occurred in 1973, when in speaking to colleagues on the Cook County Democratic Committee, Mayor Richard Daley of Chicago defended his having directed a million dollars of insurance business to an agency on behalf of his son John with the immortal words: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”
The most prominent “Caesar’s children” case in the coming years may turn out to be the investigation of Hunter Biden for alleged influence peddling. Both father and son have denied wrong doing.
Finally, I do think that a simple “thought experiment” could be instructive, and which is to ask: Are there things that – for ethical reasons – you would do for your children that you would not do for yourself?”
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“Caesar’s wife should be above suspicion,” Julius Caesar famously said. But that’s not always how it works.
The issue of higher standards has been explored (among other places) in a prior posting. It has also recently arisen in connection with scrutiny of various business activities of Virginia Thomas, Justice Clarence Thomas’ spouse. As noted in a recent issue of Forbes:
“A number of ethics experts have criticized Ginni Thomas’ political activism and called for Justice Thomas to recuse himself from cases involving issues she’s involved with. Federal judicial ethics rules—by which Supreme Court justices are not formally bound, though they’re expected to act ethically—demand recusal for cases where there’s even an ‘appearance’ of a conflict, even if one does not actually exist, or if the judge’s spouse is ‘an officer, director or trustee” of an organization that’s a party to a case.” I think Ginni Thomas is behaving horribly, and she’s hurt the Supreme Court and the administration of justice” NYU law professor Stephen Gillers told the New Yorker.
My point here is not to evaluate her particular conduct (which has already been done by Professor Gillers and many others). Rather, it is to suggest more generally that companies and other organizations should have some sort of standards for such rare but high risk “Caesar’s wife” situations.
This could be a relatively short document (or part of a longer one) which:
– Describes activities by spouses or others that can create serious COIs or COI-like situations.
– Describe the harm that such COIs can cause.
– Discuss relevant disclosure expectations (standards and procedures).
– Where applicable, describe ongoing oversight/monitoring responsibilities.
Finally, it should be noted that Justice Thomas said that the recent leak of a draft opinion of the Court has hurt the trust of the public. Such potential loss of trust is, ironically, the very reason to have a “Caesar’s spouse” standard in the first place.
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