Continuous Compliance Improvement Using Psychology and Behavior

Tuesday, May 3, 2016 - 13:28

Although building a culture of compliance has been a goal and topic of discussion at many companies for several years, creating a sustainable culture of compliance requires that companies regularly re-evaluate compliance strategies and tactics. This helps compliance professionals remain vigilant and keep pace with inevitable changes in the business landscape, including regulatory, technological and other changes that impact compliance. Identifying new and fresh ways of getting management and employees to own compliance consistently in their day-to-day responsibilities remains a challenge. News reports on a weekly basis cite companies that have agreed to deferred prosecution agreements and corporate integrity agreements after compliance violations; consequently, we are reminded of the importance of the need to refine and improve upon existing compliance programs procedures wherever possible.

CCI and Behavioral Studies

Continuously improving a company’s compliance program (something I refer to as continuous compliance improvement, or CCI) is easier said than done, since limited qualified talent and financial resources can lead a company to run their older compliance programs on autopilot for long periods of time. To better execute CCI, it is important to understand when, how and why an individual or a group of individuals may choose a path that leads to potential compliance or regulatory violations. Behavioral psychology can shed light on how employees address questions of right and wrong and better equip a company to design new and more effective compliance strategies. These improvements can help management and employees make the desired choices at crucial ethical decision points.

Understanding and Shaping Behavior

Duke University professor and noted behavioral economist Dan Ariely and other behavioral psychologists have conducted studies that show we all have some level of internal reward mechanisms that balance against external reward mechanisms.1 Many regulations and policies tend to focus only on external factors like increasing the likelihood of being caught for an offense or increasing the magnitude of punishment. This only partially addresses the honesty/dishonesty equation in a compliance context. The persistent conflict between an ethically correct self-image and responding to opportunities to advance self-interest continues to attract serious study and has concrete application to helping businesses with compliance issues.2 In addition, this body of academic work can be used to better understand how to influence behavior and provide legal and compliance departments with more ideas to facilitate CCI. As examples, companies can consider two important concepts to better refine their compliance strategy and tactics: timing of value reminders, and bias blind spots.

Recent Value Reminders

To facilitate CCI, the first concept emphasizes staying connected to an established set of values. Ariely’s studies show that, when given a recent reminder of our morality and our values, we are more likely to do the right thing during ethical decision points; a company can incorporate this concept to facilitate CCI. For example, some companies may provide compliance training once a year, which may not be sufficient based on behavioral studies. As the balance between our internal reward system and external reward systems is better influenced via recent reminders of acceptable values, a company, for example, may consider adding short, five-minute compliance videos or discussions at the end of selected meetings throughout the year. In addition, instead of compliance posters with explicit language on “doing the right thing,” these posters may have more impact if they have images of family members helping each other and include value-based messaging, i.e., provide a subtler reminder of the values the company wants to espouse.

The Bias Blind Spot

The second concept relates to research by Eddy van Avermaet on unintentional bias, which suggests that although people will generally abide by what is fair, when given a choice, people will take actions that are biased in their favor in lieu of maximizing the outcome for someone else.3 In addition, related research indicates that, even after providing training on their unintentional bias, people are better equipped to recognize bias in others and not in themselves.4 This inability to recognize bias in ourselves is referred to as a bias blind spot and has many implications in the compliance profession. For example, one may conclude that the bias blind spot would support the argument that rewards for whistleblowers provide an incentive for employees to report the actions of other employees to external parties before reporting the actions internally at the company; this would be the best way in whistleblowers’ minds to maximize their benefits. Therefore, it would be a better compliance measure to provide incentives and policies to report the action internally so that the company can first attempt to address the issue before the employee goes to an external party. As another implication of the bias blind spot, consider compliance training. It may be argued that compliance training may help employees recognize the actions in others rather than influence change in their own actions. If this is the case, one can consider compliance-related training just as much a monitoring tactic as a prevention measure. Further, this would make compliance training more integral to monitoring measures, such as the management of complaints made by employees.

Understanding and addressing the cognitive buffers that may obscure ethically or legally problematic behavior may be difficult to do with precision, but the use of value-based visual cues and steady reinforcement of desired behavior is supported by ample research concerning its role in perpetuating CCI. When maintaining a compliance culture bound by a multitude of regulations, the carrot of supportive, self-reinforcing reminders of values and behaviors that inhibit transgressions may be more effective and adaptable than the stick of after-the-fact punishment. Further, by addressing the behavioral component – how employees deal
with issues of right and wrong – companies can develop strategies to help employees make the desired choices when faced with a decision that may impact compliance. Most importantly, improving a company’s compliance efforts should be a continuous process aligned with changes in the company’s business strategy and rooted in an understanding of the people who guide organizational behavior.

The opinions expressed are those of the author and do not necessarily reflect the views of AlixPartners, LLP, its affiliates, or any of its or their respective professionals or clients.

1 Dan Ariely and Nina Mazar, “Dishonesty in Everyday Life and Its Policy Implications,” Journal of Public Policy & Marketing, vol. 25, no. 1, (Spring 2006), pp. 6-8.

2 Donald Langevoort, “Behavioral Ethics, Behavioral Compliance,” Georgetown University Law Center, 2015, http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=2519&c....

3 David Messick, “Social Interdependence and Decision Making,” in Behavioral Decision Making, ed. George Wright (New York: Plenum 1985), pp. 87–109.

4 Anthony Greenwald and Mahzarin Banaji, “Implicit Social Cognition: Attitudes, Self-Esteem, and Stereotypes,” Psychological Review, 1995. 102, 11.