Dishonesty and Deception in Business

Alec Hill

The secret of life is honesty and fair dealing: if you can fake that, you’ve got it made. GROUCHO MARX

I would not tell a willful lie to save the souls of the whole world. JOHN WESLEY

No one trivial lie undermines the liar’s integrity. But the problem for liars is that they tend to see most of their lies in this benevolent light and thus vastly underestimate the risks they run. SISSELA BOK

Food gained by fraud tastes sweet to a man, but he ends up with a mouth full of gravel. PROVERBS 20:17

MEDICINE FOR WHAT AILS YOU. One of the earliest national advertising campaigns commenced in 1875 and ran for nearly half a century. “Lydia Pinkham’s Vegetable Compound” was promoted as the “positive cure for all female complaints” (understood to include everything from menstrual cramps to a prolapsed uterus). Both the bottle and the print advertisement had a photograph of Mrs. Pinkham, the perfect image of a gray-haired grandmother. Testimonials were given by women about the product’s curative powers.

There were three things, however, about which the public was unaware. First, the product had an 18 percent alcohol content. Second, Lydia Pinkham had died years before. And third, the company spent 75 percent of its revenues on advertising (note 1).

Consumers doubt claims made by advertisers, government officials investigate statements made by corporate officials, and labor negotiators question whether they should ever be anything but skeptical about claims made by their management counterparts. Even business professors have reason to wonder whether they should trust their students. Studies indicate that business majors are more likely to cheat on exams or plagiarize term papers than other college students (note 2). As an accounting student at the University of Dayton rationalized, “When you get to college, you don’t follow the same rules [on honesty] your parents laid down” (note 3). The temptation to accelerate such “moral adjustments’ only increases after graduation: sales quotas must be met, hoped-for promotions obtained, and shipment deadlines met. Unfortunately, honesty is often the first casualty in such pressure-cooker situations.

Honesty, deception and disclosure are concepts that are often difficult to apply with precision in the business environment. For instance, were the Lydia Pinkham’s Vegetable Compound ads deceitful or merely coy? What duty, if any, did the company have to disclose full information to the consuming public? Was its only ethical obligation negative in nature – not to communicate misinformation – or did it have affirmative duties to reveal relevant information as well? These questions underscore the point that rule-book ethics – a list of simple “dos and don’ts” to be applied to every situation – is woefully inadequate. Truth telling, dishonesty and concealment are complex subjects that require more sophisticated analysis.

Honesty

CHRISTIAN CON MAN. In six years John Bennett built his Philadelphia-based New Era Philanthropy Foundation into a powerhouse charity. Claiming to be a broker for several anonymous donors, Bennett first gave away modest sums of money to several nonprofit organizations. Later he asked these same organizations to “invest” so that his foundation could double their income within six months. For a few years the plan worked. However, when the Securities and Exchange Commission began to investigate, Bennett’s house of cards collapsed.

After New Era declared bankruptcy, Bennett admitted to the SEC that the anonymous donors never existed. “Investors” then were owed over $550 million, but New Era had assets of only $80 million. It was alleged that Mr. Bennett had secretively taken over $4 million for personal use. Included among those who were tricked: Young Life, the University of Pennsylvania, World Vision, Wheaton College and the Academy of Natural Sciences of Philadelphia. “I had every reason to trust him,” said the president of the Seminary of the East. “He had a reputation for Christian values and commitment to Christ.” (note 4).

Ethicist Lewis Smedes contends that honesty is crucial for three reasons: it builds trust, establishes community and protects the dignity of the audience (note 5).

Trust. Without honest communication, trust is impossible: all cooperative ventures require some measure of trust. Indeed, well-placed trust translates into profit. Accountants can even quantify the value of honesty on a company’s balance sheet as part of its “goodwill”(note 6). Partners rely on each other to fulfill promises, supervisors expect subordinates to fulfill their tasks, and buyers depend on suppliers to ship quality goods in a timely manner.

Studies indicate that workers who believe that their employers are truthful work harder. When trust is breached, however, employee productivity slackens (note 7). Norman Bowie contrasts Chrysler employees, whose quality of work suffered as a result of their distrust of management at the bargaining table a number of years ago, with General Motors’s Saturn employees, whose high level of trust in the corporation has translated into superior quality and productivity (note 8). Another observer compares trust to a bank account. “Reputational capital,” built up through many instances of truth telling, can be overdrawn by a single act of deception (note 9). This is as true in business as it is in marriage. And since few lies exist in isolation, the first untruth “must be thatched with another or it will rain through” (note 10).

Community. The second value of honesty is that it fosters community. When individuals trust each other, relational networks are built. As trust is more highly prized, greater expectations for honesty are placed on an expanding web of individuals – managers, marketers and accountants. This produces communities of trust. As Sissela Bok wisely observes, “The veneer of social trust is often thin”¦Trust is a social good to be protected just as much as the air we breathe or the water we drink. When it is damaged, the community as a whole suffers; and when it is destroyed, societies falter and collapse” (note 11).

PLAY THE GAME. Rita is a new manager with Crane Construction Company. One of her first tasks is to formulate the annual budget for her division. Over lunch, a peer advises her to “be sure to inflate your estimated expenses by 15 percent and to ask for a few positions you don’t really need. Upper management will chop them out anyway. Also, don’t worry too much about overspending. The company gives no incentives for carrying over surplus at the end of the fiscal year and gives no rewards for under-spending.”

Communities that are deficient in honesty quickly become cultures of deception. Rita’s company will no doubt pay several long-term consequences as new employees learn that fiscal honesty is regarded as being naÃ¯ve. The results are all too common in corporate life – waste, closed communications, empire building, slush funds, turf wars, excessive documentation and intrigue. Companies that operate in this manner are inherently unstable because fear of embarrassing discoveries looms in every corner. Cover-ups blossom. As one author observes: “Without trust, we change from a community to a pack, from a society to a gang” (note 12).

Dishonesty also “debases the currency of language, making business communication less efficient and more cumbersome” (note 13). Since we trust each other less, more attorneys are needed to review documents. Is it any coincidence that as the virtues of truthfulness and trust have decreased in American society, the number of attorneys has skyrocketed to over 850,000? Similarly, since 24 percent of all resumes contain substantial false information (note 14), is it any wonder that more sophisticated human resource personnel are needed to ferret out the truth about applicants? College admissions officers now find it necessary to double-check the veracity of financial aid claims of incoming students. This “truth audit” function not only indicates an erosion of community but also imposes a huge cost – in essence, a tax – on doing business.

It is no exaggeration to conclude that capitalism itself is at risk when honesty and trust are disregarded. Witness certain nations in Africa, the former Soviet Union and Asia where corruption is endemic. Cheating, bribing and distrust erode the very foundation of their economic systems (note 15). As English author Samuel Johnson once observed, even demons do not lie to one another, because the society of hell could not exist without truthfulness (note 16).

Dignity. The third value of honesty is that it respects the dignity of those to whom communications are directed. As image-bearers of God, recipients are entitled to accurate information so that they are able to make free and intelligent choices. In the medical field, doctors are required to provide patients with full data to ensure that all consent is fully informed. The concept of “informed consent” also applies to the marketplace, where the dignity of decision-makers (for example, consumers, shareholders, employees, partners) must be protected by giving them sufficient information to preserve their autonomous choices.

FOOL’S GOLD. “The precious metals market was rocked when the principal managers of International Nesmont Industrial Corporation, a Canadian gold-refining firm selling stock over the New York Stock Exchange, were charge with criminal fraud. For six months before being discovered they had stockpiled brass instead of gold bars.” (note 17).

One ethicist has gone so far as to compare dishonesty to physical assault: both rob recipients of their freedom and dignity (note 18). No doubt investors in the Canadian gold-refining company felt so violated.

Adam Smith, the father of capitalism, prized the notion of informed consent. For transactions to be truly voluntary, both parties must have access to accurate information. Otherwise they cannot deal for mutual benefit. While it may seem ironic to those who view capitalism as an incubator for dishonest practices, Smith taught that the market operates properly only if honest dealings are the norm.

Deception

SLEEPING SICKNESS. Oversleeping for the third time in a month, Trish is late to work. In a panic about what to tell her supervisor, she concocts a story about having to care for a deathly ill aunt.

OVERCHARGE. Under pressure by his law firm to make his quota of two hundred billable hours per month, Kevin inflates the hours he has worked for Acme Corporation this week from thirty-five to thirty-nine hours. I’ll make it up next month, Kevin tells himself as he fills out the billing statement.

TRUTH VERSUS COST-BENEFIT ANALYSIS. Jeung’s company manufactures and sells computer keyboards. In his negotiations with Fruitcake Computers, he promises to deliver a thousand TRX keyboards by July 1. While he knows that his company will be unable to deliver the goods prior to August 15, he does not inform his new customer for fear of losing its business. He calculates that the late-delivery charges written into the contract can be easily absorbed by his company.

Deception may be defined as purposefully leading others to believe something we ourselves do not believe. This may be done through a wide variety of means, including written communication, verbal statements, body language, disguises and even silence. To say that deceivers are generally held in low esteem is an understatement. In the fourteenth century Dante placed them in the eighth circle of hell. Only traitors were at a lower level, and of course betrayal itself is generally a form of deception (note 19).

Lying, a subset of deception, includes three primary components. First, it requires intentionality. Innocently misinforming someone about street directions does not constitute lying, whereas purposeful misdirection does. Second, it involves communication. This concealment, though often deceptive, does not constitute a lie. Third, the deceiver believes that the audience accepts the untruth as fact.

Scripture strongly condemns deception because it is diametrically opposed to God’s holy-just-loving character. Indeed, “it is impossible for God to lie” (Heb 6:18), for he keeps all his promises (Num 23:19) and communicates nothing but the truth (Rom 3:3-4). Rather, deception is a primary attribute of Satan, who, Jesus warned, has “no truth in him. When he lies, he speaks his native language, for he is a liar and the father of lies” (John 8:44).

The ethical purity and moral separation required by holiness call for guileless behavior in the realm of truth telling. Of those who enter heaven, it is written that “no lie is found in their mouths; they are blameless” (Rev. 14:5). Deceitful individuals, on the other hand, are held accountable to God, ultimately threatened with eternal judgment (see, for example, Rev. 21:8, 27). Trish, Kevin and Jeung would be well advised to heed this warning.

Justice likewise condemns deception. Due process obliges Trish and Jeung to give honest information so that those to whom they are accountable (supervisor and customer, respectively) can make appropriate decisions. Kevin’s lying also raises several justice concerns. By over-billing his corporate client, he infringes on its property rights and breaches his firm’s contractual obligations. Further, by claiming to do more work than he has actually done, he undercuts the notion of merit within the firm. If pay, promotions and assignments are based in part on billable hours, he is acting unfairly vis-Ã -vis his fellow attorneys. Compensatory justice now requires him to admit his wrongdoing to the firm and to ensure that his overcharging is corrected.

Finally, love requires empathy, mercy and the sacrificing of rights for others. Certainly Trish, Kevin and Jeung have displayed none of these characteristics in their dissembling. Love demands communication that is open, sincere and caring, not that which is secretive, manipulative and selfish.

Deception can lead to unforeseen, and often disastrous, consequences. As noted earlier, it attacks the very roots of honesty – trust, community and dignity. Scripture produces several relevant examples. When Jacob pretended to be his brother Esau in seeking a blessing from Isaac, their blind father, he destroyed the bond of trust between himself and his brother, splintered the family community, and violated Isaac’s right to bestow his blessing on Esau and Esau’s right to receive it (Gen. 27:1-45). Long-term relationships were sacrificed for the sake of illicit short-term gain. Likewise, when Jacob’s sons lied about the fate of their brother Joseph and Jacob later learned the truth, his confidence in them was undermined. Their lies nearly destroyed the family unit and certainly infringed on Jacob’s dignity to make fully informed choices (Gen. 37:19-36; 43:1-45:28).

Similarly, when Joseph was falsely accused by Potiphar’s wife, his master’s trust was destroyed and he was thrown into jail (Gen 39:1-23). Much more could certainly be said about Jeremiah’s bemoaning a general lack of trustworthiness (Jer. 9:4-8), Judas’s betrayal of Jesus (John 13:18-30), and Paul’s admonition to “put off falsehood and speak truthfully to [your] neighbor” (Eph. 4:25).

Is Deception Ever Justified?

In an ideal world, our analysis would end here. Honesty, a virtue that reflects holiness-justice-love, is to be diligently pursued while the vice of deception is to be scorned. For while the former builds up trust, community and dignity, the latter – like a hungry termite in soft wood – devours credibility, cohesion and integrity. Unfortunately, our world is imperfect: sin has eroded both our ability to speak and hear the truth clearly. As a result, Norman Bowie writes of “ideal” versus “acceptable exchanges” in the marketplace, with the latter category providing some room for minor deceptions, ambiguities and selective concealments (note 20).

Historically, the church has been divided as to whether exceptions to the general principle of truth telling exist. Several of the early church fathers – including Clement of Alexandria, Origen and Chysostom – permitted untruths to be told if the cause was just and necessary (note 21). Martin Luther went further, identifying “helpful lies” that are justified by the deceiver’s altruistic motives (note 22). Anglican priest Joseph Fletcher opened the floodgates by totally subordinating truth telling to his definition of love – justifying any deception so long as it is motivated by love.

While orthodox Christianity rejects Fletcher’s approach, many scholars do consider deception to be a viable alternative if certain conditions exist. These include the following: Have all other honest options been exhausted? Is the situation sufficiently dire? Is the deceiver’s motive selfless? From this perspective, honesty is the general rule and deception the exception. Deception requires a reason: honesty does not. In other words, the deceiver must carry the burden of proof to justify his behavior (note 23).

Other Christian thinkers have not been so sanguine about the idea of exceptions to truth telling. Augustine, for instance, compared the concept of “just lies” to “chaste adultery” (note 24). For him the debate about possible exceptions was resolved by the Scripture: “No lie comes from the truth” (1 John 2:21). Reformer John Calvin and Methodist founder John Wesley followed Augustine in adhering to this uncompromising position (note 25).

While all lying was sinful to Augustine, he did fudge a bit in describing eight levels of the sin with decreasing levels of punishment (note 26). Taking liberty to apply his teachings to the marketplace today, he would punish selfish liars more (for example, false advertisers and embezzlers) and altruistic liars less (for example, flatterers and protectors of fellow employees).

Following Augustine’s lead, the ninth-century Irish church relied heavily on the penitent’s motive to determine the appropriate sanction. Selfish liars were to receive either three days of silence or seven hundred lashes on the wrist, while altruistic liars were obligated to perform no penance whatsoever (note 27). Critics quickly pointed to what they perceived to be a fatal flaw in this approach, however. If liars knew in advance that their “officious” (helpful, loving, altruistic) lies would be pardoned, what moral constraints would they feel about such lying? Further, did not such an approach cheapen the very notions of sin and repentance?

Others in the medieval church sought a way around the strictness of Augustine’s position. Utilizing a doctrine called “mental reservation,” speakers were not considered to by lying even if they intentionally stated untruths so long as they added information in their minds that would make their communication true (note 28). For instance, if a supervisor were to say to a subordinate, “Your evaluation is average,” while making the inaudible mental reservation that it is average for the group of incompetents about to be fired, she would not be lying. Or if a retailer were to respond negatively to the question “Do you think this lamp will sell well?” while silently adding mentally at the Salvation Army thrift store, no deceit is said to result.

Obviously such an approach is highly suspect and was quickly rejected by the church. It does, however, point out the extent to which some will go to identify exceptions to the principle of honesty. For while Augustine’s absolutist position solves one problem – moral inconsistency – it creates another – a lack of flexibility in difficult situations. And the tension between these two has serious ramifications for the business practitioner.

Notes:

1 C. Joseph Pusateri, A History of American Business, 2nd ed. (Arlington Heights, Ill: Harlan Davidson, 1988), pp.281-282.

2 Anusorn Singhapakdi and Scott Vitell, “Ethical Ideologies of Future Marketers: The Relative Influences of Machiavellianism and Gender,” Journal of Marketing Education, Spring 1994, pp. 34-36.

3 Ibid., p. 34

4 Steve Stecklow, “Crumbling Pyramid,” Wall Street Journal, May 16, 1995, p. A1; and Thomas Giles, “Double Your Money Scam Burns Christian Groups,” Christianity Today, June 19, 1995, pp. 40-41.

5 Lewis Smedes, Mere Morality (Grand Rapids: Eerdmans, 1983), pp. 222-24.

6 J. Brooke Hamilton and David Strutton, “Two Practical Guidelines for Resolving Truth-Telling Problems,” Journal of Business Ethics 13 (1994): 907.

7 Ibid., p. 908.

8 Norman Bowie, “Does It Pay to Bluff in Business?” in Ethical Theory and Business, ed. T. Beauchamp and N. Bowie, 3rd ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1988), pp. 446-47.

9 Hamilton and Strutton, “Two Practical Guidelines,” p. 907.

10 Sissela Bok, Lying: Moral Choice in Public and Private Life (New York: Vintage, 1979), p. 26.

11 Ibid., p.28.

12 Smedes, Mere Morality, p. 223.

13 David Holley, “A Moral Evaluation of Sales Practices,” in Ethical Theory and Business, ed. T. Beauchamp and N. Bowie, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1993), p. 466.

14 William Lawrence, Beyond the Bottom Line: Where Faith and Business Meet (Chicago: Moody Press, 1994), p. 154.

15 Richard Chewning, Biblical Principles and Business, 3 vols. (Colorado Springs: NavPress, 1989), 1:131.

16 Samuel Johnson in Selected Essays from the Rambler, Adventurer and Idler, ed. W.J. Bate (New Haven, Conn.: Yale University Press, 1968), p. 174.

17 John Emshwiller, “Fraud Charges Prompt Questions on U.S. Trading Rules,” Wall Street Journal, December 14, 1994, p. C1.

18 David Clyde Jones, Biblical Christian Ethics (Grand Rapids: Baker, 1994), p. 144.

19 Dante, The Divine Comedy: Inferno, trans. Charles S. Singleton (Princeton, N.J.: Princeton University Press, 1940), canto 11, p. 111.

20 T. Beauchamp and N. Bowie, eds., Ethical Theory and Business, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1993), p. 464.

21 Jones, Biblical Christian Ethics, p. 148.

22 Bok, Lying, p. 224.

23 Ibid., pp. 24, 32-33.

24 Jones, Biblical Christian Ethics, p. 148.

25 Smedes, Mere Morality, p. 221.

26 Augustine, “Lying,” in Treatises on Various Subjects, ed. R.J. Deferrari (New York: Catholic University Press, 1952), vol. 14, chap. 14.

27 Bok, Lying, pp. 82-83, 36.

28 Smedes, Mere Morality, p. 221.

From: Just Business: Christian Ethics for the Marketplace by Alexander Hill. © by Alexander Hill. Used by permission of InterVarsity Press, PO Box 1400, Downers Grove IL60515-1426. www.ivpress.com

Alexander Hill is the former dean of the business school at Seattle Pacific University and is now the President and CEO of InterVarsity Christian Fellowship / USA.