The Wheatley Institution

Fellow Notes

Why the Lack of Integrity Burdens Society

“There was a time when no one felt the need for a written contract. A person's word was all that was required.”

W. Steve Albrecht | November 7, 2014
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Two children make a pinky-promise, representing a larger contract that they have entered into. Keeping that contract will require integrity and ethical behavior.

According to Webster's online dictionary, integrity has three different meanings. The first is "a firm adherence to a code of especially moral or artistic values or incorruptibility." The second is "an unimpaired condition or soundness." The third definition is "the quality or state of being complete or undivided." In this essay, I will focus on all three. Integrity—the quality of always doing what you know you should do. Think about it. How many of the things you know you should do, do you always do and never skip? Think for a minute how you would feel about yourself if you consistently did what you know you should do.

There was a time when no one felt the need for a written contract.

How do you know if you can trust another person? Generally, it is based on your experience with the consistency of that person's conduct in the past. There was a time when no one felt the need for a written contract. A person's word was all that was required. Enemies would settle conflicts by accepting mere verbal representations from people who, hours before, were fighting to their death. Commercial transactions would take place based on a verbal representation and a handshake. Even today, there are some people and businesses that have so much integrity, that they can be trusted with anything. Bill Child, former owner of the RC Willey furniture stores in Utah, Idaho, and Nevada is an example. RC Willey is the largest home furnishings retailer west of the Mississippi. In today's tough competitive world, RC Willey and Bill Child stand tall as leaders of a firm with strong ethical values. Rufus Call Willey started the business in 1932 by selling appliances out of his pickup truck door-to-door. In 1949, R.C. opened his first store in Syracuse, Utah (at the time, a very small town of less than 300 people). R.C. established a strategy of offering better quality at the absolute lowest prices.

In June 1954, shortly after graduating from college, William (Bill) Child took over the reins of the business from his father-in-law, R.C.. This decision came after R.C. was diagnosed with pancreatic cancer; R.C. died in September of that same year. In 1995, RC Willey was acquired for $175 million by Warren Buffett, and fell under the umbrella of Buffett's holding company, Berkshire Hathaway. Although Buffett was one of the primary owners of RC Willey until he retired, he still left Bill Child to manage the company as he saw fit. Warren Buffett has publicly stated that every transaction with Bill Child was made on a handshake.

Ever since the company was founded, RC Willey has established a strong reputation for being an ethical company. As an example of its ethical decisions, when a warranty company declared bankruptcy shortly after RC Willey had paid $192,000 for warranty service, RC Willey could have easily told customers that the bankrupt insurance company was responsible for the warranty. RC Willey didn't do that. Instead Bill Child decided to back all of the warranties, even though RC Willey had no legal responsibility to do so.

It cost us more than $1.5 million... but we just felt it was the morally right thing to do.

Bill Child afterward said, "It cost us more than $1.5 million over the next five years, but we just felt it was the morally right thing to do." Another moral and ethical stance taken by RC Willey was its Closed on Sunday policy. Rufus Call Willey and Bill Child were both religious men who never did business on Sundays in accordance with their Sabbath beliefs. However, when RC Willey decided to expand to Idaho, Warren Buffett did not want to maintain their Closed on Sunday policy. Buffett understood a true fact that Sunday is often the biggest retail day of the week. Bill Child believed Sabbath observance to be such a correct principle that he offered to invest $11 million of his own money to build the Idaho store, and promised to sell it back to Berkshire at cost without interest if the venture succeeded. If it failed, Bill would keep the store and personally absorb any losses.

The expansion into Idaho was an immediate success. Shortly after the Boise opening, Bill Child brazenly suggested expansion into Las Vegas, while still maintaining the Closed on Sunday policy. Warren Buffett was even more nervous about such a move. Yet, after the success of the Boise store, Buffett let Child expand into Henderson (a neighboring town to Las Vegas). Again, the result was positive. In Warren Buffett's annual letter to shareholders in 2001, he stated that the Henderson store "outsells all others in the R.C. Willey chain, doing a volume of business that far exceeds the volume of any competitor and that is twice what I had anticipated." Jokingly, at the end of this remark Buffett stated, "Today, when I pontificate about retailing, Berkshire people just say, ‘What does Bill think?'"

Great rewards and dividends result from following correct principles. In today's society, we not only have to rely on written contracts, but we must address every aspect of a proposed transaction with painstaking detail. Even so, few contracts are lived up to. Think of the waste caused in our society by this lack of integrity! We spend billions of dollars each year trying to get people to do what they promised to do in the first place. We waste much time and effort when people do not do what they say they will do. We spend millions of dollars on internal controls, audits, inspections, independent checks, police officers and detailed laws to try to motivate honest behavior. When someone does not do what they know they should do, time and resources are wasted, and all of society suffers; when the opposite occurs, all of society benefits.

Think of the waste caused in our society by this lack of integrity!

Take the simple example of being on time. When a meeting is supposed to start at 2:00 P.M., we depend on one another to be there at the appointed time. If someone is not there, it wastes the time and resources of others who were there and ready to begin. You might think this small act of being late does not really matter much, but it does, especially when it is being repeated hundreds of thousands of times each day throughout the organization or across the country! Meetings are a huge investment of time, and the #1 time commitment of most organizations. The top cause of inefficient meetings is not starting on time. When people make good use of their time in meetings, there is a terrific return on time invested. When meetings are inefficient, objectives are not met. Starting late and having to wait for participants is a prescription for non-productivity, inaction, and a lack of return on time invested.

President Gordon B. Hinckley of The Church of Jesus Christ of Latter-day Saints had a practice of starting every meeting fifteen minutes early—not just on time! By doing so, he found everyone arrived on time, meetings didn't last too long, and much more was accomplished. With his meetings, even being there at the appointed hour means that you have missed important discussions and decisions. We should do what we promise we will do, whether or not we are compensated for our promises. It is the basic form of integrity. It is the basic culmination of promise and action. To go a step further, in order to incorporate integrity into our lives we also need to do the things that we know we should do, whether or not a promise has been made.

Integrity is not merely "being true to what you believe." Rather, it is "believing and doing what is true."

Integrity is not merely "being true to what you believe." Rather, it is "believing and doing what is true." In order to realize the benefits of integrity in families or organizations, integrity must be developed from the inside-out. There is no outside-in method that will instill integrity. In 2002, as a result of several highly-publicized frauds (e.g. Enron and WorldCom), Congress imposed stiff new regulations affecting the top levels of public corporations. The requirements of these regulations, known as the Sarbanes Oxley Act (often referred to as SOX), cost companies millions of dollars per year. Unfortunately, even with this cost, SOX is merely a Band-Aid. The disease (integrity of corporate leaders) must heal from the inside out. Corporations must realize that following the rules and doing what they have promised and know they should do gives them increased power and capacity. Shortcuts and dishonesty are always recipes for failure.

Organizations should consider devoting significant resources to educating their employees about integrity. Teaching true principles is the fastest and most efficient way to influence behavior. Integrity cannot be forced; it must be self-absorbed and the only two ways to make that happen is to model the appropriate behavior and to invest resources in education. Researchers call this technique modeling (being an example) and labeling (teaching and training.)

Integrity cannot be forced; it must be self-absorbed.

Christ was the perfect leader—he taught by both his example (model) and by parables (labeling.) Too many corporations and families today do a poor job with one or both of these key elements. Bad modeling makes up the news. With the addition of the internet and social media, that bad modeling is made more explicit than ever. Furthermore, homes are no longer a place where families spend time together. They don't even sit down to eat and converse together. Rather, homes are now places where family members intersect in the doorways, where both children and adults graze all day instead of sitting down and eating together, and where they spend countless hours in front of the television and on social media instead of spending time together, conveying values from one generation to another. It is no wonder than every longitudinal study on integrity show decaying values and decreasing levels of honesty.

When talking about physical materials, we equate integrity with strength. Consider, for example, the aerospace business. Integrity is a critically important component in the manufacture of aircraft. Weakness anywhere in the structure cannot be tolerated. There is no margin for error. The entire structure must be sound. There can be no weakness in the outer skin of the aircraft, nor weakness in the bolts, framework, or engine. To accomplish its purpose, an aircraft requires complete integrity. Are we not like the aircraft? Can we really fulfill the job for which we were designed if we lack integrity in any part of our structure? Can we have the full capacity for leadership, the strength to endure, or the power to motivate and manage without complete integrity? A chain is only as strong as its weakest link. We must have complete social, emotional, financial, spiritual, and physical integrity. A lack of integrity in the emotional area limits our financial ability. A lack of integrity in the spiritual area limits our social power. Any lack of integrity in our being will limit our career and personal success. Indeed, integrity implies wholeness, a complete structural strength. Too often we make up for a lack of integrity by rationalizing our behavior. Even though our rationalizations are false, we believe them. We must think of ourselves as good people and others as the ones not carrying the load. Rationalizations make us blind to the truth. Unfortunately, when we rationalize we begin to act on this self-deception rather than on correct principles. We judge ourselves by our intentions and others by their actions. Certainly, none of us is as good as our intentions. Therefore, none of us is as good as we think we are and none of us is as bad as others think we are. As long as our intentions are good, we can lack integrity, and still view ourselves positively.

Judging ourselves by our intentions combined with this lack of integrity dramatically increases the cost of conducting business and causes seriously problems in relationships. If we want to have complete integrity, we must shrink the difference between our intentions and our actions and between what we know we should do and what we do. Even small little events can have a profound impact on our lives. This is especially true if the same thing happens day after day. Imagine how much more productive the world would be and how much lower everything would cost if everyone had complete integrity.