Conventional wisdom suggests that transparency is central to an effective ethics and compliance program — and even enables business success overall. But compliance consultant Vera Cherepanova makes the case that transparency for its own sake may do more harm than good.
Transparency has become a buzzword as organizations rush to compete over who can share the most information with their respective stakeholders. Whether it be personal data processing practices, supply chains or business transactions — transparency is increasingly viewed as a prerequisite for an effective ethics and compliance program and future business success. Despite the popularity of the concept, its role in reducing corporate misconduct is poorly understood.
It is commonly stated that transparency is central to curbing unethical behavior; however, the interaction between transparency and integrity is not always that straightforward. Why? Let’s take a closer look at what behavioral studies tell us.
Transparency implies accountability. The perception that one’s behavior is visible to others makes it more difficult to apply self-serving justifications in decision-making because people like to appear moral to others. When acting alone, an individual is the only person to be convinced of the morality of her actions.
With outside observers involved, the situation is less straightforward — they could detect an excuse one makes to ease the burden of unethical choice. Transparency and accountability mechanisms can thus mitigate the risk of unethical behavior by reducing an individual’s moral wiggle room.
As Businesses Continue to Find Metaverse Use Cases, Leaders Must Be Mindful of Ethics & Compliance Implications
Talking about how to use metaverse technologies in the corporate world may seem totally 2021, but investors remain bullish and business use cases continue to solidify.
Read moreDetailsHowever, one of the interesting and counterintuitive findings of behavioral research is that transparency may lead to the diffusion of moral responsibility: The person disclosing the information feels they can act upon their bias once it is openly admitted. The responsibility for taking action is passed to the recipient of the information, as the person who made the disclosure will think, “if this is a problem, someone would tell me.”
Moreover, in certain cases a disclosure can lead to even more biased conduct than would have occurred without it. In a clever experiment involving 56 active and experienced corporate directors from U.S. firms, the researchers have studied whether public disclosure of friendship ties between CEOs and board members will mitigate or exacerbate the impairment of the directors’ independence and objectivity.
Surprisingly, the disclosure of the relationships worsened directors’ behavior. This effect can be explained by the phenomenon of moral licensing: using one “good” act (in our case, the disclosure of a conflict of interest) to justify the “bad.”
These findings have important implications for compliance professionals. Transparency is not an end in itself, and disclosure alone is not a panacea as we might have assumed. “Untargeted” transparency without a clear recipient and following action upon the disclosed information is likely to reduce, not increase, accountability. From a behavioral perspective, pushing for transparency will only work if it triggers a dialogue.
Disclosure of a conflict of interest is important, but without regular checks and getting back to the employees its positive effect might dissipate. In other words, although transparency is a prerequisite for addressing unethical behavior, it is not sufficient in and of itself. Transparency needs to be complemented by actively engaging with respective stakeholders. Only that would yield meaningful results.
© Vera Cherepanova; this article originally appeared on the FCPA Blog and is republished here with permission.
Vera Cherepanova
