Many years ago, I was a Unit Manager reporting to an Area Manager, who reported to a Regional Manager, who reported to a Vice President who resided somewhere in the ivory towers of a large, publicly-held corporation headquartered in a land far, far away. You may assume from this that it was unusual for anyone at my level to have an audience with a Vice President or even a Regional Manager and you would be correct. The Area manager was the company as far as we were concerned.
When I joined the company, it was near the end of the fiscal year and everyone was working feverishly to close out the year and to finalize next year’s budgets. A prevalent theme being promoted by the Area Manager was that the current expense budgets should be expended as completely as possible because next year’s budgets would be based on the current year’s spending. Whether this pronouncement was based in reality, I do not know, but he was encouraging all the Unit Managers to spend down their budgets before the year end.
The Set Up
Approximately 2 weeks prior to the close of the year, the Area Manager directed the Unit Managers to use our expense reporting and reimbursement process to contribute $1000 from ourselves and our direct reports to amass a total of $8000, for a computer system. He explained that, had there been more time, he would have used the purchase order process, but there wasn’t time to process a purchase order and get the expenses charged in the current fiscal period. It did not occur to any of us that circumventing the purchasing process was an issue as he was responsible for all the budgets.
The Truth
Corporate purchasing policies required items over a certain cost to have two levels of senior management (Regional and above) in addition to the approval of the capital asset management group. When it was discovered through a routine audit that a capital equipment purchase was transacted using the travel expense reimbursement process, an investigation was conducted and it was discovered that the Area Manager had not only perpetrated that fraud, but he had also ordered other pieces of equipment and supplies that were delivered to his residence and other unauthorized locations.
The Aftermath
The Area Manager was terminated for misappropriation of corporate funds. The Regional Manager was reassigned to a staff position in corporate headquarters. All of the Unit Managers attended several weeks of training on policies, procedures, and cross-functional fiduciary processes and then were allowed to continue in our roles. But it soon became obvious that we were no longer candidates for promotion and one by one we moved on to other opportunities.
Lessons Learned
The amount of time and money expended because the company had unknowingly empowered a person whose personal motivations were not aligned with corporate governance was significant. The Area Manager was in a position to influence the thinking and behavior of those he was supposed to be indoctrinating and training to become the next generation of senior management. He failed the company and he failed us.
Good and well-intentioned people can be and often are misled by people who are in or who are perceived to be in positions of authority. It is important for all employees to be thoroughly trained in all the corporate policies and procedures that are germane to their roles. It is advisable that this training be facilitated by and under the authority of people other than those to whom they report thus ensuring that the training is not biased in ways that are not in keeping with corporate culture and governance.
Assuming a culture of high moral standards is important, it should be supported by a framework for ethical decision making, ethics training, and a policy that includes procedures for safely communicating ethical dilemmas and clearly defined consequences for policy violations. As executives we owe this to the people in our employ.
Will this eliminate all potential for ethical breaches in your environment? Probably not, but it may help to give visibility to indiscretions and minimize the financial risk by helping the ethically minded to do the right thing.
[...] as usual. Will they question the situation or will they be intimidated into performing the request? Read of my own experience years ago. Can we afford to assume what their response will be or should we take a more proactive [...]
Seeing a number your articles I must say i found this specific one to be really good. I have a weblog also and would like to repost some snips of your respective articles on my personal blogging site. Would it be all right if I use this as long I reference your blog post or generate a back link to the write-up I took the snip from? If not I understand and could not do it with out your acceptance . I have book marked this write-up to twitter along with flickr accounts for reference. Anyway many thanks either way!
Randi,
We are flattered that you find our content worthy of noting on your site. Please do incorporate link backs so that the source article you are citing is accessible by your readers.
Cheers,
Gordon
Generally I do not post on blogs, but I would like to say that this post really forced me to do so! really nice post.
Thank you for the kind words. I hope you will become a frequent reader.
The 3 basic rules for organizational survival.
1) Know the rules.
2) Know the consequences of breaking the rules.
3) Be able to deduce the unknown (and frequently undocumented) rules from the unanticipated consequences.
The last is sometimes called “culture”.
If it feels wrong, it probably is. That said, resistance may be VERY difficult.
As always, Ken. Your comments cut through the fog to reveal what is at the foundation of the issue. Your insights are always valued. Cheers, Gordon
The values and ethics by which we set our store as leaders will always get us the rewards we deserve – often in subtle and unmeasurable ways.
The outcomes are always there.
Martin
Hi Martin,
Your comment is is right on. We will reap what we sow, eventually. It is, however, unfortunate, that young, uninformed, but well-intentioned people can be hurt by leaders who choose less ethical paths.
RT @leadership1: For the weekend crowd. See my post on unethical #leadership: http://is.gd/7aKkT #ethics #leadchange #leadership
RT @leadership1: Posted on Tues: “Unethical People Thrive on Ignorance of Others” http://is.gd/7aKkT #ethics #leadchange #leadership
Thanks for sharing your story, Gordon. I felt my abs tightening as I was waiting for the end-result to come. What a shame!
You’re so right that it’s critical to assume a culture of ethics and integrity. The best and frankly ONLY way for this to happen is for the leaders of the organization to model it. It’s the leaders that set the tone and example for all others to follow…and I should add that employees should be inspired to follow!! They’ll do that when their leader demonstrates character and the courage to always do what’s right!
Thanks for the great post, Gordon! Keep it up!
Erin,
Thank you for your comments. The company no longer exists. Most of the people who were misled have gone on to have very successful careers, so in the end, I guess we can say that we all gained from the experience. I would have preferred, however, to have been properly trained and indoctrinated so that my frame of reference would have allowed me to be a little more discerning.
Cheers,
Gordon