The first principle is that you must not fool yourself — and you are
the easiest person to fool.
Richard Feynman, Physicist and Nobel Laureate

When people think about dishonest employees, they usually think about theft and greed. They think about people trying to get something for themselves.

The greater risk comes not from action but the lack of it. Employees who are protecting something, who are passive even when they suspect something is wrong, are far more dangerous. They usually have accomplices, unwitting as they may be. The lure to cooperate with bad acts isn’t necessarily personal gain it’s to avoid conflict.

The need to be right, to win, keep things steady or to forge ahead causes small missteps as well as big disasters. GM hid issues that caused loss of life. At Volkswagen, it seems that some engineers couldn’t bring themselves to admit that they hadn’t solved the problem of how to improve mileage while lowering emissions in diesel-fueled cars. Thankfully their dishonesty did not lead to loss of life. It has severely damaged the brand, credibility and trust.

Did someone pay them to do this? It doesn’t appear so. What would drive someone to do this? Reputation. Status. In ability to admit they couldn’t find a solution.

At GM, people knew what was happening and didn’t intervene. At VW, it may have been fewer who knew. Nonetheless, when told that later measurements (more favorable to VW) were accurate when earlier measurements were not favorable, it was accepted. Highly talented engineers don’t lie, right?

You may be reading this with a sense of relief. Here are five questions to ask yourself and your colleagues:

Are mistakes happening?
If they aren’t, you have a problem. There is no such thing as an error-free business.
Do you celebrate failure?
Make it a learning event, a big deal.

The concept of loss aversion obtains whether it is loss of money or loss of face or status. Make it easy to pull the plug on things that aren’t working. Insist that people face facts and immediately put resources to the best use.
Are people punished for mistakes?
Do managers berate or embarrass people for errors? If so, mistakes will be hidden. People have a funny way of not liking public humiliation.
Do managers demand loyalty?
You want commitment to doing the right things not mindless compliance with your orders.
Do you assume that rules prevent misdeeds?
They don’t. Behavior is not governed by rules. Context is a powerful driver of behavior.

Yes, yes, individual characteristics are a factor but less so than context. Too many companies spend too much time dissecting personality and not enough building great cultures. Keep your inner Dr. Freud quiet.
In crisis or high-stakes transitions you need fewer rules and more commitment to doing the right things.