In her August 28 CNBC column on leadership, Ruth Umoh highlighted several prominent present or former executives who have touted the virtues of fear in motivating themselves and their employees. The dominant message – as reflected in the column’s headline – was Amazon founder Jeff Bezos’s 1999 statement that “I constantly remind our employees to be afraid, to wake up every morning terrified.” Umoh also asserted that “[u]sing fear as a motivator is a strategy that has also worked well for others,” citing author and investor Tim Ferris, who said in 2017 created a written exercise that he called “fear-setting”, like goal-setting, for himself “to make a lot of [the hard choices] easier.”
While fear may help certain CEOs to motivate themselves, any message that corporate executives and employees should incorporate fear into their daily decisionmaking and actions should be deeply worrisome to compliance officers. For compliance professionals, who are expected to develop and foster a culture of compliance within their organizations, fear – particularly businesspeople’s fear of failure to “grow” the business with sufficient speed or to meet sales or production quotas – can prove toxic to that culture of compliance. It may not only influence the cognitive process of decision-making in general, but have powerful effects on the ability of executives to make ethical decisions as part of that process.
In a 1996 article, Ethical Leadership and the Psychology of Decision Making, two leading authorities on business ethics, Professors David Messick and Max Bazerman, powerfully argued “that unethical business decisions may stem not from the traditionally assumed trade-off between ethics and profits or from a callous disregard of other people’s interests or welfare, but from psychological tendencies that foster poor decision making, both from an ethical and a rational perspective.” Those tendencies arise in three aspects of business decision making:
- Theories about the world. As Professors Messick and Bazerman noted, “Successful executives must have accurate knowledge of their world. If they lack this knowledge, they must know how to obtain it. One typical challenge is how to assess the risk of a proposed strategy or policy, which involves delineating the policy’s consequences and assessing the likelihood of various possibilities. If an executive does a poor assessment of a policy’s consequences, the policy may backfire and cause financial as well as moral embarrassment to the firm and the decision maker.” Emphasizing fear as a primary motivator for colleagues is highly likely to undermine executives’ theories of the world, by distorting three aspects of those theories:
- Their consideration of possible consequences (e.g., underestimating the importance of a risk or concealment of a corporate decision to avoid adverse public reaction);
- Their judgment of risk (e.g., denying uncertainty, framing of risks in ways that prompt executives to avoid economic loss, systematically failing to account for the full spectrum of consequences associated with decisions, or systematically erring in assessing the probabilities associated with the consequences); and
- Their perception of causes (e.g., most people’s tendency to blame a person rather than look for alternate explanation such as defective equipment or procedures, and the inclination to treat failures to act as less culpable than positive acts).
- Theories about other people. Our theories about other people can be molded by ethnocentrism (not only based on racial, ethnic, or national affiliations), especially in “[i]ntensely competitive situations”, and by stereotyping.
- Theories about ourselves. People’s judgments about themselves tend to be flawed in at least three ways:
- A person’s illusion of superiority, which can encompass an unrealistically positive view of the self and an illusion of control over random events;
- Self-serving fairness biases, which can involve a conflict between a person’s interest in fairness and his or her interest in performance and success; and
- Overconfidence in their knowledge of facts and their risk assessments.
To counteract these tendencies and improve ethical decision-making, Professors Messick and Bazerman proposed that executives focus on improving three qualities:
- Quality, by “ensuring that all the consequences of actions are considered,” ”having accurate assessments of the risks associated with possible strategies and being attuned to the pitfalls of egocentric biases.”
- Breadth, by taking into account “the full range of consequences that policies may entail” for all stakeholders.
- Honesty, by looking candidly at whether a proposed course of action would, if publicly disclosed, “stand the light of day or the scrutiny of public opinion,” and by “learn[ing] to calibrate ourselves to judge risk . . . [and to] examine our motives in judging others.”
So how should compliance officers who learn of business leaders’ invocations of fear within their organizations address these concerns about the toxic effects of fear on corporate compliance? One starting point would be to have a series of discussions with C-level executives that raise specific concerns about the effects of broadbased invocations of fear on compliance, along the lines of the preceding discussion. In addition, compliance officers need to point out that while fear can provide a potent message to employees, as Professor David G. Myers wrote in Exploring Social Psychology (1994), “[i]f you don’t tell people how to avoid the danger, frightening messages can be too much to cope with” (p. 156). As reflected in a variety of social psychological studies, providing guidance about what positive or protective strategies executives can follow in response to a fear stimulus – such as fear of economic loss, fear of public criticism or reputational harm, or fear of adverse government action — can make for more effective intracorporate communication, and can assist executives in thinking through the potential risks of particular decisions more comprehensively and mindfully.