Your company preaches trust, shares information, and gives employees the clout to make and carry out decisions. Then one of those employees steals from you. A lot. What do you do?

At Powell's Bookstores, empowerment and decision sharing are not just buzzwords. We work hard to give our employees responsibility and authority throughout the company. We practice that philosophy because it's good business and because we want to be a business that operates on trust and respect. Unfortunately, I had to reexamine those principles last year, after discovering that an employee had stolen more than $60,000 from the company. As a result, we changed some of our security systems. Yet in terms of what's important, we didn't change a thing.

Since I started my company, 25 years ago, I have sought to create an environment in which employees have authority, are trusted, and, yes, are empowered to act on their own. Most large bookstores, for example, have one buyer who makes all the inventory decisions; at Powell's, about 70% of the employees have a voice. We share our profit-and-loss statements with employees, and we have roughly 30 or 40 working committees reviewing every aspect of our operations, from implementing a policy of national advertising to integrating the purchase of inventory as the company has grown to seven stores. Everyone is expected to answer the phones, respond to electronic requests, and deal with customer problems. We want the people working with customers to have the authority to make decisions.

That culture of trust was seriously challenged when an employee was caught with his hand in the till. While copying some paperwork one afternoon last spring, a staffer discovered a suspicious pattern in the authorization of cash payouts for used books. All the slips were authorized by one person. The staffer alerted a manager, who investigated the matter and found that this same person had in fact approved a significant number of large cash authorizations. Now, that was possible because employees are encouraged to do multiple tasks during the day. Someone could write a large cash authorization and then work at a cash register, and in effect pay himself. When confronted with that pattern, our employee confessed. In fact, he discussed fairly freely how he had bilked the company. Over the past two years not only had he been stealing cash, but he had been using his responsibility of closing the store as an opportunity to steal books as well. We contacted the police, who turned the matter over to the district attorney, who chose to prosecute.

Now, my first reaction was a kind of numbness and denial. I reacted by looking for any explanation that this wasn't what it appeared to be. But the evidence of theft was overwhelming. And, oddly, once I acknowledged what had happened, I felt angry with myself -- angry for having such vulnerable systems. I had a momentary impulse to go out and lock everything up -- to start treating everybody as a potential thief. A word of caution, folks. If you think that a thief is a certain type and that you can somehow identify that type by appearance and behavior, you're wrong. In a thousand years, I wouldn't have picked this person. He was earnest, he seemed dedicated, and he was stealing from us.

It was painful to realize that we were operating so navely. Our systems were based more on trust than on responsibility. So we made some immediate changes. Our bookkeeping department put some safeguards into place to stop the kinds of opportunities this person had exploited. We stopped the practice of having one person close the stores. And we formed a security committee to change methods of managing cash and to improve systems companywide.

The incident was a watershed for me and my staff, dispelling any navetÉ we may have had about crime. We realized that not only can theft happen; it will happen. At the same time, dealing with the matter forced us to revisit our basic values and managerial philosophies. We believe that the modern demands of business call for an empowered and fully flexible staff, and we know that such a staff will often have to handle valuable commodities and money. We also believe that most people are not going to abuse our trust if they are put in a position with a reasonable amount of review and responsibility.

So we had to resist the temptation to just suddenly go out and slap controls over things. That's not the answer. The way to deal with theft is to hire the right people and to put into place the best systems for handling money. And to talk a lot in the company about what it means when someone steals.

Do I believe that sooner or later someone else will steal from us? Absolutely. Do I believe, in the meantime, that having 300 people making independent decisions on the floor is more valuable than being preoccupied about theft to the point of reducing my employees' ability to make decisions? Absolutely. There is a cost-benefit curve here: you have to minimize the cost of theft and maximize the opportunity of having an empowered workforce. So today we have zero tolerance for theft. If people are caught, they are punished fully. But on the other hand, we don't make people go through a metal detector or strip-search them as they go through the door. We are still prepared to tip the scales on the side of the belief that if employees are treated in a respectful and responsible manner, they will be respectful and responsible themselves.

As I sat in the courtroom and watched my former employee being marched off to jail, I felt no triumph or vindication. I wanted to be angry with him, but what I really felt was sadness -- even an odd twinge of complicity. I didn't know why this person chose to abuse our company and the trust it puts in its employees. He didn't seem to be angry with us, nor did he have a gambling or drug addiction. Any of those explanations would, in a perverse sort of way, have helped explain things better. But he was stealing simply because he could. Because the money and the books were there. And so I felt sad at realizing that the motivations of people are so complex that a manager or an owner could never begin to understand the permutations of them all. You can't be responsible for what people bring to you. You can be responsible only for the place they come to.

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Michael Powell is the owner of Powell's Bookstores, based in Portland, Oreg., a chain of seven stores, one of which is the largest bookstore in the United States.