[MUSIC] Welcome to this second video, of our session on organizational impact on ethical blindness. In the first video we have seen how. Factors of the organization promote ethical blindness. In this second video, we will deal with the question of how organizations try to fight, against compliance risks? By creating what they call normally compliance program. because managers are not stupid. They understand this risk. They observe this chaos around them, and they know that doing the wrong thing can be heavily punished. Just think about the case of Siemens, the company that was caught in a systematic and large scale scandal of corruption. They had to pay $1.6 billion USD in fines. So acting against the rules can be very expensive. Corporations, therefore, create compliance systems. These compliance systems, however, are highly ineffective. They're designed from a legal perspective normally, they do not cover the risks that we have seen in this course on unethical decision making. They are made to catch the bad apples. So, compliance systems as you find them in most organizations. They are based on the assumptions that, bad things are done by bad people. Bad apples. So it is people who make a calculation of risks against benefits. If the risk is perceived as low, they go for the rule breaking. So, how do we keep these kind of criminals in check? Well, you have two tools at your disposition. You control and you punish. You sensitize them in trainings. You create a code of conduct. You show them the torture instrument, the punishments. You show them the duties, the risks. You surround them by an effective network of control mechanisms. And here you have the standard approach, to compliance management in organizations. And you already understand after four weeks of discussing about unethical behavior committed by normal people, that this is obviously not. The appropriate strategy to keep the risks of ethical blindness under control. But it is based on some deep seeded beliefs, that we have in modern organizations. It is coming from a very old tradition of thinking and liberal writings of philosophers like, like Thomas Hobbes. Who have shown us that, human beings basically are wild beasts. They would kill each other, they are greedy you have to keep them in check through rules and powerful leaders, and punishment. It is, secondly, based on a very reductive understanding of what organizations are, it's based on the organizations. Being a kind of machine. Also something that comes from, from very early philosophical writing in the enlight, enlightenment period. The whole Book of Nature as we learned from Galileo Galilei is written in mathematical symbols. So nature basically is a kind of machine. A mechanism that we can understand by reading it through mathematics. Society is a machine as well. So we apply this metaphor to society. Human beings are machines. Frederick Winslow Taylor at the beginning of industrialization, he tried to make the machinery of production more efficient by deconstructing what workers do in ever smaller steps and. By improving the movements of workers in a way that the process of production could be speeded up. So, basically we treated workers like machines. Troy Chapin's film Modern Time shows that result. Factories basically are huge clock works. Well since then, psychology has helped us to refine our understanding of human motivation. And our course basically builds on this, refined understanding of modern psychology. However, it seems very often that compliance management is still building on this old metaphor of organizations and humans being machines. Homo economicus, the heuristic actor, the living calculator. You can keep them on track, by two types of motivation. You punish, negative incentives. You reward, positive incentives. Carrots and sticks. Jeremy Bentham. The founding father of Utilitarian Ethics that we met already in the first week. He had a dream. He had a dream of the perfect controlled system, that he called the Panopticon. Which he applied to a prison environment. He said, well he mentioned. We could design an architecture of a prison. Where one guard from a. Point in the middle of the system, can control all the prisoners, all the time. But they can not see that he is controlling them. What will they do? Well they will assume that they are controlled, because they do not know whether or not they're controlled. They will behave properly as if they were controlled all the time. Bentham was convinced that this principle could be applied to all other kinds of organizations, schools corporations, and modern corporations when they, when they engage in compliance they often, unconsciously of course apply this idea of Panopticon. With codes of conduct, with tough compliance monitoring, you create a kind of internalized Panopticon. You feel observed all the time, you feel controlled all the time, so you might be kept in check as a criminal just by this internalized Panopticon. But what we have seen in this course, what we can see if we observe the scandals around us, is that this is not enough. People do not consciously commit crimes most of the time. They are driven by context towards unconscious routines, that then move into the wrong direction. Compliance systems have a legal perspective. Our course takes the psychological perspective. And we assume that the real risks of, of defiant behavior, acting against the rules does not come from criminals who act against rules. It comes from the psychology that creates strong contexts. And you have important side effects of carrots and stick systems. The first one is, you destroy intrinsic motivation, if you focus too much on extrinsic motivation. So people would stop doing the right thing, because they believe it's the right thing, they would just follow the rules. If the rules relax they will go in the wrong direction. Look at the Enron reward system that we have seen already. You'll see the link very clearly. Second, strong control systems send signals of distrust. Distrust has a negative impact on motivation. People will start to look for the holes in the system, and they will take revenge, to somehow rebalance giving and taking. They will start maybe, to steal in the name of justice. So paradoxically, compliance systems that are designed to keep people in check, they might create the behavior they want to avoid. The conclusion of our session of today is the following. Organizations can embed decision makers in very power context, that push toward ethical blindness. Knowing that your employees might break the rules, you might create a compliance system around them. But this compliance system is not effective, because it's, it is designed for criminals. It is not designed for good people. And ethical blindness describes this risk of good people. Doing bad things. Thank you for your participation. [MUSIC]