A recent story in The Economist looks at how lying affects business. You might remember Scott Thompson losing his job at Yahoo! when his educational qualifications came under scrutiny. He is certainly not alone, and many people in business will readily admit to embellishment to get a deal or a job. How does this affect business?

Apparently in a big way. We are all aware of what happened to Enron executives when their lies unraveled, and Bernie Madoff made a great living out of lying – and now he’s living out his days in prison. Sarbanes Oxley is a direct regulatory result of business prevarication and now publicly reporting senior executives have to swear an oath that they are being truthful with every quarterly report.

The article dives into why people may lie, and cites a new book on the subject, “The (Honest) Truth about Dishonesty”. According to the author, most people are prone to lying or cheating depending on the circumstances. Surprisingly, more people are likely to fudge a little if it’s on behalf of someone else. Not surprising is that people feel less guilty about lying if they can justify it.

How do you get people to be more honest? Punishment only works after the fact, and most people never think that they will be caught. As the article suggests, maybe the best way to keep people honest is to have them police themselves. Provide less of an incentive or rationalization for lying and you may keep them on a more honest path. Or as Mark Twain said, “If you tell the truth, you don't have to remember anything”.