By Jeffrey M. Kaplan & Rebecca Walker – Partners – Kaplan & Walker LLP
The science of behavioural ethics is drawing considerable attention these days from compliance and ethics (C&E) professionals for, among other things, its research showing that we may not be as ethical as we think we are. In light of this and other findings, behavioural ethics has the promise to substantially improve the way that C&E programmes are designed and operated.
In this article we will look at the opportunities and challenges that behavioural ethics offers for C&E programmes. We do this largely through the lens of C&E programme assessments – a process that many companies have undertaken to determine to what extent their respective programmes are fit for purpose and how they can be improved. As we will discuss, such evaluations can (among other things) serve as a delivery device to bring behavioural ethics ideas and information into C&E programmes.
Behavioural ethics is an offshoot of a well-established school of social science called behavioural economics, which teaches that we may not be as rational as we think we are. Behavioural ethics extends this approach to the ethicality – rather than rationality – of thought and deed. Among the findings of behavioural ethics are that:
■ A process of ethical fading diminishes the ethical dimensions in some decision-making. For instance, framing ethically fraught choices as business decisions can largely remove them from the realm of right and wrong
■ Outcome biases allow us to ignore bad decisions if they happen to lead to desirable results – thereby encouraging future bad decision-making (including making unethical choices)
■ Under the phenomenon of victim distance, the likelihood of an unethical deed increases where we do not know who may be impacted by a contemplated act
■ Similarly, due to a strong tendency to over-discount the future, we feel more ethically comfortable engaging in harmful actions that will impact others at a later time compared to wrongdoing with a short-term impact
■ Doing something ethical can morally licence an individual to do something unethical later on
■ Contrary to the received wisdom regarding conflicts of interest, disclosure can actually increase the likelihood of conflict-driven harm
■ Power really does corrupt, meaning that being in a position of power increases
the likelihood of acting unethically
■ Due to conformity bias, individuals are more likely to act unethically when their peers do so
■ ‘Slippery slopes’ can lead to bounded ethicality. In one fascinating study, individuals who were told that they were wearing counterfeit sunglasses were more likely to cheat than those who were told that their sunglasses were authentic
■ Motivated blindness contributes to not noticing others’ wrongdoing, depending on the observer’s interests that could be impacted by the misconduct at issue
■ Pressure to produce business results can lead otherwise ethical individuals to cross legal lines
As is perhaps clear from the above, not all behavioural ethics findings are truly surprising (although most are). Some prove things that have long been known, but only anecdotally, such as that power corrupts or pressure to produce results can lead to wrongdoing. This type of data can be particularly helpful when dealing with decision-makers within a company who may insist on seeing ‘proof’ before accepting C&E-based limitations on how business is conducted or increasing the company’s investment in C&E.
C&E programme assessments
Numerous legal requirements and enforcement guidance set forth an expectation that companies will engage in some form of C&E programme assessment. For instance, the US Sentencing Guidelines for Organisations – which contain the most influential general standards for effective C&E programmes – provide that an organisation should periodically assess the effectiveness of its programme. Guidance regarding the UK Bribery Act also has a provision of this sort and there are many other such examples. Indeed, it would be unusual for a set of official C&E standards not to have an assessment provision.
“Behavioural ethics can shape the expectations of those to whom an assessment report is addressed — particularly boards of directors and senior managers”
Programme assessments, which typically include the assessment of each component of a programme (e.g. C&E programme structure and oversight, policies, training and communications, auditing and monitoring, reporting, investigations, response), can help a company design and implement a programme in a way that is not only effective but also efficient. They can also help bring momentum into a programme– often an important consideration over the course of time. And they can increase the level of buy-in and engagement among employees, including, in particular, senior leaders who participate in the assessment. Finally, should a company ever face a criminal investigation, having conducted an assessment may – in some circumstances – help the company earn leniency.
Bringing behavioural ethics into the assessment
There are basically two ways in which behavioural ethics can be helpful to programme assessments.
First, and on a general level, behavioural ethics can shape the expectations of those to whom the assessment report is addressed – particularly boards of directors and senior managers. These and other decision-makers might not be fully understanding of the need for strong C&E measures. To them, ethical conduct might seem like the natural state of affairs. However, appreciating that we might not be as ethical as we think we are potentially changes this perspective. If we (and all employees) are more subject to making unethical choices than we had otherwise assumed, that raises the bar for what a C&E programme needs to have to be effective. And it highlights the importance of having a strong C&E programme. This perspective can help focus decision-makers on the importance of the assessment generally.
Second, some of the findings of behavioural ethics can be utilised in reviewing and enhancing different programme components (referred to generally as ‘elements’). Below, we discuss how behavioural ethics can enhance several C&E programme elements.
A key area for importing behavioural ethics into C&E programmes is risk assessment. A great many behavioural ethics findings can be used to understand what a company’s risks are.
For instance, the above-mentioned research on victim distance suggests that companies should determine if the potential victims of wrongdoing are distant from employees, for example, where there are multiple levels of commerce between a company and the ultimate user of its product or service or where users are anonymous. If this is the case, then that can be addressed through training or other communications that help make the interests of those at risk seem less abstract. (One company with which we are familiar helps do this by having its employees make ethics pledges to customers.)
Similarly, the research findings on slippery slopes discussed above should also be considered for risk assessment purposes. Among other things, one should identify areas of risk that are seemingly minor but that could serve as a gateway breach leading to more consequential acts of wrongdoing. An example would be that a lax and poorly enforced gifts and entertainment policy could lead to greater risk of bribes.
Training and communications
Behavioural ethics offers a near endless source of ideas and information for training and other communications. But above all, the focus should be on the core message: we are not as ethical as we think we are.
Important in this regard are the power corrupts findings referred to earlier. A very high percentage of major corporate scandals involve senior company officials, but few companies do enough to aim mitigation efforts ‘at the top’ because such officials often feel that they individually are impervious to risk. Addressing this issue head on in training and communications can be a way of reducing a potentially significant source of risk.
A different way in which behavioural ethics can enhance C&E training and communications is based on experiments that demonstrate that focussing individuals’ attention on pertinent ethical standards immediately prior to their facing a chance to engage in wrongdoing increases the salience of such standards in a way that positively impacts behaviour. This insight can be used to reduce various types of risk:
■ Anti-corruption Before interactions with government officials and third-party intermediaries
■ Competition law Before meetings with competitors (e.g. at trade association events)
■ Insider trading/Reg FD During key transactions, before preparing earnings reports
■ Protection of confidential information When receiving such information from third parties pursuant to an NDA
■ Accuracy of sales/marketing In connection with developing advertising, making pitches
■ Employment law While conducting performance reviews2
Investigations and discipline
From the behavioural ethics research concerning motivated blindness, we can conclude that managers should not conduct investigations and discipline into the actions of subordinates to whom – for whatever reason – they are motivated to be lenient. Research on in-group bias, which demonstrates that we tend to be less harsh in our response to the misconduct of others with whom we identify more, should also be considered when assessing investigations and response. Also relevant in this regard is the sentencing guidelines expectation that organisations should impose discipline on employees not only for engaging in wrongful conduct but also ‘for failing to take reasonable steps to prevent or detect’ wrongdoing by others. To meet this important expectation, companies may wish to take the following measures:
■ Build the notion of supervisory accountability into their policies (e.g. in the managers’ duties section of a code of conduct)
■ Speak forcefully to the issue in C&E training and other communications for managers
■ Train investigators on the notion of managerial accountability and address it in the forms they use so that they are prompted to consider if a manager’s inattention facilitated the violation in question
■ Publicise (in an appropriate way) that managers have in fact been disciplined for supervisory lapses
■ Ask if auditors take these requirements into account in their audits of investigative and disciplinary records
■ Conflicts of interest
As noted above, one of the more interesting (and counter-intuitive) findings of behavioural ethics research is that disclosure regarding conflicts can actually increase the likelihood of conflicts-related harm. Disclosure of a conflict can create a type of moral licence in the person subject to the conflict that can lead to even more biased conduct than would have occurred absent the disclosure. Disclosure of a conflict is thus not the panacea that we had previously assumed it was. It alone cannot control for conflicts issues. Organisations should thus consider implementing additional controls where feasible, such as ethics walls to create a barrier between the person subject to the conflict and the activity or decision-making at issue.
The concept of bounded ethicality also mentioned above, provides additional insights into how organisations can more effectively create controls regarding conflicts of interest. Bounded ethicality suggests that we tend to view ourselves as moral and deserving, which decreases our ability to recognise that we, in fact, have a conflict of interest and increases our perceptions of our ability to deal with conflicts of interest in an ethical way. In light of this tendency, it is helpful for organisations to define conflicts of interest clearly and with numerous relevant examples in conflicts policies and procedures, which helps employees recognise their own conflicts and understand the importance of disclosure.
Behavioural ethics holds enormous promise for the enhancement of C&E programmes. A number of research findings in this area can be applied to C&E programmes to make them more effective, relevant and stronger.
About the Authors:
Mr. Kaplan is a partner in Kaplan & Walker LLP, a law firm in Princeton, New Jersey and Santa Monica, California. He specialises in all aspects of assisting companies in developing, implementing and reviewing corporate compliance/ethics programs, including conducting risk analyses; writing/editing codes of conduct and other policy documents; counseling companies in matters regarding training; developing compliance audit protocols and reporting systems; establishing compliance/ethics offices; and assisting boards of directors in meeting their fiduciary duties under the Caremark case. Mr. Kaplan’s compliance/ethics program practice has included work for clients in the health care, medical devices, pharmaceuticals, government contracting, insurance, manufacturing, energy, retail, paper, publishing, professional services, telecommunications, automotive, technology, securities, private investments, food and chemical fields, as well as non-profit organisations.
Rebecca Walker is a partner in the law firm of Kaplan & Walker LLP, a law firm specialising in corporate compliance and ethics located in Santa Monica, California and Princeton, New Jersey. Ms. Walker advises clients on the development and implementation of compliance and ethics programs that are tailored to each client’s legal risks and business needs and that conform to applicable government requirements and pronouncements regarding effective compliance programs. Ms. Walker has worked with numerous organizations on the design and implementation of the components of compliance and ethics programs, including risk assessment, codes of conduct and other compliance policies, compliance training, helplines, investigation procedures, monitoring and auditing systems, program structure and program documentation. She has also developed and conducted numerous training sessions for employees and boards of directors in the areas of conflicts of interest, social media compliance, anti-corruption, sexual and other forms of harassment, reporting misconduct, and general compliance.
1.Information about the studies referenced above can be found in Bazerman and Tenbrunsel, Blind Spots: Why We Fail to Do What’s Right and What to Do About It (Princeton 2012) and on the Conflict of Interest Blog http://conflictofinterestblog.com/2019/01/behavioral-ethics-and-compliance-index-2019.html.