As the owner of a leasing company, you have invested a lot into your leasing career. You’ve assuredly invested tens of thousands (or more) of dollars and man hours into your business. You’ve thought about how to staff your business, where to locate your business, your vendors, your funding sources, etc. But what about ethics? Have you thought about what kind of ethical culture you want your business to have? How you want your employees to act and what kind of reputation and business practices do you want your business to be known for? If you haven’t already given thought to this, you should. 

But why? Why is it so important to emphasize ethics in your organization? The answer, like most everything in business, boils down to money. It was estimated that “the typical organization loses 5% of revenues each year to fraud” (Association of Certified Fraud Examiners, 2014).  With an economy still on the rebound, and most businesses still trying to be as efficient as possible to be as profitable as possible, losing 5% of your revenue to something preventable like fraud can be maddening.  Clearly then it behooves one to implement a culture of honesty and responsibility in your organization. You want your business to be an ethical one.

But how does being an ethical business translate to more business and more money? Simply put, an ethical company will:

• Attract customers because of its reputation for honesty and fairness,
• Make your employees want to stay with you, therefore reducing the costs of replacing staff,
• Attract new employees wanting to work for the company because of its reputation,
• Assist in attracting investors and other sources of financing.

Additionally, businesses that:

adhere to a clear set of ethics are able to minimize… or even abolish…some of the costs [of doing business].  An example is the “handshake”: when both business partners know this to be a binding finalization of an agreement.  There are no contracts (and therefore no fees or expenditures) to draft, set up and sign and no costs arise to then monitor their fulfillment.  The more certain the business or transaction partners can be of each others values and behaviors, the lower are the transaction costs. (Bienert et al., 2004)

But who are these partners? They are your vendors, equipment sales reps, service provides, and lessees to name just a few. But what about your funding sources? As has been written numerous times before, it’s important to view your funding relationships as partners.  And yes, it’s true that your various funding sources need your business. They solicit you, sponsor activities, and exhibit at conferences in an effort to entice you to send business their way. But you also can't survive without your funding source partners. It’s a symbiotic relationship – each party needs the other to not only survive but to thrive. 

To maintain that relationship and trust, you know how important it is to ensure that you complete an investigation of a business or person prior to assigning that transaction to a funding source ... and that you disclose the results of these inquiries, both good and bad, to your lender. While you may do all your due diligence prior to submitting the transaction and deal ethically with your funding source, it's important to make sure that your employees do as well. And one of the most important aspects of ensuring that your employees act ethically is to lead by example. There's hardly anything worse for company morale than leaders who practice the "Do as I say, not as I do" philosophy. You can almost feel the loss of willingness and esprit de corps from the staff, with skepticism and pessimism taking its place. No matter what the situation is, double standards are always destructive.

If you’re a one person shop or a small firm where all employees are owners, you certainly have much less to worry about. However for those of you with larger organizations, it's possible a transaction might move through your company from sales to documentation to ultimately funding at your debt source, without you ever seeing or even hearing about the transaction. You need to make sure you establish checks and balances, and ensure that somebody who has no interest in your funding source relationship is unable to destroy it. 

It’s easy for your sales rep to start down the slippery slow of falsifying information or to avoid disclosing negative information they receive form the lessee. They have an incentive to do so, they want to close and fund the deal so they can get paid.  To help avoid this temptation, some brokers will make their sales reps pay their entire commission back on defaulted transactions and make sure they know this ahead of time. That way the sales rep won’t have as much of an incentive to ram a deal down someone’s throat to get it funded – they know ahead of time they won’t make any money on a bad deal. 

While a sales rep truly dedicated to fraud can be tough to catch (at least initially), the following are good checks and balances to implement in your office:

• A documentation coordinator or other non-interested party should make a call to both the lessee and vendor prior to documents being sent out to confirm everything matches up,
• Documents should be reviewed by somebody other than the sales rep prior to being sent to the lessee, and prior to being send to the funding source,
• If your shop handles the verbal verification or verifies the information on a site report, the sales rep or anybody who has a vested interest in the transaction should not be involved. 

It’s also easy for your accounting or documentation personnel to avoid bringing certain negative information to light. Perhaps like the sales rep on the deal they get a bonus for hitting a certain funding level or receive a small spiff on every funded deal? Or perhaps they don’t want to rock the boat and create more work for themselves; they just want to get the file off their desk. The bottom line is that no one person should be responsible for an entire accounting cycle. In other words no one person should be allowed to approve vendor invoices, prepare checks to go to that same vendor, sign the checks, post the checks to the general ledger and reconcile the bank account. 

Just like you have someone audit your sales rep’s work, make sure somebody is reviewing your funder’s work before it’s finally submitted to the funding source. This isn’t just to catch fraudulent activities. Everybody makes mistakes, and it’s far better to have another set of eyes review a deal before that check for $1,500 goes out written for $15,000!

But what to do if an ethical quandary makes it to your desk? What if you’ve made the right decisions, and the right hires, but an issue is still presented to you that has more than one possible solution? As Chatterjee, Minkes, Small (1999) stated, “In principle, the right answer in ethical issues might often be morally and legally clear; but in fact the outcome is not always so clear-cut.” Joseph L. Badaracco, Jr. (1995) of Harvard Business School came up with four practical steps, or questions, that provide a basic framework on how to deal with difficult dilemmas:

1. Which course of action will do the most good and the least harm?
2. Which alternatives best serves others’ rights, including shareholders’ rights?
3. What plan can I live with, which is consistent with the basic values and commitments of my company?
4. What course of action is feasible in the world as it is?

Ultimately, it comes down to making sure that you have employees that your trust, and that you as their leader lead by example in the manner you want your organization to be run. Not only can unethical behavior be costly from a managerial standpoint, but it can breed unscrupulous behavior in your employees. And while an employee truly dedicated to causing mayhem in your office will at least be initially successful, it’s important nonetheless to have the safeguards in place.  As Mark L. Damschroder, J.D., my ethics instructor in graduate school once said, “You don’t lock your doors to keep the criminals out; you lock them to keep the honest people from being tempted.”

References

Association of Certified Fraud Examiners. (2014). Report to the Nations on Occupational Fraud and Abuse.  2014 Global Fraud Study. Pg 4.

Badaracco, Jr. Joseph L. (1995).  Business Ethics Roles and Responsibilities.  Homewood, IL: Irwin

Bienert, M., & Schnebel, E. (2004).  Implementing Ethics in Business Organizations.  Journal of Business Ethics, 53, 203-211. 

Chatterjee, S.R., Minkes, A.L., Small, M.W. (1999).  Leadership and Business Ethics: Does it Matter?  Implications for Management.  Journal of Business Ethics, 20, 327-335.