In my previous post, I argued that compliance programs in corporations are most effective if they employ a broader ethical/values-based framework. I want to further that argument from a different angle, using findings in cognitive-developmental psychology.
In the 1950s, Lawrence Kohlberg began a research project to determine how humans acquire the moral beliefs that shape their ethical behaviors. Based on his research he argued that there are three basic levels of moral reasoning: Preconventional, Conventional, and Postconventional.
Individuals who operate at the Pre-conventional Level, interpret the rules of social institutions egotistically: right behavior is whatever benefits me. One thinks of Bernard Madoff as an example of a Pre-conventional thinker who earned his wealth by disregarding legal and social norms. An effective compliance program for an individual at this level must provide “carrots and sticks.” It rewards behavior that benefits the company and it discovers and punishes rule-breaking. In this way, even the most egotistical of employees will realize that it is in their self interest to comply.
Those who operate at the Conventional Level recognize that rules play and important role in institutions because they create stability and order, so they seek to uphold these norms. The center of ethical value is the group to which the individual belongs. Good action is that which upholds the rules of the group and promotes the good of the group. The majority of people operate at this level of moral reasoning.
Individuals in the Post-Conventional Level value institutional rules but recognize that these rules and the leaders who create them can be wrong. They believe in universal ethical standards that transcend the particularities of a group. In addition, they recognize that institutions are socially constructed and can be adapted to meet the changing needs of the context. Ethicists are (hopefully) trained to operate at this level. (See the arguments of Immanuel Kant or Peter Singer, for instance).
Now, what does this research have to do with the work of compliance? It is of utmost value in understanding how to build an effective compliance program. Because the large majority of people in a company operate at the Conventional Level, companies should shape their compliance work accordingly by:
- Promoting ethical managers. Leaders play an incredibly important role in shaping the moral behaviors of people within an organization. They are perceived by this group as the authorities who legitimate the rules. If leaders don’t play by the codes of conduct, those at the conventional level will likely view the code of conduct as irrelevant and act in accordance. Other individuals may feel demoralized by the context or leave the organization entirely. (Individuals at this level of moral reasoning tend to believe that institutional norms cannot be changed.) For example, a few years ago, I had friends who had jobs selling sub-prime mortgages. Some stayed because they did not view their work as unethical since it aligned with company values. Others left because the work was in tension with the values they were raised with and so they found the work demoralizing. For this group, authorities play an incredibly influential role in shaping behaviors within an organization. It’s all about ‘tone at the top.’
- Employing compliance personnel who operate at the Post-conventional Level. These officers will have the intellectual tools to shape the ethical culture of the organization. They are not limited by rules and practices but can frame these rules within a larger construct of values, which inspires and educates employees. There are numerous cases in which an employee must make a decision, for which there is no stated “rule.” Rather than creating a rule for every situation, the post-conventional compliance officer can promote values-based decision-making and create incentives that align with the values that the company promotes. Finally, because they are not bound by “group-think,” they can assess the effectiveness of rules and codes of conduct in light of changing contexts.
I drew this summary of Kohlberg’s work from John Dienhart’s Business, Institutions, and Ethics.