Techniques for Reinforcing a Culture of Compliance

by Natalie Noble

The importance of establishing a robust “culture of compliance” within corporations is a common refrain among government regulators.[1] But developing a structured process, much less a firm definition, around such a squishy concept can be a daunting task for compliance officers. At its core, an effective culture of compliance should shape employees’ gut instincts by reinforcing values that weigh against breaking the law. To accomplish this, companies should supplement their traditional ethics trainings and “tone at the top” by integrating compliance factors into their incentives programs and forestalling ethical fading. As an additional line of defense, companies should actively encourage employees to slow down and think methodically about their decisions before they take final action.

If compliance culture is aimed at encouraging corporate actors to make the right choices, as Deputy Attorney General Rod Rosenstein suggests,[2] the first question should be what prompts employees to make the wrong ones. Recent research by one prominent professor who spent seven years interviewing high-profile, white-collar criminals, suggests they often decide to break the law based on misguided gut instincts rather than deliberative cost-benefit analysis or inherent criminality.[3] Their gut instincts lead them down the wrong path because – unlike crimes that involve face-to-face acts of violence and “ring an internal chord telling them not to proceed”[4] – white-collar crime places physical and temporal space between the criminal and the victim. Such crimes do not engage the same “emotional circuitry” in the perpetrator’s brain as other crimes.[5] This failure of automatic gut impulse control makes it easier to rationalize and compartmentalize criminal behavior.[6] Take, for example, Steven Hoffenberg, who viewed a $475 million Ponzi scheme “not as a deceptive enterprise but rather as a pragmatic issue.”[7] Self-deception allows employees to frame their decisions in a way that eliminates negative ethical characterizations and distorts moral principles.[8] Research suggests that this reframing, called ethical fading, heightens the likelihood that individuals will behave unethically.[9]

To enable better decision-making, an effective culture of compliance should redirect employees’ initial gut reactions, causing ethical alarm bells to be reinforced before the crime is committed. One common mechanism for shaping employee intuition is mandatory ethics training. Such training describes the company’s code of conduct and prompts trainees to apply it through questionnaires or free-form discussions with co-workers involving situations that require ethical trade-offs. Such traditional training alone is insufficient, however. Even forty or fifty hours of training a year are little more than a blip in time compared to other influences surrounding employees in just a few weeks on the job.[10] More worrisome, when trainees believe the sole purpose of the training program is to protect top executives from liability, they may violate the rules with greater frequency.[11] Combining effective training with management’s visible commitment to ethical behavior weighs against such employee cynicism. However, there is still the risk that this “tone at the top” will be diluted by other legitimate values shaping employee intuition, such as the pressure to contribute to one’s team by meeting sales quotas or securing an important contract.

To target this dilution problem, companies should consider integrating compliance factors into their incentive programs. In practice, this might take the form of performance evaluations rating the concrete actions an employee takes to promote ethical business practices. For example, supervisors might rate, on a scale of 1 to 5, the extent to which an employee addresses potential issues in business plans, challenges questionable conduct or proposals, and actively listens to the concerns of subordinates.[12] These scores could then be part of that employee’s promotion assessment or used as a threshold for eligibility to participate in other incentives programs.[13] To target ethical fading, companies could adjust their training programs to implement just-in-time training, which puts employees in real life ethical dilemmas under business pressure.[14] By completing this training before they make decisions on the job, employees can learn to anticipate and recognize the signs of self-deception before they make an illegal decision in practice.[15]

Another less formal mechanism might involve frequent and visible rewards – such as travel, small tokens, or personal letters of appreciation – for employees who demonstrate ethical behavior.[16]  This works best if compliance rewards are on par with other rewards.[17] In other words, if top sales people go to a conference in the Bahamas, the top compliance performer should get something more than a $15 gift certificate to the local café.[18]

Not only are these formal and informal mechanisms in line with guidelines from domestic and international enforcement agencies,[19] they are important communications tools. Integrating compliance into existing incentive programs repeatedly reinforces that ethics are an important part of employee success and reduces the risk that the tone at the top will be diluted by other values. Moreover, if compliance performance factors into promotion, conscientious employees will move up the ladder and further reinforce leadership’s commitment to ethical behavior. Currently, many businesses use far-reaching incentive programs that affect most of their employees, but the compliance team is generally uninvolved in reviewing these programs.[20] By integrating compliance input and providing positive reinforcement for ethical behavior, corporations can shape employee intuition to reduce the risk of unethical decisions.

But what if, despite these efforts, employees fall back on their misguided gut instincts in certain situations? As a safeguard, employees should also check their initial gut reactions by employing thoughtful, objective reasoning. However, situational factors present obstacles to this type of thought process. First, managerial activities often involve mechanical routines that discourage reflective deliberation to challenge initial impulses.[21] Second, these routines can be executed in isolation, without the input of an outsider who might encourage critical thinking.[22] Third, executives tend to feel secure in their own moral compass, which encourages reliance on flawed gut impulses.[23]

To combat these factors, companies might direct employees to run through a suggested list of instructions corresponding to red flags that frequently arise in the course of business. By consciously undergoing a period of reflection before decision-making, employees will be forced to slow down and consider information likely to avoid ethical problems in the heat of the moment. Companies might also consider offering employees the opportunity to have a brief discussion with an outside party (such as an ombudsman, outside counsel, or operator of an external ethics hotline) before making their final decisions. Indeed, one would-be criminal revised his initial judgments only after gaining outside perspective from an attorney-confidant.[24]

The challenge for companies lies in making sure employees actually apply deliberative ethical reasoning in the heat of the moment, especially in fields that lend themselves to employee autonomy and place incessant demands on employee time. However, by incentivizing desirable instinctual responses and providing opportunities for reflection before decision-making, thoughtful compliance professionals can fortify a company’s culture of compliance and significantly reduce the likelihood of misconduct.


[1] See, e.g., Joanna Belbey, Wall Street Regulator (FINRA) Examining for Culture of Compliance, Forbes, Feb. 24, 2016; Rod Rosenstein, Deputy Attorney General, Keynote Address at the New York University Program on Corporate Compliance & Enforcement (Oct. 6, 2017); U.S. Dep’t of Justice, Criminal Div., The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance 7 (2016).

[2] Rod Rosenstein, Deputy Attorney General, Keynote Address at the New York University Program on Corporate Compliance & Enforcement (Oct. 6, 2017).

[3] Eugene Soltes, Why They Do It: Inside the Mind of a White-Collar Criminal (2016)

[4] Id. at 119.

[5] Id. at 120.

[6] Neil Senturia, White collar criminals don’t think they will get caught, The San Diego Union-Tribune, Oct. 31, 2016.

[7] Id.

[8] Ann E. Tenbrunsel & David M. Messick Ethical Fading: The Role of Self-Deception in Unethical Behavior, 17 Social Justice Research, 223, 231-32 (2004).

[9] Id. at 233.

[10] Soltes, supra note 4, at 327.

[11] Tammy L. MacLean & Michael Behnam, The Dangers of Decoupling: The Relationship Between Compliance Programs, Legitimacy Perceptions, and Institutionalized Misconduct, 53 Acad. of Mgmt. J. 1499, 1516 (2010).

[12] Joseph E. Murphy, Using Incentives in Your Compliance and Ethics Program, 46 (2011)

[13] Id. at 21.

[14] Tim Lindon, Crediting the Behavioral Approach, Compliance & Enforcement (July 20, 2016).

[15] See Tenbrunsel & Messick, supra note 8, at 226-31 (discussing the “four enablers” of self-deception in the context of ethical fading).

[16] Murphy, supra note 12, at 28-29.

[17] Id. at 28.

[18] Id.

[19] Id. at 11-16.

[20] Soc’y of Corp. Compliance and Ethics & Health Care Compliance Association, Incentive Programs and Compliance 2 (2017).

[21] Soltes, supra note 4, at 154.

[22] Id. at 320.

[23] Id. at 328.

[24] Id. at 320.

Natalie Noble is a J.D. Candidate at New York University School of Law, Class of 2018 and a Student Fellow with the Program on Corporate Compliance and Enforcement.


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