Why We Think it’s Okay to Cheat and Steal (Sometimes)

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Behavioral economist Dan Ariely studies the bugs in our moral code: the hidden reasons we think it’s OK to cheat or steal (sometimes). In this presentation at the February 2009 TED Talks he summarizes some of his studies on cheating. It sounds like he has conducted some fascinating research on cheating. I think it provides some very useful insight for compliance officers. It may help you think about what factors exist in your workplace that may encourage bad behavior or may discourage bad behavior.

In the first four minutes Ariely discusses some of his research on pain. But then he moves into his studies on cheating. This video is worth watching.

Ariely concluded was that people have a “personal fudge factor” that allows them to gain the benefits of low-level cheating without damaging the view of themselves.

Ariely also found that paying people in tokens that they could exchange for cash doubled the amount of cheating compared to paying people directly in cash. The example for your office is that people are much more likely to take home a pack of pens than a dollar bill sitting on the shelf in the supply closet.

Ariely also found that when people saw an outsider cheating, cheating among the group went down, but when a colleague cheated, cheating among the group went up. In one experiment, he planted an actor as cheater wearing a college sweatshirt. The actor/cheater stood up only a few minutes after the test started, said he was done, collected the cash and left. There was much less cheating when the actor/cheater wore a sweatshirt from another school. Cheating increased when the actor/cheater wore a sweatshirt from the same school as the the rest of those participating in the experiment. This seems to show that there is big influence by peers on cheating behavior.

References:

Now Available on the Kindle

kindle-blogCompliance Building is now available on the Kindle from Amazon: Compliance Building (Kindle Edition).

I have added the Kindle subscription as a third choice on the Subscribe page.

(Amazon sets the Kindle subscription price. I would have made it available free if it were an option.)

Buy a Kindle or the bigger (and more expensive) Kindle DX.

First 100 Days

site usage 100 days

Since we recently passed the new president’s first 100 days, I thought I would do the same for the first 100 days of Compliance Building.

Since February 12 there have been:

The website went live on February 12. (The website was private before then. All those post starting in September were just for me.)

Thanks to all of you for stopping by and seeing what is here. I hope you have enjoyed it. There is more to come, so feel free to come back. You should also feel free to subscribe. I can send the content directly to you.

If you are looking for some background on why I do this, read my Why I Blog page.

Corresponding with Cornelius – My Comments Elsewhere

Here are some of my recent comments on some other blogs or other websites that allow comments. Part of web 2.0 and social media is the ability for readers to engage writers and other readers of their stories.

I am happy to have you leave comments here at Compliance Building. But if not here, take a look at what other people are saying. Join me in the conversations over there.

The Great Man Theory and Executive Compensation by Mike O’Sullivan on ; Provided, however

Mike wonders if we are overpaying CEOs for success that is not attributed to them. (And blaming them for failures that are not their own.) I point out that it is the nature of leadership. I also point out that we should think about tying compensation to beating peers instead of absolute value.

A “Refreshing” Approach to Alternative Fees by Toby Brown on 3 Geeks and a Law Blog

Toby picks up on my story about Coca-Cola’s alternative billing for marketing. I point out that there is a value in controlling costs and that hourly billing is a cap on profitability.

R.I.P. Bank United by Michelle Leder of Footnoted.org

Michelle notes her prior discovery of the huge percentage of stated income and no doc loans underwritten by the bank. I point out that this kind of poor underwriting is a sign of bank death.

Ethics in CEO Compensation by Chris MacDonald of the Business Ethics Blog

I like to call it the Lake Wobegon Effect where everyone is above average.

Social Media and Compliance

Here are materials from my presentation on Social Media and Compliance at the EthicsPoint Regional User Forum.

SlideDeck:Social Media and Compliance

SlideDeck with Notes: Social Media and Compliance – Hosted on JD supra

Sites Shown:

Doug’s Thoughts on Compliance Guidelines

Social Media Site Shown:

Doug on the Social Media Site Shown:

New Rules of the Game under the New York Public Pension Fund Reform Code of Conduct

Cleary Gottlieb put together a useful Alert Memo on The New Rules of the Game under the New York Public Pension Fund Reform Code of Conduct (.pdf) They outline the key provisions of the Reform Code and suggest action steps for investment firms that do business (or seek to do business) with New York Public Pension Funds and may become subject to its requirements or similar requirements.

The principles reflected in the Reform Code are likely to extend beyond the agreement with Carlyle, whether other industry participants voluntarily agree to abide by them or they are incorporated into new federal and/or state legislation or regulations. The Attorney General’s office has indicated that it expects the Reform Code to establish a generally applicable framework for relationships between Public Pension Funds and investment firms going forward; at a minimum, it appears likely that firms seeking to do business with New York Public Pension Funds will be asked to be bound by the Reform Code. Attorney General Cuomo has described the Reform Code as representing the “new rules of the game” and praised Carlyle for “leading the industry toward critical change of the public pension investment system.”

EthicsPoint Regional User Forum

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Today I am attending the EthicsPoint Regional User Forum in Natick, Massachusetts. Here is the agenda:

  • EthicsPoint Executive Overview – Bill Piwonka, EthicsPoint Senior Director of Marketing will share insight on all things EthicsPoint – including product roadmap into 2010
  • Management, Oversight, and Analytics – A panel of experts will share best practices and ideas on using EthicsPoint’s reporting and analytics to drive transparency and insight into the risks facing your organization
  • Client & Industry Benchmarking Data –  See how your organization’s reporting statistics compare to others in your industry and the entire EthicsPoint customer base
  • Social Media in Compliance – Doug Cornelius (hey that’s me!) will lead a discussion on how you can incorporate tools such as LinkedIn, Twitter, Facebook, YouTube, Delicious and others to help foster a culture of integrity and compliance. Check out Doug’s website at https://www.compliancebuilding.com
  • Incident Awareness and Intake Roundtable – Roundtable opportunity to learn how other EthicsPoint customers have encountered and solved challenges around incident awareness and intake

I assume most of the sessions will be dark, but I may have some notes. I will be sharing my presentation and resources on Social Media in Compliance in a later post.

EthicsPoint provides an anonymous complaint and tip hotline for my company.

Sustainability, Ethics and Business Performance

Ted Nunez, Ph.D. Director, Ethics & Corporate Compliance at Kaplan EduNeering gave the presentation on this webinar. Compliance already has a lot on its plate, does sustainability also belong there?

These are my notes:

To start, what is corporate social responsibility? It depends on who’s asking. Different companies have different views and different needs. It’s not just about the environment.

Ted set out three meanings of sustainability:

1. Environmental sustainability
2. Sustainable business practice
3. Sustainability – synonymous with CSR (or CR)

The shift in sustainability is moving from a mere public relations ploy to a strategic position.

Ted pointed out that consumers drive demand and offered up a “Green Gauge” (from a IBM Global 2008 CEO Study):

  • True-blue greens – 30%
  • Greenback greens – 11%
  • Sprouts – 26%
  • Grousers – 15%
  • Apathetics – 18%

Another driver is reputation and brand. A Fortune Magazine study found that a company’s intangible assets account for 75% of a company’s total value.

Another driver is to attract and retain employees.  Ted offered up these four factors related to greater employee happiness:

  • Contributing to something bigger than ourselves
  • Experiencing “flow,” or full engagement, regularly
  • Expressing our gratitude to others
  • Being emotionally connected

Ted went on to espouse some principles of sustainable business performance:

  • Redesign Processes, Products and Facilities
  • Measure Environmental and Social Impacts
  • Build a Culture of Sustainability

New York Public Pension Fund Reform Code of Conduct

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In a widely publicized story, The Carlyle Group has agreed to adopt New York Attorney General Andrew Cuomo’s Public Pension Fund Reform Code of Conduct. It is the first money manager to adopt Cuomo’s new “code of reform” for the municipal-pension market. (Carlyle executives will not be subject to any criminal liability under the settlement with the NYAG.)

It is not clear how the ban on placement agents will interact with the SEC limitations on general solicitation under Rule 502. Many private investment funds use a broker/dealer as an intermediary with potential investors (including public pension funds) to comply with the SEC rule. It seems like the ban on placement agents could hurt the ability of smaller funds and newer funds to obtain investments from public pension funds. If a private investment fund seeking investors has no existing relationship with the public pension fund, then contacting the public pension fund directly could be considered part of a general solicitation in violation of SEC rules. The placement agent, if a licensed broker/dealer, can help establish the relationship to avoid a general solicitation.

References:

Image is from Wikimedia commons under Creative Commons License: NYStateMap2.PNG.

Have a Coke and . . . Alternative Billing

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Many have been contemplating and prognosticating the death of the billable hour for lawyers. I found it interesting to see a similar movement in the advertising industry. (I was unaware that the advertising industry also worked on a billable hour model.)

A story in the latest issue of The Economist points to a movement to pay advertising agencies for value, not hours: Clock-watchers no more. “On April 20th Coca-Cola said it would adopt a ‘value-based’ compensation system for the advertisers that do work for its 400 brands. Rather than paying advertising agencies for hours worked, Coke will pay for results achieved.”

The New Coke model covers an advertising agency’s costs, plus a bonus. The bonus depends on measured results, including overall performance, and the sales and market share of the products being advertised. Coke states that the goal of the program is not to cut costs, but to inspire creativity and efficiency.

I wonder if the legal department at Coca-Cola is following the lead of the advertising department?