by Norm Brodsky
When Employees Steal
I want to come back to the issue of employee theft, because I think it’s one of the toughest ones we al have to deal with, and the first time it happens is always the hardest. The sense of betrayal is often devastating. But if you’re not careful, you may respond in a way that undermines you and your business.
I’l give you the example of a person I know who owns a couple of successful bed-and-breakfast places. We’l cal her Naomi. After working in the business for nine years, putting in fifty-five-hour weeks, she decided she needed a break from day-to-day management. Both B&Bs were doing wel and had general managers she trusted completely. The time seemed right to let go.
So she did. For the next two years, Naomi had a wonderful life. She traveled. She got married. She devoted a lot of time to recreation, hobbies, and charity work. Once a month, she would sit down with the general managers to talk over business issues, and occasional y she’d drop by her establishments to have lunch with the staff, but by and large she left the company alone. Everything seemed fine, and she was happier than ever.
Why mess with success?
Ask Norm
Dear Norm:
After my mother died, I took over her business. I hired a girl, who brought along a friend, and I reluctantly hired her, too. I’ve been living a nightmare ever since. These women drive me crazy. They abuse my kindness, abuse my phones, misfile, can’t type, mess up my computers, complain constantly, spend all their time talking to one another, and never complete assignments. Yet I’m scared to say anything for fear I won’t be able to replace them. The people I’ve interviewed want benefits, and my business is too small to provide them.
What should I do?
Renee
Dear Renee:
Fire them both as soon as possible, and do it on your own terms. What kind of life do you have with those people around? You deserve better, and you’l feel better as soon as you make the decision to let them go. Believe me, you can replace them, even if you can’t afford benefits.
Maybe you can offer something else—a flexible work schedule, for example. Find new people, train them over the weekend, and have them start on Monday. When your two current employees come to work, tel them they’re no longer needed. You may have to put in extra hours for a few weeks, but your life wil be easier in the long run, and you’l be happier.
—Norm
Then she began to pick up murmurs of problems at the larger B&B. One of her most loyal employees, the head housekeeper, told Naomi that she’d heard disturbing things from close friends of hers who worked part-time at the front desk. A couple of the people there weren’t honest, they’d said. Naomi spoke to the B&B’s general manager, Janice, who dismissed the report, noting that the housekeeper often exaggerated. That was true, Naomi agreed.
But there were other signs. Guests would sometimes check out and cal back a couple of weeks later, asking for a receipt, and the B&B would have no record of their stay. What seemed like excessive charges for room furnishings and entertainment appeared on the company credit card.
When Naomi checked the petty cash drawer one day, she was shocked to find almost $1,000 there, instead of the usual $100. Janice said that some people were asking to be paid in cash. “We don’t do that,” Naomi said and took the extra cash to the bank.
The truth is, Naomi didn’t want to know what al the signs were pointing to. She was enjoying the life she had and had no interest in going back to fifty-five-hour workweeks. Besides, she trusted Janice, who was not only one of her general managers but also a personal friend—or so she thought. But the signs kept mounting, and the housekeeper kept insisting. She noted that she had detailed records of the rooms her staff had cleaned. They could be checked against the records of the rooms guests had paid for. Final y, Naomi gave in and did an audit, which took her more than two months to complete. The result: about thirty rooms per month were unaccounted for. That translated into the disappearance of more than $50,000 a year.
Naomi could no longer ignore the evidence. She insisted on implementing new procedures. When Janice resisted, Naomi fired her and began working ful -time again at the B&B. It soon became clear that the situation was even worse that she’d imagined. Another employee, caught red-handed, confessed to stealing $30,000 over two years. He said Janice had coached him—and walked away with far more money than he had taken.
I know just what Naomi felt at that point. She was mortified. She was angry. She felt betrayed and violated. How could people do that? She blamed herself for al owing it to happen and swore that, in the future, she’d watch the business like a hawk. No one could be trusted to run it in her absence. From now on, she’d be there ful -time. That was my reaction when I learned about my head dispatcher stealing from the company. The loss of the money was the least of it. Far worse was the sense of betrayal. I felt completely alone. I didn’t know whom I could trust anymore. I decided to trust no one—which was exactly the wrong response.
The biggest problem with employee theft is that it often leads you to make bad decisions about your business and your life. The emotions are so overwhelming that you tend to overreact. You can’t get back to making good business decisions until you take the emotions out of the process. The first step is to understand that theft is a business issue and needs to be addressed as such. In most cases, it happens because there’s a problem with the procedures in your business. Maybe you’ve neglected to establish a certain check or balance. Maybe people weren’t fol owing the procedures you already have in place. Maybe you just weren’t paying attention. In any case, something went wrong. You need to find out what it was and fix it.
You shouldn’t stop trusting people, however. Yes, a smal number of individuals are thieves. No matter what you do, they’re going to look for ways to beat the system, and sometimes they’l succeed. But the vast majority of people are honest. You’l be doing yourself and them a tremendous disservice if you start running your company as if you believe that nobody can be trusted.
That’s why you need to have the right procedures. They al ow the business to run smoothly and let people relate to one another on the basis of trust, while simultaneously making theft more difficult and helping you to nip it in the bud when it happens. Accordingly, one of your major responsibilities as the owner is to check your procedures from time to time, making sure those you have are being fol owed and looking for new ones you may need. And when you come across something that doesn’t make sense, it’s important to ask questions.
In my company, for example, there were always three people who signed the weekly paychecks. At one point, they weren’t around, so I decided to sign the checks myself—which I hadn’t done in a long time—simply to see how our procedures were working. As I was going through the checks, I came to one for $1,100 made out to a driver who has a two-hour run each day. At ten hours a week, he would be making $110 an hour. That couldn’t be right, I thought, and put the check aside. I continued to sign until I came to another check that looked wrong to me: $600 for one day’s driving. That would be $3,000 a week, $150,000 a year. Nice work if you can find it. I put that one aside as wel . Out of about three hundred checks, I found four that I thought required further investigation.
So I went downstairs and examined the drivers’ backup logs and tickets. Three of the four checks turned out to be correct; the fourth was not. One guy had figured out how to beat our system by putting in duplicate tickets. The scam was costing us $300 a week. How long had it been going on? I didn’t ask or care. I never look back. It only gets you aggravated. Instead, I had a meeting with the check signers and reminded them that their job wasn’t just to sign checks. I could buy a machine to do that. They were supposed to think about what they were signing and notice if the amounts didn’t make sense. In that case, at any rate, we didn’t need a new procedure. We just had to do a better job of fol owing the one we already had.
Clearly, Naomi didn’t have the right procedures in place before she decided to step ba
ck from her business. If she’d had a simple system for comparing, say, the number of rooms cleaned each week with the number of rooms paid for, she would have caught the problems much sooner than she did. Then again, she real y didn’t want to know about them, as she herself admitted.
Naomi’s response was to make the opposite mistake. She believed she couldn’t spend any significant time away from the business without running the risk of having it stolen from under her. Her only way out was to sel it, she said. Those were her emotions talking. Granted, it wouldn’t have been wise to become an absentee owner again, but—with the right procedures and regular monitoring—there was no reason she couldn’t hold on to the business and stil lead a ful and balanced life. Fortunately, she came to her senses before she made another mistake she would have lived to regret.
Ask Norm
Dear Norm:
About two and a half years ago, I hired someone to be the operations manager of my company. He was the perfect fit for my business at the time. Now, however, the company has outgrown his ability to handle the job. He is still an asset to the team but not in his current position. I would like to keep him on the bus and move him to a different seat. It’s a tough situation. He is thirty-three years old and has a family. But I feel I must do something. Any suggestions?
Eric
Dear Eric:
We al wind up in your situation sooner or later, and I agree—it’s tough. You feel guilty because it’s your fault for putting him there in the first place. I used to try doing what you’re suggesting, but things seldom worked out wel . The issue was compensation. If I cut a guy’s salary, he would be resentful. If I didn’t cut his salary, I would become resentful. You need to think clearly and unemotional y about this situation. If you have another job on the same pay level that the guy is suited for, by al means, move him over. But don’t do it if his new responsibilities won’t justify paying him what he’s been getting up to now. It’s better to let him go. If your conscience bothers you, give him a big severance package.
—Norm
Necessary Losses
Bear in mind that becoming the boss is a journey, not a destination. You go through stages of understanding your role, but you never stop having to learn something new, because the job is constantly evolving. Some stages are harder than others.
For me, the most difficult stage came when I realized that it was time for me to get out of management and let my managers run CitiStorage. The truth is, I’d put off delegating authority to my management team for as long as I could. Who wants to give up being the chief cook and bottle washer in his own company? Sure, the managers told me that our problems were serious, and that I was creating a lot of them, but I didn’t listen. So what if we lost a few people? So what if morale wasn’t the greatest? So what if the managers spent a lot of time putting out fires? They were getting paid, weren’t they?
I’m not sure what final y convinced me to do it. Maybe it was my own frustration with certain aspects of our performance. Maybe it was the nagging memory of what had happened with my messenger business as it grew to $100 mil ion. Maybe my managers just wore me down.
Whatever it was, I final y gave in and agreed that we had to change. The business needed things I couldn’t provide, and it couldn’t acquire them as long as I was always around, making the key decisions and running the show. So I took myself out of the chain of command and put my management team in charge.
In retrospect, I can see that company was ready for the change long before I was. People were desperate for order and structure. Me? I prefer chaos. Deep down, I like having problems. I enjoy the excitement of working in a crisis atmosphere. That’s one of the reasons I get so much pleasure out of starting businesses. You have nothing but problems when you’re starting out. You’re always on the firing line. You’re juggling a dozen bal s, and you can’t afford to let any of them drop. Everybody is counting on you. No one questions your decision-making process. You’re almost like a god in that situation, and you run on pure adrenaline. It’s exciting, stimulating, and chal enging, and I love every minute of it.
That stage doesn’t last, however. If your business is successful, it eventual y moves beyond the start-up phase and starts to grow. You can hang on for a while, but sooner or later the company develops a set of needs that entrepreneurs like me aren’t good at dealing with. You can’t ignore those needs. I did once and lived to regret it. When I looked back on my experience with the messenger business, I realized that—among the many things I did wrong—I’d made the crucial mistake of keeping the company from getting the management, stability, and structure it needed. I just wouldn’t back off. I made al the final decisions and didn’t let the managers do their jobs. In the end, I paid a steep price.
I decided I was not going to make that mistake again, but delegating authority doesn’t come easy to someone like me. In fact, I can’t think of anything more difficult in business than changing the way your company is run—going from one-person rule to shared leadership. What’s more, it was not an area in which I had any expertise, and I knew that when I began the process of turning day-to-day operations over to my managers.
There were, in fact, three chal enges I faced.
The first chal enge was to find someone else to manage the transition for me. That didn’t mean hiring a new CEO. Whenever a founder decides to step back, people always start searching for a replacement, and it’s rarely the right solution. I knew we didn’t need a new boss, and we didn’t need new managers. What we needed was a new management system—and someone to help us set it up. There was simply no way that I was going to be able to oversee my own company’s transition to team-based management. Al my instincts led me to resist the change. People like me not only thrive in unstable environments but we breed instability, and management is al about creating stability through planning, organization, and commitment.
So I realized that someone else had to lead this process—a professional manager, a person who found building companies as exciting as I found starting them. There are consultants who specialize in these transitions, but I can’t think of one I’d feel comfortable turning my business over to. Nor was I about to bring in a big company executive who knew nothing about operating in a smal -business environment. I needed someone whom I knew extremely wel and trusted completely, whose thought process I both understood and respected. A major part of this person’s job, after al , was going to involve dealing with me. I was very anxious about the whole process. My company is my baby. Other people helped raise it, but it began as a sparkle in my eye. So I had to have complete confidence in whomever I hired to take it to the next level. Fortunately, my future partner Sam Kaplan, whom I’d known for twenty-three years at that point, was available. He was someone whose judgment I trusted even when I disagreed with him, which was essential. Giving up control was scary. There were moments when it was hard for me to go forward because I was afraid for my company, just as I’d be afraid if someone took my baby away. You need to have blind faith in the person who’s guiding you, or you won’t make it. I have that kind of faith in Sam.
You also need to find something else that you can do in the company—which was the second chal enge I faced. I mean, if I wasn’t going to be running the business anymore, how was I going to spend my time? I have many outside interests, but I couldn’t just walk away from the company. I stil loved it. I loved the concept. I found the business exciting. I wanted to be close to it. And yet I realized as wel that I had to get out of the way. I knew I wasn’t going to enjoy my reduced role. I’ve always had a hard time not having the final say. I want to be included in every decision, and I knew I’d have trouble accepting that people could make decisions without me. I’d have even more trouble going along with decisions that weren’t the same as the ones I would have made.
So what was I going to do? Sit alone in my office with the door closed, biting my tongue and grinding my teeth? Or fal back on old habits and undermine the entire process? I’d learned over the ye
ars that the best way to break a bad habit is to replace it with a good habit. I’d also learned that CEOs are responsible for putting people in positions where they can make the greatest contribution to the company—and I would stil be the CEO.
What were the best jobs for me? One of them was sales, no question. I enjoyed it, I was good at it, and I had a lifetime of contacts to draw on. I was also pretty good at negotiating deals and overseeing projects—and we were going to be building new warehouses for years to come. So I decided to divide my time between making sales cal s and supervising the construction of the new buildings. Those two jobs, I figured, would keep me involved with the business and out of everybody else’s hair. I’d stay away from the office as much as possible. I wouldn’t attend staff meetings.
I’d let my managers make their own decisions and do my best to abide by them.
That was the plan, at any rate, but old habits die hard. The third chal enge turned out to be sticking with the process. There were moments when I wondered how long I could keep it up, and how far I could let it go. My goal was to turn 100 percent of my authority over to my management team, but it took me almost a decade to achieve it. Occasional y, the managers would ask me what I wanted to do about something. I sometimes couldn’t help giving them an answer, even though I knew they should be making the decision themselves.
Sam kept tel ing me that I shouldn’t make any decisions at al . As long as the managers stayed within the budget and met the financial goals, he said, I shouldn’t care how they did it. In theory, he was right, but I had a lot of growing to do before I could practice what he was preaching. Not that the improvements weren’t visible. I could see a tremendous difference in the company as time went by. Our employee turnover went way down, partly—I’m sure—because we began doing much better hiring. Under the new procedures, two people had to interview every job candidate. To me, that rule was a luxury. But what can I say? It worked.
