Assessing The Climate of Honesty

In the spring of 1980, I made the following comment on a radio talk show: “The greatest threat to the economy of the United States is simple dishonesty.”  At that time I could not prove that my statement was correct; but I believed it and it sounded good.  Today I am quite confident it is true and there are abundant data showing the enormous consequences of simple dishonesty.  In the intervening years as I have collected additional data, I have come to realize that every industry is rife with theft and fraud; no industry is immune from the cancer of simple dishonesty.

Most large retail stores have a reasonably good idea about how much they lose due to theft; their losses are reported in terms of inventory shrinkage rates that average approximately two percent of retail sales.  The insurance and banking industries also have reasonably good statistics regarding how much they lose due to theft.  In the healthcare industry, fraud and dishonesty are widely recognized as serious problems; but the healthcare industry does not have standard metrics for measuring and reporting these losses.  In other industries, especially construction, mining, and manufacturing, dishonesty is generally not recognized as a serious problem; managers in these industries tend to ignore the potential costs of dishonesty.

Theft and dishonesty are significantly influenced by the climate of honesty within each company; some companies do much better than others.  Companies that have a strong climate of honesty tend to have less theft because there are general expectations that employees will follow correct procedures and avoid taking things that do not belong to them.  In other articles, we have talked about the kinds of things companies need to do to create a positive climate of honesty by the way they treat employees, the kinds of expectations they create, and the way managers behave.

Several years ago I was contacted by an executive of a major manufacturing company and asked if I knew how they could measure their potential losses.  He questioned my statement that every company should be concerned about internal theft because he did not think it was a real problem for his company.  I assured him that most executives are shocked when they learn that employee theft is so pervasive and costly.  He reported our conversation to an executive committee and two members were appointed to examine the issue.  After these members interviewed a sample of employees they concluded that employee-related losses were much more serious than anticipated.  To demonstrate the seriousness of the problem, these two committee members, dressed as regular workers, entered the buildings at night and confiscated over $100,000 worth of tools, machines, computers, and other items, including an automobile from the car pool.  These items should have been missed immediately and reported missing. Instead, nothing was ever reported missing.  When the committee asked why the missing items were not reported, they were told either that no one noticed them missing or that missing items were such a common occurrence that they were not worth reporting.  Because of this disturbing experience, the committee recommended that the company implement a program to reduce thefts.

Every company ought to establish a way to measure its climate of honesty and the costs of dishonesty even if these metrics are only rough approximations.  Over time, the measurements can be improved, and in the meantime they will draw attention to an important organizational problem.  Simple acts of dishonesty are a significant problem in every company, but we should also recognize that indeed they damage our entire society. $

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