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Why We Cheat

People who've violated the Foreign Corrupt Practices Act fall into two categories: those who had criminal intent from the start, and those who stumbled into the offense. It's the second group -- the regular folks who've done a bad thing -- who are so tragic. They're just like the rest of us -- except they've ruined their careers and professional reputations, and sometimes lost their freedom and more.

It's also the second group -- the "ordinary, well-meaning people" -- who are the focus of an article in this month's Stanford Business Magazine (available here). Author Margaret Steen looks at how easy it is for well-intentioned corporate employees to break the law. She also recommends ways to reduce corrupt behavior -- without crippling the organization with too much internal regulation. Promote a culture of compliance, encourage dissent, hire an ethics officer, rethink goals and rewards, and marginalize misconduct. Sound familiar? The article doesn't say so, but those recommendations echo elements of an "effective compliance program" described in the U.S. Federal Sentencing Guidelines.

So why do "normal" corporate employees break the law? Here are some excerpts from the article:

? Group Power. If there?s a single, most primitive lever for behavior in our species, it?s the power of the crowd.

? Organizational Structure. ?My lifetime?s work in business ethics suggests that business corruption has everything to do with culture and with incentives,? says Kirk Hanson, MBA ?71, executive director of the Markkula Center for Applied Ethics at Santa Clara University and an emeritus GSB faculty member. For example, auditors want smooth working relationships with their clients, and they don?t want to be fired, so they have an incentive not to ask awkward questions.

? Rationalization. The division of labor required for much corporate work, with many people contributing a small amount to a project, makes this easier. For example, an employee can tell himself, "I?m not the person who falsified the safety data for the product; I just reported the data that I had.?

? Fear and Confusion. For most people fear is a more common cause of corrupt behavior than greed. People want to avoid conflict, and being a whistleblower can ruin a person?s career, even if the person is vindicated. So many people keep quiet.

The lesson? It's easy (and wrong) to think compliance programs should be aimed only at stopping hard-core criminal activity. The more subtle internal threat comes from regular employees -- those who wouldn't jaywalk outside the office but who fall into illegal behavior at work, one tiny step at a time.

The article is "How to Prevent Cheating" by Margaret Steen, from this month's Stanford Business Magazine.

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Full post as published by The FCPA Blog on August 19, 2008 (boomark / email).