'C' is for Crucible: Behavioral Ethics, Culture, and the Board's Role in C-Suite Compliance
Bryan Cave LLP
May 29, 2013
RAND Center for Corporate Ethics and Governance Symposium White Paper Series, Symposium on "Culture, Compliance & the C-Suite: How Executives and Policymakers Can Better Safeguard Against Misconduct at the Top" (2013)
The C-suite is a unique environment peopled with extraordinary individuals and endowed with the potential to achieve enormous good – or, as recent history has vividly shown, to inflict devastating harm. Given that senior executives operate largely beyond the reach of traditional compliance program controls, a board that aspires to true stewardship must embrace a special responsibility to support and monitor ethics and compliance in the C-suite.
By themselves, the forces at large in the C-suite would challenge the ability of even the most conscientious and rational executives to make consistently irreproachable decisions. The C-suite environment is characterized by the presence of power, strong incentives and huge temptations (financial and other), high ambition, extreme pressure, a fast pace, complex problems and few effective external controls. The problem of C-suite ethics has a deeper dimension, though, than the mere impact of strong pressures upon rational decision-makers. Recent behavioral research brings the unwelcome news that the subversive effects of these pressures are magnified by systematic, predictable human failings that can prompt us to slip our moral moorings and overlook when others do so. We are just beginning to understand the insidious power that such factors as motivated blindness, attentional blindness, conflicts of interest, focused "business-ony" framing, time pressure, irrational avoidance of loss, escalating commitment, overconfidence and in-group dynamics can exert below the plane of conscious thought, even over people who have good reason to consider themselves ethically strong. and behaviorally upright.
But we also know that organizational culture can dramatically affect both ethical conduct and reporting of misconduct, by establishing workplace norms, harnessing social identity and group loyalty and increasing the salience of ethical values. How can these learnings inform the board’s interaction with, and monitoring of, the C-suite? And how can the board help forge a stronger connection between the C-Suite and the organization’s compliance and ethics program? This paper suggests several key strategies for dealing with different aspects of this complex problem.
This paper was originally presented at a RAND Corporation symposium on May 2, 2013, entitled “Culture, Compliance & the C-Suite: How Executives, Boards, and Policymakers Can Better Safeguard Against Misconduct at the Top.” Together with other papers presented at the symposium, this paper will be published by RAND in a formal report in the summer of 2013. Topically related materials can be freely downloaded from RAND’s website.
Keywords: corporate compliance, ethics, behavioral ethics, leadership, boards, directors, CEO, C-Suite, conflicts, power, motivated blindness, framing, incentives, goals, groups, succession, social psychology, culture, caremark, crime, misconductAccepted Paper Series
Date posted: May 30, 2013 ; Last revised: June 2, 2013
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