Ethic Fails: Turning Mistakes Into Innovations 😅🦾

What if the very people tasked with preventing organizational failures are trapped in a culture that forbids them from discussing their own mistakes? While sales teams openly dissect lost deals and marketing departments conduct post-mortems on failed campaigns, compliance professionals operate under an impossible standard of perfection—expected to be infallible guides for fallible humans. This paradox isn’t just counterproductive; it’s dangerous, creating blind spots in the very programs designed to protect organizations from risk.

This episode of The Ethicsverse explores the critical but often overlooked practice of discussing failures and mistakes within ethics and compliance programs. Drawing from insights shared by industry experts Christian Hunt and Dr. Bettina Palazzo, this analysis examines why compliance professionals struggle to discuss their failures, the psychological and cultural barriers that prevent honest mistake-sharing, and the transformative potential of creating psychologically safe environments for learning from errors. The discussion reveals how embracing fallibility can strengthen compliance programs, improve organizational culture, and create more effective risk management strategies through honest reflection and continuous improvement.

• Nick Gallo, Chief Servant & Co-CEO, Ethico
• Christian Hunt, Founder, Human Risk Limited
• Dr. Bettina Palazzo, Business Ethics Expert, Palazzo Ethics Advisory Sarl

The Perfectionism Trap in Compliance

• The compliance and ethics field operates under an unrealistic expectation of perfection that doesn’t exist in other business functions, creating unique pressure on practitioners to maintain an image of infallibility.
• Unlike sales teams who openly discuss missed targets or marketing departments that acknowledge campaign failures, compliance professionals feel they cannot admit mistakes because their role is fundamentally about preventing others from making errors.
• This creates a paradoxical situation where the very people responsible for managing human error are unable to acknowledge their own fallibility, leading to missed learning opportunities and increased program vulnerability when problems inevitably occur.

Psychological Safety as a Foundation for Learning

• Creating environments where compliance professionals can openly discuss mistakes requires deliberate construction of psychological safety rather than simply expecting it to emerge naturally through good intentions alone.
• This involves leaders modeling vulnerability by sharing their own failures first, establishing clear ground rules for constructive rather than critical discussions, and ensuring that revealed mistakes are treated as learning opportunities rather than performance failures.
• The psychological barriers to admitting mistakes in compliance are particularly strong due to the moral and ethical dimensions of the work, making intentional safety-building even more crucial for successful mistake-sharing initiatives.

Human Behavioral Science and Compliance Design

• Understanding human psychology and behavioral science is essential for designing effective compliance programs, as traditional approaches often fail to account for how people actually make decisions under pressure or when facing conflicting incentives.
• Research demonstrates that humans are influenced by factors as seemingly irrelevant as the numbers they’ve recently seen (anchoring bias) or small gifts they’ve received, yet compliance programs rarely acknowledge these realities in their design assumptions.
• Effective compliance requires shifting from assuming rational decision-making to designing systems that work with human nature, including our tendency to rationalize rule-breaking when we have strong motivations to achieve specific outcomes.

The Rationalization Phenomenon

• Even compliance experts can quickly fall into rationalization when faced with rules that conflict with their immediate goals, as demonstrated by the gift policy example where a former regulator attempted to find creative ways around governmental restrictions.
• This tendency to rationalize rule-breaking occurs at an unconscious level and happens faster than people realize, suggesting that compliance programs must account for the human tendency to reinterpret rules when they become inconvenient or obstacles to desired outcomes.
• Understanding this phenomenon helps explain why well-intentioned people violate policies and why compliance design must consider not just the letter of the law but the psychological pressures that might lead to creative interpretations of requirements.

Cultural Context and Communication Effectiveness

• Compliance communications that work effectively in one cultural context may fail dramatically in another, requiring careful consideration of audience, local norms, and communication styles rather than assuming universal applicability of messages.
• The example of training designed for a global audience failing completely when delivered to an Australian team illustrates how cultural factors can override even well-crafted compliance messages that seemed appropriate in their original context.
• This extends beyond international differences to include micro-cultures within organizations, such as the differences between boardroom and factory floor communication needs, requiring compliance professionals to develop cultural competency and adapt their approaches accordingly.

The Speak-Up Culture Connection

• Organizations that want employees to report ethical concerns must first demonstrate that discussing problems and mistakes is normal, safe, and valued through consistent leadership behavior rather than just policy statements.
• When compliance professionals present themselves as perfect and infallible, they inadvertently create barriers to employee reporting by suggesting that only perfect people belong in ethical discussions or are worthy of raising concerns.
• Research shows that leaders who regularly discuss ethical issues and challenges create environments where employees feel safer raising concerns, making leader vulnerability a practical and measurable tool for encouraging organizational transparency.

Policy Design and Unintended Consequences

• Every compliance intervention, whether it’s a policy, training program, or control system, will have unintended consequences that must be anticipated and monitored rather than ignored or dismissed as impossible to predict.
• The concept of “side effects” from medical interventions applies directly to compliance work, where even well-intentioned rules can create perverse incentives, encourage creative rule-bending, or put ideas into people’s heads that weren’t there before implementation.
• Effective policy design requires an “ethical hacking” mindset that actively seeks to identify potential weaknesses and abuse scenarios before implementation, combined with ongoing monitoring for unexpected behaviors and willingness to iterate based on real-world results.

The Storytelling Imperative

• Compliance professionals must move beyond “because I said so” explanations to compelling storytelling that helps people understand the reasoning behind rules and policies, connecting abstract requirements to real-world consequences and human experiences.
• Humans learn and remember through stories rather than abstract principles, yet compliance communication often relies on dry policy language and legal requirements without providing the narrative context that makes rules meaningful and memorable.
• When confidentiality or privilege prevents sharing specific examples, compliance professionals must develop skills in creating composite stories, anonymized examples, or hypothetical scenarios that still convey the underlying principles and risks without compromising sensitive information.

Experimentation and Iteration Mindset

• Effective compliance programs require continuous experimentation and iteration, similar to other business functions, which means accepting that some initiatives will fail and treating those failures as valuable learning opportunities rather than career-limiting mistakes.
• The traditional compliance mindset of creating perfect, permanent solutions is incompatible with the dynamic nature of business environments, regulatory changes, and evolving risk landscapes that require adaptive responses.
• Organizations must give compliance professionals permission to experiment with new approaches while maintaining appropriate safeguards, and compliance leaders must reframe their role from achieving perfect compliance to creating optimal conditions for compliant behavior through continuous improvement.

Redefining Compliance Accountability

• Compliance professionals should be held accountable for creating conditions that promote compliant behavior rather than being held responsible for preventing all violations, which is ultimately impossible given the inherent limits of control over human behavior.
• This reframing acknowledges that compliance success should be measured by the effectiveness of systems, processes, and culture-building efforts rather than by the absence of any violations whatsoever, which creates unrealistic expectations and counterproductive blame dynamics.
• When compliance professionals can honestly discuss the limitations of their programs and the ongoing challenges they face, they can build more realistic expectations with leadership while securing appropriate resources for continuous improvement efforts that address root causes rather than just symptoms.

Closing Summary