Uncategorized

2021 behavioral ethics and compliance index

While in the more than nine years of its existence the COI Blog  has been devoted primarily to examining conflicts of interest it has also run quite a few posts on what behavioral ethics might mean for corporate compliance and ethics programs. Below is an updated version of a topical  index to these latter posts.  Note that a) 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 and communication ones); and b) there is some overlap between various of the posts.

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

– A valuable behavioral ethics and compliance resource

– Strengthening your C&E program through behavioral ethics

–  Ethics made easy

 Have you checked your behavioral externalities?

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

 Sweating the small stuff

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

– Imagine the real

– Behavioral ethics training for managers

Assessments

– Behavioral ethics program assessments

Positioning the C&E office

– What can be done about “framing” risks

– Compliance & ethics officers in the realm of bias

 Behavioral ethics, the board and C&E officers

 Lawyers as compliance officers: a behavioral ethics perspective

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

– Inherent anti-conflicts of interest

– Conflict of interest? Who decides?

– Specialty bias

– Disclosure’s two-edged sword

– Nonmonetary conflicts of interest

– Charitable contributions and behavioral ethics

– More on conflicts of interest disclosure

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

– Was the Grand Inquisitor right (about compliance)?

– Is ethics being short-changed by compliance?

Have you checked your behavioral externalities?

In The Case for Adding Darwin to Behavioral Economics posted on the Ethical Systems web site,  Robert H. Frank  of Cornell University’s Johnson Graduate School of Management writes:

I use the term “behavioral externalities” to describe choices that affect social environments… Because social environments influence us so profoundly, both for good and ill, we have a powerful and legitimate interest in them. We would prefer to live in ones that bring out the best in us and to avoid those that harm our interests. Yet behavioral externalities have received virtually no serious attention from policy analysts, and it’s here that lie many of the most exciting opportunities for young researchers. Once you’ve been alerted to their existence, it quickly becomes apparent that behavioral externalities are ubiquitous. Careful empirical studies have documented the importance of behavioral contagion in such diverse domains as, among many others, excessive drinking, sexual predation, cheating, bullying, obesity, greenhouse-gas emissions, and compliance with public-health directives. Research has tended to focus on negative peer influences, but there is also compelling evidence of positive influences. The adoption of rooftop solar panels, hybrid cars, and plant-based diets, for example, have all been shown to be highly contagious…. As Darwin understood clearly, our fate depends not only on our own decisions and capabilities but also on those of rivals and partners. And that, in a nutshell, is the case for a broader and more inclusive behavioral economics, one that incorporates the rich insights of behavioral biology.

Several points about this.

First, in addition to policy analysts and young researchers, the notion of behavioral externalities should be of interest to compliance and ethics professionals seeking to understand and address cultural risks facing their respective organizations. (Among other things behavioral externalities are relevant to risk assessment.)

Second, I like the idea of adding to behavioral economics  information from other fields of knowledge. My personal favorite in this regard is moral hazard, which – like  Frank’s example – also involves choices that entail  a “rational man” making decisions that work for her/him but which are bad for the relevant larger group.

Finally, for those of you who haven’t read it I strongly recommend Frank’s Passions Within Reason: The Strategic Role of the Emotions. It is one of the most important works in our field.

An SCCE podcast on assessing corporate culture

Available here.

I hope you find it useful.

Behavioral ethics and the road ahead

With the Supreme Court twice this week refusing to hear challenges by the Trump campaign to various results of the Presidential election, hopefully the country can move forward full steam ahead in addressing the many daunting tasks it faces. But in what spirit shall it do so?

Personally, I have always found great comfort and wisdom in Lincoln’s “with malice toward none.” This fits well within a view of human nature that I generally find persuasive – at least to some degree.

It also dovetails nicely with the approach to human nature underpinning the field of “behavioral ethics and compliance” that is the focus of many of the posts in this blog. See http://conflictofinterestblog.com/2020/01/behavioral-ethics-and-compliance-index-2020.html This view is based – broadly speaking – on the belief that we are not as ethical as we think we are.

This notion of ethical humility can play an important role in persuading others to be more open-minded than they otherwise might be.  It can be especially important when dealing with issues that – due to their complexity or other reasons – earning the trust of one’s political adversary is key to success.

Climate change and the pandemic are, by their very nature, two prime examples of this need for earning trust. But there are many others, too, including some public debt issues.

However there is another side to this coin, and that is that sometimes certainty can be a force for persuasiveness.  This can be seen in various political/revolutionary movements over the years.  Indeed, given how pressing these issues are – particularly the climate change and pandemic ones – arguably there is not enough time to go the humility route.

Which path shall we take? I think – predictably – the answer is some parts of each.

But picking the right ones for humility and for certainty will be a challenge of great difficulty- and consequence.

 

Compliance certifications: an under-used mitigation tool

A just-published post on the FCPA Blog.

I hope you find it useful.

A (partial) conflict of interest agenda for Biden

There are many reasons to celebrate the  apparent defeat of Donald Trump in the presidential election, but among the top ones for me is his total antipathy toward rules and norms concerning conflicts of interest.

Trump has created or maintained literally thousand of COIs during his presidency.   The concern here is less what might be considered his ill-gotten gains from the COIs than what is on the other side of the conflicted transaction, i.e. what interest did he improperly trade/betray for the COI.

But more so that this is the larger issue of the lasting general impact from the very rotten “tone from the top” on future ethical conduct issues

I do not believe that many individuals have overtly justified their engaging in  COIs based on Trump’s behavior.  But we also know from behavioral ethics research  that many of the causes of wrongdoing lie below the surface. To me these are the most dangerous aspects of COIs because they undermine the trust that will be necessary for dealing with the many complex and high stakes challenges, we face, including Covad 19 and climate change.

To help restore that trust the president elect should build a COI element into his communications  plan. Note that this need not be an every day affair. But there are presumably lots of opportunities of this sort, and Biden’s communications staff should be directed to make the most of them.

Do honesty pledges work?

Pledges often sound like a good idea but whether they are depends on various factors. Just ask Jim Comey.

In Honesty Pledges for the Behaviorally-based Regulation of Dishonesty, Eyal Pe’er, School of Public Policy, Hebrew University of Jerusalem,  and Yuval Feldman, Faculty of Law, Bar-Ilan University,  take up the topic of honesty pledges.   A study they conducted found, among other things, “that an ex-ante [before the event] pledge can reduce dishonesty significantly, considerably, and even when compared to a (maximally possible) fine. In addition, the effect of the pledge did not seem to decay over the (relatively short) period of time we examined in this study. Reminding participants about their pledge in the middle of the time interval did not add to the reduction in cheating. The effect of the pledge seems not to be restricted to the highly lawful or obedient participants, … Moreover, this effect was also evident when specifically examining those who cheated to a larger extent than others…”  The authors conclude “that pledges could be an effective tool for the behavioral regulation of dishonesty, reduce the regulatory burden, and build a more trusting relationship between government and the public, even in areas where incentives and opportunities to cheat are high.”

This paper could indeed be useful to some government officials regulating business  in determining when to substitute or supplement pledges for the harder edges of compliance   (e.g., monitoring).

To this I would add that it could also be relevant to internal company officials (and their advisors)  considering adding honesty pledges to their compliance arsenal.

Effective Discipline According to the DOJ.

My latest column in Compliance & Ethics Professional. 

I hope you find it interesting.

Do compliance officers have an inherent conflict of interest?

In Agency, Authority, and Compliance, Sean J. Griffith of the  Fordham University School of Law argues:

Compliance can and often does serve as a conduit through which regulators and enforcement authorities enlarge their authority beyond statutory bounds. The potential to do so is a function of the symbiotic relationship between compliance officers and regulatory authorities. Compliance officers owe their professional existence and their organizational authority to the interventions of regulators and enforcement agents. This creates a unique incentive structure and renders compliance officers especially receptive to regulators’ extra-legal pronouncements. As a result, the separation of compliance from legal and the elevation of the compliance function as the co-equal of the legal department, a structure often insisted upon by regulators and enforcement authorities, effectively enlarges the compliance conduit through which the government may abuse the rule of law. Rather than separating compliance from legal, compliance should be subordinated to legal so that an officer accountable exclusively to the best interests of the firm is charged with interpreting the law and advising the firm on what the law requires. Only after this determination has been made should compliance officers be charged with the task of executing on these decisions. A necessary condition to realigning organizational responsibilities in this way, however, is for the government to stop insisting on the alternative. More broadly, the government should not involve itself in the organizational details of compliance, but rather should limit itself to making and enforcing the law.

This is an interesting and unusual  perspective and one that I am not unsympathetic to.  Indeed, in a piece last year in Compliance Week I argued that in many companies having the chief compliance officer report administratively to the general counsel would in fact be appropriate  (assuming – among other things –  that the CCO reported informationally to the board of directors).

But I’m not persuaded that a conflict-like condition exists because CCOs “owe their professional existence and their organizational authority to the interventions of regulators and enforcement agents,” at least, not as a general matter.  One might find exceptions where a company is under a monitorship or is in a very highly regulated business. But for most organizations, I believe, this is no more the stuff of conflict than is the fact that a company’s sales people effectively owe their respective jobs to its customers (which presumably would not diminish the sales people’s fidelity to their employer’s best interest).

I also don’t agree with the notion that whether to take a contemplated compliance measure should be decided by the GC and how to do so that of the CCO. While conceptually neat, as a practical matter the two areas tend to overlap considerably, making the proposed separation of powers difficult to implement.

Finally, regarding the suggestion that, “the government should not involve itself in the organizational details of compliance, but rather should limit itself to making and enforcing the law,…”  I generally believe that without the government’s involvement in the details of compliance over the past nearly 30 years, the overall state of compliance would be weaker than it is today.

Behavioral ethics and compliance to the rescue?

A colleague once voiced the view that the C&E field was “out of energy and out of ideas.”  I have often been of the same mind but am cheered by the advent in recent years  of “behavioral ethics and compliance”

The need for new C&E ideas was recently articulated in Preventing Corporate Crime from Within: Compliance Management, Whistleblowing and Internal Monitoring   by Benjamin van Rooij of the University of California, Irvine, School of Law, University of Amsterdam –  Faculty of Law, and Adam Fine, Arizona State University,  School of Criminology & Criminal Justice:

To reduce and prevent corporate crime and wrongdoing requires more than punishment of corporations and corporate executives. True change requires transformations within such corporations. This paper discusses three options to induce such corporate transformations: corporate compliance management mechanisms, whistleblower protection rules, and independent internal monitoring. The paper concludes that the existing empirical evidence shows doubt whether these systems actually can be effective in reducing corporate crime and wrongdoing. It concludes that the available studies show that these systems are more likely to be effective exactly where it is least needed, namely when there is leadership commitment to compliance, when there is successful external oversight and when there is a compliance culture. The paper concludes with critical thoughts about what this means for existing legislation stimulating these systems, for regulators and compliance officers, as well as for research in this area. Here it argues that internal compliance management must become much more based on behavioral insights from the social and behavioral sciences, and that the scientific community must do a greater effort to provide such support to public and private practitioners.

I certainly agree with this  last conclusion, and for those looking for practical  ideas on how compliance officers, regulators and social scientists can assist one another along these lines  please see my Behavioral Ethics and Compliance Index, which has nearly 100 posts on this area.