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SCCE Compliance & Ethics Institute 2013Sally J March

Drummond March Ltd

Definitions

What we can learn from psychology and behavioral studies

Looking for drivers of bad behavior

Using what we learn to build a stronger ethical culture

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Ethics (also known as moral philosophy) is a branch of philosophy which addresses questions about morality—that is, concepts such as good and bad, noble and the ignoble, right and wrong, justice, and virtue.

Compliance is the act of adhering to, and demonstrating adherence to, a standard or regulation.

Culture is the set of shared attitudes, values, goals, and practices that characterizes an institution, organization or group.

Behavioral psychology, also known as behaviorism, is a theory of learning based upon the idea that all behaviors are acquired through conditioning. Conditioning occurs through interaction with the environment. According to behaviorism, behavior can be studied in a systematic and observable manner with no consideration of internal mental states.

Wikipedia

“Ethics is knowing the difference between what you have a right to do and what is right to do.”

Potter StewartJustice, U.S. Supreme Court

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“It is not an adequate ethical standard to aspire to get through the day without being indicted.”

Richard Breeden, former chairman of the Securities and Exchange Commission

“[The research] shows that our sense of our own morality is connected to the amount of cheating we feel comfortable with. Essentially, we cheat up to the level that allows us to retain our self-image as reasonably honest individuals.”

Dan Ariely, The (Honest) Truth About Dishonesty

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0 20 40 60 80 100

Share Price

Competitive advantage

Overall business…

Reputation with Analysts

Attractiveness to Customers

Relationship with investors

Employee Motivation

Attractiveness to employees

US

Europe

69 %

66 %

62 %

61 %

58 %

58 %

41 %

53 %

87 %

77 %

72 %

76 %

73 %

77 %

66 %

39 %

Those answering 4 or 5 on a 5 point scale , with 1 being not at all beneficial and 5 being very beneficial

Source: CFO Europe Research Services - http://www.accaglobal.com/documents/coporate_ethics_europe.pdf

If we all agree that an ethical culture is good for business, how do we achieve this?

Why doesn’t it happen automatically since only a small portion of the population are “bad apples”?

Most people are basically good – or at least they think they are

Focus on the situation Focus on self-interest

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Authority

Milgram "elctroshock" experiment

Authority

Copyright Scott Adams

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“A person’s individual moral framework is only the third most important factor indeciding what they’ll do. The most importantis what does their boss do…..second, theylook at their peers…”

Marshall Schminke, Managerial Ethics: Moral Management of People and Processes

Authority Conformity

Copyright Matt Wuerker

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Authority Conformity Time

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Authority/Hierarchy Conformity Time Gradualism “Ethical fading”

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Articulate ethically sound beliefs and purposes. It’s the values, stupid.

Management selection and promotion Consistent communication Ethics training Setting objectives Actions have consequences Transparency AND????

Constant communication and training on values Do we need to rethink our training programs in

light of Kahneman’s research? Should we focus on experience rather than

information? Management needs to communicate in order to

avoid WYSIATI Communication and training tools that involve

peer feedback Training in all appropriate forms especially using

dilemmas, daily messaging in effective forms for the culture, discussions by front line managers, publication of failures and successes as learning tool (Business Ethics Bulletins)

What else?20

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Recognize

•Recognize that you have an ethical decision to make• Is this a dilemma?

Reflect

•TIME OUT!•Ask what are the facts? Who will be affected? What are the options?

Rules

•Is the proposed course of action legal? Does it comply with our Code of Conduct? • Is it consistent with the organization’s values? With MY values?

Test

• Who is this good for? Who will be harmed? Is this the right thing to do?•How would I feel if my family knew? Would the organization be comfortable if this appeared in

the press?

Encourage transparency – Avoid WYSIATI Encourage managers to talk about the “how” along

with the “what” of everyone’s job [“Authority”] Setting objectives -- both personal and business Include metrics for values in the personnel evaluation process Include value requirements/statements in the procurement

process with third parties and in processes dealing with customers and all other stakeholders

Hold all levels of employees responsible for maintaining culture by auditing, monitoring, discipline, rewards

Make clear that every activity, even in crisis, must be done within the values of the company

No tolerance for “bad” behavior

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How do we overcome (perceived) peer pressure? Start with assessing what it is and where it is Training with peer feedback

How do we create expectation of reporting issues?- clear policy on non-retaliation and visible action if retaliation occurs

- publicize various ways to report, i.e., managers, hotline, HR- front line managers to talk about value of reporting- publicize results of investigations/learnings- make improvements from failures and publicize that happened because individuals cared

How do we assess risk due to time pressures? How do we assess risk due to gradualism? Or “ethical fading”? How do we understand our colleagues’

rationalization? How do we anticipate and reduce this?

How do we measure our baseline and incorporate a loop of learning and improvement?

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BBC program recreating the Milgram experiment on obediance, http://www.youtube.com/watch?v=BcvSNg0HZwk

Asch experiment on conformity, http://www.youtube.com/watch?v=NyDDyT1lDhA The Good Samaritan experiment, http://www.youtube.com/watch?v=ZfRSassEzoU

Dan Ariely, The (Honest) Truth About Dishonesty: How We Lie to Everyone – Especially Ourselves, HarperCollins, 2012

Daniel Kahneman, Thinking, fast and slow, Penguin Books, 2011 Lynne Sharp Paine, “Managing for Organizational Integrity”, Harvard Business Review,

March/April 1994 “Ethics in Decision-making”, Institute of Business Ethics Good Practice Guide “Contemplation and Conversation: Subtle Influences on Moral Decision-Making” in

the February/March 2012 issue of the The Academy of Management Journal. Max H. Bazerman and Ann E. Tenbrunsel, “Ethical Breakdowns”, Harvard Business

Review, Harvard Business Review, April 2011 Roger Steare, “ethicability: how to decide what’s right and find the courage to do it”,

2009

Sally J. March, J.D., LL.M., CCEPDrummond March & Co.sjmarch10@gmail.com+44(0)7909915456