The Dark Side of Compliance

Abstract

Compliance — from the root “to comply” — is “the set of rules, principles, controls, authorities, offices, and practices designed to ensure that the organization conforms to external and internal norms.” But towards what ends does management use an organization’s compliance system? Compliance ideally has aspirational goals to at least discourage outright violations of the law, if not to encourage ethical behavior more generally. The methods through which management enforces compliance, however, can increase unethical behavior within the corporation and have, in some cases, incubated and helped perpetuate illegal behavior. As with all other tools, the tools of compliance can be abused. This chapter explores management abuse of corporate compliance systems, and it provides a caution about the dark side of compliance.

Keywords: compliance, data, monitoring, culture, norms, wrongdoing, wide-spread, corporate, corporations, board of directors, management, compliance officers, control, methods of control, pressure, incentives, goals

JEL Classification: K24, K20, K22, K29, K40, L21, L29, L50, L59