A Greater Role for HR and Ethics Screening in Corporate Anticorruption Compliance?

In my last post, I discussed recent research suggesting that combating corruption in government bureaucracies requires attention to the selection of personnel – trying to recruit not only the most capable, but also the most honest.  Might the general principle apply to private corporations?  Should corporate compliance programs place more emphasis than they do on assessing candidates’ integrity at the selection stage (initial hiring or subsequent promotion)?  And should law enforcement consider a firm’s efforts at integrity screening when assessing the adequacy of a firm’s compliance program?  I don’t have the answers to these questions – I simply don’t know enough about human resource management issues – but I want to raise them in the hopes of starting a discussion of the issue.

Most of the material I’ve seen on corporate compliance programs – including the U.S. DOJ’s FCPA Resource Guide and the U.K. SFO’s Guidance on the 2010 Bribery Act – focuses on the importance of (1) “tone at the top” and a general culture of compliance; (2) adequate risk assessment and due diligence systems for projects and partners; (3) training and communication to employees; and (4) appropriate carrots and sticks – the threat of discipline and the promise of rewards – to incentivize employee compliance.  I agree that all of this is important.  But strikingly absent from the list of features that characterize effective compliance programs is any discussion of a serious effort, at the hiring or promotion stage, to identify individuals with an intrinsic propensity to honest behavior.  Usually, the only time these selection issues are mentioned is in the context of incentives: the promise of promotion or the threat of demotion/termination might induce employees to avoid violating the firm’s compliance policy (and the law).  But selection practices are important not just for the incentives they create, but for their capacity to place the right people in positions of responsibility.  And so it’s striking that the leading discussions of corporate compliance programs have so little to say about what firms can or should do to screen candidates for integrity and ethical sensitivity.

I don’t want to overstate this: there’s some discussion of this issue in the compliance community, and some companies have started to introduce ethics-based questions and exercises into their recruitment process (see here and here).  The questions I want to raise – and they really are just questions, as I don’t know enough to have a firm view – are (1) whether firms should do more in this vein, and (2) whether a government enforcement agency, in assessing a firm’s compliance program in the context of an enforcement action (or perhaps in ordering a structural remedy overseen by an outside monitor) should place greater emphasis on selection-stage screening.

I can see a number of objections to trying to push more ethics-based screening as an essential part of an adequate anticorruption compliance program, chief among them concerns about feasibility.  As I noted in my last post, it’s a bit challenging to envision reliable screening procedures that could assess personal integrity; integrity very hard to measure, and tests are very easy to game (once people know what’s being tested).

But still, it might be worthwhile for firms, and perhaps government enforcers, to start asking more seriously whether it’s possible to do more on this front.  After all, many management experts would say that picking the right people is just as important, perhaps more important, to business success as having the right organizational structure or incentive schemes.  Why would this not be true for anticorruption compliance as well?

4 thoughts on “A Greater Role for HR and Ethics Screening in Corporate Anticorruption Compliance?

  1. Matthew,
    another thought provoking post, and one on which I have been pondering for a while. In the Australian context for government positions, there are requirements for applicants to demonstrate commitments to occupational health and safety; equity in the workplace; and industrial democracy. There are legislative frameworks for each. While these are often treated as a ‘tick & flick’ requirement, their presence in selection criteria for every (government) job serves as a constant reminder people are expected to work in a safe, equitable and fair environment. A fourth pillar in this framework of ethics based questions exists in some agencies, and the concept could easily be migrated across to others, as well as the private sector.

    However, there is another role HR needs to consider in the sphere of ethics, that is when an employee departs an organization. My recent research indicates that HR processes tends to obscure the real reasons a person is either dismissed or otherwise leaves an organization. Less serious cases of unethical or corrupt behavior are often dealt with by giving the person an opportunity to resign. This is an easy out for the HR area. Yet the knock-on effect is that future employers are unaware of the true nature of the person in question. If a matter is serious enough to warrant a person’s dismissal, then it is serious enough for future employers to have a need-to-know.

    Of course any system to facilitate such reporting is open to abuse by employers, which adds layers of complexity to any solution. However the tail-end of the HR process is as important in some respects to an industry or sector overall as the recruitment process is at the beginning.

    Adam Masters
    Australian National University

    • Adam,

      These are both very interesting observations.

      On the first point, about how the Australian government includes questions about values and ethics, the academic researcher in me has the immediate reaction that this sounds like it might be an opportunity for a clever randomized experiment for an enterprising economist and a cooperative government or private sector institution: One could imagine randomly including certain kinds of questions about ethics (or whatever) for some employees but not others, and then do some kind of follow up evaluation (behavioral if possible, but if not maybe using surveys or laboratory games) to see if employees who got the “signal” that the organization cares about ethics in fact behave more ethically.

      Aside from the possibility of doing this sort of academic research, the other thing I wonder about here is whether there might be a dilution effect if the organization asks too many of these sorts of questions. Emphasizing and handful of core values might convey a serious message; asking about a dozen different things might turn what is already a “tick and flick exercise” into something completely meaningless. But if so, how to select what to emphasize?

      On your second point, I agree that it’s a problem if subsequent employers never learn about malfeasance at a prior job. But there are costs to requiring employers to disclose. At least in the US, this sort of reporting can result in lawsuits, which — even if meritless — can be very costly for the employer. And raising the costs of termination can lead to less hiring, particularly of candidates who might seem (perhaps for good reasons, but perhaps for bad, prejudicial reasons) seem like higher risk. And of course, there’s the issue of fairness to the employee — termination is already something of a scarlet letter, and we might worry about over-punishing someone who, say, commits a real but relatively minor infraction when he was relatively young and inexperienced, but then is branded for life as unethical, untrustworthy, etc.

      I’m not disagreeing with your larger point, but I’m not quite sure how to balance the desire to give employers more information about candidates with the competing considerations on the other side.

  2. Dear Matthew, a really fascinating topic to explore! I have also blogged about this idea a few weeks back from a different perspective (and less eloquently) here:
    My hunch as a non-expert in this area is that the main benefits of bringing ethics more explicitly as selection criteria into the recruitment process might not only – and perhaps not even primarily – be about helping to pick the right people, but about very effectively communicating important aspects of the envisaged corporate culture for the organisation and about getting future employees to reflect on ethical dilemmas and build up related awareness, when they are at their most receptive and eager to shine: during the recruitment process for a job they would love to have. We at Transparency International have recently commissioned a group of students at the Norwegian School of Economics to interview HR professionals about these ideas as part of their term project. The result: widespread agreement on the part of HR professionals that there is a significant, under-explored potential and great interest to explore this further. So I hope your post will help spark an exploratory journey that we will also follow and partake in with great interest.
    Dieter Zinnbauer
    Transparency International

    • Dieter,

      Thanks for referring me (and other GAB readers) to your related post on this subject!

      Interesting that you and Adam made a very similar point, which I had completely overlooked: engaging in some kind of ethics screening in the selection process may not be exclusively (or even primarily) about actually screening candidates, and more about communicating something about the organizational culture.

      This definitely seems like an area ripe for more research — not just this particular issue, but more generally what sorts of measures effectively communicate an ethical corporate culture, and induce subsequent ethical behavior. I’m looking forward to hear what TI’s ongoing research on this discovers.

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