Max H. Bazerman – Compliance Building

Does it Matter Where the Signature Is?

Just about every compliance certification has the employee sign at the bottom. We have been signing letters and contracts at the end for millenia.

But maybe there is a way to increase ethical performance by moving that signature to the top.

Lisa L. Shu, Nina Mazar, Francesca Gino, Dan Ariely, and Max H. Bazerman recently published a paper that found differences in compliance/ethical performance depending on whether the participant signed first or at the end.

In one experiment, the subjects took a test and scored it themselves. They would be paid based on their performance and reimbursed for their expenses incurred in attending the test. After self-scoring the test they went into another room to self report their income on a tax form. There were three forms:

One with a certification at the beginning that all information is true
A second with the same certification, but at the end
A third with no certification

The test and reporting was set up to be very easy to cheat, with a simple and immediate cash reward for cheating. You should not be surprised that cheating was rampant.

With the third form, with no certification, cheating occurred 64% of the time. With the certification at the bottom, the cheating actually rose to 79%. The winner, with the certification at the beginning, only had a 37% cheat rate.

Moving the certification to the beginning had a dramatic, positive effect on reducing cheating.

The paper includes several other similar experiments with the same results. A slightly different test involved word puzzles. Those that signed an honesty pledge before engaging in the cheating experiment ended up solving more of the ethics-related words than the others.

The authors theorize that the certification at the top pre-sets the person to start thinking more ethically. If they don’t hit the certification until the end, they have already supplied the information with whatever ethical slant they may have.

I’m going to re-think how I design my certification. At the top will be a certification that all of the information is true and correct, before they start filling in the information.

Sources:

Signing at the Top: The Key to Preventing Tax Fraud? by Carmen Nobel
When to Sign on the Dotted Line? Signing First Makes Ethics Salient and Decreases Dishonest Self-Reports by Lisa L. Shu, Nina Mazar, Francesca Gino, Dan Ariely, and Max H. Bazerman

Failure and Compliance

The theme of the April edition of the Harvard Business Review is “Failure.” That’s a scary term in the world of compliance. Generally, that means you’ve got government regulators or enforcement personnel sitting in your offices. And they are not happy. Failure and compliance can mean disciplinary action, fines, or jail time.

But you can learn from failures. You can especially learn from others’ failures.

Ethical Breakdowns by Max H. Bazerman and Ann E. Tenbrunsel takes an insightful look at ethical breakdowns and comes up with five barriers to an ethical organization. (Sorry, you need a subscription to read the entire HBR article.)

Ill-conceived goals
Motivated blindness
Indirect blindness
Slippery slope
Overhauling outcomes

An ill-conceived goal is the classic failure seen in sales targets, revenue projections, and stock price targets. If you give mechanics a sales goal of $147 hour they can very easily lapse into fixing things that were not broken rather than being more efficient. Sears encountered this problem in the 1990s.

The authors lump a few things into the motivated blindness category, but most notably included are conflicts of interest. They use the failure of rating agencies during the financial collapse as one example. Since the rating agencies are paid by the issuer instead of the buyer of securities, they have a misalignment of motivation. They end up serving the one who pays them, leading to lax ratings and competition for business. That means they may have rated something higher than they should have. (That’s a big understatement.)

Indirect blindness is when third parties are involved. What caught my eye was an experiment examining perceptions of an increase in the cost of a pharmaceutical drug. In the first scenario, the drug company raises the price from $3 to $9. In the second scenario, the drug company sells the rights to a smaller company who then increases the price to $15. The first scenario was judged more harshly, even though it resulted in a lesser price.

We’ve all been concerned about the slippery slope. Little lapses lead to a culture of lapses, eventually leading a big failure. The authors present some interesting research showing how this works and that it is a real problem. From a compliance perspective, they focus on auditors and how good accountants can do bad audits.

The final category is the one I found the most intriguing: overvaluing outcomes. The author’s research showed an inclination to judge actions based on outcomes rather than the behavior. One example is a research failure.

In the scenario A, a researcher pulls four subjects back into the results after they were removed for technicalities. However, the researcher thinks their data is appropriate. When adding them back in, the results shift and allows the drug to go to market. Unfortunately, the drug ends up killing six people and is pulled from the shelves.

In scenario B, a researcher makes up four more data points for how he believes subjects are likely to behave. The drug goes to market, becomes profitable and effective.

The participants in the author’s experiment judged the researcher in scenario A much more critically than the researcher in scenario B. The problem is that the person B had the bigger ethical lapse and worse behavior. It’s just that the outcome, largely by luck, was worse in A than B.

They extrapolate the findings to the situation where a manager is overlooking ethical behaviors when outcomes are good and unconsciously helping to undermine the ethical culture of an organization.

Dishonest Deed, Clear Conscience

In the world of compliance, you may sometimes wonder if that code of ethics really works. Lisa L. Shu, Francesca Gino, and Max H. Bazerman presented their research that a code of ethics really can reduce bad behavior: Dishonest Deed, Clear Conscience: Self-Preservation through Moral Disengagement and Motivated Forgetting.

Their studies provided evidence that morality and memory function as sliding scales and are not fixed dimensions of a person. They found that once people behave dishonestly, they disengage, setting off a downward spiral of future bad behavior and increasingly lenient moral codes. They also found that this slippery downward slope can be counteracted with ethical codes, that increase awareness of ethical standards.

If a situation permits dishonesty, then you should expect dishonesty. At the same time, merely reminding employees about established ethical codes, could counteract the effect of a permissible situation.

See: