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Editor's Note: Take a look at our featured best practice, Corporate Social Responsibility (CSR) Opportunities (21-slide PowerPoint presentation). Corporate Social Responsibility (CSR) is an organization's commitment to produce an overall positive impact on society. CSR encompasses sustainability, social and economic impact, and business ethics. It makes a company socially accountable of its operations, stakeholders, and to the [read more]
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Corporate non-compliance is a major issue across the world. Highly public cases involving major corporations point to the fact that the usual descriptions of why business employees perform illegal acts are misdirected.
No Compliance Program can completely eradicate unwanted conduct by a few employees. Behaviorally aware programs, however, show potential of realizing the main goals of Compliance i.e., reduction in unethical and illegal behavior within the company.
To this end, cognizance of employee behavior is vital, of which Decision-making is the most important part. Humans make decisions using 2 ways:
Since System 2 takes more mental effort, humans tend to rely mostly on System 1 for most of the Decision-making. The problem with that is people tend to use System 2 to justify decisions made using System 1 instead of judging their decisions by it.
Although Behavioral Ethics Research is the foundation for studying System 2’s failure to prevent Unethical Behavior, it does not completely explain it. Criminology helps us go further in this regard.
Criminologist point at fulfilment of 3 conditions for an unethical act to occur:
Effective methods for compliance pay attention not on the way government regulators respond to compliance initiatives rather on how employees—the actual users—will be affected.
Behavioral Strategy in conjunction with criminological insights suggests the following 3 cost-effective steps that companies can take to steer away from the innate behavior of serving self-interest that results in compliance violations:
These 3 simple steps aid in improving the behavioral implications of the Compliance Program, overpowering employee rationalizations that end up in violations.
Let us delve a little deeper into some details of the 3 steps.
Objective of this step is to apply various theories like dual system of thinking, rationalization, and behavioral ethics—which have been in existence for quite some time—to the business particularly to compliance related issues in a holistic fashion. Companies are just starting to realize the significance and effectiveness of this practice.
Hiring an expert externally or developing someone internally, to stay informed of the different fields and their growing insights into ethical business decision making, is the 1st step in ensuring compliance with ethical behavior.
The next step involves employing best practices—motivated by Behavioral Science which is at the core of criminology and behavioral ethics, such as nipping violation risk in the bud through preliminary declarations, having moderated conversations among employees, sharing success stories—to stamp out the root cause of unethical behavior. Compliance Programs should have the objective of eradicating rationalizations, if they are deemed to be the cause and root of employee misconduct.
The last step entails deploying appropriate reward and incentive structures—monetary, otherwise, or in combination—to positively influence the way compliance is viewed by employees within an organization.
Research suggests that in case of significant corporate trust violations, the main reason, frequently, pertains less with a rogue employee and more with sections of the organization that are dysfunctional, conflicting, or incongruent.
Interested in learning more about Ending Non-compliance and Unethical Behavior in companies? You can download an editable PowerPoint on Corporate Compliance: Ending Unethical Behavior here on the Flevy documents marketplace.
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