Nudging Corporate Compliance

Abstract

Companies are nudging. That is, they are using the tools of behavioral science as pioneered by behavioral economists and promoted by policymakers to steer employees toward welfare-maximizing options. While companies began nudging to increase employee health, safety, and financial literacy, choice architecture is now being used to make employees more ethical. “Behavioral ethics nudging” is seen as the future of corporate compliance because it offers an evidence-based, cost effective way to reduce the risks of respondeat superior liability. Amid that promise, however, lies a nagging unease. Behavioral ethics research demonstrates that ethical decision making is influenced, often subconsciously, by situational and social factors. When a company alters the conditions under which its employees make decisions, their ethical behavior can be changed without them knowing it. Thus, the intent of behavioral ethics nudging may be laudable—to increase employee ethicality and improve compliance—but it is also susceptible to becoming a tool of unwanted behavioral manipulation.

This Article undertakes the first detailed analysis of the role of behavioral ethics nudging in corporate compliance. Viewing the issue from an empirical and normative lens, it finds that while nudging offers important compliance opportunities, it must be implemented with caution. That is because nudging employees to be more ethical is conceptually distinct from governmental nudges popularized as a way of promoting public welfare. Companies that simply import public policy nudges into the workplace may find them wholly ineffective as a compliance strategy. Moreover, behavioral ethics nudging may violate deeply held notions of personal autonomy, especially when it surreptitiously capitalizes on employees’ cognitive irrationalities. While some autonomy costs may be justified under legal doctrines and consequentialist analysis, a significant question remains whether behavioral ethics nudges are ethical themselves. Drawing on this analysis, which is supported by extensive behavioral ethics research, the Article offers a simple framework companies can use when contemplating employing behavioral ethics nudging as part of their compliance regimes.

Keywords: nudge, nudging, behavioral ethics, behavioral economics, behavioral ethics nudging, compliance, corporate compliance, white collar crime, ethics, business ethics, behavioral science, moral psychology

JEL Classification: K00, K14, K2, K4