Corporate fraud can create negative consequences that not only harm individuals but also ultimately lead to the economic downfall of a nation. Managers must prevent harm by understanding what is considered ethical behavior, by being committed to making ethical decisions, and by encouraging stakeholders to take ethical actions. Exhibiting good ethics not only protects the external constituents of a company but also members of the organization.
The Association of Certified Fraud Examiners estimates that fraud costs US companies about 5% of their revenues. In 2016, this meant roughly $900 billion was lost to fraud.1The Association of Certified Fraud Examiners, ACFE Report to the Nations on Occupational Fraud and Abuse, 2016. This includes the identity and credit card thefts that concern everyone and the massive corporate frauds that bring down companies. This estimate includes only reported fraud. We don’t know the cost of unreported fraud and unethical behavior, but we can assume it’s significant. This is a continuing battle that managers cannot delegate to simply their HR or legal departments.
Just how much can unethical behavior cost a business? In some cases, billions. For example, in 2004 and 2005, General Motors engineers “misdiagnosed [an ignition switch problem] as a customer satisfaction issue and not a safety issue,” according to GM CEO Mary Barra, and they hid information from regulatory agencies and the public. Their unethical decisions led to 124 deaths. “A series of mistakes were made over a period of time … This had tragic consequences,” said Barra.2Margaret Cronin Fisk and Laurel Brubaker Calkins, “GM CEO Barra Tells Jury Company Flubbed Fatal Ignition Flaw,” August 15, 2016. GM has paid settlements, penalties, and legal costs close to $2.5 billion, and it could face additional lawsuits.3Melissa Burden, “Lost Appeal Could Cost GM Billions,” April 24, 2017.
The improper actions of board members, corporate-suite (C-suite) executives, mid-level managers, and nonmanagerial employees can create negative consequences ranging in intensity from petty annoyances to global recessions. Those affected by the consequences can include stakeholders, customers, and the general public. When the stakes are so high, it’s imperative that the leaders of an organization understand ethical behavior, be committed to making ethical decisions, and encourage and empower all stakeholders to take ethical actions.
Management 2020 text remixed from multiple sources under a CC Attribution-NonCommercial-ShareAlike 4.0 International License. View a complete list of original sources.
