You Trust Your Employees? Why…or Why Not?

A certain Wharton Business School professor used to lecture students about trust. “People are basically trustworthy, honest, and loyal,” he argued. “If you treat them as such, they will act accordingly.” He retired from academe in 1993 and six years later entered the “real” world of business for the first time. He opened a bar in Philadelphia and quickly discovered that, despite his belief in the innate goodness of his fellow men, some of his most loved and trusted employees were stealing from him! He calculated that he lost more than 10 grand from pilferage and even outright theft. “My basic stance has shifted from assuming all to be honest to assuming all to be dishonest until they prove otherwise,” he said. “All you need is to be burned a few times and you feel much more pessimistic.”

This is the danger with a certain large portion of the academic population — men and women who go directly from being taught by teachers to teaching themselves. The trouble with this sort of direct climb to the Ivory Tower is that it can be made without ever brushing one’s sleeves against the crusty walls of reality. Thus, bad ideas live and grow in the fertile fields of our universities. Not having to be tested against quotidian reality, specious ideas predominate.

Communism, an idealistic economic theory based on some very naive assumptions about how people might learn to act, is one such big, bad idea. Patronizing employees is another. But these are just two of the most obviously bad ideas. There are many others. If you employ any recently graduated student from an American university, you’ll see what I mean. The foolishness is almost palpable. If it weren’t counterproductive and sometimes dangerous, it would be funny. The good news is that these same bright and eager-to-learn young employees can reprogram themselves rather quickly. They may quit you before that happens, but if they aim to be successful they will soon enough figure out the difference between what’s true in business and what their professors taught them to believe.

In the case of our Wharton professor, we have two bad results. First, the students who accepted his foolish notion about how to judge people. And second, the people who suffered from his newfound cynicism. His response to getting ripped off is like the overreaction of a former smoker to anyone still smoking. Having sensibly trashed his naive theory on the innate trustworthiness of all human beings, he now distrusts all those with whom he comes into contact until they somehow prove they merit his trust. Sounds to me like a very unpleasant situation. I learned about trust 30 years ago while managing a large nightclub in Ann Arbor, Michigan.

In the bar business, as in all cash businesses, cash is king and every employee is sooner or later tempted to take a little bit of the throne home with him. To counter that perennial threat, this business (Dooley’s, it was called) installed the first-of-its-time totally integrated, computer-operated bartending system. We had all the liquor locked away in vaults and pumped to the bar stations through plastic tubes.

If you wanted a shot of rum, the bartender would hit the dispenser and get a measured shot. That would trigger an entry on the register. If there was ever a fail-safe way to prevent bartenders from serving free drinks and throwing receipts in the tip jar, this was it. And yet, they stole. About six months after we began operations, an audit indicated we were not making the margins we should have been making.

It took me weeks of detecting to find out what was going on: One very clever bartender had figured out a long sequence of inputs into the register that somehow froze it while allowing liquor to be poured. This little trick was passed on from one employee to another. They weren’t all stealing, but those who were included several would-be honest ones. My rule about honesty is this: Set up an environment where stealing is very difficult. Treat your employees individually as if you trust them.

At the same time, recognize that if you make it easy for anyone to steal, some will. Make a list of all the ways your employees could steal from you. Think about the transportation of cash especially: how it comes in, who handles it, etc. Consider also your bookkeeping. Make sure that all invoices are tracked, all dispersals checked, and all accounts balanced. Talk to your people in operations, fulfillment, and customer service.

Try to imagine how you could be taken advantage of in any of those departments too. Don’t assume your employees won’t be clever in stealing from you. Take precautions against even the trickiest schemes. Finally, audit everything. Once you have a battery of safeguards in place, you’ll be free to trust people individually. And when they see that trust, the good employees will give it back.