By Joe Murphy CCEP, Senior Advisor, Compliance Strategists
From time to time in the compliance and ethics field ideas and approaches come along that purport to disrupt or replace our field. Yet through it all compliance and ethics professionals have continued in their essential mission to prevent and detect wrongdoing in organizations. The work of compliance and ethics professionals is remarkably similar in all risk areas and around the world in different nations and cultures. Why is this so? Because compliance and ethics simply applies good management practices to achieve a result: preventing misconduct. There are many different variations in how these practices can be applied, but the fundamentals are the same (e.g., senior management support, reporting systems, training and communications, risk assessment, assessing effectiveness, accountability, incentives, a strong & independent compliance officer, etc.)
Some of the new approaches that come along do contain elements of wisdom that can help. They add additional tools to our toolkit, but do not change the emphasis on using solid management techniques. But in the 45 years I have worked in this field, there have been none that could replace what we do; the best ones only enhance our efforts.
So it is that we address “nudges,” a form of behavioralism used to shape human behavior. In “Nudging Compliance” by Elena Kantorowicz-Reznichenko and Liam Wells, in the book “Cambridge Handbook on Compliance” (Cambridge University Press, 2021; Benjamin Van Rooij & D. Daniel Sokol, Eds.) the authors explore the pros and cons of different nudging efforts, the uncertain learnings from various studies in this area, and some guidance on how to apply nudges to compliance.
The authors explain that law compliance is typically pursued by governments using techniques such as command-and-control and economic tools. But nudges follow a different approach; they involve creating environments where people chose behavior that is welfare enhancing but not coerced. They “alter people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.” They are “easy and cheap to avoid.” Often they are a complementary tool and do not replace other methods, p. 552. The chapter discusses examples and studies, such as those in tax compliance, where certain methods increased tax payments because of the use of behavioral approaches. There is also discussion of instances when nudges failed.
Using nudges calls for “understanding the psychological mechanisms that drive the decisions of individuals.” p. 553. An example of this would be to place healthier food in cafeterias and supermarkets so it is closer and more visible to consumers. Predictably, this increases use of the healthier choices.
There is a hidden irony in the chapter that the authors could not have avoided because of timing. On page 557 they discuss a study where Dan Ariely was a co-author. They report that this study showed that for drivers required to sign forms reporting their mileage for insurance rating purposes, those who signed their certification before completing the form reported higher mileage than those who signed at the end, and thus were presumably being more honest against their own financial interests. Thus, a reader could conclude that employees should sign beforehand a certification that information they were providing was correct, rather than after they provided the information. This seemed interesting and maybe even intuitive. However, the study results were actually faked – a scandal that became public after the book had gone to print. The irony is that this unfortunate result emphasized the uncertainly of empirical work in this field. It is always good to remember that one study does not necessarily prove anything in the social sciences; rather, it should just be considered a data point that may merit further study, and certainly independent replication of the reported results. Dealing with human behavior is always tricky, including the sad issue of dealing with the integrity and skill of those humans conducting and reporting on the study.
For anyone wishing to pursue the topic of nudging further, the chapter is a treasure trove of additional resources, pp. 565-68. I do recommend looking into this, but as fits our professional disposition, be skeptical and test ideas out yourself before adopting them wholesale. What works for selling vegetables and getting people to pay taxes may not work for your staff engineers or your sales team in Saudi Arabia. But if you are open minded and willing to experiment you can find tools that can help you in your mission.
I should note that in my own career in writing and promoting ideas about compliance I have used a nudge technique. I had read that people respond better to numbered bullet points than they do to blocks of text. So, to promote the first book on compliance, Interactive Corporate Compliance (Greenwood Press; 1988), I developed a bullet point list of 12 state-of-the-art compliance steps. Where before I had written unanswered queries to editors about our new book, when I sent the list of 12 items the response was remarkably better. Same concepts, but numbered lists are just more inviting to the eye than text.
So, can you just nudge your way to success in compliance and ethics? No. It is certainly a useful tool and one to be in your list of options. It is not, however, a substitute for all the other key management steps needed for an effective compliance program. As the chapter makes clear, a nudge may or may not work, depending on the circumstances. Moreover, behavioral tools like this are calculated to work on average. They do not change all conduct, just some conduct of the average person. In compliance and ethics, however, we are not graded on averages. If the average employee does not steal from customers, or discharge hazardous waste, or violate someone’s privacy, the fact that a few might do this is enough for your company to get into major trouble. In the realm of corporate responsibility, our companies can be held responsible for what a minority of employees, or even one employee, does. Thus, even in the best possible workforce there will still be a need for controls and other compliance tools.
There will always be a need for a reporting system, although nudges could make it more likely that employees will use it. Every company needs to have training, but nudges might increase attendance. You will always need to monitor incentive systems, but a nudge system might remind HR to include you in the discussions about incentives. There will be no substitute for an empowered, independent and professional chief ethics and compliance officer with line of sight into all parts of the business, but understanding the value of nudges could very likely make that officer more effective.