In one of the most interesting looks at what makes a compliance program tick and why, Todd Haugh, an assistant professor of business law and ethics at Indiana University’s Kelley School of Business, said that even best-practices compliance programs fail to take into account the importance of eliminating rationalizations.
Writing in the most recent issue of the MIT Sloan Management Review entitled, The Trouble With Corporate Compliance Programs, Haugh’s conclusions were drawn from long-term research he had been doing on the causes of white collar crime and more general corporate wrong-doing.
His research has led him to flagrant rationalizations engaged in by those who commit white collar crimes. This insight led him to see the behavioral aspect of compliance programs as lacking but that can be remedied.
The two rationalizations he identified which are most tied to bribery and corruption are when an employee appeals to the higher loyalty of making more money for the company, and the “behavioral balance sheet” whereby employees balance out negative actions against positive accomplishments.
Haugh points to the Wells Fargo scandal which occurred in large part because of multiple rationalizations at multiple levels. At the employee level, they were pressured to violate both company policy and the law by their managers. At the senior management level the balance sheet rationalization came into play. Both of these led employees to “rationalize their conduct by denying responsibility and claiming relative normality.”
As a prescription, Haugh recommends several steps.
The first was one of the most intriguing and it was for a company to employ a behavioral specialist to take current research and theory into practice in an organization.
The second was to “use behavioral best practices to eliminate rationalizations.” Here Haugh provided the simple yet direct example of an honesty certificate on an employee gift, travel and entertainment reimbursement form as a starting point. I would add this has the added significance of an effective internal control.
Haugh notes that companies should “use incentives to influence behavior in the right direction” by understanding how rationalizations come into play. Most interestingly Haugh believes that “praise and expressions of gratitude motivate more than money.” Think of the cost of a good word now and then or a pat on the back.
Haugh concludes by recognizing that no compliance program will always eliminate bad employee behavior. However, his article and research give compliance practitioners new insights into how to motivate employees and make compliance more effective in an organization.
Tom Fox is a Contributing Editor of the FCPA Blog. He has practiced law in Houston for 30 years. He’s the creator of the award winning FCPA Compliance and Ethics website. He is the Compliance Evangelist. His best-selling seminal book, “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program” (available from Amazon here) is widely viewed as one of the top volumes on the nuts and bolts of compliance. His latest book is 2016 – The Year in Corporate FCPA Enforcement.