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In the province of Florence you can find the small city of Vinci. Today around 14,300 citizens are living here. More than 500 years ago, Leonardo was born near this place and based on the tradition, received his name “Leonardo di ser Piero da Vinci”. As universal genius, talented artist and curious in all aspects, he became the ideal of the Renaissance time.

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In his famous “Vitruvian Man” he realistically pictured a man from different angles, but Leonardo not only understood the outside, also human psychology, as his quote “It is easier to resist at the beginning than at the end” confirms. Being in the beginning of a potential Compliance risk is the best time to contact your Compliance Officer. An individual will do this if his or her benefit will be higher than the investments.

Definitions:

r) Estimated Compliance Risk: The estimated negative impact for company

b) Anticipated Benefit of Compliance: The estimated positive impact of the Compliance to solve the problem

c) Cost of Information: The estimated cost to contact the Compliance Officer and / or to involve him or her. This includes also an estimated negative or positive impact for the employee, for example potential disciplinary action or an award for whistle-blower. For the last case the cost would turn into benefit.

(1/r) > b – c

An employee, who received Compliance training, will guess how big a Compliance risk may be. As he or she is not an expert on the topic, this estimation can be right, but also wrong. If the Compliance department will be contacted depends now, how the benefit of this is anticipated by the employee and how cost-intensive is receiving relevant Compliance information and decisions. If the 1/”estimated risk” is assumed to be higher than the anticipated benefit minus the costs to receive this information, the employee will not seek to contact Compliance. As the risk estimation can be wrong, this can lead to a Compliance problem; a relevant risk for the company.

(1/r) < b – c

On the other hand, if benefit minus costs is still higher than the 1/”estimated risk”; Compliance will be involved. So these are the four factors, with which can be worked on:

  • Foster employees’ Compliance knowledge so that they able to judge correctly potential risks.
  • Make Compliance a trusted adviser which can offer relevant information. This maximized the anticipated benefit of Compliance involvement.
  • Lower the cost of information. Compliance must be close to the business and easy to reach. Additionally an award for positive behavior up to for whistle-blower can be implemented. If possible tools as smart phones and apps should be used to ensure communication availability 24 hours and 7 days a week.
  • Connect Compliance with company and personal values. With this a potential wrong-doing will lead to pressure inside the employee, as (potential) actions not are compatible with own attitudes and values. Lowering psychological pressures would be another benefit of Compliance involvement.

Just as Leonardo predicted, the longer you are walking down on the wrong path, the more difficult it gets to resist the future wrong doing, as with the time the cost of information gets higher. This includes that first of all, the employee has to admit his personal failure and also has to assume that now the correct behavior will be paired with a smaller or bigger disciplinary action.

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Perception is important. The employee has to understand that he or she is on the wrong way. In many cases this is not the case right from the beginning. The employee perceives him or herself as on the right way, but then more or less suddenly understands that this is not the case. Hereby can perception be everywhere in between the absolute black and white. Through the employee’s eyes he or she can be one any imagine imaginable path on or above the right one, even above the wrong way.

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Again, Compliance training support employees not just to stay on the right way, but also if they left this path, to recognize this as early as possible. Here such a workshop cannot limit itself on pure teaching of information, but must include real-life case discussions and psychological stress situations, which may lead to the ethical blindness-phenomenon.

According to Leonardo, it is easier to resist a future wrong-doing (=continuing to walk down the wrong path), if you are still in the beginning, at or soon after a decision. This because the longer you are on the wrong way, the bigger gets the gap and the more difficult to jump from the wrong to the right path. Meaning, if you want to return on the right way, you have to communicate with your Compliance Officer and a) commit your wrong-doing to yourself and b) to the company. Most organizations have a range of disciplinary actions, which starts from nothing, if it is plausible that the deviation was a pure accident, up to separation of the employee from the company, if it is a sever case. The cost of information gets higher with the time. But there can be also negative costs, if there is an whistle-blower ward.

Based on Leonardo we include “g = gap” in our calculation:

(1/r) < b – c – g

Hereby the gap is defined as:

v) Own responsibility for wrong-doing

s) Severity of the wrong decision (the angular degree between both paths)

t) Time

(1/r) < b – c – (v *s*t)

According to mathematics, if any of these values would be 0, g become 0:

v=0 : The employee feels not responsible for the deviation, it was an accident.

s=0 : The employee does not perceive a negative impact for the company

t=0 : The employee is still in the process of decision making.

If  1/”anticipated compliance risk” is lower than the benefit of possible compliance involvement, minus the costs of information and the gap, the employee most-likely will continue on the wrong path without making the situation transparent, as it is easier to give in the temptation to follow the wrong path than to resist it and return to right one.

Also with these factors Compliance can work:

  • Responsibility: Workshops can discuss the responsibility of employees, especially regarding approvals and signatures.
  • Severity: A good Compliance training is not limited on laws and regulations, but explains also what is behind, like cost of corruption. Further Compliance can be presented as part of the company’s sustainability strategy. It is not just important to sell today, but also to sell in the future.

As the flow of time is still no value, which we can influence, the race is on; and Compliance should make it the employee as easy as possible to get reached and support them.

This formula is not meant to be a mathematical equation, but should explain the relation, which have the single factors on each other.

Sources:

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