These days, compliance and ethics (C&E) professionals are increasingly interested in the field of behavioral ethics. One reason for this is its research, which suggests that our ethical behavior might not be as strong as we believe. Given these findings and others, behavioral ethics can significantly enhance the design and implementation of C&E programs.
In this article, we’ll explore the potential opportunities and obstacles presented by behavioral ethics for C&E programs.
We’ll primarily examine this through the perspective of C&E program assessments, which many companies undertake to assess their programs’ effectiveness and identify improvement areas.
As we’ll delve into, these evaluations can play a crucial role in integrating behavioral ethics concepts and insights into C&E programs.
Behavioral ethics stems from a well-established branch of social science known as behavioral economics, which posits that our decision-making may not always be as rational as presumed.
This field extends the same approach to examine the ethicality, rather than just the rationality, of human thoughts and actions. Some notable findings of behavioral ethics include:
1. Ethical fading is a process that reduces the ethical considerations in decision-making. For example, when ethically challenging choices are framed as business decisions, they are often detached from moral judgment and become solely about practicality.
2. Outcome biases enable us to overlook poor decisions if they result in favorable outcomes, thus reinforcing the tendency to make unethical choices in the future.
3. The concept of victim distance suggests that the probability of engaging in unethical behavior rises when we are unaware of who might be affected by our actions.
4. Similarly, a strong tendency to disproportionately discount the future leads us to feel more ethically at ease engaging in actions that will harm others in the long term compared to those with immediate repercussions.
5. Engaging in ethical behavior can sometimes serve as moral justification for subsequent unethical actions.
6. Contrary to conventional wisdom regarding conflicts of interest, disclosing such conflicts can actually increase the likelihood of harm driven by these conflicts.
7. Power indeed corrupts, as individuals in positions of power are more likely to engage in unethical behavior.
8. Conformity bias makes individuals more susceptible to unethical actions when their peers engage in similar behavior.
9. Slippery slopes’ can result in bounded ethicality. For instance, individuals who were informed that they were using counterfeit sunglasses were more inclined to cheat than those who were told their sunglasses were authentic.
10. Motivated blindness contributes to overlooking others’ misconduct, especially when the wrongdoing could affect the observer’s interests.
11. Pressure to achieve business results can compel otherwise ethical individuals to cross legal boundaries.
As evident from the above, not all findings in behavioral ethics are entirely unexpected (although many are).
Some confirm what has been understood for a long time, albeit only through anecdotal evidence, such as the corrupting influence of power or the tendency for performance pressure to lead to misconduct.
This kind of information can be especially useful when dealing with decision-makers within a company who may demand concrete evidence before embracing limitations on business conduct based on compliance and ethics or investing more in compliance and ethics initiatives.
C&E Program Assessments
Various legal mandates and enforcement guidelines establish an anticipation for companies to conduct some form of compliance and ethics (C&E) program assessment.
For example, the US Sentencing Guidelines for Organizations, which outline influential standards for effective C&E programs, stipulate that an organization should regularly evaluate the effectiveness of its program.
Similarly, guidance related to the UK Bribery Act includes a similar provision and numerous other instances of such requirements. In fact, it would be uncommon for official C&E standards not to include a provision for assessment.
Program assessments, which evaluate various components like structure, policies, training, communication, monitoring, reporting, investigations, and response, help companies design efficient and effective programs.
Additionally, they can inject momentum into a program, which is often crucial over time.
Moreover, they can enhance employee buy-in and engagement, especially among senior leaders involved in the assessment process.
Lastly, in certain situations, having conducted an assessment may potentially aid a company in earning leniency if it ever faces a criminal investigation.
Bringing Behavioural Ethics Into The Assessment
There are essentially two ways in which behavioral ethics can contribute to program assessments.
Firstly, on a broader level, behavioral ethics can influence the expectations of those receiving the assessment report, particularly boards of directors and senior managers.
These decision-makers may not fully grasp the necessity for robust compliance and ethics measures, viewing ethical behavior as the default.
However, acknowledging the potential gap between our perceived ethicality and our actual behavior can shift this perspective.
Recognizing that individuals, including all employees, are susceptible to unethical choices more than previously assumed raises the standards for an effective compliance and ethics program. It underscores the importance of having a strong one.
This realization can help decision-makers prioritize the assessment’s significance.
Secondly, some findings from behavioral ethics can be applied to review and enhance various program components, commonly referred to as “elements.” Below, we explore how behavioral ethics can enhance several compliance and ethics program elements.
One crucial area for integrating behavioral ethics into compliance and ethics programs is risk assessment. Numerous findings from behavioral ethics can aid in understanding a company’s risks.
For example, research on victim distance suggests that companies should assess whether potential victims of wrongdoing are distant from employees.
This could occur when there are multiple layers of transactions between a company and its end users or when users remain anonymous.
If so, addressing this through training or other communications that make the interests of those at risk more tangible can be beneficial.
An example of this approach involves companies having employees make ethics pledges to customers.
Likewise, research findings on slippery slopes should also inform risk assessment efforts.
It’s essential to identify seemingly minor areas of risk that could serve as a gateway to more significant acts of wrongdoing.
For instance, a lax and poorly enforced gifts and entertainment policy could increase the risk of bribery.
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Training And Communications
Behavioral ethics provides a wealth of ideas and information for training and other communications, with a central message being that we’re not as ethical as we perceive ourselves to be.
Of particular importance are the findings regarding the corrupting influence of power mentioned earlier.
A considerable portion of major corporate scandals involves senior company officials, yet few companies direct sufficient mitigation efforts towards them.
This is often because these officials believe they are immune to risk individually. Directly addressing this issue in training and communications can help mitigate a potentially significant risk.
Another way in which behavioral ethics can enhance compliance and ethics (C&E) training and communications is through experiments showing that focusing individuals’ attention on relevant ethical standards immediately before they face the opportunity to engage in wrongdoing increases the importance of these standards, positively influencing behavior. This insight can be utilized to mitigate various types of risk.
- Before interacting with government officials and third-party intermediaries, focusing on anti-corruption measures is essential.
- Likewise, it’s crucial to keep competition law in mind when engaging with competitors, especially at trade association events.
- During significant transactions or when preparing earnings reports, it’s important to be vigilant about insider trading regulations and Regulation FD.
- When receiving confidential information from third parties under a nondisclosure agreement, it’s imperative to prioritize protecting that information.
- Similarly, ensuring the accuracy of sales and marketing claims is paramount when developing advertising or making pitches.
- Lastly, while conducting performance reviews, it’s essential to remain mindful of employment law regulations.
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Investigations And Discipline
Based on research in behavioral ethics, specifically regarding motivated blindness, it’s apparent that managers should avoid overseeing investigations and disciplining subordinates to whom they may feel inclined to be lenient for any reason.
Additionally, insights from research on in-group bias, indicating that we tend to be more lenient towards the misconduct of those with whom we identify, should be considered when evaluating investigations and responses.
Furthermore, it’s important to note the expectation outlined in sentencing guidelines that organizations should discipline employees not only for their own wrongful conduct but also for their failure to take reasonable steps to prevent or detect wrongdoing by others.
To meet this crucial expectation, companies may consider implementing the following measures:
- Integrate the concept of supervisory accountability into their policies, such as including it in the managers’ duties section of a code of conduct.
- Emphasize this issue in compliance and ethics (C&E) training and other communications targeted at managers.
- Ensure that investigators are trained on the concept of managerial accountability and include it in the forms they use, prompting them to consider whether a manager’s oversight facilitated the violation in question.
- Publicize, appropriately, instances where managers have been disciplined for lapses in supervision.
- Inquire whether auditors consider these requirements when auditing investigative and disciplinary records.
- Address conflicts of interest.
As mentioned earlier, one of the intriguing (and counter-intuitive) findings from behavioral ethics research is that disclosing conflicts can actually heighten the risk of conflict-related harm.
Disclosure can create a sense of moral license in the individual facing the conflict, potentially leading to even more biased conduct than if the conflict had not been disclosed.
Therefore, disclosure alone is not the solution we once thought it was for managing conflict issues.
Organizations should, therefore, explore implementing additional controls where possible, such as ethics walls, to establish a barrier between the individual facing the conflict and the relevant activity or decision-making process.
The concept of bounded ethicality, also previously mentioned, offers further insights into how organizations can better establish controls concerning conflicts of interest.
Bounded ethicality suggests that we often perceive ourselves as moral and deserving, which can diminish our ability to acknowledge our own conflicts of interest and inflate our belief in our capability to handle such conflicts ethically.
Given this tendency, it’s beneficial for organizations to clearly define conflicts of interest and provide numerous relevant examples in their policies and procedures regarding conflicts.
This approach helps employees recognize their own conflicts and appreciate the importance of disclosure.
In conclusion, behavioral ethics holds great promise for enhancing compliance and ethics (C&E) programs.
Several research findings in this field can be applied to C&E programs to make them more effective, relevant, and robust.
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