The Power of the Lowly Expense Report

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    The speed of the announced departure of Hewlett Packard CEO Mark Hurd was in and of itself newsworthy. At first blush it would seem that an action by a leader to warrant such fast response from a board must be quite nefarious; if not fraud, then at least a juicy sex scandal. Instead, as was reported in the Wall Street Journal:

    H-P said Friday that Mr. Hurd, 53 years old, didn’t violate the company’s policy regarding sexual-harassment but submitted inaccurate expense reports that were intended to conceal what the company said was a “close personal relationship” with the contractor.

    Expense Reports? One CEO friend of mine mused that it would be one thing if Hurd had claimed personal expenses as business expenses in order to hide a liaison from his wife. That would be fraud, even if it was a small amount. But mere false categorization? “That’s absurd,” he said, “to fire a successful leader for not mentioning this contractor on his expense reports.” However, nothing can be farther from the truth.

    I give tremendous kudos to the HP Board for taking such swift action on something that might seem so small.

    Unlike opportunities for major fraud, which really can only be carried out by a small number of people, expense report violations is something that is within the domain of thousands and thousands of HP employees. False expense reports may seem minor, but it is often the place where larger crimes start, and can serve as a convenient hiding place for many varied violations.

    Several pharmaceutical companies have recently paid hundreds of millions of dollars to settle claims by the FDA of kickbacks to doctors. The place where these violations appear: expense reports.

    Moreover, there is no more powerful negative influence on a workforce than perceptions of unequal treatment of senior leaders. If a junior manager could be disciplined or fired for the kind of violation that mark Hurd engaged in, and if he was only given a slap on the wrist, the reverberations of inconsistent treatment spread like wildfire. Employees are willing to make sacrifices for the company and to even look out for the company’s interests over their own, but only when they feel they are being treated “fairly.” Once an event occurs that gives them grounds to perceive they are being “suckered,” then all that commitment vanishes in a flash. It’s back to looking out for #1.

    The Board did the right thing, signaling to all HP employees that no one, even the CEO is exempt for holding to the stated standards of business conduct.