In the last two decades we have witnessed many large-scale corporate scandals –think Worldcom’s accounting fraud, Citibank’s near-collapse, Enron’s bankruptcy – in which pervasive rule violations by both managers and lower-level employees led to massive ethical meltdowns. These and other scandals have sounded the alarm on the need to monitor corporate corruption.

The typical response from policy makers is to propose a patchwork of reforms to address various corporate transgressions. These proposals have established requirements for more accurate reporting, criminalized financial misreporting, created independent monitoring bodies, and improved corporate governance practices. But by and large, they focus on preventing gross and blatant violations of the law – and they ignore the more banal, ordinary acts of unethicality that are far more common in organizations.

Numerous studies have documented the prevalence of practices such as stealing office supplies, inflating business expenditures reports, and engaging in behaviors that raise conflicts of interest. While these may sound negligible, these violations reduce trust over time and alter prevailing business and legal norms. Their aggregated effect can be quite harmful.

Behavioral ethics research suggests that this type of misconduct occurs not because people are unethical or deliberately choose to act unethically, but because they fail to understand that their behavior is indeed unethical and can have harmful consequences. Studies show that employees have a “blind spot” that prevents them from seeing the ethical and legal meaning of their own behavior.

Research also suggests that much banal, unethical behavior isn’t due to deliberate decisions or unethical employees; rather it’s triggered by particular situations. For example, unethical behavior is more likely to occur when norms about how people should behave are ambiguous (e.g., their behavior may seem to be reasonable or in the best interest of the firm); when the conflict of interest is subtle (e.g., when it is based on friendship and familiarity, rather than money); when the victim is not identified (as is the case of securities fraud where the effect is on public shareholders); when performance goals are unrealistic; or when the decision is being made not by individuals, but by groups (such as in corporate board decision making).

In such situations, behavioral ethics research suggests that an especially large proportion of the population (in some studies more than 50%) may behave unethically, because their ability to objectively interpret the ethicality of their own behavior is highly limited. Thus, sanctioning rule breaking and increasing transparency in decision-making processes within organizations are only part of the answer to preventing corporate corruption; these reforms alone will not prevent most employees from acting unethically.

A good example of the mismatch between proposed solutions to stop misconduct and people’s subsequent behavior is when employees are asked to disclose conflicts of interest. If one assumes that an individual’s ethical decision making is driven by calculative thinking, then one might expect that greater transparency would lead that person to behave more ethically. Yet the exact opposite occurs in many contexts. The fact that people disclose their conflicts of interest seems to give some people more license to behave unethically: it makes the unethicality of the situation more subtle and justifiable. For instance, when people disclose a conflict of interest, they view giving biased advice as less problematic, because they believe it’s apparent that the advice is colored by self-interest. This example suggests that broad, untailored solutions to unethical behavior can increase the likelihood that more people will behave unethically.

Rooting out employee misconduct is also hindered by corporate leaders’ emphasis on finding the most egregious, visible wrongdoers. It is easier to punish wrongdoing when the person accused of it is clearly “guilty,” and often such “bad” employees are the focus of legal and disciplinary efforts. However, this diverts attention and resources from preventing the more banal and common ethical violations, whose impact ultimately dwarfs that of the “smoking guns.”

In recent years, there has been a push to adopt behavioral nudges, such as developing conduct agreements for employees to sign and issuing timely reminders or notifications about potential unethical blind spots, as a way to increase people’s ethical awareness and prevent unconscious misconduct. While these nudges have shown some promise in changing people’s behavior, their effectiveness is also limited. Over a period of time, many of these subtle interventions are expected to lose much of their power.

If organizations want to do a better job at preventing misconduct, they need to adopt a two-stage approach. The first stage focuses on increasing people’s awareness of the illegality and unethicality of their behavior by ensuring that, when they are in situations that are expected to be problematic, employees will be reminded of the actual legal or moral meaning of their behavior. In the second stage, organizations should ensure that their employees clearly recognize and understand that misconduct will be penalized and that ignoring the reminders is likely to make their legal situation more difficult.

Current behavioral ethics research can also help us recognize the situational factors that contribute to unaware unethicality. In such contexts, softer enforcement approaches that focus on awareness and clarifications are more effective in preventing misconduct than formal sanctions, and sanctioning should only function in the background to make sure that employees are taking the ethical reminders and nudges seriously. In contrast, in more fraught situations where unethical behavior is likely to be done deliberately, formal sanctions are more suitable.

Understanding that organizations have different types of employees with different motivations, and hence different levels of awareness toward the law, is essential. By adopting a combined and tailored approach, which uses a set of formal and softer regulatory tools and focuses on both employees’ motivation and awareness, managers can more effectively prevent the kind of misbehavior that leads to corporate scandals. These approaches are likely to support each other, making both the change in awareness and motivation of the employees more enduring.