It is no secret that the IRS looks carefully below the surface for personal use of company assets (including cash) in its corporate income tax audits. This insight addresses more the impact of such behavior upon the actions of employees and others who observe that behavior from a senior manager or owner of a business – and know that they cannot say anything about it without jeopardizing their jobs.
Use of a corporation as a personal piggy bank seems to be an earned perk in the mind of some entrepreneurs and some CEOs, reasoning that the only harm in doing so is in taxes never paid to the IRS. The truth is that there is a much deeper degree of damage done to the moral and ethical fiber of the company itself, and certainly to the credibility of the executive or entrepreneur with employees.
The culture of a company is created from the sum of many parts, most all coming from the top. One of the most toxic shocks to good culture come when a promise of ethical decency and mutually fair behavior is breached by a senior manager, observed by others. Think of the effect of locking the supply cabinet only to take from it whatever the person controlling the security of the cabinet wishes for personal use. Or of the reaction of your accounting person when asked to book obvious personal uses of the corporate credit card as company expense. Or flaunting the privilege of that corporate card by charging expensive meals with high priced wines when not entertaining outside guests.
[Email readers, continue here…] And there is another degree of damage to measure in more extreme cases – the robbing of the entity’s ability to finance its own growth, sometimes causing reliance upon bank loans or other sources for capital.
Those in charge, even if one hundred percent owners of the business, have a special obligation to be open, lawful and ethical in the use of those assets upon which others depend for their continued jobs and living wage.