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

Fraud_Triangle.png

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?”

 

Self-inflicted wounds

We have known for a long time that the right amount of pressure – emotional and financial – can lead people to commit fraud (see fraud triangle).

Yet, organizations continue to use all kinds of scorecards and incentives to apply financial pressure and shame their employees.

And then, when something goes wrong, when someone breaks the rules, the organization says that a “bad apple” is responsible for this “isolated event”.

Every time.

Really?

 

Book report: Primed to Perform – Rethinking Performance

51B5yNM51AL._SY344_BO1,204,203,200_

Reading notes by Yan Tougas

Rethinking performance

There are two types of performance: tactical performance, or the ability to execute a plan, and adaptive performance, or the ability to diverge from plan.

Today, when organizations measure performance, they typically measure only tactical performance, mostly because adaptive performance is very difficult, sometimes impossible, to measure.  But only measuring tactical performance is an incomplete measure of performance.

When the work requires only tactical performance (e.g. placing an item in a box on an assembly line), the presence of indirect motives may not decrease performance, and may in fact increase it.  Assembly line workers who have been boxing an average of 10 items per minute without a financial incentive may actually box a few more if you offer a bonus for every additional item they box over 10.

Work that requires only tactical performance is rare.  Most work is subject to some volatility, uncertainty, complexity, and ambiguity (known as “VUCA” in the military).  VUCA demands that workers diverge from the plan, that they adapt.  They need adaptive performance, which is negatively affected by indirect motives, as demonstrated by the distraction, cancellation, and cobra effect.

Distraction effect – Hundreds of studies have demonstrated that emotional and economic distractions reduce overall performance.  If you ask math students to complete a series of problems as quickly as they can while sitting alone in different booths, they will perform better than if you place them all in the same room, standing up at the same board, and asking them to sit when they are done.  The last ones standing are often unable to solve the last problems as everyone else is looking on; the emotional pressure is too high.  Similarly, if you offer these students a large sum of money (hundreds of dollars) to complete as many problems as possible within a given time, they will solve fewer than when a small reward (or no reward) is offered.  In both cases, the students have two things to focus on: solving problems and looking smart/making money.  The more distracted they are, the more performance suffers.

Cancellation effect – Studies have shown that rewards cancel out the natural sense of play – that part of us that does the work for the pure joy of it, and the strongest of direct motives.  Experiments have shown that workers who are naturally helpful (i.e. helpful without promise of a reward) cease to be helpful when a reward is introduced and later withdrawn.  Additionally, when you reward one thing you often create a trade-off.  Rewarding quantity often affects quality.  A focus on near-term can affect long-term results.  And so on.

Cobra effect – When India was a British colony, the Brits tried to reduce the number of cobras roaming the streets by offering a reward for every dead one brought in.  It didn’t take long for someone to build a cobra farm.  That’s when the Brits realized that they didn’t want more dead cobras, they wanted fewer live ones.  But dead cobras are much easier to count, so that’s what they measured.  Every job creates the opportunity for maladaptive performance.  When motivation is low enough (i.e. when levels of emotional and/or economic pressure are high), people find the easiest way to relieve that pressure (think fraud triangle).  Call center workers hang up in the middle of a call to get on the next one simply to meet their duration or volume goals.  Sales people kill the margin at the end of the quarter to meet revenue goals.  When cobra farms are discovered, organizations can either eliminate the indirect motive and build a better culture; or they can keep the reward system in place and add controls.  Most organizations choose the second option because it is easier to create.  They also assume that nothing is wrong with their culture and that the wrongdoers, however numerous, are simply bad apples.

These three effects reduce adaptive performance until it produces maladaptive performance.  Meanwhile, tactical performance can remain high (the sales person will shift all of her attention to selling and stop being helpful to colleagues – individuality/teamwork trade-off).  Those who only measure tactical performance don’t notice the crippling effects on adaptive performance, and ToMo goes down “inexplicably”.  We should be alarmed because adaptive performance is the secret sauce behind innovation, creativity, great customer service, distinctive salesmanship, etc.