Expense Sheets and Cultures of Trust

Business travelers know the taxi expense fiddle. You ask the taxi driver for a receipt. He winks at you and gives you a blank form, implying you can fill it in later, and who’s to say how much that ride cost, wink-wink, nudge-nudge.

How honest are you about the number you write down? How honest do you think others are? Do you think it varies by occupation? By income level? By geography? Would a college professor from Ohio State be less, or more, honest than an associate at a New York private equity firm?

Does the typical response look different in Beijing than in New York? What about Paris? Or Buenos Aires?

What are the cultures of trust? And what drives them?

Chinese Receipts and American Rentals

In China, street vendors hawk fake receipts for sale, as if they were DVDs or watches or fast food.   An American instinctively thinks, “How corrupt!” And yes, it is.

The news is also rife with stories of massive graft in Chinese government, with mid-level officials buying Mercedes and expensive wines. We also hear horror stories emanating from China about food safety.

Clearly China has a problem with trust in government and business. We in the West can comfortably turn up our noses and tell ourselves that at least our trust issues are far more evolved.

Or are they? Consider the NY private equity partner and lawyer who engaged a broker to find a scarce rental in the Hamptons.  When the broker found them one, they brazenly approached the owner to cut out the middleman broker.

Consider the Big Company which, when charged with violating their self-advertised objectivity, independence and integrity came up with the novel defense that hey, nobody believes that crap anyway, so don’t hold us to it.

Leaving aside whether those kinds of violations are more “evolved,” they surely are different in kind. What are those differences?  What are the kinds?

Cultures of Trust

We often talk about trust in business as if it were a single, universal trait. It is not. Francis Fukuyama, in his seminal book Trust, wrote well about this. In China, the level of trust is very high within extended family relationships – but quite low outside it. The reasons are linked to China’s historical development.

By contrast, French society has a great deal of confidence in centralized, bureaucratic institutions, e.g. the Ecole Polytechnique, or wine labeling.  Trust in Japan is high within the island-bound nation/culture of Japan itself, but much lower when it comes to gaijin. In southern Italy and Eastern Europe, trust is often more tribal.  And so forth.

What is the culture of trust in the US, particularly in business? Given the nation’s short and melting-pot  based history, it’s not driven by a common culture or religion. Instead, there are two ideologies that play a particular role in determining the nature of trust in the US: freedom and capitalism.

The “brand” of the US has always pitched freedom as front and center, and not just religious freedom. For countless millions, it has meant freedom to make it economically, through the fruits of your own labor, if not for you then for your kids.

Closely linked to that is our view of capitalism. While of course there are nuances, the main view of business throughout our history has been a belief that the pursuit of individual good ends up benefiting society as a whole. Adam Smith’s Invisible Hand has been a welcome metaphor for US business over the years.

There are a whole lot of things to admire about that ideology; the US can point to its own economy as Exhibit A. But it does mean we look at trust in a  slightly different way than do Chinese, or Russians, or Chileans.

In particular, we look at it like rules in a game.

The rules of the game are clear, but they can change. We generally don’t like rules, but admit that some are necessary. We have referees to help interpret and enforce those rules. Occasionally, the refs get over-matched, and social change results (though usually not before some disaster makes it politically unavoidable).

The main rule is, stay within the rules. All else is fair game, until and unless the rules change.

That kind of ideology makes trust a little more conditional in the US than elsewhere. And there is good and bad in that as well. The good part is that Americans can move with the times, adjust, be flexible about issues of trust when the need arises. The rules of trust may change, but the game itself keeps its integrity.

The American trust problem arises, I think, when we stop treating business as a game. And we have. Etiquette is out. Simple agreements are so last-century – now they need hedging with counter-parties. And handshake deals? Last millennium.

The rules become exogenous to the game, seen as a hindrance, and only one rule survives– survival of the fittest. That’s where we’ve gotten to, and the results are ugly. The doctrine of competitive strategy says, at its heart, that relationships are a cruel myth – the only thing that matters is sustainable competitive advantage, over your customers, your employees, and everyone else.

We’ve marinated in that solitary stew long enough. In an increasingly inter-dependent world, the view of every-man-for-himself is a recipe for a circular firing squad.

A New Business Ideology?

Are things changing? Does Capitalism 2.0 require Adam Smith 2.0, or something even more radical? I’ll talk about that in an upcoming post.