The Wheatley Institution

Fellow Notes

Having Integrity

“Ethical Behavior pays off, because...”

W. Steve Albrecht | September 28, 2015
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Lady Liberty, the Statue of Liberty, symbolizes the peak of ethics and moral character.

During my career, I have been retained as an expert witness or consultant in 36 major fraud cases, including Enron, Cendant, Tyco, Adelphia and Lincoln Savings and Loan. I have studied and even met many people who committed massive unethical acts in their lives. Through this study and these encounters, I have learned that most people who commit fraud and other crimes appear to be honest, trustworthy folks. Many of them were CPAs, internal auditors, CEOs and even members of corporate boards of directors. I have had several chances to ask them, given hindsight, why they became dishonest. Probably, the best insight I gleaned came from a lunch I had with two convicted felons when the three of us were speaking at an ethics conference in San Diego. One of them had embezzled over $60 million and the other over $200 million. One was a Certified Public Accountant and the other had been a CEO. When asked why they became dishonest and sacrificed their careers, families and reputation, they both answered that it was because of the SUDs: Seemingly Unimportant Decisions they had made that caused them to go wrong. They started making little compromising decisions that became bigger and bigger over time. Their little indiscretions and decisions started them down a slippery slope from which they couldn’t return. This is consistent with C.S. Lewis’s statement that: Good and evil both increase at compound rates. That is why the little decisions you and I make every day are of such infinite importance.[1]

Through my fraud-related studies and experiences, I have learned that we must be completely honest in all we do. I have also learned that being honest can pay big dividends in the business world. Let me share a personal example. In 2003, I was asked to serve on an NYSE company’s board of directors and chair their audit committee, meaning that I had oversight responsibility for all their financial reporting. Almost immediately I realized that the accounting method they were using to recognize the company’s revenue was an approximation method that was no longer appropriate as the company had gotten larger. I told the CEO and CFO that I thought we should change our accounting method to a more exact method. Many of the company’s executives were concerned. They said that the auditors, a Big 4 firm, had approved the accounting and that other companies used the same revenue recognition method. They feared that if we did change accounting methods, we’d have to restate the previously issued financial statements and people would sue us. After much debate and many telephone calls over a 2-week period, I finally asked our outside legal counsel whose responsibility it was to make the final decision. We had reached an impasse and weren’t making progress. With the company CEO and CFO on the telephone, they told us that, as audit committee chair, the final decision was mine.

In that case, we will take the high road and do what’s right regardless of the consequences

I then said, “in that case, we will take the high road and do what’s right regardless of the consequences.” We did change the accounting and restated previously issued financial statements. Shortly after we announced the accounting change, the Securities and Exchange Commission informed the company that they didn’t think the revenue recognition method we were using was right. They had been watching the company and were going to require the company to change and restate its financial statements. With that news from the SEC, I went from goat to hero overnight. Unfortunately, we were sued--a total of 19 times, including 16 class action lawsuits and 3 derivative actions. After 7 years of litigation and spending millions of dollars defending our actions, because we had done what was right, all the legal cases, which had been consolidated, were dismissed by an appellate judge. I had been personally named in all 19 cases, along with the other officers and board members.

Now fast forward to 2009 and 2012—6 and 9 years later. Between 2009 and 2012 I served as mission president of the Japan Tokyo Mission, along with my wife LeAnn. When I left in 2009, I resigned from the boards of directors I was serving on. Once you resign from a board, you rarely ever get invited back. But in 2012, as I was finishing my mission, I received a call from the Chairman of the board of this same company asking me if I would rejoin their board when I returned from Japan. When I asked them why they were inviting me back they said, “Because your compass always points true north and we’ve missed that influence in the board room.” Now, I’m not sure my compass always points true north – although I certainly try to be as ethical as possible. But, they believed it did and it was that perception of honesty that got me reappointed. The decision to take the high road and do what was right blessed my life.

I have a favorite poem that I have memorized and recite often.The author is unknown. It is called “The Man in the Glass.”

When you get what you want in your struggle for life

And the world makes you king for a day,

Just go to the mirror and look at yourself

And see what the man has to say.

For it isn't your father or mother or wife

Whose judgment upon you must pass,

The fellow whose verdict counts most in your life

Is the one staring back from the glass.

You may be like Jack Horner and chisel a plum

And think you're a wonderful guy,

But the man in the glass says you're only a bum

If you can't look him straight in the eye.

He's the fellow to please--never mind all the rest,

For he's with you clear to the end,

And you've passed your most dangerous, difficult test

If the man in the glass is your friend.

No one ever started out dishonest. Yet, because there are so many opportunities to be dishonest in our work, our families, and in every segment of our lives, too few people remain truly honest. Think of the costs that could be avoided if people had integrity. We wouldn’t need audits, costly internal controls, police, and complex contracts written by lawyers, nearly as much legislation or even marriage counselors. Any institution that is built on trust, whether its marriage, a corporation or society, is a great institution.

Moral development experts tell us that ethics, like almost everything else, is best taught through a combination of labeling (teaching and training) and modeling (example). Institutions such as homes and churches must be strengthened and supported. It is in these institutions where the best ethics are taught. Without these institutions and without consistent and positive modeling and labeling, young people develop situational ethics: that is, they are ethical when they perceive it pays to be ethical and unethical when they perceive it pays to be unethical.

A nation with situational ethics is on a slippery slope leading to corruption, dishonesty, eventual uncompetitiveness, and even collapse

A nation with situational ethics is on a slippery slope leading to corruption, dishonesty, eventual uncompetitiveness, and even collapse. Individuals who come from strong homes and religious influence enter the business world with extensive experience thinking about right and wrong. Their parents have taught them to recognize what is acceptable behavior and what is not. Because of this background, they have fewer troubles extending their ethical awareness to management issues. They never make the wrong SUDs. We must all have ethical courage to do what is right regardless of the cost. Ethical courage is difficult to teach because its roots are formed through years of learning to be courageous in small things. Individuals who come from strong homes and religious backgrounds have usually seized opportunities to develop courage—such as defending their faith to doubting friends. In addition, they’ve frequently examined their lives and values through ecclesiastical interviews. And, they’ve been exposed to numerous examples of ethically courageous individuals such as leaders, scriptural heroes, family members, and business leaders.

In the end, having good ethics and being honest does pay. It is not legislation or lack of legislation that will make differences in peoples’ ethics. Rather, it’s the ethical awareness, courage and leadership that is taught in the home and other basic institutions. Only when values and ethics are internalized, will employees who get caught in situations like those at Enron, WorldCom and Tyco have the courage to stand up and say that something isn’t right.