Understanding Behavioral Ethics Can Strengthen Your Compliance Program

Behavioral ethics is a well known field of social science which shows—due to various cognitive biases—“how we are not as ethical as we think.” Practitioners of behavioral compliance and ethics (C&E), which is less well known, use behavioral-ethics insights to develop and maintain effective compliance programs. How do they do that?


This should be viewed on two levels. The first could be called specific behavioral C&E lessons, meaning enhancements to the various C&E program elements—for example, risk assessment and training—based on behavioral-ethics insights, several of which I will discuss. The second—and more general—aspect of behavioral C&E is the overarching finding that we are not as ethical as we think. The importance of this general lesson is based on the notion that the greatest challenges to having effective C&E programs in organizations is often more about the “will” than the “way.”


That is, what is lacking in many business organizations is an understanding that strong C&E is truly necessary. After all, if we are as ethical as we think, then effective risk-mitigation would be just a matter of finding the right punishment for an offense, and the power of logical thinking would do the rest. Findings in behavioral ethics has shown that that assumption is ill-founded.


Take risk assessment. Behavioral C&E can help those involved in assessment efforts to have a better understanding of behavioral risks. It can also help to design better internal risk-assessment procedures. Studies relevant to both have shown that individuals tend to optimistically (and inaccurately) predict their own future moral conduct but pessimistically (and accurately) predict the less moral future behavior of others. For those conducting risk assessments, the path suggested by this research is clear: To the maximum degree possible, one should not be seen as asking about the interviewee’s own risks but those of others. And, in providing information about others, at least in the aggregate, employees of an organization will likely be helping you analyze risks that in fact involve themselves.


Several behavioral ethics studies also show that people are more accepting of wrongdoing developed gradually rather than suddenly. This is commonly known as a “slippery slope,” a significant risk factor. The outcomes of slippery slope experiments should be discussed in training, at least at a high-level—particularly when training managers. It can be presented as part of a broader message that managers need to be not just personally honest but alert to ethically perilous situations.


Research also shows that simply making ethics more prominent—that is, reminding people about it—can impact behavior. Moreover, this works best if the reminder is done as close as possible to the time that someone is making a decision. These experiments can be very helpful when it comes to making training and other communications more effective. Just-in-time C&E communications have, in some ways, been around for a long time but only to a very limited degree. Opportunities for new or enhanced just-in-time communications exist for many C&E areas. These include (but are definitely not limited to): anti-corruption (before interactions with government officials and third-party intermediaries); competition law (before meetings with competitors—for example, 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); conflicts of interest (around procurement decisions); accuracy of sales/marketing (in connection with developing advertising, making pitches); and employment law (while conducting performance reviews).


Enforcement can also benefit from behavioral ethics insights. Research relating to “motivated blindness”—which concerns the tendency for people to easily miss information that contradicts what is in their own best interest—is relevant to two distinct elements of a C&E program: resolving conflict of interest issues, and deciding what to do when investigating violations of legal or ethical standards, and disciplining those at fault. This research underscores, for example, the importance of the Sentencing Guidelines expectation that organizations discipline employees not only for engaging in wrongful conduct but “for failing to take reasonable steps to prevent or detect” wrongdoing by others—something relatively few companies do well (and some don’t do at all).


To meet this important expectation, companies may wish to consider:


  • building supervisory accountability into policies—for example, in the managers’ duties section of a code of conduct;
  • speaking forcefully to this issue, and the underlying behavioral science research, in C&E training and other communications for managers;
  • training investigators on the notion of managerial accountability and addressing it in the forms they use so that they are required to determine, in each case, whether a manager having been asleep at the switch led to the violation in question;
  • publicizing (in an appropriate way) that managers have in fact been disciplined for supervisory lapses;
  • having auditors take these requirements into account in their audits of investigative and disciplinary records.


There is much more that can be said about behavioral C&E. I encourage you to explore the Ethical Systems website or the Conflict of Interest Blog, resources that have more information about the research referred to in this post.


Jeffrey M. Kaplan is a partner in the Princeton NJ office of Kaplan & Walker LLP and has been practicing in the compliance area since 1991.


This post was reprinted with permission from The FCPA Blog.