This article is taken from the August/September 2022 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

---

Temptation often leads to theft. That’s why companies should never have controls that are so lax that employees become tempted. I find it’s usually better for financial
performance and the simple pleasures of interaction within businesses to have long-serving employees.

For this, you need to provide a competitively-paid and enjoyable workplace. We are fortunate to have some great people who have chosen to work for our family and our businesses for decades and I hope we remember to show our appreciation adequately.

But it is not responsible employment to leave tempting opportunities for dishonesty. To know this, as an owner-manager you have to understand your systems, or perhaps the lack of them.

I’ve heard it said that, in the restaurant trade, all employees always steal — if you let them. I was an investor in (and lawyer for) a small London chain, Cubana, when it was a start-up. Phil Oppenheim and Anthony Coombs, two former Tory ministers who were its instigation, could not decide which of them should head the board so they asked me. It was my first chairmanship. They didn’t pay me so perhaps were cleverer than I thought. Phil not only put cameras over the till but also in the stockroom. He is still the most impressive micro-manager of cost control I have ever worked with.

The worst case I’ve ever had contend with was a long-employed senior manager who had benefitted from an undisclosed interest with suppliers and, we believed, had
been over-invoicing. The settlement agreement precludes me from revealing much, but we might even have made a net gain from the recovery had I not retained such expensive lawyers. At the time of dismissal, I feared the employee might abscond abroad — so I needed advisors with the requisite reach. It wasn’t just about the money. Betrayal of trust hurts.

Another, smaller scale theft was an accounts clerk who cleverly fiddled the cash flow and stock figures in one of our shops, siphoning off enough to support a very active social life. She was cheerful and likeable: we even gave her an employee loan to cover some personal crisis to be paid back through the payroll.

That was before the auditors discovered accounting anomalies. The court bailiff and the private investigator say there are no assets. It seems likely that she spent it all.

I will bankrupt her

Unless she pays us back soon I will bankrupt her. I have to really — pour encourager les autres, as Voltaire said. All our other staff know about the crime (we went civil because the police either weren’t interested or, just as likely, didn’t understand the fraud). Bankruptcy ruins your credit for seven years and to my mind will be a light reproach for thieving for lifestyle spending.

Since those educative experiences, we hired a governance expert and said goodbye to the finance director. We are now far more corporate in our culture, but try to retain the best of our old character. Dogs are still welcome in the office, so long as they don’t fight or wee on my boardroom carpet.

While I believe our vehicles are honest for now, it is foolish to be complacent. When I opened up to a business friend about the theft he told me a cousin he employed in marketing who had established a front company for false invoicing. The truth is that most companies can point to similar examples and all of these are initially embarrassing.

Betrayal of trust hurts

It is human nature to be tempted and at some point virtually everyone will feel the pressures of financial stress. This does not mean there is anything but a small minority of employees who steal (or justify to themselves some unauthorised “borrowing”). It is, however, unfair to everyone not to have sensible controls in place.

When dealing with partners and shareholders rather than employees, it is worthwhile having a shareholders’ agreement that makes it clear how participants can take money out of the enterprise. This helps prevent any unpleasant surprises. The self-entitled business partner is just as common as the dishonest employee; again, usually because you let them.

Good controls should mean that you can worry less. What bothers me most are the misdemeanours I shall never discover. Workplace theft, fraud and larceny are wrong in themselves, manifestly, and the consequences ripple.

If my profits are lower it is harder for me to employ well and there is less for the
taxman to collect. Remember, my primary social duty is to make growing taxable profits, which feeds economic growth and pays for public services. “I give at the office,” Warren Buffet has said, meaning he pays his taxes willingly.

Making a decent return on capital is hard enough in most industries. That’s why preventing theft, like seeking efficiencies in bureaucracy, should be a process of continual improvement.