The C-Suite Crucible and International Business: “Motivated Blindness"

*COPYRIGHT FOR ILLUSTRATION BELONGS TO RICHARD T. BISTRONG.
In the June 2013 issue of Business Compliance (Baltzer Science Publisher, Anthony Smith-Meyer, Editor), Scott Killingsworth (Partner, Bryan Cave LLP) writes about “Ethics in the Executive Suite: The Best, The Brightest and a Wicked Problem.”* The work is the first part of a two part series, and my focus is on part one “The C-Suite Crucible and Behavioral Ethics.”  In sum, the “wicked problems” of behavioral ethics that this article focuses upon in the C-Suite, in my experience, are also uniquely present in the thinking and behaviors of international business executives who confront corruption on the front lines of international business.
My goal today is to call upon Mr. Killingsworth’s behavioral and organizational paradigm to demonstrate how most of the dynamics that the article describes as existing in the “environment of the C-Suite” are also prevalent with respect to international business executives. I will use Mr. Killingsworth’s piece as an intellectual companion guide to my own perspective of international business misconduct, especially in the context of international bribery.  Finally, before setting out on this journey, when I speak of “international business executives,” I am referring to (from an organizational chart perspective) those at the front line of international business who also have group responsibility; thus, I refer to those who have supervisory authority and direct reports along with associated P and L responsibility.
Mr. Killingsworth isolates a number of elements as testing “the integrity of executives,” and my focus is on those which I have seen elevated in the thinking (including my own) of international business personnel. No single issue  dominants, for as Mr. Killingsworth well states, when it comes to misbehavior “it seldom happens in a single step.” Thus, I share my reflections on this work to expand upon our understanding of how misconduct can so easily be rationalized, whether in the C-Suite or in an overseas office of an intermediary.  So, lets take a look under the hood of an international business team, and see where the dynamics of misconduct might exist.
  • “The lure of large performance-based incentives” which can translate into “outsized temptations to do what it takes to obtain the desired results.”
As I shared at the Dow Jones Global Compliance Symposium, where international business executives have incentive compensation indexed to personal performance in high-risk (corrupt) areas “compliance becomes bonus prevention.” As Mr. Killingsworth states “here the notion of failing to “hit the numbers” or of “losing” a bonus one has come to expect, or failing to close a sale that one has considered likely, has obvious relevance: risk-taking increases and ethical standards may sag.” In a public-company environment, that pressure gets dramatically magnified at every quarter, as those pressures re-set from start. Nonetheless, regardless of company size or public listing, the entire issue of large incentive based compensation can create an inherent conflict of interest when it comes to decision-making, for as Mr. Killingsworth affirms “it is not just difficult, but impossible, to be truly objective about a decision when we have a significant interest in the outcome.”
As to the external setting, international procurements are often far and few between, marked with unstable state institutions (see work by Matteson Ellis), creating a “win big or lose big,” environment, with the obvious consequences upon forecast and bonus.  Where that bonus is tied to personal performance, as Mr. Killingsworth states “escalating commitment” may follow, where one takes greater risk to avoid loss (personal and professional), and that is a process “that seldom ends well.” It is like covering a bad bet with more money and a recipe forever increasing “small bribes” to insure success.
  •  “The ability to operate with great freedom and little supervision.”
In many organizations, supervision of international business leaders can often be “out of sight, out of mind,” where such personnel have more discretionary authority and operational freedom than their domestic counterparts. Having spent the early part of my career in US domestic sales, I can state with great certainty that as a domestic sales Vice President, I was subject to dramatically more oversight and audit in my work, comparative to my subsequent international responsibilities. I don’t think that was a unique experience, especially when a company considers the domestic or home market as the “primary market.”
I have seen many organizations treat international sales as a “secondary-sector” with the resultant impact upon supervision and discretionary authority for international executives. Where managers retain such power, as Mr. Killingsworth describes, it can be “difficult for subordinates or auditors to see the entire process that adds up to a violation.”
  • The impact upon thinking "by early success in high-risk initiatives."
From a personal perspective, this is a significant contributing element to risk taking; thus, it is worthy of great consideration for those who have compliance responsibility. Given the opportunity to get away with “small bribery,” (see post on “Countering Small Bribery”) especially given that when the talk turns to corruption on the front lines of overseas business there are often no witnesses, that dynamic can have an enormous and calamitous impact upon future thinking.  How?  As Mr. Killingsworth states, by “unwittingly increasing risk appetite over time” and creating a “vicious cycle” of overconfidence.
In other words, getting away with prior bad behavior leads to great distortion when thinking about the consequences of future corrupt transactions, as incremental risk “may lead to more serious violations.”  As Mr. Killingsworth describes “where misconduct is justified by rationalization and reinforced by success, small incremental steps can take us a long way.”  In other words, once front line international business personnel “dip their toe in the water” of corruption without getting caught, and with financial success, a rationalization sets into the thought process which starts to build momentum, and which then gets mixed into the normal course of business thinking. It then often results in making “compliance decisions on likelihood of detection.”
That thinking reflects what Mr. Killingsworth describes as the dynamics of “if nothing bad has happened, this is evidence nothing bad will happen.” Furthermore, this can “distort judgments of whether an activity is in fact illegal and, more cynically, judgments of the likelihood that anyone will notice the violation, or the severity of the consequences.” It is not my perfect storm of rationalization, it is intellectual Armageddon.
  • The thinking that a small infraction "does no one harm" and a belief that "the general rule does not apply."
In prior posts, I speak of the illusion that bribery has no victims.  Most front line business personnel do not consider the impact of bribery upon local governance, standards of living, etc. They might even think that they are helping those local public officials who are very poorly paid by supplementing them with “small bribes,” and that the end user still gets the best product and level of service. Sometimes bribery results in the end user paying a lower price of goods and services, which further distorts the illusion a “win-win.” When you add in the thinking that “this is how it is done here” or “it is not even illegal here,” that makes for a volatile mix of rationalization.
As Mr. Killingsworth states “a suitable rationalization protects our positive self-esteem and denies the reality that we have selfishly violated a rule.” Indeed, when the thinking is that no one gets hurt by bribery,  and that it is part of local norms, that rationalization can easily win out over a more reasonable calculus to stay away from a potentially corrupt and liberty threatening decisions.
  • My own journey through self-deception 
As Mr. Killingsworth states, the sum of these factors, (along with others which are in the article), are “like the weight of water against a dike,” and that these variables “exert constant pressure on ethical decision-making at the top of an organization.” Agreed. However, having never made it to the C-Suite, but having described my own “perfect storm of rationalization,” this is a model that has significant relevance to those who supervise and work with international business executives. As Mr. Killingsworth’s describes, “where high stakes combine with temptation, power, pressure, urgency and ambitious people under few external restraints, a high-impact risk exists and must be addressed.”

As for my personal reflection, well, as Mr. Killingsworth states “when we start down the path of misconduct, the first person we deceive is usually ourselves” and the attraction to “money, power, autonomy, recognition, attention and status…may be strong enough to overpower allegiance to ethical or legal rules.”  Well said,  and a difficult chapter in my own life which I now can share with others.

 

Topics:  C-Suite Executives, Chief Compliance Officers, Compliance, Corporate Governance, Ethics

Published In: General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Richard Bistrong FCPA Real-World Blogger and Speaker | Attorney Advertising

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