Creating, Measuring and Maintaining a Culture of...

© 2016 Carsten Tams

PLI Advanced Compliance and Ethics Workshop 2016

© Carsten Tams

New York, October 18, 2016

Creating, Measuring and Maintaining a

Culture of Compliance

2 © 2016 Carsten Tams 2 © 2016 Carsten Tams

What percentage of people

in a company have

a) the power and

b) the motivation

to commit a crime that can

cause significant material

damage to the company?


What The Bagel Man Saw, by Stephen J. Dubner and Steven D. Levitt, June 6, 2004,

http://www.nytimes.com/2004/06/06/magazine/what-the-bagel-man-saw.html?_r=0

Motivation

How many people are stealing bagels when no one is watching?

How many bagels

get stolen?

How many times did the

money box get stolen?

“$1 per bagel

please leave money in box”

11% 1 in 7,000 (0.014%)


– Compliance

communication

addresses everyone.

But that information is

relevant only for a small

minority of colleagues.

– Do low risk colleagues

respond adversely to

compliance

communication?

– How can the majority of

low risk colleagues in a

positive way?

How many employees are a risk factor?

Motivation to commit crime (%)

Po

we

r to

ca

use

ma

teria

l d

am

ag

e (

%)

10

20

30

40

50

60

70

80

90

100

10 20 30 40 50 60 70 80 90 100

5 © 2016 Carsten Tams © 2016 Carsten Tams

.

Compliance management


Humanism

Aristotle Rousseau Jefferson Maslow Rogers Deci Ryan

Realism vs. humanism: two paradigms of governance

Realism

Thucydides Hobbes Madison Beccaria Bentham Skinner Becker



Realism

Thucydides Hobbes Madison Beccaria Bentham Skinner Becker

– selfish utility maximizer /

moral blank slate

– lack capacity for self-

governance

– need for enforcement by

governing authority

– behavioral control through

extrinsic incentives

human nature governance



– social beings

– capacity for moral agency

– self-governance / collective

governance

– support for self-regulated

moral agency

human nature governance

Humanism

Aristotle Rousseau Jefferson Maslow Rogers Deci Ryan


Skeptical view of human nature

Human beings are influenced by their

passions, impairing their capacity to

make good judgments that conform to

the dictates of reason and justice.

Emphasis on control

To prevent government by the people

to turn into tyranny, a system of

checks and balances is necessary

(“auxiliary precautions”).

The Great Debate: Centralized control vs. civic governance

HUMAN NATURE GOVERNANCE

James Madison

Thomas Jefferson

Positive view of human nature

Human beings naturally possess a

moral instinct, regard for the well-

being of others and sense of duty

to them.

Emphasis on freedom and support

Good government is best ensured

by placing it under the control of

the people.

Good government requires citizens

who are informed and educated

in habits of virtue.

© 2016 Carsten Tams


The classical / neoclassical / behaviorist position:

Crime is a function of costs and benefits

Jeremy

Bantham

B.F.

Skinner

The approach taken here follows the economists' usual

analysis of choice and assumes that a person commits an

offense if the expected utility to him exceeds the utility he

could get by using his time and other resources at other

activities. Some persons become "criminals,"

therefore, not because their basic motivation

differs from that of other persons, but because

their benefits and costs differ.

The punishment suffered by the offender

presents to everyone an example of what

he himself will have to suffer if he is guilty of

the same offense.

Gary

S. Becker

Cesare

Beccaria


Agency theory

Principle/agent problem

– Agents act on behalf of principles

– Agents are self-interested utility maximizers

– Objectives are misaligned

– Information asymmetry

– Agency cost

Solution

– Monitoring

– Incentives

principle

agent

delegation conflict of

interests


Behaviorist psychology

The consequences of an

act affect the probability

of its occurring again.

B. F. Skinner


Behavior Consequence Change in behavior

Behaviorist psychology – Operant conditioning

Positive reinforcement (“Reward”)

Expl.: bonus or promotion for compliant

behavior

Negative reinforcement (“Escape”)

Expl.: time off from work for reporting

misconduct

Compliance

Frequency of

compliance

increases

Presentation punishment

Example: warning, mandatory

compliance training

Removal punishment

Example: claw-back, demotion

No reinforcement (“Extinction”)

Non-compliance

Frequency of

non-compliance

decreases


– the act of doing what you

have been ordered to do

– conformity in fulfilling

official requirements

– a disposition to yield to

others

being governed

by others

Compliance management


The limits of compliance management


4th week: introduction of a fine for late arrival

(10 NIS for a delay of ten minutes or more)

17th week: fine is cancelled

Effect: increase in the number of late arrivals

after the introduction of the fine

Effect: After cancelling the fine, number

of late arrivals stays high.

The economic approach

Testing the deterrence hypothesis

Source: Gneezy, Uri and Rustichini, Aldo (2000) "A Fine Is a Price," Journal of Legal Studies: Vol. 29: No. 1, Article 1.

Available at: http://chicagounbound.uchicago.edu/jls/vol29/iss1/1

Average number of late-coming parents, per week

Week number

Late

arr

ivals

Group with fine Control group

Study in a group of day-care

centers, where parents were

coming later than the due time to

collect their children:

>> Does the introduction of a

penalty reduce the occurrence

of the behavior subject to the

fine?


Competence

Self-actualization

Personal growth

Initiative & creativity

Well-being

Role modeling, volunteerism

Self-regulation, compliance

Identification with

organizational goals

Task performance

Self-determination theory

Effects of a needs-supportive environment

Relatedness Autonomy

Delegation & empowerment

Information & dialog Learning & development Participation

Fair compensation Work/life balance

Job security

Intrinsic motivation



Effects of a needs-thwarting environment

Competence Relatedness Autonomy

Threats

High stress Extrinsic rewards Control

Lack of fairness Micro management

Job insecurity

Ill-being

Antagonism, defiance, sabotage

Reluctant compliance

Alienation

Personal stagnation

Passivity, phlegmatic affect

Low discretional effort,

quit pro quo-mentality

Low intrinsic motivation


Incentives: Efforts to control

people’s behavior through

incentives diminishes intrinsic

motivation associated with the

controlled behavior (see effects

of corruption, crowding-out,

over-justification).

Contingent compliance:

Once following social norms

has become instrumental,

compliance will persist only so

long as it serves the

instrumental goals (avoiding

detection and punishment).

Non-reversibility: Prior

intrinsic motivation cannot be

simply restored by removing

incentives.

Positive versus negative

feedback: Positive feedback

increases intrinsic motivation

to repeat a task. Negative

feedback has the opposite

effect.

Defiance: When people feel

that their behavior is controlled

by incentives, this may lead to

oppositional defiance (see

reactance theory).

Internalization of external

norms is facilitated by an

environment where people feel

secure and cared for

(relatedness), experiences

mastery in performing the

requested behavior

(competence), and perceive

the external regulation to

support their goals, facilitating

a sense that the behavior is

self-determined (autonomy).


Implications for conforming with social norms

Richard

Ryan

Edward

Deci


CEB Training Study

Majority perceives training as unsatisfying, irrelevant and inconsequential

29%

35%

35%

36%

35%

37%

40%

24%

34% Participating in training is a good use of my time

I enjoyed the training

I received the right amount of training

I apply what I learned to my job

Training was relevant to my job

Remember the key lessons presented in the training

Training improves my ability to make ethical business decisions

Training improves my perception of the Legal or Compliance Dept.

The training helps me perform my job better

Source: Compliance and Ethics Training Benchmarking Report, CEB Compliance &

Ethics Leadership Council,

October 2013

Training satisfaction

Training relevance

Training impact


CEB: Most misconduct is not reported

© 2016 CEB. All rights reserved. CELC5806616SYN

3%


The human capacity for moral agency


The position of organizational & humanistic psychology

People have a capacity for moral virtue

Abraham

Maslow Douglas

McGregor

Carl

Rogers

Richard

Ryan

Edward

Deci

Albert

Bandura

For as man is the best of all animals

when he has reached his full development,

so he is worst of all when divorced from

law and justice.

Aristotle


Promotive moral agency: The power to actively enact benevolent, prosocial behavior.

What is moral agency? More than not breaking rules.

Inhibitive moral agency: The power to refrain from harmful behavior.

Participating in codification of values

– Participating in defining and evaluating shared

values

Enacting shared values

– Considering whether business decisions are

consistent with shared values

– Participating in business deliberations and decisions

– Making shared values part of the conversation

– Making one’s own commitment to shared values

visible to others

Intervening when values are at risk

– Being attentive to visible signs of misconduct

– Being a witness

– Voicing concerns, dissenting

– Reporting misconduct

Seeking help from others when necessary

– Knowing when it is necessary to seek support from

others (colleagues, local management, corporate,

E&C)

– Seeking qualified advice when having concerns or

questions about appropriate conduct

– Seeking support to stop misconduct

Helping others in their moral agency

– Encouraging others to participate actively in

deliberations and decisions

– Coaching others in evaluating business decisions

– Coaching others in how to respond effectively when

shared values are at stake

– Encouraging others to exercise moral agency

– Praising others who have exercised moral agency

– Coming to the assistance of victims

– Providing support to colleagues who are intervening

to stop misconduct

– Protecting others from retaliation


Why do systemic compliance breakdowns occur?

failure to

comply

Failure to comply:

– breaking laws, policies,

ethical standards


Why do systemic compliance breakdowns occur?

failure to

comply

failure to

intervene

Failure to intervene:

– bystander apathy

– willful blindness

– not reporting

– not supporting those who

suffer misconduct (duty to

rescue)

– not protecting those who

report misconduct

Failure to prevent:

– failure to assess risks

– failure to implement

adequate control measures

– failure to create ethical

culture (e.g., tone from the

top, overly aggressive

performance mgmt.,

autocratic leadership)

failure to

prevent


Collective efficacy


A new goal for managing organizational integrity:

Strengthening self- and collective efficacy

Self-efficacy

People’s beliefs about their

abilities have a profound effect

on those abilities.

Persons who have a strong

sense of efficacy deploy their

attention and effort to the

demands of the situation and are

spurred by obstacles to greater

effort.

If self-efficacy is lacking, people

tend to behave ineffectually,

even though they know what to

do.

Collective efficacy

Perceived collective

efficacy is defined as

a group's shared belief

in its conjoint capabilities to

organize and execute the

courses of action required to

produce given levels of attain-

ments.

Perceived collective efficacy will

influence what people choose to

do as a group, how much effort

they put into it, and their staying

power when group efforts fail to

produce results.

Albert

Bandura


People with a

strong sense of

self-efficacy

Sources of self-efficacy information Behavior / performance

Self-Efficacy

Factors strengthening ethical self-efficacy

develop deeper interest in

the activities in which they

participate

form a stronger sense of

commitment to their interests

and activities

recover quickly from

setbacks and

disappointments

view challenging problems as

tasks to be mastered

Mastery Experiences

– Experience of successful

attempts of moral agency +

Social Modeling

– Vicarious experiences

– Observing others succeed (e.g.,

being praised) when exercising

moral agency

+

Social Persuasion

– Getting verbal encouragement to

exercise moral agency

– Receiving praise for exercising

moral agency

+

Somatic & emotional states

– Feeling calm and reassured in

situations requiring moral agency

+


People with a

weak sense of

self-efficacy

Sources of self-efficacy information Behavior / performance

Self-Efficacy

Factors undercutting ethical self-efficacy

believe that difficult tasks

and situations are beyond

their capabilities

focus on personal failings

and negative outcomes

quickly lose confidence in

personal abilities

avoid challenging tasks

Performance accomplishments

– Lack of experience with moral agency

– Failed attempts of moral agency –

Social Modeling

– Observing bystander-behavior

– Observing others fail or being scolded

when exercising moral agency –

Social Persuasion

– Perceiving others doubting one’s moral

agency or being criticized for exercising

moral agency

– Receiving praise for mediocre

performance / low standards

–

Somatic & emotional states

– Experiencing anxiety, stress in situations

requiring moral agency

–


Collective efficacy

Community policing emphasizes work-

ing with neighborhood residents to co-

produce public safety. Law enforce-

ment agencies should, therefore, work

with community residents to identify

problems and collaborate on imple-

menting solutions that produce mean-

ingful results for the community. Speci-

fically, law enforcement agencies

should develop and adopt policies and

strategies that reinforce the importance

of community engagement in managing

public safety.”

Community policing

Citizens contribute to crime control.

Willingness to

intervene for the

common good

Social cohesion

and trust

Community’s

collective

efficacy

Lower rates of

crime in the

community

Ability to

mobilize

informal social

control

“Community Policing & Crime Reduction


Collective efficacy reduces crime

Source: Sampson, 2012


Potential

delinquent

Sources of social control

Use of local institutions (e.g.,

schools, churches, businesses,

social agencies)

In the organizational context:

Local managers

HR Department

Employee representatives

Use of formal enforcement

mechanisms (e.g.,

police, judicial system)


E&C Department

GRC functions

Individual-level intervention

intervening

helping

speaking up

encouraging others to

exercise and praising

moral agency

Use of group resources

(involves neighbors, friends)


seeking support from colleagues

providing support to colleagues

Institutional social control

Informal social control: group

“Public” social control

Individual efficacy


The promise of integrity management


The goal of integrity management:

Creating an environment that supports self-governance

… organizational integrity is based on the

concept of self-governance in accordance

with a set of guiding principles. From the

perspective of integrity, the task of ethics

management is to define and give life to an

organization’s guiding values, to create an environment

that supports ethically sound behavior, and to instill a

sense of shared accountability among employees.

Lynn S.

Paine


Foundations of integrity management

Aristotle


Foundations of integrity management

Research on Organizational Citizenship Behavior

employee

voice

moral

agency

purpose &

meaningful

work

autonomy

cohesion,

belongingness

organizational

justice

participation

in decision-

making

competence,

self-efficacy

leadership

styles

Individual behavior that:

– is discretionary,

– is not directly or explicitly recognized by the formal reward system,

– promotes the effective functioning of the organization.


Three dimensions of culture

behavior


Elements of integrity culture supporting moral agency

Moral agency flourishes

in organizations…

moral

agency

organizational attributes actor attributes

… that pursue the good of the whole

community.

… that entrust employees with freedom to be

proactive and exercise a large degree of

control over their work lives.

… where employees feel they are a valued

member of the community.

… that practice justice towards employees.

… where employees participate actively in

deliberation and decision-making.

… that support employees’ competence in

acting as moral agents.

… where leaders support those around them

to lead with values.


Application: integrity training


– Voicing strategies: A focus on how a leader or manager

raises values-based issues in an effective manner—what

he/she needs to do to be heard and how to correct an existing

course of action when necessary.

– Visualizing: Positive examples of times when people have

found ways to voice and thereby implement their values in the

workplace.

– Focus on strengths: An emphasis upon self-assessment and

a focus on individual strengths when looking for a way to align

one’s individual sense of purpose with that of the organization.

– Rehearsal: Opportunities to construct and practice responses

to frequently heard reasons and rationalizations for not acting

on one’s values.

– Peer support: Practice in providing peer feedback and

coaching.

Giving Voice to Values

Supporting skills for responding effectively when values are at stake


New objectives for

communication and learning

moral

agency

inform

about

rules

convey trust

in capacity for

moral agency

encourage

employees to

enact moral

agency reassure

employees

about mgmt.

protection &

support

provide

resources

(knowledge,

skills, tools)

discipline

monitoring

enhance

perceived self-

& collective

efficacy


Autonomy

– Rely on students’ intrinsic motivation for learning.

– Identify and nurture what students need and want.

– Act as a facilitator who provides structured guidance.

– Provide a compelling reason for why the learner will benefit.

– Offer choices (e.g., course choices and on-demand modules).

– Encourage active participation. Allow learner input (e.g.,

through interactivity, feedback).

– Allow self-directed learning (e.g., through adaptive navigation,

timing, pace, depth, progression of learning.

– Present content in such a way that it is applicable to the

learner’s experience.

– Make learning experiential by embedding theoretical content

into scenarios (story-based learning).

– Keep training short.

– Tone down the mandatory nature of learning.

Competence

– Address learners as peers, equipped

with ethical values.

– Provide optimal challenges, neither too

difficult nor too easy.

– Give positive and constructive

feedback.

– Develop strategies for responding

effectively to value conflicts.

– Invite user feedback / suggestions for

improvement.

Relatedness

– Treat learners with respect and

appreciation.

– Avoid language that could be perceived

as controlling or threatening.

– Create a positive atmosphere where

students feel safe to express their

feelings and opinions.

Application of Self-Determination Theory to training


Multiple awards for integrity training and communications initiatives


0% 20% 40% 60% 80% 100%

The topics were explained in an appropriate and understandable manner.

The comic-style illustrated scenarios conveyed the content of the training well.

The length of the training was adequate.

The graphics used to present the content appealed to me.

my company's position on complying with laws and regulations.

the principles described in the Code of Conduct.

how I can determine whether a particular decision complies with the Code of Conduct.

the contacts employees can turn to discuss a concern about potential misconduct

where employees can find further information about the Code of Conduct.

92% positive

90% positive

88% positive

84% positive

92% positive

90% positive

94% positive

93% positive

94% positive

Strongly agree; Agree; Neither agree nor disagree; Disagree; Strongly disagree

Number of participants: 1,566 as of March 23, 2015

General appeal of training:

Awareness of the tools provided: “The training informed me well about…”

Integrity training

Survey feedback shows high approval ratings


Conclusion


…focus on capacity building

– Address the audience as peers.

– Emphasize language of respect, trust, and

shared values.

– Focus on capacity building: support ethical self-

efficacy, by providing information, tools and skill

training for responding effectively to values

conflicts in the workplace.

Both a compliance-based and an integrity-based approach are essential

The key: knowing when to use which approach

When interacting with employees at large… When interacting with a specific employee after

a confirmed compliance violation…

…apply consequence management

– Investigate thoroughly.

– Apply bright-line rules consistently.

– Exercise zero tolerance discipline.


What are the hallmarks of integrity management?

Policies,

Procedures,

Controls

Oversight

Due Diligence

of Personnel

Communication

& Education

Monitor

& Audit

Effectiveness Enforcement &

Discipline Incidents

Response

& Prevention 4

7

5 6

1

2 3

? ? ? ?

?

? ? 4

1

3 2

7

6 5

Compliance management: deterring transgressive behavior through control

Integrity management: capacity building for self-regulated moral agency


I look forward to hearing from you

– Interested in discussing further?

– Have ideas for supporting moral agency?

– Interested in receiving forthcoming article?

Carsten Tams Senior Vice President

Ethics & Compliance

Bertelsmann

1745 Broadway

New York, NY 10019

USA

+1 (212) 782 1057

[email protected]

www.linkedin.com/in/carstentams


Treat people as if they were

what they ought to be

and you help them to become

what they are capable of being.

Johann Wolfgang von Goethe

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