A Business Horror Story: Why Your Company is Only as Strong as Your Relationship with Employees

Your business is only as strong as your relationship with your employees. If management isn’t developing a culture of connection, loyalty and trust tend to fall by the wayside.

This is a horror story of one company who accidentally let the leash out too far on some employees they thought they could trust.

Navigant Consulting and Two Rogue Employees

John Wilkinson and Sharon Taulman were managers for Navigant Consulting in 2001. They were in charge of its claims administration practice in Dallas. Wilkinson and Taulman were responsible for staffing, business development, client relations, and contract negotiation for Navigant. As employees they had signed non-compete, non-solicitation and confidentiality agreements.

In April 2001, a Navigant competitor, First Union, expressed interest in purchasing Navigant’s claims administration practice. Wilkinson and Taulman prepared a proposal that involved a transfer of the practice’s clients and employees in exchange for $22.5 million.

The problem? Wilkinson and Taulman planned to pocket all the money and not give any to Navigant.

The proposal to First Union included the disclosure of business information about the claims administration practice, including revenue projections, margin rates, potential engagements being bid, and staffing rates. Wilkinson and Taulman did not tell Navigant headquarters that First Union had expressed an interest in purchasing the claims administration practice, nor that they had submitted a proposal that included a payment to their corporation.

However, the proposal fell through.

Throughout the rest of 2001 and 2002, Wilkinson and Taulman attempted to sell the claims administration practice to other competitors of Navigant. While these negotiations were taking place, Wilkinson executed a four-year lease in Navigant’s name for office space in downtown Dallas.

In June 2002, a Navigant computer technician working for Wilkinson and Taulman was told to copy company information onto a portable, non-Navigant server and not to inform Navigant’s corporate office of the data transfer. Suspicious, the technician contacted the corporate office. In response, Navigant’s general counsel initiated an investigation into the Dallas office.

Wilkinson was told by Navigant headquarters not to transfer company data to outside servers. But that didn’t stop him from contacting one of the possible purchasers, LECG (formerly owned by Navigant), to advise them that he wanted to “move quickly” on a deal. The scheme included a new proposal to sell the claims administration practice through Wilkinson’s and Taulman’s corporation in exchange for options on 250,000 shares of LECG stock and $1.2 million in cash.

Then shortly thereafter, Wilkinson met with Navigant to try and force them to sign over the claims administration practice to him in exchange for his assumption of Navigant’s obligation on the four-year office lease in Dallas. Of course, Wilkinson is the one who had created the lease liability in the first place. He attempted to demonstrate the losses Navigant would incur, including the lease obligation if it refused Wilkinson’s proposal.

Wilkinson also argued there would be an “unprofitable contract with ‘negative cash flow’” if he left Navigant, as well as severance and accrued vacation payments that would need to be paid to departing employees.

Navigant executives rejected Wilkinson’s offer.

Wilkinson and Taulman submitted their resignations two days later and accepted employment at LECG. Then Navigant filed suit against Wilkinson and Taulman, alleging claims of breach of fiduciary duty, breach of contract and misappropriation of trade secrets.

The case went to court in a trial by jury.

In the course of his testimony, Wilkinson admitted that the proposals to sell the claims administration practice were made without Navigant’s knowledge or authorization and would have provided no proceeds to Navigant.

On November 15th, 2007, a jury for the United States Court of Appeals for the Fifth Circuit found Wilkinson and Taulman liable on each claim, awarding Navigant nearly $2 million in damages against both Wilkinson and Taulman, plus punitive damages of $200,000 against each of them and attorneys’ fees.

A Basic Expectation

At the core of the employment relationship is an expectation that employees will be loyal to their employer and fulfill their work obligations. When that basic expectation fails and your employees try to steal from you, it can be devastating.

It’s true, you can succeed in suing them for damages. According to the 5th U.S. Circuit Court of Appeals, you can sue them and you can win. Furthermore, depending on the situation your employees can be liable for damages that total millions of dollars.

But it’s best to avoid lawsuits as much as possible.

Unfortunately, Navigant’s story is just one of many that happen in the United States every year. People are far from perfect, and white collar crime is common. Whether it stems from greed, or a lack of employee satisfaction, it’s important for employers to be aware of the potential for employee wrongdoing.

Deter and Prevent Wrongdoing by Being a Good Leader

It’s also equally important to practice good leadership habits that help deter and prevent employees from criminal activity. An employee is much less likely to engage in fraudulent acts if they are part of a valuable, respected team in which executives are leading by example.

For instance, let’s say your company over-bills a client for a contract. You originally billed the client $12,000 for equipment and $15,500 for labor. However, the job wasn’t as difficult as it turned out to be, and it only cost $10,433 for equipment and $8,200 for labor. The client has already paid and they are happy with the result.

We have heard of this exact situation happening multiple times before. What’s the right response?

As a leader, it’s your responsibility to set the tone for how your company does business. Your team knows you over-billed. If you do nothing and keep the extra money, you are not only being dishonest and hurting your client but you are setting a bad precedent for the future. You are setting a bad example for your employees that leads them to think it’s okay to be dishonest. Then when the opportunity arises for an employee to be dishonest, but this time the dishonesty hurts your company, they will simply follow your example.

Instead, run a tight ship. Set the tone. Refund the excess costs to the client.

Your employees will respect your honesty, your clients will recognize your integrity, and loyalty in both groups will increase. Also, they will be more likely to emulate your decision.

Now, I am not implying that the behavior of Navigant’s leaders caused John Wilkinson and Sharon Taulman to engage in fraudulent behavior. Sometimes people just make greedy, stupid decisions completely on their own. But I do wonder if perhaps there were moments in John and Sharon’s career when someone could have demonstrated for them the right way to act (and held them accountable).

Hopefully you never have to deal with a similar situation.

The story of Navigant and John Wilkinson and Sharon Taulman was originally sourced from an article by SHRM on December 15, 2007 titled: 5th Circuit: Multimillion-dollar Verdict Against Disloyal Employees Affirmed, by Scott M. Wich, an attorney with the law firm of Clifton Budd & DeMaria LLP in New York.