The Ethics ‘‘Fix’’: When Formal Systems Make a Difference

What makes a company's ethics program effective at deterring fraudulent conduct? In a 2014 paper, Ethical Systems collaborator Ann Tenbrunsel demonstrated the interdependence of formal and informal systems in fostering ethical behavior in organizations.

In a study of 974 employees of for-profit organizations, Tenbrunsel and her colleagues found that formal ethical systems (e.g., explicit ethics training and advice hotlines) predicted less deception in organizations only in the presence of strong informal pressures to violate ethical standards.

When informal systems are already ethically aligned, formal systems are at best weak mitigators of fraudulent conduct (and at worst a waste of time and resources). Hence diagnosis of a company's ethical culture is crucial to the design of an optimal ethics and compliance program.