If you are in any position of leadership, whether it's in business or as the head of a family, there are two outstanding qualities even more important than money, shelter, or a phone that you must possess. Those two qualities, honesty and integrity, are infinitely more important than anything else. They are foundational to all great leadership. And, they're as important as having air, food, and water.

For a leader, honesty and integrity are absolutely essential to survival. A lot of business people don't realize how closely they're being watched by others. Remember when you were a child in grammar school, how you used to sit there staring at your teacher all day? By the end of the school year, you could do a perfect imitation of all your teacher's mannerisms. You were aware of the slightest nuances in your teacher's voice — all the little clues that distinguished levels of meaning, that told you the difference between bluff and "now I mean business."

You were able to do that after eight or nine months of observation. Suppose you had five or 10 years — do you think there would have been anything about your teacher you didn't know?

As a manager, do you think there's anything your people don't know about you right this minute? If you haven't been totally aboveboard and honest with them, do you really think you've gotten away with it? Not too likely. But if you've been led to believe that you've gotten away with it, it's most likely because people are afraid of you. That's a problem in its own right.

But there's another side of the coin. In any organization, people want to believe in their leaders. If you give them reason to trust you, they're not going to go looking for reasons to think otherwise, and they'll be just as perceptive about your positive qualities as they are about the negative ones.

A situation that happened some years ago at a company in the Midwest illustrates this perfectly. The wife of a new employee experienced complications in the delivery of a baby. There was a medical bill of more than $10,000, and the health insurance company didn't want to cover it. The employee hadn't been on the payroll long enough, the pregnancy was a preexisting condition, etcetera.

In any case, the employee was desperate. He approached the company CEO and asked him to talk to the insurance people. The CEO agreed, and the next thing the employee knew, the bill was gone and the charges were rescinded. When he told some colleagues about the way the CEO had so readily used his influence with the insurance company, they just shook their heads and smiled. The CEO had paid the bill out of his own pocket, and everybody knew it, no matter how quietly it had been done.

An act of dishonesty can't be hidden, and it will instantly undermine the authority of a leader. But an act of integrity is just as obvious to all concerned. When you're in a leadership position, you have the choice of how you will be seen, but you WILL be seen one way or the other, make no mistake about it.

Leadership of a family demands even higher standards of honesty and integrity, and the stakes are higher too. You can replace disgruntled employees and start over. You can even get a new job for yourself, if it comes to that. But your family can't be shuffled like a deck of cards. If you haven't noticed, children are great moral philosophers, especially as they get into adolescence. They're determined to discover and expose any kind of hypocrisy, phoniness, or lack of integrity on the part of authority figures, and if we're parents, that means us. It's frightening how unforgiving children can be about this, but it really isn't a conscious decision on their part; it's just a necessary phase of growing up. They're testing everything, especially their parents.

The first time I saw Arthur Miller's great play Death of a Salesman, I found it hard to believe that a son would so completely lose faith in his father based on a single incident of dishonesty. But over the years, I've seen that once a parent has lost moral authority, it is very, very difficult to regain it. Studies have shown that children are extremely understanding about many things. If you accidentally step on a favorite toy, that will be quickly forgiven, if not forgotten. If you lose your job and the family has to move, they'll adjust. If parents just can't get along and decide to divorce, most kids can handle it. But they can't handle dishonesty. It can take many, many years before that will be forgiven.

As a person of integrity yourself, you'll find it easy to teach integrity to your kids, and they in turn will find it easy to accept you as a teacher. This is a great opportunity and also a supreme responsibility, because kids simply must be taught to tell the truth: to mean what they say and to say what they mean.

There was something interesting about the Native Americans of the Southwest and the skills they felt were important for their children to know. Hiding was one of them. In a desert environment where you would think there was nowhere to hide, except possibly by squeezing yourself behind a cactus plant, these children could literally disappear. Running was another very important ability. Beginning as young as six or seven years of age, children were taught to run long distances while holding a mouthful of water, in order to develop breath control. Of course, both running and hiding were skills that could save the life of a child, as well as preserve the security of the group.

Children today must be taught skills that will save their lives as well. Integrity is one of those vitally important skills. Maybe it's hard to convince yourself of that. I heard a story of a man who flew propeller-drive antisubmarine planes for the Navy, piloting them on long flights over water. He told of an incident when a storm was coming up and they were faced with a difficult navigational problem in order to avoid it. The problem became even more difficult when the navigator revealed that he couldn't handle it. He had cheated his way through some parts of the training because that training material didn't seem like it would ever be useful.

I can't promise that it will ever save their lives, but nothing you will ever do is more important than teaching integrity to your children. There's an old saying: "Those who can, do. And those who can't, teach." But you can't really teach honesty unless you are honest yourself. You really can't teach integrity unless you also live with integrity.

It might be tempting, for the sake of consistency, to assert that you should always tell the whole truth exactly as you see it, in every situation. But I've lived long enough in the real world to know things just aren't that simple. Shakespeare wrote of one of his characters, "Every man has his fault, and honesty is his. He is more honest than wise."

Just as there is a difference between blowing hot air and premeditated dishonesty, there is also a difference between lying and recognizing the importance of diplomacy. How can you tell the difference? Your gut feelings will tell you. By the time they reach adulthood, most people have extremely accurate ethical barometers built into their heads and hearts. We may choose to ignore what that ethical barometer tells us, but it's there nonetheless.

When you're in a leadership role, there's at least one situation in which you're almost always justified in stretching the truth to some degree, and here it is: You should overstate your degree of enthusiasm for your employees’ work. Your recipe of dealing with subordinates should include at least three parts praise for every one criticism. Use many, many carrots, and very few sticks.

Will this stretching of the truth cost you respect? I don't think so. Will a little sugar-coating of your true feelings foster greater productivity, better work, and improved morale? Absolutely, and that conclusion is supported by a great deal of behavioral science research. Praise is one of the world's most effective teaching and leadership tools. Criticism and blame, even if deserved, are counterproductive unless all other approaches have failed.

Call it diplomacy, psychology, or just plain flattery. It brings out the best in people, and it's the grease that keeps the machine of human interactions functioning smoothly. Yes, honesty is the best policy, but sometimes a little less than total honesty is better.

We all know people who have gotten ahead as a result of dishonest or unethical behavior. When you're a kid, you think that never happens, but when you get older, you realize that it does. Then you think you've really wised up. But that's not the real end of it. When you get older, you see the long-term consequences of dishonest gain, and you realize that it doesn't pay in the end.

I've seen people who have made millions through questionable business tactics, and I've also seen a higher percentage of health problems among those people than any insurance actuary could possibly account for. I've seen people who decided to sell out their friends or their business partners in order to cash a big check, and those people wind up looking 20 years older than their age. Stick around, keep your eyes open, and you'll see that it's true.

"Hope of dishonest gain is the beginning of loss." I don't think that old saying refers to loss of money. I think it means loss of self-respect. You can have all the material things in the world, but if you've lost respect for yourself, what do you really have? The only way to ever attain success and enjoy it is to achieve it honestly and with pride in what you've done.

That isn't just a sermon; it's very practical advice. Not only can you take it to heart — you can take it to the bank.