Bernie MadoffWhen Bernie Madoff was busted for a Ponzi scheme that cost investors an estimated $17 billion, many of us wondered how someone could do something so terrible.

It's easy to place the blame for many of our societal problems on newsworthy criminals. But the truth is that most of us engage in minor acts of ethical misconduct that, cumulatively, have a worse effect than any of the crimes that make the news.

Say What?!

Hard to believe, right? Humor me as I start with a small example, followed by some data that show the scale of damage caused by the cumulative effect of small misdeeds.

I used to work at a cafe in which employees were instructed to mark unsalable items on the "waste list." Whenever a cookie broke or a batch of hummus went bad, we had to mark the item on the list and jot down a short explanation of what prevented these materials from contributing to the store's bottom line. This practice was created to help the cafe maintain a tight inventory and to help management determine how to prevent waste and use the store's resources more efficiently.

Unfortunately, the waste list did not always serve this goal. Many employees found ways to use it to steal free food for themselves and their buddies by taking what they wanted, marking the item on the waste list, and making up a reason that the item was no longer salable.

If you've worked in retail, you've probably also witnessed such misconduct, along with creative ways of ensuring the theft goes undetected.

It's hard to imagine that theft like this can add up to anything close to the money stolen in the corporate scandals reported in the news, but the following data speak volumes.


A Little 'Shrinkage' Adds Up

A quick review of some key facts and figures will help us understand how crimes like those outlined above can impose high costs on society.

In North American retail stores, losses from employee theft are greater than losses from shoplifters and gangs. Just as striking, employee theft accounts for 44.1% of North American "shrinkage" -- the loss of goods between point of manufacture and point of sale. Employee theft cost businesses nearly $20 billion in 2011.

In addition to the losses occurring through the theft itself, businesses spend a great deal of money on security to prevent such theft. Globally, retail businesses spent an estimated $28.3 billion on loss-prevention security. So businesses aren't paying for just the goods that are stolen, but also for security to prevent even more from being stolen -- and they pass those costs on to consumers in the form of higher prices.

Guess Who Pays

Many employees commit these crimes to punish their employers for what they perceive as unfair compensation or to punish their bosses for perceived unethical treatment. And they often rationalize their behavior by telling themselves that if anyone has to pay for their theft, it will be the company's executives -- and they can afford it. With CEOs pulling in such large salaries these days, it's easy for employees to think that their executive bosses can afford the hit.

But rapidly rising CEO compensation shows that CEOs aren't the ones taking the loss on theft. Most businesses recoup these losses by passing them on to consumers through higher prices -- with one estimate showing that the cost of theft to the average U.S. family in 2011 was $435. Ouch!

None of this excuses the behavior of people like Madoff. They deserve our scorn and punishment. But minimizing the cost of unethical conduct requires finding ways to prevent both the small number of major crimes and a vast number of smaller ones.

Motley Fool contributor M. Joy Hayes, Ph.D., is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter.

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Ed

Doesn't matter if you're stealing a billion because you're a crotchety old man or whether you're stealing cookies because you feel work doesn't compensate you well enough. Sociopathic behaviour is just that. The scale is different, but the attitude is the same. That coffee shop cashier stealing cookies or hummus, if given the sudden opportunity to become a rich CEO, wouldn't last long before they started created Ponzi schemes and stealing from investors. ...Because that person would still feel entitled.

June 28 2012 at 1:28 PM Report abuse rate up rate down Reply
David

I am sorry if I can't see it your way. It seems to me that Madoff got caught. How many of the big cats are doing unethical things and just haven't gotten caught. Probably thousands of well off one percenters. I also agree with most of the comment rhetoric.

June 28 2012 at 11:13 AM Report abuse rate up rate down Reply
jockmassage26

so basically.. corps could alleviate this problem by cutting executive salaries, and raising the salaries of their workers.. which according to this article would prevent shrinkage which would lower prices for all consumers which would allow employees to buy more as they would be making more money and stuff would be cheaper.. so in summation most of the corporate woes are because of OUTRAGEOUS salaries paid to top level people who really dont DO ANYTHING..

June 28 2012 at 10:54 AM Report abuse +1 rate up rate down Reply
gopispoison666

Interesting here that the target of this article is the lowest rung on the employee ladder. This is so typical of Amerikan media, and gives the lie to the idea that HuffPost is a "liberal" media outlet. Throughout the media, both in news and in tv shows, working class people are portrayed as criminals, while the upper middle class is portrayed as the "victims."

Time theft of employee time and work has risen to the level of a national disgrace, rampant in many of the so-called "best businesses to work for," and even in unionized workplaces. It's time to start putting business class criminals in prison instead of getting slapped on the wrist every now and then with having to pay a fine or penalty for their daily thievery.

June 28 2012 at 9:13 AM Report abuse +3 rate up rate down Reply
chuckufab

as for punishing your boss for poor treatment, remember two things 1-I'll bet you were happy to get hired, don't forget bosses have many people to choose from and they chose you 2-if you don't help your boss/company make more money where the hell do you think your raise will come from? Do you even think about the money lost to theft or are you so selfish as not to care? YOU'LL go far in this world with that attitude.Bravo!!!

June 27 2012 at 5:47 PM Report abuse -2 rate up rate down Reply
chuckufab

This whole country is OK with lying!! Check the TV commercials and just how many have very small type disclaimers stating Picture is simulated or this dryer-sheet doesn't really work this way because we only used this as a demonstartion. Horse-pucky, it is still lying, and you don't think this pervasive ammount of lying won't have a trickle down effect? Let's use for example the VW commercial where the kid wants to drive and the Quality Father figure say's "Sure as soon as we need gas son" Then proceeds to drive for the next 6hrs without tanking up. What kind of honesty is that? So having everyone lie, The Government the TV your neighboor, hell, they don't even know when they are lying! So stealing some food or merchandice or money is only normal!! As long as the theft doesn't come out of your pocket!!

June 27 2012 at 5:36 PM Report abuse +5 rate up rate down Reply
1 reply to chuckufab's comment
chris1011

Just check out Fox News. It's a lie fest from start to finish. Every night Jon Stewart and Steven Colbert point out and make fun of their lies, and yet every day millions tune in to Fox for their daily propaganda fix.

June 28 2012 at 12:14 PM Report abuse rate up rate down Reply
joethightwad

In my last government assignment I worked at an agency comprised mostly of civilians, mostly hard working, reliable and honest. Yet it was necessary to padlock the supply cabinets from August to October because some saw them as a source of free school supplies. Pencils, pens, lined paper pads and magic markers would otherwise disappear overnight.

June 27 2012 at 4:37 PM Report abuse rate up rate down Reply
Linda

OMFG! A ****whole*** $435!!!! How shameful! Yes, Yes YES, that is so awful and just pales by comparison to the mere BILLIONS that the banks, wallstreet, the fed, and corporate greed has stolen. I think I will go vomit......

June 27 2012 at 4:26 PM Report abuse -1 rate up rate down Reply
2 replies to Linda's comment
chuckufab

Wait till that $435 comes outta your own pocket then let me hear you scream bloody murder!!!!!!!!!!!

June 27 2012 at 5:37 PM Report abuse +1 rate up rate down Reply
vdld

If there are 115 million households in the US, and you multiply by $435 per household, that's about $50 million dollars worth of fraud. That's a Madoff-sized fraud, is all they're trying to say. Unfortunately, there's nothing to be done about it because people are mostly hard-wired to try to get something for nothing, especially if they rationalize it by saying they're not really hurting anyone, since it's just a big, bad corporation.

As an example, my step-son went and stayed at a relative's house in another state for a week and didn't have a TV in the bedroom they put him up in. What did he do? He went to Best Buy and bought a TV with the express purposed of using it for a week and then returning it. He was really proud of how clever he was and didn't have a care in the world about the moral implications of doing this. He said, who cares, it's just Best Buy and they can afford it. Well, Best Buy is closing stores all over the country and on the verge of possibly folding like Circuit City.

Best Buy represents tens of thousands of lost jobs, not just Best Buy employees but also the freight companies that ship the stuff to them, the cleaning people who clean the stores, the restaurants and other smaller shops in the shopping centers that will have fewer customers once Best Buy is gone, etc.

Until people are individually prepared to behave in an honorable fashion themselves, they have no business pointing their finger at the Wall Street fat cats who cheat. It's all immoral, just to the degree that each individual thinks he's able to get away with. We small fry can only get away with "stealing" a free cookie or office supplies from our employer but with those morals, chances are the same people would be the next Madoff or Allan Stanford if they had the opportunity to steal at that level.

June 27 2012 at 6:25 PM Report abuse rate up rate down Reply
1 reply to vdld's comment
jockmassage26

actually your comment shows just how far out of WHACK you are.. 50 million is less than POINT THREE percent (.3%) of the 17 billion madoff scammed.. so lets dumb it down for those of you who cant grasp the big numbers.. if the numbers by comparison were lets.. madoff had stole $435 then each household would have stolen approximate 1.3 CENTS.. hardly the same kinda of crime

June 28 2012 at 11:06 AM Report abuse +2 rate up rate down
USS Titanic

AHHH the ole entitlement excuse

June 27 2012 at 4:20 PM Report abuse +2 rate up rate down Reply
aandrae

So true. I used to have a roommate (many, many years ago) who came home from her midnight shift at a large regional retailer with layers of clothes on under the clothes she went to work in. Just like you stated, she claimed they "owed it to her" for only paying her minimum wage.

June 27 2012 at 4:03 PM Report abuse rate up rate down Reply