Keep it fresh

If a business keeps selling the exact same product or service for 10 years (think Blockbuster), chances are that a competitor with a fresh offering will displace it.

Support functions in a business (like HR, finance, and ethics & compliance) don’t have the same competition. So many of them to the exact same thing, over and over again. Same onboarding, same reports, same training – while the world is changing.

Eventually this creates a drag on the business, giving an edge to competitors with better support functions. If we don’t recognize where that edge comes from, we will simply ask the sales force to “sell harder”. That pressure is likely to lead to wrongdoing (remember the fraud triangle?), which must be addressed by – you guessed it: stale support functions. Talk about a vicious cycle.

Never lose sight that changes in the marketplace impact more than your products and services; they also impact vital support functions like ethics & compliance.

Keep it fresh.

HT to Seth Godin

Fair wages and generous tips

A waiter paid $2.13 an hour is as vulnerable as a salesperson who lives almost exclusively from commissions. Neither can earn a living without the tips or the commissions. In good times, that might not be a problem. In a downturn, that financial pressure will often lead them to engage in wrongdoing.

A recent study of “tipped service workers” show that many do not enforce COVID-19 safety measures at their bar or restaurant for fear of losing their tips (the study also shows in increase in harassment of such workers). In an economy where tip workers have lost half their income because fewer people go out to eat, workers cannot afford to lose their tips. Even if this means putting themselves and others at risk.

So when a patron gets up from their table to go to the bathroom and doesn’t wear their mask, the waiter reluctantly looks the other way. Or, worse, when a patron asks his server to take off her mask so he can decide how much to tip her (gasp!), she puts her health, and other people’s, at risk. According to the CDC, adults who had contracted COVID-19 were twice as likely as virus-free adults to have recently dined at a restaurant (source).

A big part of the solution is to pay employees a fair wage, so they don’t feel pressured to break the rules. A salesperson who can pay the rent is less likely to forge the signature of a customer on a fake contract to make his monthly commission. A waiter who can keep the heat on this winter is more likely to keep her mask on too.

And for goodness’ sake, let’s tip generously.

Pressure and rationalization

Many of us work in an industry that is affected by the pandemic.

Each week that passes increases the pressure to get going again. Employees, customers and suppliers are hurting.

Soon, some in your organization will feel justified in cutting corners. Who are they likely to be? Where in your organization are they likely to sit? When are they likely to strike?

It will happen, and you won’t be able to fake a surprise.

Get the answers now.

Let the pressure propel you

I often write about two topics on this blog: the fraud triangle and the science of total motivation.

The fraud triangle tells us that given enough pressure, a person will engage in fraud (or any wrongdoing, really) if they think they can get away with it and if they can rationalize their behavior. The science of total motivation (ToMo) demonstrates that pressure can hurt business performance.

The common culprit is pressure. And the question for any organization affected by the COVID-19 pandemic is: are your employees feeling additional pressure right now? If the answer is yes, then you know what to expect.

But external pressures can also propel organizations willing to improve their culture, to experiment with ways to cope with this crisis, to align their purpose with the goals of public health, and to take steps today that will make them stronger when the pandemic is over. The worse thing they can do is to hunker down.

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?

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.

The forgotten sides of the fraud triangle

We have known about the fraud triangle for decades. Fun fact: it has three sides.

Yet, whenever we identify fraud in the organization, our automatic reaction is to work on reducing opportunity. Opportunity is easier to work on. If someone uses the company checkbook to write a check to themselves and embezzle money, we reduce the opportunity by requiring two signatures on checks going forward.

We’ve been working on opportunity (policies, rules, internal controls, audits) for a long time and yet employees still engage in wrongdoing.

Can someone please remind me of the definition of insanity?

I suggest it’s time to focus on pressure (both emotional and economic) and rationalization.

It’s time we re-think how we compensate our employees, how we weaponize data with scorecards that aim to shame our employees into performance, how we operationalize trust.

Addressing pressure and rationalization is a lot more difficult. But most compliance programs have reached the limit in terms of what additional controls can do. In fact, too many controls can add pressure and help rationalize bad behavior.

A good place to start on this new journey is outlined in a fantastic book titled Primed to Perform.

Look around. It’s clear that we need to start performing differently.

Impact 2018 – ECI Annual Conference – Day 2

The keynote speaker for Day 2 was Neel Doshi, co-author of Primed to Perform.

Based on the review of 100 years of social science studies and their own research, Doshi and McGregor demonstrate that how “why we work determines how well we work.” While it may appear that this book is about business performance, it has a lot to do with ethical performance.

People show up at work for various reasons. A few of us feel like we’ve won the lottery and do a job that we thoroughly enjoy. We simply can’t believe that we’re getting paid for this! Some of us do work because of its noble purpose or for the potential it creates. Meanwhile, many of us go to work under pressure, either emotional or financial. Finally, some of us go to work because… well… we don’t really know. This is the only thing we’ve ever done. What else are we going to do?

The low end of this spectrum (not knowing why we work) is called inertia. From a performance perspective, these employees do the bare minimum. From an E&C perspective, these are folks who, when asked why they do things a certain way, respond “I don’t know. We’ve always done it that way!” They don’t see the risks. They don’t care. They won’t raise their hand when something’s wrong. They are extremely dangerous to the organization.

Moving up on the spectrum are those who work because they are pressured to do so. Their focus is not on the work itself but on relieving the pressure. Thus, their performance suffers. From an E&C perspective, we have long known that these employees are more likely to engage in fraud or other wrongdoing if given the opportunity and a rationale (the three points of the fraud triangle).

As we move closer to the high-end of the spectrum, we find people who care more about the work itself than about external pressures. Those who care tend to perform better. From an E&C perspective, absent significant pressures, they are unlikely to engage in wrongdoing.

The lesson for organizations is this: how responsible are you for creating pressures in the workplace? Are you creating scorecards and weaponizing the data? Are your sales people compensated solely on commissions? In addition, are you creating potential for your employees? Can they see the impact of their work on the end-customer (purpose)? Are the jobs designed to maximize enjoyment of the work itself?

The science shows that getting this right will improve performance and the bottom line. And, as a significant benefit, it will also improve the ethical culture of the organization.

Whose choice is it?

When it comes to the fraud triangle, employers can choose how much opportunity and pressure they will expose their employees to.

And employees can choose how they will rationalize their behavior.

We don’t control everything but our realm of choices is still pretty vast.

Knowing this makes it clear that the next corporate scandal is entirely avoidable.

If we choose to avoid it.

Obstacles

The fraud triangle shows how inflicting emotional or financial pressure on employees can cause them to break the rules.

What makes any level of pressure worse is the failure of management to remove obstacles preventing employees to do their work.

Employees who can’t meet their goals because management is not willing to remove obstacles will choose one of the following paths:

They will tell management that they cannot meet the goals until the obstacles are removed. This can be career-limiting.
They will shift their focus from meeting the goals to removing the obstacles – the right way. This is rarely successful because these employees do not have the requisite authority or influence. If they succeed, there is little time left to work on the original goals.
The will break the rules to go around the obstacles. If they get caught, they will be blamed. If they get away with it, they will be emboldened. If they are not emboldened but rather disgusted with how they had to reach their goals, they will leave the organization and go work where management cares.

A good question for team leaders to ask is: “What obstacles can I remove for you today?”