Companies are made up of people (Mitt Romney got that part right), and people are, well, people.
And we know this about people — we are capable of being generous and doing wonderful things for others. We are also capable of lying and research shows that we do it on a regular basis.
Self-esteem as one of the biggest reasons for lying, according to psychologist Robert Feldman, author of The Liar In Your Life: The Way To Truthful Relationships.
“We find that as soon as people feel that their self-esteem is threatened, they immediately begin to lie at higher levels.”
Pretty Baby, Lunch with Elon
Sometimes we tell a deliberate untruth to smooth things over in our relations with others. We may think of these as small, little white lies, designed to avoid conflict.
“No, dear, you do not look fat in that dress.” (When she is busting out the seams.)
“Oh what a pretty baby.” (I am reminded of the Flip Wilson joke: And maybe we can find a banana for your monkey.)
Sometimes we tell ties to inflate our importance with others. Here’s one that I have yet to try out. It’s still in the formative stage.
“I was having lunch the other day with Elon Musk. Bright guy, but he wanted to get my ideas on a few things that he was working on. So during our lunch, Warren Buffet kept calling me on my cell phone and leaving messages. I finally got back to him later in the day. It was about a company that he was considering buying. You know, Warren really didn’t need my advice on that. ”
Lies are no stranger to business and commerce. You could rightly argue that we are barraged every day with a multitude of misleading, deceptive messages from companies wanting us to buy this product or that service.
Occasionally the Federal Trade Commission will come down hard on a company whose claims go too far, a late-night info-commercial having you believe that mixing Siberian mud into your food will shed pounds off your body. (I’m making this up.)
In December 2015, LifeLock, an identity theft protection company, agreed to pay $100 million for violating an FTC order that prohibited the company from engaging in deceptive advertising regarding the security of consumer data, among other things.
The FTC said LifeLock falsely advertised that it would send alerts “as soon as” it received a report of identity theft and that it used the same high-level safeguards used by financial institutions to protect consumer data. Both of these claims were found to be deceptive.
The Big One
One big fat lie played a major role in the late-2000s global financial crisis, sparked by mortgage fraud and predatory lending. Fraudulent financial instruments invented by investment banks on Wall Street, things called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), ultimately brought about massive defaults and a subprime mortgage crisis.
The result was the worst global recession since World War II. Nearly 9 million jobs were lost in the United States during 2008 and 2009, roughly 6 percent of the workforce. One estimate of lost output from the crisis comes to “at least 40% of 2007 gross domestic product.”
Strangely, no one went to jail for what was purposeful deceit, but Lehman Brothers Holdings Inc., the fourth-largest investment bank in the U.S., did not survive.
Recommendation: Watch the movie The Big Short, which I think explains how a housing bubble happened, and how it ultimately burst and wreaked financial havoc on just about everyone.
While its scope does not measure up to the Great Recession, the recent emissions-cheating scandal with Volkswagen will be one for the history books and it is playing out right now.
A Fraudulent Conspiracy of Epic Proportions
If you haven’t already heard, Volkswagen last week said it was taking an $18.85 billion charge against 2015 earnings, pushing the company to a record loss, to pay for all known costs associated with its emissions scam.
The deal gives U.S. customers the option of selling their car back to Volkswagen or having it fixed. We’re talking about half a million cars.
It is not clear whether the consumers behind the 600 class actions filed over the scandal will accept Volkswagen’s offer or choose to keep litigating.
Volkswagen has admitted to engaging in a 10-year secret effort to skirt vehicle emissions regulations by installing in 11 million diesel vehicles software designed to fool emissions tests.
By any measure, this is a fraudulent conspiracy of epic proportions, which is why the U.S. Department of Justice said its criminal investigation of Europe’s largest car manufacturer remains ongoing. A multi-state probe into consumer and environmental violations also continues, according to the New York Attorney General’s office.
Using software and on-board sensors, the deception allowed VW cars to automatically recognize lab test conditions and run in full pollution control mode, so limiting the level of emissions. Driven on the road, the system turns off, resulting in actual levels of pollutants that can be 40 times higher than allowable U.S. limits.
Inside observers now say that not only was the emissions cheating allowed to go on for years, but cultural problems at VW appear to have gone far beyond a distain for regulations. VW’s culture was one of top-down arrogance, which demanded conformity, discouraged divergent thinking, and punished failure rather than learning from it.
But Wait, There’s More
In Japan, Mitsubishi Motors Corp. last week admitted that it manipulated fuel-economy tests to mislead consumers.
Also last week, Daimler AG confirmed that it had been asked by the U.S. Department of Justice to investigate the certification process of its cars. The internal probe follows U.S. class action suits that allege Mercedes-Benz clean-diesel models contain a device that turns off a system meant to reduce polluting nitrogen oxides in its exhaust.
Daimler AG Chief Executive Officer Dieter Zetsche is now saying that carmakers have to be more transparent about how they certify their fuel economy and emission ratings.
“You can only be transparent and if there’s any shortfalls anywhere, fix them and move forward,” Zetsche told Bloomberg News.
Bringing It Closer to Home
Lying is not a good long-term proposition for a company. Customers can and frequently do check the facts for themselves. They can root out lies.
Years ago, when I was the business editor of The Birmingham News, business people in after-hours situations would ask me how to “handle” the press. I would say something like this:
“Look, you don’t have to talk to a reporter who comes calling. It may or may not be in your best interest to do so. If you do choose to talk, you are entitled to put your spin on the story, to tell it from your perspective.
“But never, ever lie to a reporter. Because if you do, and we find out that you lied, then you have lost all credibility with us here at the newspaper. That’s just the way it is. Again, you don’t have to comment or answer every question, but don’t lie, because it will come back to bite you.”
Fast forward to today. Today, I am a consultant serving companies on corporate site selection and incentive negotiations. I also take economic development organizations as clients to help them on matters of direction and competitiveness.
To my corporate clients, I would say that if incentives are at all important to you, even if they are not the driving factor (and they shouldn’t be) in a process of selecting an optimal location for future operations, then it is in your best interest to be considering multiple locations.
To have leverage with finalist communities, they must understand that they are competing with other communities to win your project. We cannot lie and say we are considering other locations. We really have to be considering other locations. Understood?
To economic development organizations, I would say leverage your community’s strengths, but admit to its shortcomings when queried about them. Don’t ever try to cover up, because we will find out. Credibility is all you have.
Actually, credibility is all that any of us have in business. We may have a better mousetrap or a better way of doing things, but if our customers have found reason not believe us, well, we’re in a very bad place.
Which is why I’m not inclined to buy a Volkswagen anytime soon.
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at firstname.lastname@example.org or at 972-890-3733.