Nudging Corporate Compliance

• Date: 01 December 2017
• DOI: http://doi.org/10.1111/ablj.12109
• Published date: 01 December 2017

Nudging Corporate Compliance

Todd Haugh*

INTRODUCTION

Nudges, small design elements that structure the context in which

choice is made, seem to be everywhere. In Flint, Michigan, members of

the government’s Social and Behavioral Sciences Team recently met

with community leaders to help create flyers asking families to note

when, where, and how they planned to change their water filters.

1

Crafting the flyer as a type of pledge—in behavioral science terms, an

implementation prompt—rather than a simple informational handout,

nudged families to follow through, thereby reducing the harmful effects

caused by the city’s lead contaminated water.

2

A group from the UK

government’s Behavioral Insights Team sends letters to British doctors

who are overprescribing antibiotics.

3

Just by highlighting that they are

outliers compared to their peers, through what is called descriptive

social norming, the doctors are nudged to prescribe less, which reduces

*Assistant Professor of Business Law and Ethics, Indiana University, Kelley School of Busi-

ness; Jesse Fine Fellow, The Poynter Center for the Study of Ethics and American Institu-

tions; 2011–2012 Supreme Court Fellow, Supreme Court of the United States. The author

would like to thank Matthew Turk, Jamie Prenkert, Robert Prentice, and Scott Killings-

worth, as well as participants of the 2016 Rocky Mountain Academy of Legal Studies in

Business Conference and the 2017 Controlling Corruption Conference of the American

Society of International Law’s Anti-Corruption Law Interest Group, for helpful comments

on early drafts.

1

Sarah Stillman, Can Behavioral Science Help in Flint,NEW YORKER (Jan. 23, 2017), http://

www.newyorker.com/magazine/2017/01/23/can-behavioral-science-help-in-flint.

2

Id.

3

THE BEHAVIOURAL INSIGHTSTEAM,UPDATE REPORT 2013–2015 16, http://38r8om2xjhhl25mw2

4492dir.wpengine.netdna-cdn.com/wp-content/uploads/2015/08/BIT_Update-Report-Final-2

013-2015.pdf [hereinafterUPDATE REPORT].

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C2017 The Author

American Business Law Journal V

C2017 Academy of Legal Studies in Business

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Volume 54, Issue 4, 683–741, Winter 2017

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antibiotic resistance among kids.

4

The Qatari government also has its

own “nudge unit,” the purpose of which is to “positively appl[y] to an

entire country and by extension, a whole region” the findings of behav-

ioral science research.

5

The unit’s main domestic project is to help

shape policy related to the country’s hosting of the 2022 FIFA World

Cup.

6

Although first conceived as a public policy tool, nudges are not limited

to government. Because nudges are by definition simple interventions

that have the ability to change behavior—possibly of many people at low

cost—companies have also taken notice.

7

In fact, a number of the world’s

most well-known companies have hired in-house behavioral scientists to

develop nudges.

8

Google is perhaps best known for its attempts to use

choice architecture to increase healthy eating. The company displays col-

orful photos and interesting facts about unpopular vegetables served at its

cafeterias in an attempt to motivate employees to eat better.

9

Other com-

panies use similar “private nudges” to increase employee wellness,

10

4

Id.See also Hunt Allcott, Social Norms and Energy Conservation,95J.PUB.ECON. 1082,

1092–93 (2011).

5

SC Launches First ‘Nudge Unit’ in the Middle East,SUPREME COMMITTEE FOR DELIVERY &LEG-

ACY (Aug. 2, 2016), http://www.sc.qa/en/news/sc-launch-first-nudge-unit-in-the-middle-east.

6

Id.

7

Nudges are a tool of “choice architecture,” the practice of influencing choice by changing

the manner in which options are presented, primarily through defaults and framing. See

RICHARD H. THALER &CASS R. SUNSTEIN,NUDGE:IMPROVING DECISIONS ABOUT HEALTH,

WEALTH,AND HAPPINESS 3–4, 6 (2008).

8

See Fadi Makki, Nudge Units Are Just the Tool for Effective Policy,THE NAT’L(Jan. 9, 2017),

http://www.thenational.ae/business/economy/nudge-units-are-just-the-tool-for-effective-pol-

icy (reporting that Bank of America, Facebook, Google, HSBC, HM Revenue & Customs,

and Allianz have advertised for and hired behavioral scientists).

9

Zoe Chance & Ravi Dhar, Making the Best Choice the Easy Choice: Applying the 4Ps Framework

for Behavioral Change at Google,in THE BEHAVIORAL ECONOMICS GUIDE 2016, at 90, 94–95

(Alain Samson ed., 2016), http://www.behavioraleconomics.com/BEGuide2016.pdf.

10

See New Research Reveals a Simple “Nudge” That Significantly Increases Employee Health

Engagement,B

US.WIRE (June 13, 2011, 4:44 PM), http://www.businesswire.com/news/home/

20110613006812/en/Research-Reveals-Simple-“Nudge”-Significantly-Increases-Employee

(describing initiative at a large Midwestern utility firm using targeted mailings to nudge

older or chronically ill employees to obtain flu shots).

684 Vol. 54 / American Business Law Journal

safety,

11

and financial literacy.

12

Many in behavioral science suggest that if

the government can nudge for good, private companies should be doing

the same.

13

The use of private nudges to foster prosocial behavior seems partic-

ularly attractive in the context of corporate compliance. Because com-

panies face broad respondeat superior liability for the acts of their

employees, they have a significant interest in preventing unethical

and illegal behavior.

14

Indeed, the first goal of any compliance pro-

gram is to prevent corporate agents from violating the law. While this

may be a top priority for companies, effectively managing compliance

risk remains elusive. Large companies spend millions of dollars a year

on compliance, some hiring “hundreds, and even thousands of com-

pliance officers at a time,” yet most are unsure of how to best deter

wrongdoing.

15

Despite a sustained focus on curbing bad corporate

behavior over the past two decades, and a resulting boom in the com-

pliance industry, corporate America is still searching for compliance

11

MAPI, Just a Nudge: Behavioral Economics at the Office,MANUFACTURERS ALLIANCE FOR PRO-

DUCTIVITY AND INNOVATION (Feb. 1, 2016), http://www.mapi.net/blog/2016/02/just-nudge-

behavioral-economics-office (describing the Occupational Health and Safety Administration

pushing employers to publish information about workplace fatalities and serious injuries

so as to nudge company-wide safety efforts).

12

James Choi et al., Small Cues Change Savings Choices 24–25 (Nat’l Bureau of Econ.

Research, Working Paper No. 17843, 2010), http://www.nber.org/papers/w17843.pdf (dis-

cussing a study finding that savings choices are significantly affected by anchoring, goal-

setting, or savings threshold cues embedded in e-mails sent to employees about their

401(k) retirement plans).

13

See Alberto Alemanno, The Future of Behavioural Change: Public or Private Nudging?,EUR.

BRANDS ASS’N(May 6, 2015), http://www.aim.be/uploads/member_news_documents/AIM-

LectureBrochure_Nudging_FIN_WEB.pdf; Linnea Gandhi, So You Want to Jump on the

“Nudging” Bandwagon? Start with Your Employees,M

ISBEHAVING (Dec. 29, 2015), http://www.

misbehavingbook.org/blog/2015/12/29/so-you-want-to-jump-on-the-nudging-bandwagon-

start-with-your-employees (advocating that companies should “jump on the nudging

bandwagon” by starting with their employees to improve everything from savings rates to

mental health).

14

See Harvey L. Pitt & Karl A. Groskaufmanis, Minimizing Corporate Civil and Criminal Lia-

bility: A Second Look at Corporate Codes of Conduct,78G

EO. L.J. 1559, 1570–74 (1990) (dis-

cussing history of corporate liability based on doctrine of respondeat superior).

15

Sean J. Griffith, Corporate Governance in an Era of Compliance,57WM.&MARY L. REV.

2075, 2077, 2105 (2016) (“In spite of all this effort, it remains difficult to demonstrate the

effectiveness of the compliance function.”).

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