In this episode, Matt Kelly and I take a deep dive into an article by Todd Haugh, in the most recent issue of the MIT Sloan Management Review entitled, “The Trouble With Corporate Compliance Programsthat even best practices compliance program fail to take into account behavioral best practices and one important but too often overlooked key to strengthening both individual and overall corporate behavior is eliminating rationalizations.

Haugh points to the Wells Fargo scandal which occurred in large part because of multiple rationalizations at multiple levels. At the employee level, they were pressured to violate both company policy and the law by their managers. At the senior management level the balance sheet rationalization came into play. Both of these led employees to “rationalize their conduct by denying responsibility and claiming relative normality.”

We consider the steps Haugh recommends. The first was one of the most intriguing and it was for a company to employee a behavioral specialist to take current research and theory into practice in an organization. The second was to “use behavioral best practices to eliminate rationalizations.” The final suggestion is that companies should “use incentives to influence behavior in the right direction” by understanding how rationalizations come into play. Most interestingly Haugh believes that employee “praise and expressions of gratitude motivate more than money”. Think of the cost of a good word now and then or a pat on the back.

The topic is a fascinating look at new insights for the compliance practitioner into how to motivate employees and make compliance more effective in an organization.

For more see Tom’s blog post, The Fraud Triangle, Rationalizations and Compliance Programs.