by Charles H. Green on Friday, July 3, 2009 (post #515)
It is tempting to dwell on the horror of Bernard Madoff. (Thanks to Robert Scheer for teeing up this issue). How could he have done it? What kind of a man does that? Is 150 years in prison enough? And so on.
Tempting—but largely wrong. If we lay all the blame at the feet of one aberrant individual, then we avoid taking a hard look at broader issues of institutional trust.
Remember: Madoff was once the Chairman of NASDAQ and served on SEC advisory committees—he was the ultimate insider. So it’s relevant to ask: if Madoff was such Evil Incarnate, what does that say about the sea he swam in?
Recently the former CEO of the National Association of Personal Financial Planners was sued by the SEC for participating in a kickback scheme. The current president missed a great opportunity to condemn or announce new initiatives; instead, she sadly bemoaned the negative impression this might cause of the character of others in the profession.
The bad apple argument begs the question: just who elected the Bad Apples head of the barrel?
One single piece of data convinced me that Madoff was not evil incarnate, but a cheap two-bit hustler who hit it big. It was his taped conversation with Fairfield Greenwich feeder fund starting with, ‘First, this conversation never happened, OK?”
What industry elects a man like that to positions of high influence?
Some say financial excesses were caused by misaligned incentives. But an industry doesn’t become trustworthy by un-tweaking incentives. Remember Chris Rock’s statement of marital fidelity: “A man is as faithful as his options.” There’s truth to that, but let's not confuse it with ethics or trust.
The whole point of being trustworthy is that you have just enough moral backbone to resist temptation. We expect dogs to eat the roast if left on the counter; fixing the Madoff issue by aligning incentives is the equivalent of moving the roast to the back of the counter. It may save the roast this time, but the dog gets the message—we are now playing a game of “who gets the meat,” no longer a game of “don’t eat the meat.”
Which is precisely the problem with too much of the financial sector—the proposed options too often suborn more untrustworthy behavior by focusing only on consequences.
How Not to Fix the Barrel
The real drivers of trust have got to be the personal beliefs about one’s relationship to others. Are you in it for them, or are you only in it for yourself? Are you an individual existing in a state of nature with no obligations beyond self-aggrandizement? Or do you feel some connection and obligation to others, to society?
If you believe others exist mainly for you to make money from them, then you will find ways to exploit them, within (or slightly outside of) the law. You will devise short-term transactional behaviors to lower the risk of exposure to others, and to help you do unto others before they do unto you. You will seek to hide, and to prevaricate.
You will, in short, violate the (four) basic principles of trustworthiness.
But if you believe you and your business and your industry exist to serve customers, and that you too will benefit in the longer run by doing so, then you’ll behave differently. You’ll understand the word ‘fiduciary’ is critical to trust. You’ll understand the connection between being trusted and being financially rewarded. You’ll have nothing to hide because you’ll have no reason to hide. You’ll welcome long-term relationships, because that’s what it’s all about.
And you’ll never begin a sentence saying, ‘First, this conversation never happened.’
How To Fix the Barrel, and Apples as a byproduct.
I have said before that mass, public shaming is a more effective antidote to low trust than most other solutions being bandied about.
Erecting more airport security measures, more Sarboxes, more Chinese walls, and aligning incentives are all ham-handed, expensive ways to reduce exposure to bad people. They do nothing to exert social leverage to reduce badness itself.
Social virtues are built by societies. If we limit our social solutions to imprisonment and walled communities, we’re using our social capital to create criminals.
Principled enforcement—surprise audits and large penalties--is one way society teaches virtues: the IRS uses it very effectively.
Public shaming has a great history too: the muckrakers and activists have achieved great things—think Sinclair Lewis, Gandhi, ML King, the kid in front of the tank in Tiananmen Square, and investigative journalism. All have called on our innate sense of goodness to cause change.
Trustworthiness worthy of the name is an internally felt response to an externally-taught relationship. Don't cheapen it by just moving the cheese.
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Wednesday, July 1, 2009 (post #514)
Trust, in case you hadn’t noticed, has gotten “hot” lately. But much of it sounds very vague—soft, fluffy, nice-to-have, the buzzword du jour.
I’d like to do my part to make it real.
To me, that means breaking it down and making it sound; tapping into the strategy and mysticism, but also staying grounded in the tactical and the practical.
So let’s review some context; then talk about four specific operating principles a business can hone in on to improve its trustworthiness.
Putting Trust into a Workable Context
I’ve suggested elsewhere that “trust” is too vague a term to work with. To do something practical, we need first to identify the trust realm: are we talking about personal trust, or business/organizational trust, or social/institutional trust?
The next question is about the trust role: are we working on being more trusting? Or more trustworthy? They are not the same thing. And “trust” is the result of them both interacting.
Building a Trustworthy Business
In the realm “personal” and the role “trustworthy,” we can point to personal beliefs and behaviors as indicated in the Trust Quotient. But in business, trustworthiness is built through a set of daily operating principles. Trustworthiness is built from habitually behaving in accordance with a set of commonly shared beliefs about how to do business.
I suggest they can be boiled down to four.
The Four Trust Principles
1. A focus on the Other (client, customer, internal co-worker, boss, partner, subordinate) for the Other’s sake, not just as a means to one’s own ends. We often hear “client-focus,” or “customer-centric.” But these are terms all-too-often framed in terms of economic benefit to the person trying to be trusted.
2. A collaborative approach to relationships. Collaboration here means a willingness to work together, creating both joint goals and joint approaches to getting there.
3. A medium to long term relationship perspective, not a short-term transactional focus. Focus on relationships nurtures transactions; but focus on transactions chokes off relationships. The most profitable relationships for both parties are those where multiple transactions over time are assumed in the approach to each transaction.
4. A habit of being transparent in all one’s dealings. Transparency has the great virtue of helping recall who said what to whom. It also increases credibility, and lowers self-orientation, by its willingness to keep no secrets.
Executing on the Trust Principles
What are the tools an organization has at its disposal to make itself more trustworthy? Any good change management consultant can rattle off the usual suspects, but for trustworthiness, the emphasis has to shift somewhat.
The usual change mantra includes a heavy dose of behaviors, metrics and incentives. Some of that works here, but only to a point.
For example, Principle 1, focus on the Other, is contradicted by too much extrinsic incentive aimed at leveraging self-interest--it undercuts focus on the Other. And Principle 3, relationship over transaction, forces metrics and rewards to a far longer timeframe than most change efforts employ.
Another great shibboleth of change is that it must be led from the CEO's office. But with trust, it ain't necessarily so. Trustworthiness is a great candidate for infectious disease change strategies; guerrilla trust strategies can work at the individual level, and individual players can lead. Behavior in accord with these principles cannot be coerced; the flipside is, it can be unilaterally engaged in.
The most powerful tools to create a trustworthy organization are things like language, recognition, story-telling, simply paying attention to the arenas where the principles apply—and the will to apply them. Role-modeling helps; some skill-building helps. But most of all, it is the willingness to notice the pervasive opportunities to work in accordance with this simple set of four principles.
Trustworthiness breeds trusting (the reverse is true too); the combination is what leads to trust. Which, by the way, is quite measurable in its impact on the bottom line.
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Monday, June 29, 2009 (post #513)
In 1964, US Supreme Court Justice Potter Stewart famously opined in an obscenity case that it was exceeding difficult to define obscenity, “but I know it when I see it.”
It wasn’t a casual comment, but a carefully reasoned statement, which did and still does make a lot of sense. Certain things—like obscenity—vary considerably across time, locale, and situation. And another such thing is trust.
Trust Doesn't Mean Much Without Context
I can’t think of another concept which carries with it such a wide range of meanings. In context, we nearly always understand the concept being referred to—but the reference varies situationally. Just consider:
- I trust my dog with my life—but not with my ham sandwich.
- I trust a stranger to sell me a book on Amazon—but that doesn't mean I'll introduce my daughter to him.
But business these days doesn’t like subjectivity. The business community has come to insist on things like best practices, diagnostics, rankings and ratings, and—above all—behavioral indicators that can be metricized. Because we all want to know how we’re doing, where we’re going, who’s doing best at it, and just how you know if you’re doing it right. You can't manage it, after all, if you can't measure it.
The business community has gotten hooked on the corporate equivalent of self-help manuals. You know what’s next. Ten Easy Steps to being a Highly Trustworthy Company. Sign up for your Corporate Trust Ratings. Become a Certified High Trust Company. You get the picture.
Who Are the Most Trusted Companies? It Depends
Beneath this rush is almost always the notion that One Size Fits All when it comes to trustworthiness at the corporate level. Trustworthiness is a "thing." Someone has the key to it, and others don't. For the philosophers out there, the operant belief is that there are Platonic Forms for things like Trustworthiness, Engagement, and Leadership.
But in these matters, Potter Stewart was more right than Plato. The bigger truth is--it depends. It's not that the emperor has no clothes--it's that he has more than one wardrobe.
Who is more trustworthy: Apple Computer or Amazon? Fidelity Investments or American Express? Singapore Air or Dell Computer? These are not sensible questions, I suggest, taken out of context.
It depends--on whether you’re talking to customers or to employees. On whether you’re talking about reliability or other-orientation. About transparency or collaboration. About last year or about this year. About a major transaction or about a corner-store impulse purchase. About your car or about your oncologist.
One attribute commonly associated with trust is transparency—but that’s not Trust Virtue One if you’re the CIA. Teamwork may be a trust virtue for the US Army—but not for a law firm of litigators.
At a personal level, you can make some generalizations about trustworthiness: I’ve done so myself in my Trust Quotient self-assessment survey. But even there, I caution against reading the raw results without the context.
At a corporate level, trying to define the most ‘trusted company’ with a one-size-fits-all set of metrics is a fool’s errand. That doesn’t mean it isn’t a useful, valid, and meaningful exercise. It just has to be done situationally, in context.
Like obscenity, we regular plain old human beings have no trouble recognizing trust when we see it. We don't need a scalable model to understand it. Attempts to force-fit trust into behavioral indicators that can be rank-ordered, weighted and incentivized are akin to the US movie ratings system. The ratings tells you more about the rater than the thing being rated.
The Supreme Court already figured this one out and wisely gave up the force-fit approach. At higher levels, such as trust, life overflows the petty boundaries we try to impose on it in the vain belief we can “manage” it. Like a giant wave, we’re far better off surfing it than trying to control it.
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Thursday, June 25, 2009 (post #512)
I received an email from my friend (and ex-colleague) Martin, who retired to the Caribbean more than ten years ago. He makes a point I agree with in language more accessible to him than to me (British, that is). Since he’s brilliant (by which of course I mean he agrees with me), I thought I’d let readers hear another voice.
Charlie, we've emailed a number of times about words like trust (which you pretty much own), trusting (i.e. when a buyer is trusting of the seller), trustworthy (i.e. what a buyer hopes the seller is). As I read the commentary on Obama's plan to improve the regulation of the financial services sector I am getting somewhat depressed. Not, I hasten to add, because I do not think Obama's heart is in the right place.
My concern is that his regulatory approach doesn't mandate nor does it seek to combat untrustworthiness. Too often this 'Nation of Laws' falls back to the common defense that 'nothing I did was illegal' even if it broke all sorts of ethical boundaries with the nadir being reached with the apocryphal words 'it depends on what the meaning of is, is'.
I am reminded (and this was more years ago than I care to remember) of my initial exposure to the English Legal System in the 17th and 18th centuries where, because of the rigidity of the 'common law' (i.e. I didn't do anything illegal), a Court of Chancery grew up where by the Chancellor could grant some type of relief 'in equity' which was essentially "a manifestation of the ideas of justice entertained by individual chancellors."
While one could argue that the plaintiffs attorney business is a sort of surrogate for relief against the 'nothing I did was illegal' defense, I wonder if the US needs something similar to the Court of Chancery where there is some body where a person aggrieved by financial creativity could ask the question, "OK, I know what they did to me was technically legal, but was it 'right'?"
I fear that unless the Obama approach to regulation adopts this sort of philosophy I feel sure that the brilliant students coming our of Law Schools and Business Schools will continue to act in an untrustworthy manner by finding ways of disadvantaging the unsuspecting and trusting buyer.
I know many of your clients are in the financial services industry. Is their aim to BE trustworthy or to appear to be trustworthy?
Best,
Martin
Martin, I could not agree with you more.
As a (lawyer) friend of mine points out, there is no concept of “truth” in the law as it exists in the US today - there is only evidence. For the MBAs’ part, they (OK, we) replaced relationships with outsourced business processes, and management with metrics, effectively removing any sense of “ethics” by depersonalizing the behavior of human beings. (Maybe it began when we started calling people 'human capital.' Note which is the adjective).
The combination has been devastating, as you point out. Look at any corporate org chart where you see “ethics,” and the next two words are “and compliance” - as if they were the same thing. As you point out, they are--or ought to be--very different concepts.
And while I too think Obama’s heart is in the right place, this effort was all too predictable. He is doing precisely what America’s “best and brightest” are taught to do as “best practices,” namely create mechanical solutions to issues of human behavior. Alter the incentives, redesign the institutions, create more Chinese walls, and--especially--more procedures to comply with.
Commonsense suggests that if you treat ethical violations with procedural solutions, you negate the very conscience that made us call it unethical in the first place. Do that long enough, and the word "ethical" will become listed as "archaic" in the dictionary.
If you prefer the language of academics and empirical proof to commonsense, try this from Roderick Kramer of Stanford:
Gatekeeping measures may actually have contributed to declines in public trust in business. These studies have found that “innocent employees” who are subjected to additional compulsory oversight measures often “become less committed to internal standards of honesty and integrity in the workplace.”
To flip Ronald Reagan’s words, the act of constantly verifying destroys trust. Excessive compliance measures ruin ethics. Big Brother is death on the human conscience. The trouble with regulatory answers to misconduct is that they foster more cynicism, more degradation of the real issue into mere gotcha contests. They trivialize issues that are, or should be, ethical at heart. As you said.
Martin, I honestly believe that the best answer to the decline in trustworthiness lies not primarily in shifting incentives, or in classical regulation. It lies in mass shaming of the untrustworthy by the consuming public.
The act of mass shaming galvanizes the public’s conscience. Whether or not any particular Madoff then “gets it” or not is beside the point: a community itself needs to articulate, for itself, that there are standards that lie well above and beyond the common law of “I did nothing wrong.” The best Chancery court may be the blunt instrument of public opinion.
Your concluding question should be read by every financial services senior exec, and passed out in the form of a quiz to the general employee base of his or her firm, in the following form:
“Your CXO has said that the aim of your company is not just to appear trustworthy, but to be trustworthy. Do you believe he means it?”
Now that’s a scary question.
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Wednesday, June 24, 2009 (post #511)
Much of the talk about trust is just that – talk about “trust.” We forget that trust is a word for a relationship between two parties, each doing different things. Further, it’s an unequal relationship.
What we call “trust” results from one person (or entity) trusting another. One party trusts; the other is trusted. The result is what is properly called trust.
Unlike other relationship words (like ‘love’) the quality of trust is asymmetrical. To trust is very much not the same thing as to be trusted. Just ask a traveler in a new foreign country. Or a Madoff client.
The asymmetry is all about risk—the one taking the risk in a trust relationship is the trustor, the one doing the trusting—not the one being trusted.
When we describe degrees of trusting, we use precisely that word: ‘He is very trusting.’ While an adjective, 'trusting' derives from a verb—it tends to describe a behavior, the act of trusting.
When we describe degrees of being trusted, we use a different word: ‘She is trustworthy.’ 'Trustworthy' is also an adjective, but it tends to describe character, an attribute one possesses.
If we’re going to be precise in talking about trust in a useful way—whether it’s personal trust, business trust, or social trust—we need to clear about the risk-asymmetry between the two parties to trust. Absent that simple clarity—who’s doing the trusting, who’s being trusted, and in what realm—there’s not much that can be usefully said.
Here are some examples.
Trusting Strategies.
Trusting someone is very useful—if your trust is justified. Things happen faster, better, with higher quality and lower cost. Life is richer. Of course, if your trust isn’t justified, you get burned. Reasonable risk assessment, then, is a valuable skill in trusting.
But trusting cannot obliterate risk, and risk management alone has its limits. To trust only those we have vetted as trustworthy is to make a mockery of trust. Ronald Reagan’s statement “trust but verify” was cynically manipulative. If you can verify, you don’t need trust--you just need an auditor.
Trustworthiness Strategies.
Being trusted by others is at least equally useful, and of course the combination is best of all. How can one become more trusted—by customers, employees, friends? There are two basic strategies: the first is to trust the other party, the second is to become more trustworthy.
Oddly, the most powerful strategy for driving increased trustworthiness in others may be the act of trusting them in the first place. Marlon Brando’s Godfather character knew this: so do successful networkers. Like homeopathic medicines, a little trust given can innoculate against large doses of untrustworthy behavior by others. This is due to the deeply embedded human propensity to reciprocate--good for good, bad for bad.
Being trustworthy toward others drives their propensity to trust you—and it’s a less risky strategy than trusting them, since most risk is borne by the trusting party. The effect of trustworthiness on trusting doesn’t rely on reciprocity—it is a unilateral action by the trustee that alters the risk perceived by the trustor.
Remember the asymmetry of trust is all about risk: it comes in many forms, such as asymmetry of information, or of power. Many trust issues present as issues of the asymmetry of power: think asset managers trusting rating services, or consumers trusting credit card issuers. It's what's behind jokes like, "I'm from the IRS and I'm here to help you."
There are several ways to manage risk so that the asymmetry is acceptable to both parties. One is simply transparency: the exchange of information.
At a personal level, the decision to reveal information that would put you at a “disadvantage” in a competitive situation is an act of trust. If your client is 58, you are 32, and your client asks your age, do you say, “I’m in my mid-30s?” Or do you say, “I’m 32.” The latter is an act of trusting; it usually makes you seem more trustworthy, and of course it carries some risk.
At a business level, when companies fight greater transparency (presumably to prevent competitive advantage), they are simultaneously destroying the inclination of their stakeholders to trust them, because to withhold information for self-oriented reasons is intrinsically untrustworthy. Too many industries and companies simply do not get this, hence they invite far stronger regulation than need be the case.
I have elsewhere written about the Four Trust Principles: they apply to people and to organizations, and are largely about enhanced trustworthiness.
Personal and business approaches to trustworthiness overlap in the arena of leadership. The general who personally leads his cavalry troops into battle shows that he will take risks on their behalf; the troops' powerful response is to trust him in return. Trusting given yields trust returned.
Explored carefully, this simple framework tells us how to better navigate the worlds of romance, business, friendship, business regulation and socio-governmental institutions.
Increasing trust starts with asking: who does the trusting, and who is to be trusted? Where's the risk, and how can we manage the asymmetry?
Charles H. Green is founder and CEO of Trusted Advisor Associates; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
July 2009
