Blockbuster settled another false advertising lawsuit over its "no late fees" program last week, this time with New Jersey. The $140,000 settlement is in addition to the $630,000 the movie-rental giant paid to forty-seven other states to resolve similar charges in 2005. Blockbuster began waiving late fees a year ago to combat competitive pressure from online rivals, and their advertising led consumers to believe that there was no cost for returning movies or games after the due date. But they neglected to mention that, in lieu of a late fee, they would charge customers' credit cards for the entire retail purchase price of a past-due item after seven days. The company stands by the policy and, to comply with the settlements, now spells out every detail in its advertising. But it may be too late: many stock analysts blame the program for driving Blockbuster's share price down more than 60 percent last year.

Here's a different example of false advertising. In its written guide to ethical conduct, Tyco International included the following statement: "We must demand of ourselves and of each other the highest standards of individual and corporate integrity. We safeguard company assets. We comply with all company policies and laws." Late last summer, a jury convicted Tyco's ex-CEO Dennis Kozlowski and its former CFO Mark Swartz of twelve counts of grand larceny, eight counts of falsifying records, and on charges of conspiracy and violating business laws for looting the company of $600 million.

Both of these costly deceptions add to our preconceptions that companies are trying to pull the wool over our eyes. Face it: won't you be skeptical the next time Blockbuster introduces a special deal? For that matter, will you trust the future promotions of any movie-rental store? Likewise, with newspapers reporting daily on scandal at companies like Enron, Arthur Anderson, Global Crossing, WorldCom, and Tyco, is it any wonder that employees start to associate all business leaders with dishonesty and untrustworthiness?

Thanks to false advertising, we think of used-car salespeople as deceitful, personal injury lawyers as greedy, and politicians as, at best, insincere. Now, thanks to people like Dennis Kozlowski, we conceive of business leaders as justice-obstructing, massive-debt-hiding, earnings-overstating thieves who use company funds to purchase personal artwork and put on lavish birthday parties for family members. No wonder only half of all employees trust their senior managers. And no wonder establishing trust with your employees is such an uphill battle. Bookmark this post on del.icio.us