Question

Is the deterrence model that provides the key motivator for C&E programs flawed due to the operation of what could be considered “C&E moral hazard” (i.e., managers reap the benefits of crime but the costs of non-compliance — which tends to be prosecuted years after the offense, when the managers may have left the company — are borne by shareholders?

Answer 1

solution:

The main aim of deterrence theory is to control behavior of individual through the fear of punishment. it is used in the organizations to control the behavior of employees. Deterrence model is on of the key motivators for Compliance and Ethics (C&E). Yet, there are many instances in the organisations where C&E programs are flawed because, the one who makes the rules are breaking the rules. Let's say for instance, top managers who make certain C&E laws for the organization try to break them in the cover of moral hazard, because the person who is affected of the victim rarely speaker of the incident for the fear of job loss.

Although C&E has produced positive results, over time they have become flawed due to C&E moral hazard. the organizational policies based on C&E have been masked due to the authority and autocracy that prevailed the organisations. managers who were supposed to be protectors of the organisational policies are known to take wrong route by being policy breakers and reaping the benefits of the crime and situation making victims silent suffers.  Just like 'Me too' movement that started all over the world, these silent victims come out with the abuse few years later, but by then, the managers would have left the company and the blunt will be borne by the shareholders of the organization because of the non- compliance of the ex - managers to the organisational policies.

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