The Hidden Costs
of Organizational
Dishonesty
ROBERT B. CIALDINI, PETIA K. PETROVA AND NOAH J. GOLDSTEIN
Learning Objectives:
1. Identify the Negative Effects of Organizational Dishonesty?
2. Analyze the Root Causes of Organizational Dishonesty?
Introduction
The article addresses the negative and
hidden
consequences
of
corporate
dishonesty. It states that when an
organization fosters or permits dishonest
behaviors in its outward contacts with
stakeholders,
it
will
suffer
internal
consequences known as "malignancies,"
which are comparable to developing
tumors that eventually erode the company's
well-being. Importantly, they are difficult to
detect
using
traditional
accounting
procedures, making them difficult to identify
as the root causes of decreased
productivity and profitability.
The Consequences of Organizational Dishonesty
A company with dishonest business practices
toward customers, vendors, distributors and other
outsiders might achieve higher short-term profits,
but it would incur various costs from three types of
malignancy.
Three Types of Malignancy:
Malignancy #1: Reputation Degradation
Malignancy #2: (Mis)matches between
values of Employee and Organization
Malignancy #3: Increased Surveillance
Malignancy #1: Reputation Degradation
When a corporation creates a culture of
dishonesty, whether subconsciously or specifically,
it harms its reputation among clients, partners, and
stakeholders. When such activities are uncovered
by third parties, the consequences are immediate
and severe. A ruined reputation results in
substantial losses in new and recurring commercial
prospects. According to studies, the public's view
of a company's ethics has a direct impact on
purchasing decisions and even stock investments.
Because people react negatively to deception
more than other characteristics, the harm to one's
reputation might be irrevocable. Even if just one
element of a corporation is wrongdoing, the
perception of dishonesty can taint the entire
organization productivity and profitability.
Malignancy#2:(Mis)matches between values of Employee
and Organization
The extent to which the values of an organization coincide
with those of its employees is another issue. Whether that
match is good or not, companies with dishonest practices
are likely to incur substantial costs.

Two types of matches:
1. A Poor Fit for Organizational Dishonesty
(Mismatch-Honest Employees)
2. A Good Fit for Organizational Dishonesty
(Match-Dishonest Employees)
1. A Poor Fit for Organizational Dishonesty
(Mismatch-Honest Employees)
Effects:
•Stress
•Increased absenteeism
•Lower job satisfaction
•Higher turnover
• Stress:
Many
of
these
individuals will find their moral
standards continually clashing
with workplace expectations,
leading to constant stress from
the ever-present conflict.
Increased absenteeism. The expenses of
increasing absenteeism caused by
corporate dishonesty are significant.
These costs exceed the merely symbolic
costs associated with employee ailments.
A recent assessment on unexpected
workplace absences discovered a
record high yearly cost of $789 per
employee, equating to approximately
$3.6 million in annual losses for larger
firms. This statistic includes only direct
payroll costs for absent employees and
does not include missed productivity
costs or costs incurred to fill in for absent
individuals.
Lower job satisfaction: A significant problem
arises when employees' moral values are
misaligned with a company's unethical
activities, resulting in lower job satisfaction.
Organizations are primarily interested about
job happiness if it has an influence on
productivity and attrition. While previous
study revealed a limited association between
job satisfaction and productivity, new
research indicates that this correlation is
stronger for highly trained workers. Satisfied
employees
with
strong
capabilities
outperform their dissatisfied colleagues by a
significant 25% margin.
Note: These findings emphasize how crucial it
is to link organizational values with ethical
standards in order to preserve job satisfaction
and long-term performance.
Higher turnover: Employee retention is a
critical concern for any company due to
the high costs of recruitment and training.
Dishonest businesses should be especially
cautious because their turnover is
selective. Employees who do not share
the values of their firm are less satisfied,
less dedicated, and more likely to resign,
according to research. As a result,
unethical businesses are more likely to
have a disproportionately dishonest
workforce over time.
Note: In summary, when a dishonest firm
fails to keep its honest personnel, it loses
significant assets and faces unfavorable
outcomes.
2. A Good Fit for Organizational Dishonesty
(Match-Dishonest Employees)
 Similarly, job seekers are drawn to companies that match their personalities. The integrity of a
corporation influences employment acceptance decisions. For example, in a recent survey, 76%
of respondents said that their perceptions of a company’s integrity would influence their decision
about accepting a job there. Of course, selection through the filter of value congruency also
occurs on the employer’s side.
 Companies that require unethical activity tend to attract personnel who are willing to engage in
such behaviors. Job applicants whose values align with the company's unethical culture are
more likely to be hired, thereby reinforcing the dishonest climate.
 Honest employees can be persuaded to engage in dishonest behavior via peer pressure or
outright requests from bosses. These individuals reason their behavior to accord with their
principles, progressively accepting the corrupt ideology of the organization.
 Regardless of whether a company’s dishonest workforce comes primarily from
turnover, recruitment or conversion, an organization that consists of dishonest workers
is certain to suffer from various internal consequences, such as employee theft, fraud
and delinquency.
•
Pilferage - the action of stealing things of
little value.
•
Kickbacks - is a sum of money that is paid
to someone illegally, for example money
which a company pays someone to
arrange for the company to be chosen to
do an important job.
•
Inventory Shrinkage - the loss of inventory
that can be attributed to factors such as
employee theft, shoplifting, administrative
error, vendor fraud, damage, and cashier
error.
 Internal fraud particularly that committed by workers, is a serious problem for
businesses. Employee fraud is twice as common as consumer fraud and causes
significant financial losses. Employee theft and expense-account abuse are examples
of internal fraud.
 Companies frequently focus on symptoms rather than core causes of dishonesty.
Measures such as improved internal controls, security systems, and surveillance are
being implemented. Counter-fraud measures have been put in place. These
interventions, however, may have unanticipated consequences
Note: This emphasizes the self-reinforcing nature of dishonesty within firms, as well as
how both personnel recruitment and conversion contribute to this culture. It also
emphasizes the importance of addressing the core causes of dishonesty rather than
focusing merely on symptoms in order to effectively alleviate these concerns.
 Productivity declines when moral
employees are compelled to
engage in immoral behavior. This
problem is shown by the example
of a consultant who is dishonest
with clients and then engages in
unethical spending practices.
Malignancy #3: Increased Surveillance
Two types of costs:
1. Direct costs
2. Indirect costs
Effects :





Health Consequences
Lack of Trust in Employees
Backlash to Perceived Restrictions of Control
Undermining of Positive Behavior
Overestimated Influence of Monitoring
Note: While the direct costs of installing surveillance devices can be significant, the article highlights that the
indirect costs, such as the negative influence on the work environment, employee relations, and productivity,
should not be overlooked. These unexpected consequences have the potential to have significant implications
for the company's overall success and employee well-being.
 Health
Consequences
: Employee monitoring is
associated with a host of
mental health problems,
including high levels of
tension, severe anxiety and
depression. These negative
psychological and physical
impacts are linked to higher
absenteeism
and
worse
productivity at work.
 Lack of Trust in Employees:
The
perception
of
surveillance software and
devices being used in the
workplace frequently leads
employees to assume that
their organization does not
trust them. This perception
has a negative impact on the
company's general harmony
and camaraderie, creating a
hostile environment between
employees
and
management.
 Backlash to Perceived Restrictions
of Control: When people believe
that their personal freedom is
being restricted, they frequently
seek methods to regain control
over their environment. Employees
may try to retake authority that
they believe has been taken away
from them at work
 Undermining Positive Behavior: Surveillance technology has the potential to quietly
influence employee behavior. Employees may credit their honest activities to the control
measures rather than their personal values when they are closely scrutinized. Over time, they
may come to believe that their acts are motivated more by the desire to avoid criticism than by
moral values.
Note: The implementation of monitoring technology may accidentally contribute to a
decrease in good conduct, establish a culture of distrust, and perhaps push both honest and
dishonest personnel into unethical activity
 Overestimated Influence of Monitoring : Those in charge of implementing and maintaining
control systems may mistakenly conclude that positive conduct displayed by monitored
personnel is mostly attributable to the existence of surveillance technology. This means they may
attribute favorable outcomes to the systems even when such outcomes would have occurred
spontaneously in the absence of monitoring
Note: The implementation of monitoring technologies might generate the impression that their
impact on employee behavior is greater than it is, leading to continuous investments in control
measures that may not be as necessary as previously thought.
Three Types of Malignancy
Root Causes:
Root Cause 1: Lack of Ethics Education and Emphasis
Root Cause 2: Misalignment Between Organizational Values
and Employee Values.
Root Cause 3: Increased Surveillance.
Summary:
The article focuses on the necessity for businesses to take into account the
lengthy and frequently undetected costs of organizational dishonesty.
While unethical behavior may bring in quick money, it can also have
several unfavorable effects that hurt the organization's bottom line.
Businesses should put a priority on ethical behavior, create a work climate
where honesty is appreciated, and lessen overzealous surveillance in
order to lessen the effects of these actions.
I therefore conclude that by emphasizing the complex effects of
organizational dishonesty on reputation, employee satisfaction, and
overall business performance. It promotes a proactive approach to ethics
by coordinating company values with worker behavior to establish an
ethical and effective workplace.
Recommendation:
1. Ethical Leadership Training
2. Open Line Communication
3. Work – Life Balance Program
ABOUT THE AUTHORS:
Robert B. Cialdini is the Regents’ professor of psychology at the
Department
of
Psychology
at
Arizona
State
University.
Petia K. Petrova and Noah J. Goldstein are doctoral students in
psychology at ASU. Contact them at robert.cialdini@asu.edu,
petia.petrova@asu.edu and noah.goldstein@asu.edu.