ETHICS

When Leaders Cheat, Companies Lose

New research from author and business professor Robert Cialdini delves into the link between unethical leadership and poor business performance.
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Conventional wisdom says "winning isn't everything; it's the only thing."  With that in mind, plenty of business leaders believe ethics and honesty are all well and good, as long as they don't get in the way of winning.

By this way of thinking, unethical behaviors--cheating your customers, outsourcing to slave labor, scamming the government, evading taxes, lying to investors, and so forth--are good business strategies, as long as you don't get caught or arrested.

However, a new set of studies by business professor and author Robert B. Cialdini proves that cheating at the top generates huge hidden costs, even if the leaders think they're "getting away with it."

Cheating Ruins Productivity

Most of you are surely aware of Cialdini's famous research into how people influence each other at work, documented in the bestseller "Influence: The Psychology of Persuasion."

Over the past few years, Cialdini has been researching how ethics impacts performance and was kind enough to share the results of his still-unpublished studies with me, and now with you.

Cialdini conducted two experiments and two studies, all of which confirm that organizations that tolerate unethical behavior incur huge hidden costs, even when they appear to be winning.

In the experiments, he had randomly-selected business students on two teams to work together on projects.  Both teams were told that they'd be eligible for a prize if they scored 90 or above.  However, it was impossible to score more than 63.

The leader of one team suggested that they fudge the data to raise the score to 90; the other leader didn't.  Members of both teams were then asked to solve typical business problems.

The team whose leader cheated scored 20 percent lower than the team whose leader remained honest.  In other words,

  • When leaders cheat, they make employees less productive.

Cheating Causes Massive Turnover

Next, the individuals on both teams were asked if they'd like to change teams.  About half of the people on the ethical team were willing to leave, probably figuring that they might land on a winning team.

However, four out of five (80 percent) of the people on the cheating team wanted to leave, even though their team had "won" the prize.

If you know anything about business, you know that it costs many times a worker's yearly salary to replace that worker.  Costs include recruitment, retraining, the time require to build new relationships, lost group productivity, and even then the recruit might not work out, which means starting over.  Therefore,

  • When leaders cheat, they drive away their best employees.

Cheating Creates More Cheating

The members of the teams then were told that for organizational reasons it wasn't possible to change teams.  They received a set of individual tasks with a reward for getting a certain score.

However, the way the tasks were scored, it was possible for the individual to secretly cheat.  Guess who was most likely to cheat?

If you guessed it was the 20 percent who were happy to remain on the unethical team, you are correct.  In fact, the people who were comfortable with a cheating leader were 50 percent more likely to cheat when given a chance.  Or, put another way:

  • When leaders cheat, they inevitably get cheated on.

What the Research Means to You

Cialdini's research explains a great deal about the problems that have been plaguing the business world.

CEOs in the financial industry, for example, have been repeatedly blindsided by traders who have gamed the system, losing their company billions of dollars. Well, what did those CEOs expect when they ripped off both their investors and the taxpayers?

Similarly, the U.S. government's growing problem with fraud and unethical favoritism towards big business (both at the expense of you and me) is the natural consequence of the corruption inherent in big-money campaign finance.

More personally and specifically, though, Cialdini's research contains an important message for entrepreneurs, business owners, and bosses everywhere:

  • If you're tempted to cheat, don't.

Because even if you appear to "win" through cheating, you're making your team less effective, driving away your best people, and setting yourself up to be cheated in turn.

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IMAGE: Getty
Last updated: Feb 10, 2014

GEOFFREY JAMES | Columnist

Geoffrey James, a contributing editor for Inc.com, is an author, speaker, and award-winning blogger. Originally a system architect, brand manager, and industry analyst inside two Fortune 100 companies, he's interviewed more than a thousand successful executives, managers, entrepreneurs, and gurus to discover how business really works. His most recent book is Business Without the Bullsh*t: 49 Secrets and Shortcuts You Need to Know. If you enjoyed this post, sign up for the free weekly Sales Source newsletter.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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