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ÔÔSee No Evil, Hear No Evil, Speak
No EvilÕÕ—Leaders Must Respond to
Employee Concerns About
Wrongdoing
BOB GANDOSSY AND ROSABETH MOSS KANTER
I
t wasn’t the first time he discovered fraud committed by his
boss—also the owner of the company. A year after he joined the
firm, as the head of accounting, he came across several loans
that were financed, not once, but two and three times. The owner
claimed the loans were obtained ÔÔinadvertentlyÕÕ and, further, ÔÔit
was no big deal and won’t happen again.ÕÕ A year later, the ac-
countant discovered it did happen again. This time his boss said,
ÔÔdon’t worryÕÕ and promised, ÔÔI’ll take care of it.ÕÕ Over the next few
years, more signs of trouble surfaced: serious cash flow difficulties,
officersÕ loan accounts exceeding net worth, doctored financial
statements, incomplete documentation on multimillion-dollar
transactions, and extravagant spending by the principals. Then,
some seven years after he first came to the company, the firm
pleaded guilty to check kiting and received the maximum penalty
under the law.
Why would the accountant stay under these circumstances?
Clearly, the company was in deep financial trouble and a principal
B A S R 0 1 4 4
Journal No. Manuscript No.
Dispatch: 25.9.02 Journal: BASR
Author Received: No. of pages: 8B
Bob Gandossy is the Global Leader for the Hewitt Associates People Value Management (PVM)
Practice, with expertise in improving organizational effectiveness, human resource strategy and
increasing growth through innovation. Bob has written a variety of articles and books on related
topics, and has been a speaker at Harvard Business School, Human Resources Planning Society
and Tom Peters Group, to name a few. Bob holds a B.S. degree from Harpur College and a Ph.D.
degree from Yale University where he specialized in the study of organizational behavior.
Rosabeth Moss Kanter is the Ernest L. Arbuckle Professor at Harvard Business School,
adviser to businesses and governments worldwide, and the best-selling author of 15 books,
including her more recent, Evolve!: Succeeding in the Digital Culture of Tomorrow.
Business and Society Review 107:4 415–422
Ó 2002 Center for Business Ethics at Bentley College, Published by Blackwell Publishing, Inc.
350 Main Street, Malden, MA 02148, USA, and 108 Cowley Road, Oxford OX4 1JF, UK.

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had resorted to fraud and other forms of misconduct in the past,
and, therefore, was quite capable of doing it again. Why not get
out? The accountant eventually did leave, but only after he and
other inside accountants had discovered hard evidence of fraud
amounting to more than $40 million—and that was for only one
year. On leaving, the accountant did not reveal what he knew to the
authorities. Nor did the other accountants, who continued to work
for the company. A year after he resigned, a massive fraud was
uncovered—19 financial institutions had been swindled out of
more than $220 million during a ten-year period. Could the fraud
have been prevented? Why didn’t the accountant and many others,
who either knew or strongly suspected the fraud, take action?
Over the past several decades the business press has reported
dozens of scandals, often involving leading companies that have
been involved in improprieties for years before anyone took steps to
bring them to an end. Why weren’t illegal activities discovered
earlier? And, if they were, why didn’t people act to bring the crimes
to a halt? How can responsible managers and professionals be so
blind to such massive misconduct?
As we’ve seen, the aftermath of scandals usually involves
numerous people sifting through evidence, discovering ÔÔretrospec-
tive errorsÕÕ and unheeded warnings on the part of particular
players associated with the fraudulent operators. Signs of trouble
are typically present, but simply missed by the persons involved.
So, the question becomes, why? What factors prevent us from
seeing and acting on signs of misconduct? As important, what
steps can we take to reduce the likelihood of becoming a victim—or
worse, blindly aiding and abetting the perpetrator? And, as leaders,
what steps should we take to reassure our employees that we are
what we say?
There is no single answer to these questions. Human and
organizational behaviors are complex, and explanations for our
actions rarely come in tidy packages. Likewise, there is no single
step to protect corporations from wrongdoing, but several steps
will decrease the probability that managers will become either
victimized or otherwise involved in such frauds. Said differently,
there are certain things we as leaders do that can foster criminal
wrongdoing. As well, there are no simple steps to ensure leadership
integrity on such matters, but we must take seriously the work-
force uneasiness that ripples the corporate landscape in the wake
of recent scandals.
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Most of the attention in leadership today is primarily focused on
the positive side of corporate life—strategies for getting results
through people, the organizational value of giving people more
responsibility and accountability, and the virtue of trusting in
people to do the ÔÔright thing.ÕÕ However, alongside this ÔÔpeople-are-
trustworthyÕÕ theme is yet another emerging set of stories about
corporate crime.
In many corporate circles today, managers and leaders are
writing off instances of wrongdoing as aberrations without rele-
vance to them. This is a mistake. Corporate crime anchors one end
of a continuum of performance problems, ranging from outright
theft to more subtle instances of ripping off the company for
supplies, padding expense accounts, ignoring product defects, or
simply failing to perform all duties in a quality manner.
Seen in this way, the ability of leaders to detect and prevent
corporate crime is related to their ability to correct ineffective
performance more generally. We should look closely at corporate
wrongdoing and rip-offs for lessons about how to get the best out of
people by preventing the worst.
COMMON WARNING SIGNS OF FRAUD
How do you know a fraud is being committed by a client, customer,
or someone within your own organization?
• Insufficient working capital or credit
• Extremely high debt with rigid restrictions imposed by
creditors
• Dependence on few products, services, or customers
• Unfavorable and declining industry or business conditions
Situational
• Profit squeeze (costs rising higher and faster than sales and
revenues)
• Difficulty collecting receivables
• Significant inventories
• Long business cycles
• Urgent and intense need to report favorable earnings to sup-
port high stock price, lure customers, or obtain credit
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• Unrealistic sales projections
• Extremely rapid expansion of business
Opportunity
• Management of the organization or department dominated by
one or a few individuals
• Understaffed or inexperienced financial and accounting func-
tions
• Weak internal control system
• Rapid turnover in key financial positions and/or frequent
change in auditors
• Numerous unexplained and undocumented transactions
• Apparent tolerance by management of unethical and even
illegal conduct
Personal
• Key personnel had rapid rise to top (responsibility and
remuneration) and have considerable fear of falling from their
perch
• Prior history of unethical or illegal conduct by suspects
NO ONE KNEW
ÔÔBut I’d shut my eyes in the sentry box so I didn’t see nothing
wrong.ÕÕ —Rudyard Kipling
In most cases of corporate wrongdoing, we hear that no one
ÔÔknewÕÕ and no one took action. Why? How is it possible for
accounting firms, other professional service providers, internal
staff, and executives to remain blind to such malfeasance for so
long?
In fact, in many of these cases, a number of people either knew
about the infractions or strongly suspected them, but they failed to
take the necessary steps to bring the crimes to an end. In some
situations, individuals saw troubling signs of wrongdoing but
considered them less serious than they actually were—the signals
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were ignored. In other situations, people tried to respond—to
further investigate a sign of misconduct—but eventually gave up.
IMPORTANT LESSONS
Stories of corporate scandal make headlines and are interesting
studies of wrongdoing, but there are important lessons that extend
well beyond the prevention of illegal activity. For instance, is the
ineffectiveness of managers and professionals in these cases so
different from a production manager closing his eyes to substan-
dard products about to be shipped? Or a design engineer ignoring
obvious flaws in a new product design? Or the loan officer who
approves credit to a customer with suspect financial records simply
to get more loans on the books?
Surely there are differences, make no mistake. But our exam-
ination of many cases of corporate wrongdoing, in light of our work
with dozens of ethical organizations, provides some similarities.
The same pressures and opportunities that encourage otherwise
responsible managers to become apathetic bystanders to fraud and
other forms of misconduct also encourage blindness and paralysis
to ineffective performance more generally.
First, senior and middle managers often are rewarded for short-
term performance. ÔÔWhat have you done for me lately?ÕÕ is a
common phrase in corporate corridors for a reason. If salaries,
bonuses, and promotions are tied to quarterly profits, it is difficult
for managers to call a halt to practices that affect their bottom-line
performance. Where reward systems have a performance trigger
that provides multiple targets, then pressure is even greater.
Corporations that don’t permit admitting mistakes (without a
penalty) force managers to conceal errors—they simply sweep
evidence of poor performance under the rug rather than call
attention to themselves.
This overriding concern for financial ends rather than means,
coupled with insufficient moral and ethical guidance from senior
executives, often leads managers to bend the rules or look the other
way if doing otherwise prevents them from achieving their goals.
The second lesson stems from the complexity of business life
today. There is virtually no significant transaction or project today
that does not involve dozens of specialists, or perhaps even dozens
of organizations. Specialists are used to reduce risk. But reducing
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risk by using multiple actors creates a structure wherein it is easy
to conceal poor performance—or fraud.
Organizations that come together for a particular project, joint
venture, or series of transactions generally have specific, often very
narrow, concerns. And within each organization, the aspects of the
deal that occupy an individual’s time are further differentiated.
Information is diffused and fragmented. No one pays attention to
the big picture—each player has a piece of the action, but no one
makes sure they are all working together on the same team. The
materials managers do not seem to care about complaints from the
shop floor. The marketing folks ignore the sales team, and so on.
Because many people are involved, each is quick to assume that
others are responsible for certain aspects of the deal or project.
When trouble appears—whether poor quality products or services
or the slightest sign of misconduct—it is relatively easy to shift
responsibility for acting to someone else—and claim later that no
one ÔÔknew.ÕÕ
INATTENTION TO DETAIL AND LACK OF
ACCOUNTABILITY
The third factor is somewhat ÔÔsofterÕÕ: inattention to detail and lack
of accountability. Sometimes managers at many companies ignore
the small things—the ÔÔminorÕÕ defect in the product, the ÔÔinsigni-
ficantÕÕ liabilities of a credit applicant, or the avoidance of a ÔÔsmallÕÕ
audit step.
These practices set a standard, a pattern others come to follow in
a sort of mindless way, making it tolerable—indeed, accept-
able—for managers to close their eyes to poor performance. It
becomes more important to close the sale than to deliver a quality
product or service. Production and service shortcuts are the norm
at some companies—hustling new business is more important than
delivering on the business they have.
STEPS YOU CAN TAKE TO REDUCE YOUR
VULNERABILITY TO FRAUD
• Develop a code of ethics—disseminate widely and hold dis-
cussion meetings.
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• Conduct unscheduled audits of your business practices to
determine where you are vulnerable to foul play.
• Discuss with colleagues ways to shore up weak links thereby
obtaining not only better solutions, but also solutions that
clearly communicate your concerns.
• Discuss acceptable and unacceptable business practices with
colleagues at every opportunity.
• Discuss with employees ways to resolve ethical dilemmas
and the alternative courses of action if they discover wrong-
doing.
• Discuss ethical issues in performance appraisals.
• Review performance and incentive programs. Minimize the
overemphasis on bottom-line performance to the neglect of
other factors. Set performance targets that can be met without
cheating.
• Establish a reward program for exemplary ethical conduct.
• Discuss fiduciary responsibility with your accountants, law-
yers, investment bankers, and other financial advisers. Find
out exactly what they do to protect you. Obtain a written un-
derstanding of their responsibilities. Monitor carefully for po-
tential conflicts of interest.
• Hold joint meetings with fiduciaries so each clearly under-
stands the roles and responsibilities of each other.
• Ask your lawyer, accountant, and investment bankers to hold
question and answer sessions with your managers and su-
pervisors.
• Act swiftly when foul play occurs in your organization. Make
the penalty fit the crime, publicize the incident, and hold dis-
cussions with employees so there is a clear understanding of
what transpired.
• Hire an outsider to periodically raise ethical questions with
your staff.
Organizations that live and breathe quality, that set high
standards, that pay attention to detail are less vulnerable to
misconduct and general ineffectiveness. Senior executives who
convey a sense of moral integrity and provide opportunities to
openly discuss ethical and operational dilemmas reduce confusion
over proper and improper behavior.
Companies that provide multiple, and balance, rewards and
forms of recognition, that tolerate reasonable mistakes, are more
likely to correct problems when they occur, not after they have been
ignored for so long they have become disasters. Where teamwork
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and shared, overlapping responsibilities are encouraged there is
less ÔÔpassing the buck,ÕÕ and more joint resolution of problems.
Individuals are able to discuss and resolve dilemmas common to
the group.
To improve performance and reduce costly misbehaviors, leaders
can build these factors into the organization: quality, as opposed to
inattention to detail; multiple rewards and forms of recognition;
rewards for individuals and teams; a tolerance for well-intended
mistakes; and integrative cultures rather than segmented units.
Leaders who want to create a great company need to look on the
dark side—at the possibility of ÔÔevilÕÕ—as well as the positive values
of faith in people and trust in their integrity. They need to devote
personal time and attention to making sure that performance
problems do not slip by unnoticed and unpunished. Corporate
philosophies saying that achievement is rewarded and good
performance is valued mean nothing unless, simultaneously, bad
performance is rendered impossible.
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