Best Practices

Constructively using Sticks (Instead of Carrots) to Encourage Compliance

(Want to get articles like this one by email?  Here is the sign-up!)

As we discussed last week, positive reinforcement can be a powerful tool for motivating employees, especially if intrinsic motivations are the target. Nonetheless, so-called “negative” reinforcement also has an important place in a company’s motivational toolbox – and not just to “send a message” to other employees concerning policy or program violations.

Setting suitable boundaries for personnel – including consequences for noncompliance – creates certainty and security. Employees know what is expected of them and what will happen if they do not act in accordance with those expectations, so long as these expectations are clear and the consequences of noncompliance are transparent, fair, appropriate, and consistently applied.

In fact, numerous studies show that avoiding loss is actually a stronger incentive than achieving gain for many individuals and companies. This loss aversion principle underpins the risk assessment process your company periodically undertakes in relation to its compliance program. The policies, procedures, and controls created as part of the compliance program will only be respected if they have “teeth” – that is, if compliance and noncompliance lead to different results.

Consider the following examples:

  • A company seeking to mitigate corruption risks requires any employee who wishes to hire an overseas agent to undertake due diligence – including (a) obtaining background information from the person; (b) having internal personnel complete questionnaires about their knowledge of, and past dealings with, the proposed agent; and (c) conducting independent reviews of the person and his/her company at a level commensurate with the perceived risk level – prior to submitting a proposed contract for approval.
  • A company encourages local business units to support local communities. However, it will not approve any request for a charitable contribution that is not accompanied by information outlining the charitable purpose of the contribution and containing assurances that the contribution will not personally benefit any specific individual(s), in particular, a government official and/or his or her family.
  • A company’s annual audit plan includes steps the company will take if and when accounting irregularities are alleged or discovered. Employees keeping books and records know that maintaining accurate and complete documentation is an essential part of their duties.
  • When they are hired and each year thereafter, all company employees are required to certify they have complied, and will comply, with certain company policies, procedures, and controls.
  • A company’s anti-corruption program outlines steps the company’s compliance function is to take in response to suspected misconduct. Depending on the circumstances, this may include terminating relationships with third parties who have acted inappropriately on the company’s behalf.

In each of the above policy, procedure, or control scenarios, disciplinary consequences come into play if the company’s employees or representatives were previously apprised (and periodically reminded) of expected behavioral parameters and went outside these boundaries. Thus, any metaphorical “stick” that is applied is expected. The result is understood to flow directly from the policy or program breach, and it cannot be viewed as an arbitrary, capricious reaction.

Applying consequences fairly and consistently in situations such as these supports the intrinsic desire to comply that we discussed in our last post. First, company personnel who see the program applied fairly and consistently are more likely to feel that the compliance program has real meaning. If management is viewed as impartial in applying sanctions – whether positive or negative – personnel are also more likely to view their work environment as equitable for all employees. This helps engender increased loyalty to the company and commitment to the compliance program. In addition, other stakeholders (including regulators and law enforcement) are also more likely to view the program as having true substance.

Original image courtesy of Harry Vale, Flickr.

I'll sign up later

COMPLIANCE UPDATES

Get the latest compliance content weekly right on your e-mail. We promise you we will only send top content like free e-books, latest news and hand-picked articles.