Corporate Compliance and the Tension Between “Nudges” and Group Norms

As corporate-compliance experts pay closer attention to the field of behavioral sciences, one of the concepts that has particularly drawn their attention is the concept of “nudges.”  A “nudge,” as Professors Richard Thaler and Cass Sunstein defined it,

is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.  To count as a mere nudge, the intervention must be cheap and easy to avoid.  Nudges are not mandates.  Putting the fruit at eye level [in a school cafeteria] counts as a nudge.  Banning junk good does not.  (Richard H. Thaler and Cass R. Sunstein, Nudge 6 (2008))

“Nudges” have become broadly popular in many companies and government agencies as a technique for modifying individuals’ behaviors without overt compulsion.  That popularity has carried over to the corporate-compliance world.  Because companies “have a significant interest in preventing unethical and illegal behavior,” as Professor Todd Haugh wrote, “[t]he use of private nudges to foster prosocial behavior seems particularly attractive in the context of corporate compliance.”

But Professor Haugh also warned that behavioral ethics nudging in corporate contexts “must be implemented with caution” for three reasons:

  • “Fit” in the Corporate Context: Because public-policy nudges, which involve alignment of individual choice and rational self-interest, ”are much different than behavioral ethics nudges, which attempt to prevent people from acting self-interestedly,” imposing public policy-style choice architecture in a corporate environment may be “wholly ineffective as a compliance strategy.”
  • Challenge to Personal Autonomy: Behavioral ethics nudging may “violate employees’ deeply held normative notions of personal autonomy,” particularly when nudges play on people’s cognitive irrationalities to steer ethical choice, and thereby raise the question whether such nudges are ethically appropriate.
  • Unintended Consequences: “[C]ompanies that get behavioral ethics nudging wrong may actually undermine their larger corporate compliance efforts, thereby increasing unethical behavior and amplifying compliance risk.”  For instance, if a company employs “behavioral ethics nudges that could be perceived by employees as ineffective or unethical,” and the employees “view their compliance programs as failing to align with their values,” employee reactions could include resentment or even “an “us-versus-them” perception of management.  In addition, “if not done with care, attempting to reduce compliance risk through behavioral ethics nudging may create behavior that undermines the entire compliance effort.”

A newly published study of nudges by seven Israeli researchers identifies another potential concern with the application of nudges in corporate environments: that a nudge may conflict with preexisting group norms.  Taking account of prior research showing “that the concept of ‘one nudge fits all’ is not tenable  . . . due to the myriad individual differences between people,” the researchers sought to explore whether “minorities might react differently to a nudge because it promotes a goal that, while desirable among the majority of people, is incongruent with their group’s norms and beliefs.”

To that end, the researchers conducted an opinion survey, based on a representative and random sample of the Israeli population that included representatives of two minority groups: Israeli-Arabs and Ultra-Orthodox Jews.  The respondents were asked to express their opinions about 15 public-policy nudges applicable to Israeli society, such as (1) health care providers’ automatically pre-scheduling patients to appointments for age-recommended heath tests, (2) credit companies’ sending email or text warnings to customers approaching their credit limits, (3) asking drivers receiving or renewing their driver’s licenses whether they would be willing to join the organ donation program, and (4) making the default setting for uploading new content to social network sites that the content would be visible to friends only.

The researchers’ findings for both minority groups suggested “that it is mostly nudges that stand in contradiction, at least to a degree, to a group’s social norms that are less favorable”:

  • “Israeli Arabs objected most to nudges that were aimed at changing behaviors that could be considered as more typical of their group’s held norms and habits (such as pre-appointments and credit card limit alerts). Even more strongly, Ultra-Orthodox Jews most objected to nudges that relate to issues in which they hold distinctly different beliefs than the majority, including organ donations and online privacy.”
  • “Ultra-Orthodox Jews were much more in favor of pro-self nudges (compared to pro-social ones) than the majority group. We did not find support for that account among the Israeli Arabs when considering the overall difference between pro-self and pro-social nudges. However, closer examination of the ratings suggests that the small difference between pro-self and pro-social nudges among Israeli Arabs, compared to a much higher difference among Ultra-Orthodox Jews, could actually be attributed more to the lower support most proself nudges received among Israeli Arabs.”

The researchers concluded that “[i]f  nudges are defined as a means with which to improve decisionmaking and society welfare . . ., then for this to be achieved, the views of minority groups should be further explored and incorporated in any discussion about the design and implementation of nudges in particular, and behavioral public policy in general.”

Note: Because this study focused on the tension between nudges in behavioral public policy and group norms for two particular minority groups in Israel, the researchers deserve credit for exploring a topic that has potential ethnic and religious sensitivities. While its focus is on behavioral public policy and nudges, it raises a number of intriguing issues that future research on intracorporate behavior will need to explore, and that compliance officers will need to take into account before incorporating certain nudges into their corporate compliance programs.  However vigorously corporate policies state their opposition to bribery and corruption, for example, different cultures may regard bribery either as not corrupt or as corrupt for reasons different from those embodied in criminal statutes (e.g., its adverse effect in a particular culture on the building of relationships).

The more countries and cultures in which a company is doing business, then, the more it important it will be for that company to consider the extent to which nudges may be effective in influencing behavior by their employees and third parties in those countries and cultures, and to take pains to craft nudges carefully to improve their effectiveness for compliance purposes when they appear to conflict with norms and beliefs of various groups in those countries and cultures.

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