Ethics in Control Systems: Let’s go beyond simple compliance!

Ethics in Control Systems: Let’s go beyond simple compliance!

ESSEC Business School Profs Veronica Casarin, Bernard Leca, Stefan Linder, and Adrian Zicari unveil their research into the ethical aspects of management control systems (MCS) and their impact on employee health and behaviour. Ethics, compliance and control systems

Following the publication of their paper, Designing Ethical Management Control: Overcoming the Harmful Effect of Management Control Systems on Job-Related Stress published in the Journal of Business Ethics, Springer. hics, compliance, control systems.

When we think about Ethics in the context of performance indicators and control systems, we tend to think about fraud. How to make sure that employees do not commit fraud. To be sure, fraud has been a longtime concern for company owners. Going back to biblical times, we have the story of a manager who frauds his master by undercharging clients (fifty measures of oil instead of one hundred). More recently, we may remember high profile fraud schemes like those of Enron, Parmalat, or Wirecard. In many of these cases, the concerned companies collapsed because of fraud.

Compliance: Tools and regulations

Small wonder that Ethics in control has frequently been considered mainly or exclusively as an issue of fraud prevention. In the last decades, and particularly after the subprime crisis in the U.S. (and its regulatory response, the Dodd-Frank Act), we have seen a consistent increase in regulations, in many sectors, both in the U.S. and in Europe. Consequently, Compliance emerged as a promising, growing professional field, well protected from crisis. Nowadays, no large company can afford not having a reliable Compliance office. Ethics, compliance, control systems.

Ethics in Control Systems, compliance and employee health
What if we stretched the rules a bit?

Some may even dream of a highly advanced compliance mechanism that would bring the “perfect” company, by diminishing, nay, obliterating the very possibility of fraud. In this new world of utmost compliance, all employees would necessarily do the right thing, and Ethics would be an issue of the past. Ethics in Control Systems: beyond simple compliance.

However, this “Ethics as Compliance tools” approach is limited, and possible contrary to the long-term success of a company. Don’t get us wrong, of course we need to play by the rules. And certainly, management and company owners need to be sure that the company abides to the law. But an identification of Ethics with Compliance is a too narrow perspective. We need to go beyond simple compliance. Ethics, compliance, control systems.

Control and employee well-being

In our research, we take a different path. We believe that some compliance tools are certainly necessary as long as they do not end up in excessive box-ticking and much welcome to spot and discourage unethical behaviors. But Ethics cannot be limited to that. We go a step further by asking how a Control system can be designed to be ethical. We particularly focus on how a Control system can help to develop the full potential of human beings, without damaging them. E

Ethics, compliance and control systems
Ground control to Major Tom: How are the employees faring?

To do so, our group has conducted several studies, using different and complementary research methods. For instance, in a study with more than four hundred managers in the UK and the U.S., we explore how a Control system can be more ethical. Among other results, our studies suggest that tight standards (e.g. a slashed budget) increase harmful job-related stress and the risk of burnout in employees.

In contrast, combining different financial and non-financial indicators, as it happens in the Balanced Scorecard (with its lesser emphasis on financial performance) rather than relying on financial metrics only seems to lower both, harmful threat-related stress and the risk of burnout. And our data suggest that pay-for-performance increases employees’ perceived challenge (a form of motivation) without increasing the danger of burnout.

Much to gain from ethics

Ethics, compliance and control systems
Ethics under control, control under ethics

Thus, Ethics in Control is not just about reducing people’s leeway. This “policing” mindset has already reached its limits. We claim instead that an ethical reflection about Control tools, their use and their potential for bringing the best out of people and avoid harming them is a much-needed endeavor. And that companies, employees, and society in general have much to win if we follow this less trodden path! Ethics in Control Systems: beyond simple compliance   

Ethics, compliance and control systems

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