Cor­po­rate Gov­er­nance

Lead­ers today face tough busi­ness cli­mate with high expec­ta­tions of eth­i­cal con­duct and increas­ing reg­u­la­tions, enforce­ment and large fines. Like it or not, man­ag­ing com­pli­ance as part of good gov­er­nance can no longer be ignored by senior man­age­ment.

Most SMEs, how­ev­er, have stayed on the side­li­nes when it comes to invest­ing in ethics and com­pli­ance pro­grams. Our expe­ri­ence sug­gests that most SMEs fail to offer employ­ees any for­mal guid­ance on how to con­duct busi­ness. Lead­ers give two rea­sons for the hes­i­ta­tion: 

1st: they lack required exper­tise in-house, and 2nd they wor­ry about expen­sive and time-con­sum­ing solu­tions from law firms and con­sul­tan­cies

How­ev­er, not doing any­thing and then hop­ing to have a legal defense when things turn sour is not only naive but also falls short of legal require­ments. But what can SME lead­ers learn from larg­er peers with years of expe­ri­ence in this area? Well, very lit­tle. Most large com­pa­nies spend mil­lions every year on old-fash­ioned rules and con­trol-based com­pli­ance approach that requires lots of resources, makes employ­ees risk averse and doesn’t real­ly work, as evi­denced by the con­tin­u­ous string of eth­i­cal scan­dals despite sig­nif­i­cant invest­ments. Today’s approach is beg­ging for tech­nol­o­gy: old-fash­ioned, legal­is­tic, cost­ly and unsuit­able for a fast-pace, tech­nol­o­gy-dri­ven busi­ness cli­mate.

Fresh think­ing need­ed

We believe that fresh think­ing is need­ed to address a major soci­etal prob­lem like uneth­i­cal prac­tices. SMEs that have not yet invest­ed in old-fash­ioned, tra­di­tion­al com­pli­ance pro­grams like those deployed by large com­pa­nies, do not need to now. More­over, not hav­ing to unrav­el lega­cy com­pli­ance sys­tems focused on con­trol and sanc­tions, SMEs can leapfrog with mod­ern tech­nol­o­gy solu­tions that embed behav­ioral eco­nom­ics to impact con­duct and com­ply with legal require­ments, while sav­ing sig­nif­i­cant mon­ey, time and pain.

Employ­ees would get prin­ci­ples-based guid­ance on mobile devices, which can be applied to chang­ing sit­u­a­tions and over time. Their judg­ments would be con­tin­u­ous­ly strength­ened by crowd­sourcing insights from peers and experts, with machine learn­ing to derive pat­terns and rec­om­mend mean­ing­ful options, sim­i­lar to how arti­fi­cial intel­li­gence pro­vides traf­fic pre­dic­tions or ear­ly warn­ings for health­care risks. A moral com­pass (fig­ure) would nudge peo­ple for eth­i­cal reflec­tion at the very moment they make crit­i­cal judg­ments, such as dur­ing meet­ings; in the after­noon when morals are known to decline; in risky geo­gra­phies; or when under pres­sure – trig­gered by cal­en­dar reads, time of day, geolo­ca­tion and pulse devi­a­tions, respec­tive­ly. But why? Because behav­ioral eco­nom­ics research has shown that moral reminders deliv­ered at the right time lead to far more eth­i­cal behav­ior: peo­ple don’t cheat on tests and peo­ple report more hon­est­ly on insur­ance claims.