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The irrational calculator:
Sales at the crossroads of compliance
BY SCOTT KILLINGSWORTH
L
egend has it that one moonless midnight at a Mississippi
crossroads, bluesman Robert Johnson, frustrated with his
stalled career, out of money and bitter at the recent death of his
wife and unborn child, sold his soul to Satan in exchange for heavenly
musical talent. The story is apocryphal but the scenario all too familiar:
elsewhere in this issue Richard Bistrong describes how salespersons in
high-corruption countries and industries, under pressure and surrounded
by evidence that corruption is “the way business is done here,” can find
themselves at their own crossroads, making similar Faustian bargains to
close a sale.
Bistrong provides a depressing list of factors that conspire to perpetuate a corrupt procurement environment: the push of performance
expectations driven by forecasts and quotas; the pull of outsized sales
commissions; the “tribal cocoon” of corrupt individuals—colleagues,
intermediaries, government decision-makers—who make bribery seem
normal and necessary; and the rationalization that says bribery hurts no
one, really, and benefits many—including the salesperson, the employer
and its shareholders. In the end the combined weight of these influences
can tip the scales against compliance: as Bistrong says, “bribery is a
crime of behaviors, where at some level, the ‘giver and taker’ have calculated that the benefits of corruption outweigh the risks and consequences
of getting caught.”
In this note I want to focus on the salesperson standing at the crossroads, making that fateful calculation whether to pay, authorize, or cover
up a bribe. It’s even worse than Bistrong portrays. There’s more going
on at the intersection of commerce and corruption: once the pressures
and incentives are in place and the salesperson’s immediate self-interest
This article appears with permission from the Society of Corporate Compliance & Ethics. Call +1 952 933 4977 or 888 277 4977 with reprint requests.
ethikos May/June 2015 11
in closing the deal is front and center, bugs in our
mental software—what psychologists call “cognitive biases”—push us to pursue that self-interest
despite the potentially disastrous consequences.
n
ALL OF THESE “IFS” AND
“WHENS” AND “MAYBES” GIVE
A PERSON’S INSATIABLE “WANT
SELF” A LOT TO WORK WITH
AGAINST THE BETTER INSTINCTS
OF THEIR ETHICAL “SHOULD SELF.”
As Bistrong points out, the typical salesperson is no stranger to risk-taking, beginning with
self-selecting for a job with extremely variable pay
and continuing with the appetite for accepting
business risk (and sometimes compliance risk) on
behalf of the company. Ask any deal lawyer about
the perceptual gulf between Sales and Legal when
it comes to risk. But it’s not just appetite: At the
crossroads, we tend to calculate risk and reward
irrationally. Here are some of the ways it happens:
Conflicts of Interest and the Self-Serving Bias.
The fundamental issue is that we cannot be objective about a decision when we have a personal
interest in the outcome, such as a big commission
at stake. My favorite example is a series of experiments conducted by Linda Babcock in which law
students were given descriptions of an accident
and asked to try to predict the amount of damages
a judge would award the plaintiff. Each participant was told that they were either the plaintiff’s
lawyer or the defendant’s, but a prize was offered
for the best prediction of the neutral, objective
judge’s decision. Despite the incentive for objectivity, those assigned the plaintiff’s lawyer role, on
average, thought a judge would award 54% more
than the defense lawyers predicted. The objectivity
of both groups was unconsciously hijacked simply
by being assigned a partisan role.
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Unlike most of us when we make ordinary
business decisions, sales people can calculate precisely the personal reward that is at stake in a sale:
the amount of the commission shines out as a clear,
objective beacon of motivation, and of temptation.
On the other side of the equation we have the notso-clear risk of getting caught at some indefinite
point in an uncertain future, the not-so-clear risk
that the crime will be pursued and actually proven,
and the uncertain consequences if that should
occur. All of these “ifs” and “whens” and “maybes”
give a person’s insatiable “want self ” a lot to work
with against the better instincts of their ethical
“should self.” Nobody would bribe if they believed
they would get caught, lose their jobs and go to jail,
but in the face of an imminent commission and
pressure to meet forecast, our “self-serving bias”
systematically discounts the likelihood of detection
and punishment to near zero.
Besides likelihood, our “want self ” can distort other variables of the risk/reward equation,
notably whether a violation is occurring at all.
Again, any deal lawyer can provide abundant
tales of salespersons devising highly creative
theories about why a potential course of action
might not really be a legal violation. In the corruption context these theories often begin with
the convenient “facilitating payments” exception
to the FCPA, under which small bribes for routine performance of non-discretionary duties
may not be illegal. This is potent fodder for
rationalization about why a given situation may
be a mere tip and not a true bribe, especially if
done by a third-party intermediary under cloudy
circumstances.
Routinization and Incrementalism. In highrisk regions, government corruption tends to occur
at all levels, as sand in the gears of commerce
requiring constant lubrication via bribes. This is
why the “facilitating payments” exception exists,
and as just indicated, the line between such a payment and an illegal bribe can be debatable. Worse,
though, is that when habituated to petty corruption, one can literally forget to ask where the line
This article appears with permission from the Society of Corporate Compliance & Ethics. Call +1 952 933 4977 or 888 277 4977 with reprint requests.
is. Tenbrunsel and Messick describe two ways this
can happen. First, habituation can lead to “ethical
numbing,” where the corrupt behavior comes to
seem so routine that one’s sense of its wrongness,
illegality or risk fades and is simply not in the
picture at the crossroads of decision. Second is
our tendency not to make a fresh judgment of the
ethical (or legal) aspects of a situation if it is only
a little different from a previous situation that was
deemed acceptable. The problem comes when the
“facilitation” or “courtesy” payments one becomes
accustomed to making gradually morph, step by
small step, into something larger. Each successive step is judged acceptable, and the next step
is compared only to the preceding one, not to the
starting point. Pretty soon, without realizing it,
one may have completed the proverbial “journey
of a thousand miles.”
Loss Aversion. We have all heard the definition of a gambler as someone who loves winning
more than they hate losing. But paradoxically,
most people, including gamblers, will irrationally take more risk to avoid a loss than they
will take in pursuit of an equivalent gain. This
is the Nobel Prize-winning “prospect theory”
of Daniel Kahneman and Amos Tversky. The
effect is so strong that it’s measurable even when
an identical fact situation is simply framed in
loss terms versus in terms of a potential gain. In
the corruption context this bias comes up in at
least two ways. For the mild form, imagine a
large procurement in which six months or a year
of intense effort has been invested in making
a sale—countless meetings, complex proposals revised over and over, best-and-final offers,
maybe even engineering and product-development work—all to go for naught, or be “lost,” if
the sale doesn’t go through. Sunk-cost fallacy
aside, in this situation the failure to win the contract will be framed as a loss (“That’s six months
of my life I’ll never get back!”) and will tempt
one to risk bribery to avoid it.
Corrupt governmental officials can be very
skillful at manipulating vendors and their sales
people, especially by invoking loss aversion in
a more concentrated form. As Bistrong points
out, it is not uncommon for corrupt officials to
set the hook with a contract award, or finalist
status, so the seller has something very concrete
to lose, before setting the bribery machinery in
motion. At that point, when the salesperson has
raised expectations at headquarters and is already
counting on the resulting bonus, there arise
inexplicable delays, a potential re-consideration
of the award, or “political problems,” that can be
solved with a little grease, or a lot. Under these
conditions the salesperson’s focus on the risk of
losing the deal can easily eclipse the risk of breaking the law.
This is by no means an exhaustive catalogue
of the cognitive biases that make us “irrational
calculators” of risk and reward, of sure immediate
benefits versus debatable future costs. Motivated
blindness can keep us from recognizing red flags
if we would have something to lose by noticing
them; time pressure can narrow our decision
frames disastrously; and when we are tired or
sleep-deprived, or maybe jet-lagged, “ego depletion” can prompt us to “just get it over with”
via the simple, quick solution rather than the
right one.
The situational pressures and temptations
Bistrong describes are bad enough, but when we
factor in the effects of our psychological quirks
and mental bugs, it’s easy to see why the problem
of embedded corruption is so intractable.
None of this, of course, is an excuse for unethical or illegal conduct. Individuals who bribe are
responsible for their actions, whether the result
of cynical premeditation or buggy brainware and
self-deception. But ethics and compliance professionals cannot hope to be effective in eradicating
corruption if we lack a clear understanding, not
only of the pressures and temptations involved,
but also of what actually happens inside the head
of the salesperson at the crossroads when the fateful bargain is offered and a decision must be made
on the spot. n
This article appears with permission from the Society of Corporate Compliance & Ethics. Call +1 952 933 4977 or 888 277 4977 with reprint requests.
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