Creating, Measuring and Maintaining a Culture of...
Transcript of 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?
3 © 2016 Carsten Tams 3 © 2016 Carsten Tams
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%)
4 © 2016 Carsten Tams 4 © 2016 Carsten Tams
– 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
6 © 2016 Carsten Tams 6 © 2016 Carsten Tams
Humanism
Aristotle Rousseau Jefferson Maslow Rogers Deci Ryan
Realism vs. humanism: two paradigms of governance
Realism
Thucydides Hobbes Madison Beccaria Bentham Skinner Becker
7 © 2016 Carsten Tams 7 © 2016 Carsten Tams
Realism vs. humanism: two paradigms of governance
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
8 © 2016 Carsten Tams 8 © 2016 Carsten Tams
Realism vs. humanism: two paradigms of 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
9 © 2016 Carsten Tams 9 © 2016 Carsten Tams
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
10 © 2016 Carsten Tams 10 © 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
11 © 2016 Carsten Tams 11 © 2016 Carsten Tams
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
12 © 2016 Carsten Tams 12 © 2016 Carsten Tams
Behaviorist psychology
The consequences of an
act affect the probability
of its occurring again.
B. F. Skinner
13 © 2016 Carsten Tams 13 © 2016 Carsten Tams
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
14 © 2016 Carsten Tams 14 © 2016 Carsten Tams
– 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
16 © 2016 Carsten Tams 16 © 2016 Carsten Tams
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?
17 © 2016 Carsten Tams 17 © 2016 Carsten Tams
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
18 © 2016 Carsten Tams 18 © 2016 Carsten Tams
Self-determination theory
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
19 © 2016 Carsten Tams 19 © 2016 Carsten Tams
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).
Self-determination theory
Implications for conforming with social norms
Richard
Ryan
Edward
Deci
20 © 2016 Carsten Tams 20 © 2016 Carsten Tams
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
21 © 2016 Carsten Tams 21 © 2016 Carsten Tams
CEB: Most misconduct is not reported
© 2016 CEB. All rights reserved. CELC5806616SYN
3%
23 © 2016 Carsten Tams 23 © 2016 Carsten Tams
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
24 © 2016 Carsten Tams 24 © 2016 Carsten Tams
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
25 © 2016 Carsten Tams 25 © 2016 Carsten Tams
Why do systemic compliance breakdowns occur?
failure to
comply
Failure to comply:
– breaking laws, policies,
ethical standards
26 © 2016 Carsten Tams 26 © 2016 Carsten Tams
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
28 © 2016 Carsten Tams 28 © 2016 Carsten Tams
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
29 © 2016 Carsten Tams 29 © 2016 Carsten Tams
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
+
30 © 2016 Carsten Tams 30 © 2016 Carsten Tams
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
–
31 © 2016 Carsten Tams 31 © 2016 Carsten Tams
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
32 © 2016 Carsten Tams 32 © 2016 Carsten Tams
Collective efficacy reduces crime
Source: Sampson, 2012
33 © 2016 Carsten Tams 33 © 2016 Carsten Tams
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)
In the organizational context:
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)
In the organizational context:
seeking support from colleagues
providing support to colleagues
Institutional social control
Informal social control: group
“Public” social control
Individual efficacy
35 © 2016 Carsten Tams 35 © 2016 Carsten Tams
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
37 © 2016 Carsten Tams 37 © 2016 Carsten Tams
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.
39 © 2016 Carsten Tams 39 © 2016 Carsten Tams
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.
41 © 2016 Carsten Tams 41 © 2016 Carsten Tams
– 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
42 © 2016 Carsten Tams 42 © 2016 Carsten Tams
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
43 © 2016 Carsten Tams 43 © 2016 Carsten Tams
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
44 © 2016 Carsten Tams 44 © 2016 Carsten Tams
Multiple awards for integrity training and communications initiatives
45 © 2016 Carsten Tams 45 © 2016 Carsten Tams
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
47 © 2016 Carsten Tams 47 © 2016 Carsten Tams
…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.
48 © 2016 Carsten Tams 48 © 2016 Carsten Tams
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
49 © 2016 Carsten Tams 49 © 2016 Carsten Tams
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
www.linkedin.com/in/carstentams