Written by Jack Leitzes
In an environment where professionals have a lot of independence, moments of desperation can lead to corrupt decisions. Dishonest decision-making in business refers explicitly to actions of individuals or organizations that violate ethical principles and laws. These infractions can take many forms, and from financial fraud to bribery, each holds serious consequences. Throughout time, many large firms have been tempted by potential riches and have allowed their impulses to destroy their companies. In today’s highly competitive business environment, an advantage over competitors may also tempt some to engage in unethical behaviors. While this decision may result in short-term gains, the long-term consequences of dishonest decision-making can be devastating.
A company’s lack of solid leadership and its competitive nature can lead them to make dishonest decisions. Since most business executives want to avoid making harmful decisions, the root of deception lies in a poor business structure. Without clear consistency between a company’s mission and “the way employees and the marketplace actually experience it, [Harvard Business Review] found it is 2.83 times more likely to have people withhold or distort truthful information” (Carucci). Inadequate structure causes employees and executives to struggle during times of financial crisis, leading to dishonest decision-making. Business professionals will make decisions independently, and accountability becomes uncertain.
Meetings allow a company to converse about its mission and potential struggles with the hope that it can decide on a positive solution. However, in a study conducted by the Harvard Business Review, seventy-one percent of senior managers choose to avoid meetings because they deem them inefficient (Carucci). Consequently, they found that “when effective governance is missing, organizations are 3.03 times more likely to have people withhold or distort information” (Carucci). This value shows a strong correlation between poor communication in leadership and dishonesty. Due to the constant competition within a business, a lack of transparency may cause individuals to put themselves first.
Another study done by the Harvard Business Review examines how competition between employees affects ethical behavior. Participants were broken into three groups and self-reported their IQ test scores. The first group received a fixed sum of money regardless of their score; the second, a fixed sum with a bonus depending on the number of correct answers they reported; and the final group, a fixed sum and bonus for the best scores. As expected, “both the incidence and the magnitude of overreporting was highest in the third group … every single person in the group overreported their score” (Jain). As the stakes of the quiz rose, participants became more competitive, and truthfulness diminished. The individuality and competition in the survey mirrored the setting of many businesses. When employees constantly have to compete, they are more likely to present false information that boosts their position. This reality causes a dangerous predicament for businesses.
Even with the potential chance of success that dishonesty can bring, corruption tends to lead to the downfall of a company. In 2019, Harvard Business Review examined the financial burden on corrupt companies. Their data reveals that from incidents like product recalls, fraud, and data breaches, “more than half (54%) of companies on the index experienced a material drop in trust… which equates to a minimum of $180 billion in missed revenues” (Carucci). These minor cases of dishonesty led to so much loss in earnings. Their use of the term “missed revenues” highlights their real potential had they taken a moral path. When considering an immoral decision, companies must examine the inevitable consequences, such as these losses.
Offenders also receive severe punishments themselves. From embezzlement to fraud, each corporate crime has harsh penalties that do not warrant the risk of making poor decisions. From a federal standpoint, “a person convicted for embezzlement can receive up to 20 years in federal prison and $50,000 in fines” (Santos). Since most cases of embezzlement within companies are on this felony level, the outcome of this crime is dire. Since law enforcement actively and successfully seeks to prevent cases of misconduct, this outcome is likely to occur at some point for dishonest individuals.
Worth billions in its prime, Lincoln Savings and Loans made an incredible amount of money; however, it was corrupt. In 1990, its reign ended when CEO Charles H. Keating Jr. went to jail for defrauding thousands of members out of $250 million in worthless bonds (Coleman, 1). After the government seized the company, and “it was termed ‘the most costly financial scandal in American history’” (Coleman, 1), the value of Lincoln Savings and Loans plummeted. Keating’s hunger for success led to the same downfall that almost all corrupt businesses experience. Without surprise, the inevitable defeat for his employees and consumers outweighed the short-lived success.
Although corruption within a business negatively affects employees, much of the burden hurts the public. When professionals steal money from their company, the company must pay to handle the embezzlement and increase its employee ranks. Since these processes increase prices, the “costs [are] passed on to the consumer” (LaMarco). Due to the selfish actions of some, consumers will battle with paying potentially much higher prices when they may not be able. While the offender will most likely serve jail time, many more in the innocent public will be affected.
Corruption also hurts stockholders. It causes them to immediately lose faith in the spiraling company and sell their shares, leaving slower stockholders in an even worse position. This pattern can be seen in E.F. Hutton. Once the “second largest broker in the nation, [Hutton] never recovered from the blow to its reputation and finances and was forced to sell out to Shearson” (Bhidé, Stevenson). Without trust and with debt, people will not want to invest in a company because the value of the company will decrease.
With its exceptionally high risks and its harm to stakeholders, the costs of dishonesty generally outweigh the potential benefits. From financial losses to reputational damage, the consequences of unethical behavior can be substantial. Most importantly, no consumer should ever have to reap these costs. To prevent this kind of behavior, businesses must establish a strong ethical culture with clear guidelines and processes. Policies including ethics training would promote accountability and celebrate truthfulness. By encouraging ethical behavior, companies can protect their reputation and build trust with their stakeholders, ultimately leading to long-term success. Without trust between a company and the general public, the company stands no chance of maintaining fruitful business. In a world where CEOs hold their employees to the highest standard, both professionals and consumers alike would benefit from long-term stability.
Bhidé, Amar, and Howard H Stevenson. “Why Be Honest If Honesty Doesn’t Pay.” Harvard Business Review, 1 Aug. 2014, https://hbr.org/1990/09/why-be-honest-if-honesty-doesnt-pay.
Carucci, Ron. “4 Ways Lying Becomes the Norm at a Company.” Harvard Business Review, 15 Feb. 2019, https://hbr.org/2019/02/4-ways-lying-becomes-the-norm-at-a-company.
Coleman, Ronald B., “Lincoln Savings and Loan Scandal: A Case Study of State-Corporate Crime” (2002). Masters Theses. 5055. https://scholarworks.wmich.edu/masters_theses/5055
“Corporate Fraud: An Introduction to Corporate Fraud as a Federal Crime.” Criminal Lawyer Group, https://www.criminallawyergroup.com/practice-areas/corporate-fraud/#:~:text=Punishment%20for%20Conviction%20of%20Corporate%20Fraud&text=The%20criminal%20punishments%20range%20extensively,victim%20being%20instructive%20in%20sentencing.
Jain, Kriti. “When Competition between Coworkers Leads to Unethical Behavior.” Harvard Business Review, 14 Jan. 2019, https://hbr.org/2018/12/when-competition-between-coworkers-leads-to-unethical-behavior.
LaMarco, Nicole. “The Effects of Corruption on Business.” Small Business – Chron.com, Chron.com, 3 Dec. 2018, https://smallbusiness.chron.com/effects-corruption-business-52808.html.
“Lincoln Savings and Loan.” Keating Five, http://keatingfive.org/actors/affiliates/Lincoln-Savings-and-Loan#:~:text=Keating%20fired%20the%20existing%20management,investments%20with%20their%20depositors’%20money.
Santos, Michael. “Charged with Embezzlement.” Prison Professors, 30 Nov. 2021, https://prisonprofessors.com/charged-with-embezzlement/.
Voa. “World Stocks Tumble as Investors Worry about Corporate Corruption.” VOA, Voice of America (VOA News), 30 Oct. 2009, https://www.voanews.com/a/a-13-a-2002-07-11-1-world/392482.html.