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When it’s not your hand in the cookie jar

I recently returned from the latest ECI Fellows meeting, which focused on behavioral ethics. This post is part of a series where I share my insights and lessons from the meeting.

Behavioral science has demonstrated that it is easier for people to rationalize unethical behavior when they are not the one doing it.

For example, a child might resist the temptation to steal a dollar at home to buy cookies at school. But if her big sister steals the dollar and offers to split the cookies with her, she is likely to accept them. After all, she didn’t steal the money.

Or take the adults that worked at Wells Fargo. Many of those who supervised the front-line employees opening fraudulent accounts knew what was going on. But they weren’t the ones opening the accounts.

As ethics & compliance professionals, we should be on the lookout for similar dynamics in our organization. It’s often risky to grant approval powers where the pressure and opportunity is greatest (once again, the fraud triangle at play). When we identify a dangerous situation (usually after an investigation), we need to take action either by removing the pressure or elevating the approval/responsibility up the chain of command.

For 5 years, Wells Fargo allowed its supervisors to rationalize the unethical behavior of their direct reports by making sure the supervisors had no part to play in actually opening the fraudulent accounts. Where do you see a similar pattern in your organization today?

Is it safe to report wrongdoing?

I recently returned from the latest ECI Fellows meeting, which focused on behavioral ethics. This post is part of a series where I share my insights and lessons from the meeting.

According to a 2018 report from the Association of Certified Fraud Examiners, 40% of workplace wrongdoing is identified through tips provided by employees. No other form of identification comes close (internal audit, IT controls, surveillance, etc.).

This is noteworthy for at least two reasons, both related. First, this high percentage is achieved despite a strong fear of retaliation by employees (reports of retaliation doubled between 2013 and 2017). Second, we can unleash even more reporting if we invest in our speak-up culture rather than in our controls.

Companies should make sure they have an anonymous reporting channel and a non-retaliation policy in place. Beyond these program elements, they should focus on creating a culture where people don’t feel pressured to compromise standards and feel safe when reporting concerns (i.e. don’t fear retaliation). If done well, I would like to think that 80% of wrongdoing could be identified by employee reporting (and the rest by controls).

How can you start down that path today? Identify a business pressure and tell your employees you do not expect them to compromise their standards to overcome this pressure. Then – and this is key – ask them how they intend to meet their goals despite this pressure. They won’t believe you truly want them to do things the right way until they truly believe you care about how things get done. Once that belief is set, they will feel safe to report wrongdoing and won’t fear retaliation for doing so.

If you pay peanuts, you’ll get monkeys

I recently returned from the latest ECI Fellows meeting, which focused on behavioral ethics. This post is part of a series where I share my insights and lessons from the meeting.

If you grossly underpay someone, don’t expect superior performance.

Or ethical performance.

Of course, a small percentage of people will perform ethically and flawlessly no matter how little you pay them. Similarly, a small percentage of people will perform miserably and unethically no matter how much you pay them. But, eventually, the first will quit and the other will be fired (after costing you dearly).

The vast majority falls in the middle. The danger with underpaying someone, or with treating them unfairly in any way, is that it allows them to rationalize their bad behavior. They steal company property, they cheat on their expense report, they lie to a customer – all because they feel financial pressure and injustice. It’s the classic manifestation of the fraud triangle.

So unless you lead a volunteer organization, treat your employees fairly and pay them a decent wage. It will directly and positively affect their business and ethical performance.

A low-cost, low-tech method of predicting wrongdoing

I just returned from the latest ECI Fellows meeting, which focused on behavioral ethics. This post is part of a series where I share my insights and lessons from the meeting.

With today’s technology, it is tempting to turn to sophisticated tools to predict wrongdoing.

But the allure of a shiny new toy should not make us forget a long-standing, low cost and low-tech predictive method: watching those who are nearing a goal.

The employee who exceeded her quarterly goal three weeks early is not nearly as dangerous as the one who is just short of it with only three days to go. For her, the temptation to lie to a customer or to forge a signature is much greater.

So set aside some time each week to read the latest articles on behavioral ethics. You are likely to discover simple ways to prevent, deter and detect common forms of wrongdoing.

Ready to work on your culture? Don’t neglect your program.

I just returned from the latest ECI Fellows meeting, which focused on behavioral ethics. I will devote the next few posts to insights and lessons from the meeting.

Research from the Ethics & Compliance Initiative (ECI) has demonstrated that organizations with a robust compliance program and a strong ethical culture generate outcomes that reduce business risks.

Findings from the 2007 ERC National Business Ethics Survey

That research, first published in 2007, also found that while a strong culture has a greater effect on the outcomes, that effect is manifested only when a robust program has been put in place first.

In a more recent report (2018), ECI demonstrated an additional benefit of starting with a robust compliance program: the stronger the program, the more employees perceive that they work within an ethical culture. In other words, without any effort towards improving your culture, you improve it by working on your program. As if this wasn’t cool enough, it means that your outcomes will also improve by an order of magnitude.

Let’s test this. Imagine two employees freshly hired in two different organizations where no effort is made on programs or culture, except that one of the organization has a code of ethics. Which employee is more likely to feel like they just joined an ethical organization? Which employee is more likely to pause before doing something that seems wrong to them?

Of course, a code of ethics alone does not make a robust compliance program, nor will it create an ethical culture. The hypothetical above was exaggerated for effect. But when an organization builds a program, drip by drip, with a code and policies and training and controls, etc., it sends a message that it cares about doing the right thing.

So while many organizations today are rushing to work on their culture because that’s what everyone is talking about, they should not neglect the importance of keeping their programs fresh and keeping them front of mind for all their employees.

When the law is unjust

Yesterday I visited the National Museum of African American History and Culture in Washington, D.C.

As a human, I was hurt by the wickedness of some and moved by the courage of others. As an ethics & compliance officer, one of the many things that struck me was how unjust the law can be. We commonly say that the rule of law is preferable to the rule of man. While that is often true, it ceases to be when man creates laws that support injustice.

There are unjust laws still today. And there are unjust policies in organizations. The ethical leader must remember that ethics is not simply a requirement that we go beyond what the law requires. It is, at times, a duty not to obey the law.

A hundred years from now, people will look back at the public laws and private policies in place today and pass judgment. What ought we to change?

Employee activism

Some Wayfair employees took to the streets yesterday after learning that their company had authorized the sale of beds to a federal contractor operating detention centers for children at the US border. They wanted no part of it.

Employee activism is on the rise, in part because more employers are promoting a speak-up culture. It’s often best for companies to learn about problems before they reach the customer, or the press, or the regulators. But while companies want their employees to raise quality concerns with their supervisor before a product ships out, they don’t necessarily want them to take to the streets with a bullhorn.

The younger generation of workers is increasingly choosing to work at companies like Mayfair because they don’t want to support organizations that make cigarettes or weapons or products that hurt animals or the environment. This is positive because companies get workers that believe in their purpose, which improves performance.

Until there’s a disconnect.

A speak-up culture is good but companies need to listen up as well. When detention centers or opioids or racism hit the news cycle, companies need to turn to their employees and ask “What should we do about this, if anything?”

Want a good culture? Ease up on the scary stories.

In a recent piece, Andre Pinto reminds us that “exposure to other people’s dishonesty might lead us to be dishonest as well.”

Pinto points out that our moral compass is not fixed and can be swayed by how things are done around us. It can be swayed either way, so that other people’s honesty can also lead us to be more honest. The same goes with trust, respect or integrity.

This highlights the danger of sharing a disproportionate number of real cases of wrongdoing within a company, a practice that many ethics and compliance programs have adopted. By sharing bad examples on a weekly or monthly or even quarterly basis, we risk normalizing the behavior and increasing its frequency.

I have written before about the benefits of recognition. My take has usually been that when we “recognize” one person for their good behavior, what we actually do is help everyone else recognize the behavior we want to see. Well, social science tells us that if they see it often enough, they might start adopting it. Thus, we ought to favor positive examples over negative ones.

Corruzione

Within 10 years, we will all be reading about corruption scandals in Italy.

How do we know this? The International Olympic Committee just selected the country to host the 2026 winter Olympics.

Billions (trillions?) of euros will converge on the cities of Milan and Cortina d’Ampezzo in the next few years. Corrupt business people and politicians have already laid their plans.

So if your organization has a presence in Italy, the time to start building your defenses is now. Review your policies, create a multi-year training plan, implement new controls and schedule audits. More importantly, review all your processes and make sure they create the right culture.

Olympic Games and corruption go hand-in-hand. You can choose not to be part of it.