Todd Haugh, an assistant professor of business law and ethics at Indiana University’s Kelley School of Business, specializes in research on the connections between white collar and corporate crime and behavioral ethics.
Haugh’s trio of recently published academic papers bring unique perspectives on how behavioral science can – and sometimes can’t – be integrated in corporate practice.
An essay “Cadillac Compliance Breakdown” (April 2017, Stanford Law Review) underlines the importance of corporate compliance and acknowledged the challenge of getting it right. The essay also criticized companies for “styling compliance after a criminal investigation” – a practice he thought counterproductive “because it fosters the very behavior at the center of corporate wrongdoing”.
His base argument is corporations are increasingly tackling compliance through a criminal law lens, and resultingly compliance programs give employees opportunities to rationalize unethical or illegal acts.
Haugh pegs his passion for understanding why “seemingly good people – executives, accountants, automotive engineers – do bad things and how we can prevent it,” to his former career as a white-collar defense attorney.
Haugh’s in-depth article “Caremark’s Behavioral Legacy” (Summer, Temple Law Review) examined the Caremark International Inc. Derivative Litigation case through the lens of behavioral theory specifically behavioral ethics and behavioral economics. Finally, the “Criminalization of Compliance” (Notre Dame Law Review in 2017, offers a foundation on Haugh’s view that “criminalized compliance creates space for rationalizations, facilitating the necessary precursors to the commission of white collar and corporate crime.”
After earning his law degree from University of Illinois College of Law in 2002, Haugh worked as an associate attorney at Stetler, Duffy & Rotert and then a Winston & Strawn in Chicago before joining the Supreme Court of the United States from 2011-2012 as a Supreme Court Fellow. In 2016-17 he earned and completed the Jesse Fine Fellowship from The Poynter Center for the Study of Ethics and American Institutions. Ethical Systems recently caught up with Haugh to discuss his research.
Q: What sparked your interest in researching the intersection of corporate practice and behavioral science?
A: I have always been interested in behavioral science, even before I understood the scope of the field. The first ten years of my career were spent defending white collar clients in criminal matters, everything from bank fraud to perjury to securities violations. During that time, I saw how clients rationalized a whole host of unethical and illegal behavior. In trying to understand my clients better, I began looking to criminology and psychology, which led me to behavioral science. And because this type of conduct often happens in and is influenced by companies, there is a natural intersection here with white collar crime, organization-related research, and behavioral science.
Q: How long have you been researching this area?
A: I wrote my first academic paper about how judges may be picking up on offender rationalizations at sentencing in 2013, and I have been writing steadily on this and related topics since. But my serious reading in the area of criminology and behavioral science probably goes back five years prior to that.
Q: Discuss what you learned from your research on Caremark’s Behavioral Legacy? What surprises or key takeaways from the research for that paper? Why did you choose this as a case to research?
A: The biggest surprise of the Caremark case is that it had the effect it did. That’s why I chose to look at it more closely, because the case was always a mystery to me–how an opinion full of dicta that offered no real enforcement mechanism became one of the most important corporate law decisions of all-time concerning board oversight duties. (Note: The Delaware Court subsequently established a multi-factor test designed to determine when this duty of care is breached). What I found was an untold behavioral story, that dual system decision making and loss aversion likely drove both Caremark‘s outsized influence in corporate America as well as its underwhelming legacy. That’s an interesting story specific to Caremark, but it also suggests behavioral explanations may play a larger role than we realize in the ultimate impacts of legal opinions.
Q: Discuss what you learned from your research from the Cadillac Compliance paper? What surprises or key takeaways? Why did you choose this case to research?
A: I wrote Cadillac Compliance Breakdown to be a more accessible piece for practitioners, those in the field doing corporate compliance. I was drawing on two larger articles, one about how overcriminalization can actually foster more criminal wrongdoing because it delegitimizes legal rules, and the other about how corporate compliance programs often suffer that same fate because they borrow too much from the criminal law. I think what surprised me the most was the reception the Cadillac Compliance piece got from the compliance community. I have heard from many people outside my typical academic circles who found the behavioral theory at the heart of the paper compelling, as well as the practical suggestions included at the end to improve compliance programs. It was nice to write a paper for a specific audience and have them react to it so positively.
Q: What impact would you like your research to have? How can it be applied in corporations today and within this political climate? Please be specific.
A: I would like my work to bring some of the key findings of behavioral science into corporations so they can do compliance better. Corporate compliance is often seen as this boring box checking function within a company, and one that’s a cost center. But I see it as much more. It’s the place where government, the firm, and the individual come together to consider human behavior. That means there is an incredible opportunity to use behavioral science, as aided by law, psychology, and economic principles, to help individuals within companies make better ethical decisions. That helps individuals and allows the company to meet its goals, and both of those things together inure to the benefit of society. One of the most exciting things about behavioral compliance strategies is that companies can easily see its value as a way to lessen legal and conduct risk in a cost effective manner. That’s something companies are always looking for regardless of the political or economic climate. I hope my research can facilitate that in a thoughtful manner.
Q: From your view, what new perspectives do you bring when it comes to how behavioral science can (and sometimes can’t) be integrated in corporations?
A: From the beginning, I have always taken an inside-out approach to corporate compliance and governance. I see everything as starting from the individual employee and his or her ethical decision-making process. Not everyone takes that approach (certainly not legal and business scholars, which is my primary audience). I’m sure this is informed by my background, defending individuals who have committed ethical and legal transgressions within their companies. So my unique perspective is that of one focused on individual decision making within a the larger milieu of law and business. I sincerely believe that companies can take the basic understandings that behavioral science gives us as to individual decision making and use them to make their firms better. Companies have been doing this for a long time in an outward manner focused on customers; now they need to turn inward and use some of those same tools for the benefit of employees (and therefore the firm). The risk comes from (a) not doing anything, because others in the marketplace are already doing so and seeing the positive results; and (b) from not being thoughtful during the application, because human behavior is complex and unpredictable. But if companies get expert help, are methodic in their approach, and are truly committed to improving their organizations, they will see real and lasting results–they will build positive culture from the ground up and it will be reflected in the bottom line.
Q: What research are you currently conducting or what projects are in the pipeline?
A: I have a new paper out soon called The Power Few of Corporate Compliance that addresses what I see as a flawed assumption at the heart of most compliance programs, that compliance failures follow a normal distribution that can be mitigated by blanketing employees with uniform compliance tools. This is an assumption shared by regulators, who foster compliance program homogeneity. Instead, I argue compliance failures should be understood through network theory according to a behavioral risk paradigm that focuses on those within companies that have an outsized influence on ethical decision making–the power few in an organization. I hope this article will help companies and regulators think more critically about some of the underlying assumptions driving many of the current compliance practices. I’m also working on a study of the use of behavioral science in legal opinions, how judges are applying the concepts to legal disputes. The project is at an early stage, but I think it’s going to give us some new insight into how far behavioral science has penetrated into the adjudication of legal cases.
Q: A bit of background, born and raised where, age, and why did you decide to go into academia?
A: I’m 41, married with two girls (6 and 8). I grew up in rural Illinois. My wife and I met in high school; we recently celebrated our 14th wedding anniversary. No one in my family had attended college, but my mother always stressed its importance (she also worked as a clerk in our local courthouse, which provided my first exposure to judges, juries, and the criminal law). For some crazy reason, I decided I wanted to go to an Ivy League school, and I did (Brown University). That changed my understanding of the world and my ability to succeed in it. After practicing law in Chicago for almost a decade, I realized that the part I enjoyed the most was the teaching aspect. That led me to my first job teaching in a law school (DePaul), which led to a Supreme Court Fellowship, which led to a Visiting Assistant Professorship at another law school (Chicago-Kent), and finally to my current position at IU’s Kelley School of Business where I teach business ethics and white-collar crime. When I’m not teaching and writing, I try to go sailing, play golf, and run trails–never at the same time but almost always with one or both of my girls.
Q: In 2016-17 you earned and completed the Jesse Fine Fellowship from The Poynter Center for the Study of Ethics and American Institutions. What did the fellowship entail and what did you enjoy most and learn most from this fellowship?
A: The Jesse Fine Fellowship was a program supported by the Poynter Center with the goal of spreading ethics education across the university. The fellowship providing funding to create a new course focused on ethics, as well as ethics-related programming for the fellows. I used my fellowship year to create a new undergraduate business school course addressing white collar crime and corporate ethics, which covers the psychological, legal, and organizational aspects of wrongdoing within firms. Obviously, I enjoyed the creating the course, and I now enjoy teaching it (the opportunity to teach white collar crime and compliance was one of the reasons I came to the Kelley School), but another wonderful aspect of the fellowship was meeting scholars across disciplines interested in furthering ethics education.
Q: In your opinion, have corporations made changes to their compliance programs, if so what changes?
The answer is yes and no. Some companies, often large ones in highly regulated spaces such as finance and healthcare, have made great strides in how they consider compliance. They have become innovators on the fronts of data collection and behavioral science. Companies such as AB InBev, Lilly & Co. come to mind, but there are many others. These companies are reimagining many of the staid tools we’ve used in compliance since the early 1990s, and they will see the benefits in terms of reduced compliance costs (including mitigation efforts), higher employee retention, and increased positive culture, all of which benefits the bottom line. But for every company that gets it, there are a thousand more that are stuck in the past eras of compliance. Those are the folks we need to focus on and provide them a cost effective and compelling path to the future.
For more information and a link to the Haugh’s articles please click below: