Carrot? Stick? Carrot? Stick? Yes.

We all know that both carrots and sticks can be effective ways of getting people to behave as we want them to. The question is, Which is better?

The answer, of course, is: It depends.

Most individuals respond better to carrots than to sticks, but if you're going to start incentivizing, you need to be sure that you're incentivizing the right thing.

Today's New York Times "DealBook" section has a fascinating article by financial services strategy consultant Doug Steiner, who argues that "minor, even imperceptible changes to workflow can significantly affect honesty".

For example:

....Financial institutions rely on their lawyers to determine what traders can “get away with.” Legal opinions that seem to countenance aggressive trading can reinforce troubling behavior on the part of traders and their firms. Showing lawyers the profound influence they have on trading action might dissuade them from endorsing or seeming to endorse questionable decisions.

In other words, encourage your people to do the right thing, rather than telling them how close to the wrong thing they can go.

Steiner bases his proposals on research that behavioral economists have been doing in recent years (Steiner himself works for a behavioral economics firm), particularly the work of his academic partners, the University of Toronto's Nina Mazer and Duke University's Dan Ariely (I have quoted Ariely's work previously -- here -- when I argued for clear, strict regulation, because "what we do best is delude ourselves").

But it's not enough to nudge. In addition to encouraging your people to do the right thing, you have to make it clear that doing the wrong thing will have real, negative consequences. And this is where many companies fail spectacularly. As one commentator to Steiner's article wrote:

In each of the situations [of observed malfeasance], when found out, the decision taken by upper management was to ‘quietly’ let the employee go. Charges were never laid, nor the rest of the employees advised the details of what had transpired. By quietly sweeping these transgressions under the rug and not making them public to the other employees, management inadvertently sent out the message, that it was okay to steal or cheat.

I've seen worse: the company that punishes everyone for the misdeeds of an individual, rather than firing the offending employee.

But the effect is the same: It must be OK to do what "everyone else" is doing.