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Jul 03

Clues to Corruption

Posted by: Steve Marr

Tagged in: Untagged 

The sight of corporate executives being led off in handcuffs was a dramatic illustration of the malfeasance that has come to light at several large companies in the United States. Several of these firms fell from grace quickly- stunning their employees, shareholders, and lenders with the magnitude of the losses. How can you tell whether your company is likely to be next in line? No method is foolproof, but certain clues may indicate that a company is in danger.


First, are the top managers and officers honest or dishonest? Jesus taught, "He who is faithful in a very little thing is faithful also in much- and he who is unrighteous in a very little thing is unrighteous in much." (Luke 16:10 NASB) Certain acts may not be illegal, but dishonesty sets a tone in a company's culture. For example, WorldCom (and several other long-distance companies) settled an action by the Federal Communications Commission for alleged "slamming," the practice of changing customers to MCI long-distance without the customer's permission. WorldCom never admitted guilt, but paid a large fine and promised to change the practice. Any business that is built upon unethical sales tactics is ripe for a fall.

Dennis Kozlowski, former CEO of Tyco, was quoted in major business publications extolling the virtues of keeping costs down. He pointed to the company's modest headquarters building in Exeter, New Hampshire as an example. However, while the official headquarters remained in Exeter, nearly all of Tyco's key operations were transferred, at company expense, to large, expensive offices in Boca Raton, Florida. The transfer of operations was not a crime, of course, but the clear contradiction between what Mr. Kozlowski said and what he did was a reflection of his integrity. Not surprisingly, he was subsequently indicted on tax fraud charges.

Enron operated a fake trading floor designed to deceive stock analysts who visited Enron's home office in Houston. Employees were moved into workstations and told to act like they were completing trades. Visitors were impressed by the hum of activity, believing real deals were being done, and that business was good. After the analysts left, extolling the virtues of Enron, the employees would return to their desks. This charade- a clear signal of deceitful practices-became common knowledge among many employees.

Companies today are required to comply with countless governmental regulations. Does top management in your company have a serious attitude toward compliance, or is there a sense that "whatever we can get away with" is okay? Also, are customers treated fairly and honestly? If lying to customers is accepted, why would you expect management's integrity be any better with financial information?

Public companies have a responsibility to report honest earnings and balance sheets. Any accounting student can easily manipulate an earnings statement, but actual cash flow is harder to manipulate. An old accounting adage says that "profit is an opinion, but cash flow is a fact." Look for significant differences between cash flow and reported earnings. One year, Enron reported net earnings of approximately $500 million, but showed a negative cash flow of $500 million-a $1 billion swing. There may be valid reasons for differences in cash flow, but keep an eye on it.

If you witness or suspect illegal acts, start by thoroughly researching the situation. Determine what is occurring, and develop objective facts to support your concern. Next, consult with a friend who has both business and life experience and outline your concerns. Separate fact from fiction and illegal practices from the merely deceitful. 

If you believe you are being asked to participate (or cover up) an illegal practice, pray for the Lord's guidance about whether and how you should confront the situation (See Mathew 18:15-17). Meet privately with the appropriate person, respectfully state that you are concerned, and outline the facts of the issue. Avoid being judgmental. Listen carefully to the answer and take good notes. If you believe the answer is untruthful or wrong, gently go back to the evidence. Keep your composure and stick to the facts.

Be ready, and eager, to learn that your concern was unfounded. Thank the person for the meeting and then release your concerns. Some managers will agree with your facts but make it clear that the business will not change its practices. In such cases, we are instructed to "not follow a multitude in doing evil" (Exodus 23:2 NASB) Your boss may become angry when confronted, and terminate your job, or you may be compelled to leave rather then joining corruption.

I know a person who was a member of organized crime who became a Christian and needed to "resign" his position. To this day, his life is at risk, but he made the right decision. Choices may be hard, but obedience will bring blessings.

Steve Marr, Your Christian Business Coach

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