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Three Things You Need to Know About Trust: Part 3

There are really only three things you need to know about trust. You can pretty much deduce the rest. The three parts are:

  1. Trust is a Two-player Game
  2. Trust Requires Risk
  3. Trust is Reciprocal

Part 3: Trust is Reciprocal–and What You Can Deduce From It All

Trust is created when one party takes a risk, and the other reciprocates positively. Think of a handshake offered, and returned.

Trust is AC, Not DC

We saw in Part 1 that one player does the trusting, and the other is trusted; the one doing the trusting is the one taking the risk.  That’s true – but only for the instant of that trust transaction. Trust is rarely built on one exchange alone, and the roles cannot stay fixed.

If you focus on being trustworthy, and your client trusts you, good for you. You can play that game for a while, but eventually your client will notice, ‘Wait, I’m taking all the risks here – what’s up with that?’ And at that point, they will stop trusting you.

You cannot escape the need to trust, as well as to be trustworthy. You have to take a risk too. Virtue may be its own reward, but unless you season virtue with risk-taking, you won’t get trust out of the recipe. To use an electrical metaphor, trust is not like direct current, moving in one direction – it’s alternating current, constantly changing direction.

Trust: Deducing Everything Else

In this brief series, I’ve claimed that “all you need to know” about trust is these three propositions – trust takes two players, it requires risk, and it must be reciprocating – and that you can deduce the rest. Let’s test that claim.

Organizational trust.  You may have noticed all my points have been about personal trust. What about organizational trust – trust in corporations, congress, the professions?

House Speaker Tip O’Neill famously said, “All politics is local.” In the same sense, all trust is personal. Trusting is something we do with our hearts and brains, one by one, personally; and trustworthiness is an attribute we ascribe almost entirely to individuals. (An exception is reliability: it makes linguistic sense to say that “GE is reliable,” or not. It is nonsense to say “GE is emotionally intelligent.”)

You can design corporate cultures to either encourage or discourage trusting and/or trustworthiness. And that’s pretty much it. Corporations may legally be people, but in the court of human nature and trust, they are largely environments which condition trust – they are not agents of trust themselves, only people are.

Trust, Virtues, Values, and Risk. The tools of individual trustworthiness can be found in the Trust Equation. The tools of individual trusting are about socially acceptable risk-taking. The tools of organizational trustworthiness and trusting – because organizations are environments for trust enhancement – can be found in the celebration of virtues and values.

Virtues are the personal attributes of trustworthiness – encouraged socially.  Values, or principles, are a set of guiding beliefs that govern interactions with others. Since trust is about relationship (remember Part 1), values drive the environment that creates or hinders trust. Among the most powerful trust-enhancing values are collaboration, transparency, and a long-term perspective. Organizations run along those lines create trust wherever they touch.

Trust Recovery. The business world frequently confuses “trust” with reputation, image, or poll ratings. This leads companies with trust problems to seek PR firms to focus on improving their reputation.

  • When your real trust levels exceed your reputation, you have a communications problem.
  • When your reputation exceeds your real trust levels, you have something a lot more serious, and throwing communications-only solutions at it is like throwing water on a grease fire.

Trust broken can be recovered, by the three basic principles above. It requires engagement by both parties, it requires risk-taking (particularly on the part of the offender), and it must be reciprocal. The biggest threats to trust recovery are an inadequate acknowledgement of the degree of rupture, and a refusal to accept the values required to change the state of trust.

Restoring Trust. The social issues facing us from lack of trust are real, and important. They can be addressed using the three principles above.

First, our trust crisis is not due to a global increase in the birthrate of morally impaired people. As noted in Part 1, trust is two-party game. It is about relationship. Trust failures are failures of relationship. Where we have lost trust, we have lost the ability to interact in relationship with others.

There are many reasons for this, including business thought leadership, an over-reliance on market solutions, and increased wealth disparity. All of them have emphasized the individual over the group.

The way to restoring social trust does not lie in better gun laws, tweaked incentives, stepped-up financial sector enforcement, or religion in the schools. It lies in Gandhi’s dictum to ‘be the change that you want to see in the world.’

It lies in the three trust facts: trust is a 2-player game of reciprocal risk-taking.  That means:

  • Trust is a personal job, not just one for leaders
  • Leaders must lead personally – by example, not by exhortation
  • Design environments that encourage people to trust and be trusted
  • Trust is about relationship – the Golden and Platinum rules apply
  • Trust is about relationship – anti-trust behavior is immature and socially poisonous
  • No pain no gain – there is no trust without risk
  • Trust is AC, not DC – you can’t always just be trusted, sometimes you have to trust
  • Trust is reciprocal – to make someone trustworthy, trust them
  • Blame and an inability to confront are the death of relationships and of trust
  • Run your life like you’d be proud to have it on the front page of the paper

If a trust issue sounds complicated, you’re over-thinking it. Go back to basics. There are only three things you need to know about trust, the rest you can deduce.

 

 

 

Three Things You Need to Know About Trust: Part 2

There are really only three things you need to know about trust. You can pretty much deduce the rest. The three parts are:

  1. Trust is a Two-player Game
  2. Trust Requires Risk
  3. Trust is Reciprocal

Part 2: Trust Requires Risk.

First, there is no trust without risk. Second, only one player takes the risk; this sets up a particular dynamic.

No Trust Without Risk

Ronald Reagan was blowing smoke when he famously said, “Trust, but verify.”  The truth is, if you have to verify, it’s not trust. If it’s trust, then it’s not about verification. (Tellingly, Lenin was fond of the same phrase).

At one extreme, trust is bordered by blind faith, which is unbounded by data or reason. At the other, we have statistics, where risk is strictly a matter of probabilities and assumptions, governed by the rules of mathematics.

Trust lies curiously in between faith and probability – and a little off the straight and narrow of the continuum as well.  A psychological relationship, it involves one party willingly putting itself in harm’s way of the other, with a significant but not perfectly quantifiable chance that the other may abuse the situation. No wonder we speak of it often with metaphors.

People say trust mitigates risk. That’s true, but it’s also true that risk creates trust. Without risk-taking, there can be no trust. We forget this when we try to create trust by eliminating risk.

Why is this important? If you remove temptation or risk, you create an artificial dependence outside of the critical trust relationship. For example, if you render financial institutions completely non-risky by over-doing tick-box compliance, you will also choke off trust. Trust eats risk for breakfast, and becomes stronger for so doing.

As with many things trust-related, this is paradoxical. Trust reduces risk, but it also thrives on risk. Robotic safety and predictability are components of trust, but small ones. A completely mechanical world may be risk-free, but it’s also trust-free.

One Player Takes the Risk

In its pure form, one party trusts, while the other is trusted. In my classes, it’s a running joke I play: would you rather get better at trusting? Or at being trusted? So far, every class has opted to get better at being trusted. Doh! That’s the non-risky choice.

It’s human nature to wish others to take the risk. Sometimes, we’re lucky. The other person asks us out first; the customer shows their hand first, reducing our fears about price; the interviewer shares something personal about themselves, setting us at ease.

If you’re willing to run your business dependent on the kindness of strangers, that’s fine. But if you prefer to make your own luck – or trust – you’re going to have to learn to take risks. As Wayne Gretzky said, you’ll never miss a shot you don’t take; but of course, you’ll never score a goal either.

One of the biggest barriers to trusting is the cult of trustworthiness. The professions in particular like to cloak themselves in the idea of a Trusted Advisor that is strictly about trustworthiness – but not about trusting.  Such ideas include the high-minded virtues of integrity, tell-it-like-it-is courage, and a professional remove. But they frequently don’t encompass vulnerability and emotional risk-taking.  They should.

———–

In the third part, I’ll talk about the reciprocity of trust – how the role of trustor and trustee gets traded back and forth, and what that means for the development of trust.

Three Things You Need to Know About Trust: 1 of 3

There really are only three things you need to know about trust. You can pretty much deduce the rest.

I’m going to write about each of them in a separate blogpost, but here’s the one-liner version of each:

  1. Trust is a Two-player Game
  2. Trust Requires Risk
  3. Trust is Reciprocal

If you understand those three points, you can figure out things like trust recovery, rapid trust creation, and trust-enhancing cultures.

Trust is a Two-Player Game

For trust to exist, one party must do the trusting, and the other party must be trusted. That sounds dirt-simple, until you pick up the paper and realize how much talk about trust simply doesn’t mention it.

How many articles and surveys have you read that talk about “trust” as if it were some simple, unitary phenomenon?  Answer: most.

Those articles that say “trust is down,” “trust in banks has declined,” “people I know are more trusted–” all suffer one great defect: they don’t tell you why the trust is up or down.

It’s simple, if you ask the question correctly. If surveys show that trust in banking is down, is that because banks have become less trustworthy? Or because people have become less inclined to trust? One is a problem of ethics and trustworthiness; the other is a problem of risk-taking, education and fear.

You can’t design policies or laws or actions if you don’t know which problem you’re trying to solve.

If you can’t directly address trusting and trustworthiness, then measures of “trust” alone can’t be trusted – they could be influenced by exogenous factors like GDP growth.  And they are.

Trusting and Being Trusted

Trusting is about intelligent risk-taking.  Being trusted is about trustworthiness.

When someone says trust is really an issue of character or integrity, they’re talking about being trusted, not about trusting.

And when someone says, “trust but verify,” they’re talking about trusting, not about being trusted. (Though notice: if you have to verify – it’s not really trusting).

When you talk about trust in your organization, or with your clients or customers, you would probably prefer that others get better at trusting – to save you the trouble of getting more trustworthy!

We don’t have a lot of control over others’ propensity to trust, though we can certainly influence it.  But we have a lot of control over being trusted. And by far the best way to be trusted is to simply be trustworthy. One way to think about that is through the Trust Equation.

Trust is a Relationship

Trust is a relationship? Well, that’s what being a “2-player game” means. Before you think this is another “Doh” moment, note what it implies. It means the absence of trust is the absence of a relationship. It means when we think about business outside the framework of relationship, we are not thinking about trust.

What do market share, competitive advantage, markets, cost reduction, and value chains have to do with relationships? Not much. And therefore they have little to do with trust.

One driver of the level of trust is, simply, how we view business. Our view of business for the last several decades has been about competition, not about collaboration; about opposition, not about relationship.

A big reason those articles show that “trust is down” is because we have stopped thinking about relationships, and focused instead on competitive marketplaces.

Wanna know why trust is down? Start with the absence of relationships.

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Next post: Trust Requires Risk

Reputation Recovery

When you are more virtuous than your reputation would suggest, you have a communications problem.

When your reputation for virtue exceeds the facts on the ground, you have a ticking business problem.

When Image and Reality Part Ways

When you have a communications problem, the communications team should hire a PR firm. Most firms do this.

But in the second case – where the reputation is better than the truth – most firms do not do what they should. They don’t even thank their lucky stars for having a better reputation than they deserve.

Instead, they begin to believe the hype.

Then one day, It Happens. The subsidiary defaults. The pipeline springs a leak. Animal byproducts show up in the food. Someone comes forward to testify.

Let’s be clear. These things just kind of seem to happen more often to the non-virtuous than to the virtuous firm. If the event truly is an anomaly, it doesn’t last on the front page. Acts of god don’t make good news for long.

But what about the non-virtuous firm?

When Disclosures Accelerate

When it turns out the smoke really did indicate fire, the non-virtuous firm all too often behaves predictably.  Having believed their undeserved hype about being virtuous, they then do what the virtuous firms did – they hire a PR firm.

Which is all too often the wrong thing to do – and hardly ever the main thing to do.

In an interesting display of PR sensitivity,  BP chose to hire Dick Cheney’s former campaign press secretary as head of PR, and a Wall Street PR firm as outside advisors.

Of course, there is a role for communications experts even in a crisis. With multiple constitutencies and tons of experience at keeping things secret, perhaps it made sense for Penn State to hire two outside PR firms.

But most non-virtuous firms aren’t looking for technical expertise; they’re looking to follow the lead of Muammar Gadaffi in seeking spin.

PR: a Delicate Balance

It cannot be an easy thing to tell clients seeking spin that the solution is to become virtuous. Clients want virtue now, and backdated if possible, thank you very much.

In such a milieu, the temptation for ambulance chasing is high. How can you keep on teaching virtue when the clients are paying you to shut up and stop the pain?

Yet that is what must be done. Arthur Page, the poster child for “good” public relations, had it right. He had a list of seven principles, the first of which was “tell the truth.” What a concept.

He also said that public relations is 90% doing and 10% talking about it. In other words, if you are virtuous, you’re not going to have much of a problem explaining crises.

Recovering Virtue

The fallen firm wants to know what they can do now to recover. After all, they always sought fast fixes in the past, and they worked. But there simply is no fast route to virtue recovery if you’re coming from a history of un-virtuous behavior.

At a personal level, it’s conceivable that someone could have an instant conversion and become virtuous, though I don’t think I’ve ever seen it – most conversions I have seen have come through pain and hard work.

And at a corporate level? Fuggedabout it. The fastest route to serious change is to change all the top leadership, and even then you’ve got habits, policies and cultures to change. Minimum 6-12 months, and I can’t off-hand think of an example where change has happened that fast.

Non-virtuous leaders who’ve been caught with their pants down don’t want to hear it, but the best way to handle crises is to prevent them happening in the first place. The best way to be trusted is to be trustworthy.

Spin is not the solution; spin is the problem.

You may not be able to change by tomorrow, but you can always start the journey today.

 

 

 

 

Lying is to Trust as Kryptonite is to Superman

That may sound self-evident. But lying isn’t the only way to kill trust. It’s useful to review the bidding, in order to realize just how potent lying is.

Then too, there are green kryptonite and red kryptonite forms of lying.

Read on.

Four Ways to Destroy Trust

Using the trust equation as a checklist suggests at least four generic ways to destroy someone’s trust in you:

  • Develop an erratic track record. That leads to a reputation for being flakey, undependable, that you can’t be counted on. Soon enough you’re losing the big jobs, then the little ones. All because you’re unreliable.
  • Abuse others’ confidences. Develop loose lips. Tell secrets. Make hay on inside information. Laugh at others’ misfortunes, or just be emotionally tone-deaf. The invitations will stop soon enough.
  • Use others for your own ends. Do unto others before they do unto you. Always be closing. Find the competitive advantage at every turn. Don’t let your guard down, and don’t be a chump. It’s better to receive than to give.
  • Put distance between yourself and the truth. There are white lies, bald-faced lies, lies of omission, half-truths, partial truths, packs of lies, and lies of convenience. They’re all kryptonite.

Which is the worst?  It’s hardly a walk-away, but I say the last one–lying.

Cold, Flat-Out, Straight-up Lies

Robert Whipple told me of the experience of being lied to, to his face, with full eye contact. That degree of trust destruction is strong enough to take effect instantly. Let’s examine why.

Obviously, if someone lies to you, you can’t believe what they’ve told you. Which means the next thing they tell you has to be suspect as well. Being lied to immediately ruins the speaker’s credibility.

But that’s just a start. Lying also infects reliability. Because if you tell me you’ll do something, but you’ve lied to me before, then I don’t know if I can trust you’ll do what you’ve said you’ll do.

Lying also affects intimacy and confidences. If you’ve lied to me, your motives are suspect. I’m not about to share confidential information with someone who’s been dishonest with me about their motives.

Finally, that same issue of motives makes me profoundly suspicious of your intentions. We do not assume people have lied to us for our own good, but rather for their good. And we do not like that.

Green and Red Kryptonite Lies

As is well known, krytponite of all forms is debilitating or lethal to Superman, but red kryptonite is more harmful. To extend the metaphor, which is more lethal to trust: a bald-faced lie, or a series of veiled, half-truths? I suggest that the latter is worse.

A flat out lie has two elements of truth: transparency and completeness. It’s all out there, right away. When Shaggy sings It Wasn’t Me, it’s such an in-your-face lie you have to laugh. The band-aid is ripped off the scab all at once. If you trust after that, it’s entirely your own fault. That’s green kryptonite.

Then there’s the really bad stuff – red kryptonite lying.

Red kryptonite lying consists of half-truths, incomplete truths, truths not told at the right time. It is often justified on the grounds that it isn’t green kryptonite: “I didn’t actually say anything that wasn’t true.”

Red kryptonite lying is riddled with layers of bad faith. It leaves the receiver with nagging doubt. Why did he not tell me the whole truth? Why did she not bring this to my attention earlier? What about all the other questions this raises?

One trouble with red kryptonite truth is the nagging doubt it leaves you with – the lack of resolution about the issue at hand.

But perhaps the worst nagging doubt is about the nature of the liar himself. Is the liar incompetent? Or is he dishonest? Does the liar even know the difference? Finally – does the liar even know he is lying?

It is sometimes said that the best salespeople are those who can first sell themselves. Indeed, some high-selling salespeople have that ability; but I wouldn’t trust them.

A Review of the Forbes Review of Trust

We here at Trusted Advisor Associates earn our daily bread by helping clients to become Trusted Advisors to their clients and to each other, and by helping clients create Trust-based Selling programs.  

That’s our daily work—specific applications of trustworthiness. To do so, it also helps to take a broader look at trust. That’s one role of this blog, Trust Matters.

A similar role is occasionally played by media, who come up with specials on the subject of trust. Such an event was Forbes’ Magazine’s recent issue, The Trust Gap. Nicely edited by Raquel Laneri and Michael Noer, it consists of fully 19 articles, covering a wide range of trust-related topics. I purposely printed them all out, and read them on the plane to Orlando last night uninterrupted.

Turns out it makes for fascinating reading: mainly because it shows once again the amazing range of issues which influence, and are influenced by, the phenomenon of trust. I’d offer you a link to a combined file, but I’d probably run afoul of some copyright law, so you’ll have to do your own mix tape. (Although–it just occurred to me–I’ll bet you could probably buy a print copy of the magazine somewhere!). 

To see if it’s worthwhile for you, here are a few observations from me:

Caveats

Remember this particular collection came from Forbes Magazine. To my mind, that means it’s eclectic, though with a generally capitalist-cum-libertarian bias. Which means you get some creative thinking, though at the price of the occasional slog through such stuff such as:

·    the 1971 departure from the gold standard was the root of all our ills;

·    Obama is a deceiver because he said he’d work with the Republicans, yet passed many bills without a Republican vote. Puh-leeze.

Still, those are a minority.

Some Highlights

James Henry and Lawrence Kotlikoff start by citing Anna Bernasek (see Trust Quotes Series #6 interview with Anna), then go on to suggest that our long, slow, decline of trust in institutions has a simple cause—complexity of government. And, they have a solution. Five of them, actually—one each for taxes, banking, health care, social security, and offshore taxation. They’re sweepingly broad, startlingly commonsense, and—you sense why this is a virtue—simple, while not being ideologically simplistic. 

Joel Kotkin, in Tribes and Trust, makes the case that the decline of social trust and trust in institutions as we’ve come to know them are offset by equal increases in our tribal affiliations. By “tribes,” he doesn’t just mean movements in Asia, and China as a whole, but also economic groups like “investment bankers, techno-geeks or gays.” Though, this trade is not net good.

Harvey Silverglate tells us, in "Trust me: Justice is my Last Name"  that there has been a systematic, growing increase in the abuse of the justice system by Federal Prosecutors. If true, that one’s scary.

I don’t know that I’d agree with Henry Miller on everything , but he’s made a nifty observation by identifying the Type 1 vs. Type 2 risk equation facing regulators; and having done a stint at the FDA, we owe him a good listen. If you’re a regulator, which is worse, he asks: the Type 1 error of approving a disastrous product, or the Type 2 error of not approving a good product. You don’t have to be a self-aggrandizing bureaucrat to see how we’d all respond conservatively in such a situation; and the policy implications of that low trust are large and ugly.

Pollster Zogby notes, in Mending America’s Broken Trust, an interesting anomaly: Republicans trust Wall Street more than Democrats, but are also more likely to think that bankers got a sweetheart deal in the bailout. Which suggests their core belief is more anti-government than pro big business. 

From across the pond, Quentin Letts reminds us gently in Skepticism is More Powerful than Trust that a healthy dose of skepticism—quite a dose, actually—is periodically a very good thing. Furthermore, public shaming is still powerful; witness the official who used public funds to build a duck house, and was followed about town by people flapping their elbows and quacking. He resigned.

On the other hand, Melik Kaylan in Relationships of Mutual Mistrust suggests the risk of shaming can get way, way out of control. Citing a former secret police officer in Rumania, where there is no privacy, the threat of blackmail is a constant presence. In his view, this same sort of risk is posed by Facebook et al, and serves as a chronic negative drip against the development of trust.

Larry Ribstein has a piece I resonate with, called Battling the Mistrust-makers. He points out how, in contrast to just about everyone else’s claim that trust is declining, in certain ways it’s increasing: we are more and more dependent and intertwined with others. But there’s a force battling the kind of trust we need for successful economic cooperation, and that’s what he calls the “mistrust-makers.” He particularly singles out the media, politicians, and the plaintiff bar. In light of the Shirley Sherrod case, and the much ado about nothing case against death benefits payment cases in the insurance industry, his commentary is timely.

To end up on a (partly) upbeat note, Karlyn Bowman, in Distrust: as American as Apple Pie notes that with all the declining numbers about trust, Americans are still positive on their constitutional system of government and core values like the belief in America as the land of opportunity. (There are some data to suggest that last belief is not so well-founded these days, but let’s not quibble about a happy ending note).

Restoring Trust and Confidence in Business: Part II

In yesterday’s blogpost, we critiqued the performance of a CNBC-selected all-star business panel. Their assigned subject matter was “Restoring Trust in Business.” 

We said their answers were largely non-responsive, and mainly boiled down to two: jobs and tax cuts. Make that one, actually, because the panel’s preferred route to jobs appeared to be tax cuts.

Suppose someone asked you, “How should we go about restoring a decades-long decline in confidence in business and the markets?” How many of you think the obvious answer is “tax cuts?” That’s not what first occurred to us.  

Of course, it’s easy to criticize, hard to be constructive. So here’s our attempt to answer the very serious question that CNBC posed: How can trust and confidence in business and the markets be improved?

1.    Communications. Let’s start by suggesting how you should behave when facing the public: for example, if you’re invited to speak on CNBC. 

Years ago, Robert McNamara gave this advice to dealing with reporters: “Never answer the question they asked you; answer the question you wanted them to ask you.” That may or may not be good advice for politicians, but it’s 100% wrong for businesspeople that want to increase long term trust in business.

Instead, give a direct, responsive and thorough answer to the question asked. Then, if you think the question is off-point, say so directly and quickly—and resist the inclination to speechify.

How does this help build confidence in business? Because business is often seen as lacking integrity. You don’t regain integrity by spinning people; you get it by behaving with integrity. 

Let’s define integrity as being integrated, or whole; in short form, being the same person to all people at all times.  If you’re going to treat the press antagonistically, we can only assume you do the same with employees and customers. If you tell truth to one party and lie to another, you aren’t a 50% truth-teller; you’re a 100% liar. 

Role model the trustworthy leaders you want us to see—don’t emulate Sunday morning politicians doing the spin thing. (Remember, they rate even lower than you do in the confidence ratings).

2.    Leadership: Why not step out from the crowd and acknowledge that business success is dependent on the quality of goods and services you deliver and not the difference in the marginal tax rate paid by corporations or highly compensated individuals?

Are you delivering the value you promise to customers and honoring the deal you make with employees? Are you treating your employees as ends in themselves, fellow-human-citizens to be treated with dignity? Or are you treating them merely as “human capital,” evaluating them via return-on calculations that can be monetized and compared financially with other asset classes?

3.    Incomes. Here’s what perhaps the leading academic student of trust, Dr. Eric Uslaner, has to say: “[taking] steps to reduce the gap between the rich and the poor is the single biggest factor in whether societies are more or less trusting.” Another key driver, Uslaner says, is education. Education leads to greater acceptance of others, more income equality, and a lessening in corruption. All of which help business’s reputation.

We in the US like to think we live in a meritocracy. But the data say otherwise. One survey concludes, “In the U.S., 50% of a boy’s chance of climbing the ladder is the result of his father’s income. In Denmark, it’s only 15%.”

Do the few billions extra paid to top executives for beating the street justify the health care cutbacks, layoffs or pay freezes imposed on average workers? Will your executives truly put forth less effort or will you sacrifice the quality of your leadership? Will your employees’ greater purchasing power and loyalty outweigh any difference?

4.    Time. It’s time to break the back of our epidemic of short-term thinking. Don Peppers and Martha Rogers say, “The Crisis of Short-Termism is the Mother of All Problems.“ Business people need to apply a systematic focus on longer time frames across all aspects of business: Why not pay for performance over the longer term, recognizing that “long term selfish” provides an equal if not greater reward than beating the quarterly expectations? 

Are you building a one-season team or creating a dynasty? Short-termism needs to be attacked in pension fund management, securities analysis, accounting policy, and in the curriculum of MBA programs. No one supports short-termism in theory—yet so many support it in their actions. It’s time to unveil the curtains and act on principles.

5.    Strategy. For decades now business’s focus has been on Competitive Strategy. We are now living in an age that demands Collaborative Strategy. From outsourcing to global capital flows to global terrorism to environmental issues—we are integrally connected for better or worse at this point. The critical issue is no longer how to beat one’s competitor, but how to thrive in a world of inter-dependencies

Treat your customers as allies, not as guardians of their wallet or as your competitors. Treat your suppliers as part of your team, not competitors to be dealt with through sharp contracts. Treat your industry association as a force for better quality and customer relations, not as a lobbying tool to gain competitive advantage. Stop going to leadership programs on competitive advantage, and start going to ones on collaboration.   

6.    Motivation. Reduce extrinsic incentives, increase intrinsic incentives: An HBR study recently pointed out that the top motivational factor is the one rated dead last by participants in a major survey on motivation: the number one factor is progress. This is astonishingly simple and obvious: people want to succeed at their work. Yet business insists on perpetuating the carrot/stick rats-and-cheese models of behavioralism from Pavlov and Skinner.  

Why not recognize that most employees (including leadership) take their greatest rewards from achievement and recognition, and that compensation beyond what it takes to meet primary needs is about scorekeeping rather than true reward? We all have mirrors in our homes…think how good it is to look in them and feel good about what we have contributed? No one’s epitaph says, “I should’ve spent more time at the office.” Stop treating workers otherwise.

So there you have it: our answers to “How can trust and confidence be restored to business and the markets.”

But, what do you think? Is it better, or worse, than “tax cuts?”

Peter Firestein on Trust, Character and Reputation (Trust Quotes #4)

Peter Firestein’s extraordinary career began in Indiana. He soon left for California, taught himself Spanish in a park in Mexico, learned commodities in Latin America, and has a unique resume, having worked for Michael Milken and advised the Brazilian Government on privatization of its national phone company.

Peter ended up counseling mega-global companies on corporate reputation and Investor Relations. His book ranges both wide and deep; you can’t summarize Peter’s insight and wisdom briefly. But I do try to pick out a few themes in this interview.

CHG: Peter, Let me put the onus on you: what strikes me most about the book is perhaps the role of personal character and of relationships in dealing with mega-corporate institutional relationships. It’s tough to summarize such a broad book, but how do you see it?

PF: You’ve actually done a pretty good job with your question, Charlie. I try to suggest in the book that the job of leading a significant company these days requires involvement of the whole person, not just the part of the person trained to analyze, fix, and build businesses.

People who’ve reached the point of development where they’re considered capable of leading companies are attuned to making decisions on the basis of metrics. You don’t get there unless you understand return on investment, for example. That’s always been true, and it’s never been more important than today.

But the world requires something more of you now. Modern information technology makes enormous amounts of intelligence on businesses available to anyone who can use a search engine. For companies, there’s no longer any place to hide. In addition, having information conveys to any citizen a sense of entitlement to register opinions and organize opposition to companies whose actions seem out of line with common values.

The good news: any manager with sufficient maturity to run a company also has enough life experience to understand how people outside the company feel themselves affected by its actions. But too many otherwise competent corporate leaders don’t understand that these two sides of life are not only connected—they’re inseparable.

That’s what I mean when I say that, in the end, it’s all personal. In a post-modern world where everyone seems not only to have an opinion, but the eloquence to express it, being the boss doesn’t make you immune; it makes you vulnerable. The moment you take that to heart, you’ve made your first step toward resolving conflicts with your antagonists. Leading is, first of all, listening.

CHG: One thing that struck me was the insistence on reputation as being built inside out: the only sensible strategy is to be the company you want your stakeholders to see.

PF: One of the book’s early titles was “The Glass House,” meaning, of course, that you can’t fake things for very long any more. Just thinking about the failed obfuscations attempted by some big corporations in recent years can bring actual, physical pain.

When I say you have to “build reputation from the inside out,” I mean that managers have to create reporting and communications structures that not only disseminate values throughout the organization, but absorb the workforce’s on-the-ground experience all the way to the top. Every action the company takes, therefore, represents its core value system. And the workforce’s day-to-day reality informs senior decision-making.

I call this “vertical communication,” and I think it reduces the likelihood that a CEO will wake up some day to find that a regional manager has been found to have bribed a government official, or a sub-contracted factory is discriminating against female employees, or an accidental dump of toxic waste has disappeared from company records somewhere down the line.

There are few small failures in big business. In fact, the depth of failure often presents a mirror image of success that preceded it. True vertical communication that extends throughout the organization helps you spend your life thinking about other things.

The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.

CHG: Since this blog focuses on trust, please tell TrustMatters readers how you see the relationship between trust and reputation?

PF: If there’s a difference between high trust and strong reputation, I’m blind to it. Both trust and reputation—whether high or low—are expectations of future experience based on what is known about the past. That’s how people differ from markets. The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.

CHG: You provide a very real-world example of exactly how a big company should go about recovering from a reputational slip, and what impressed me about it was your recommendation of aggressive, pro-active engagement. Say more about that?

PF: Here’s how pro-active you ought to be. You start preparing for the next crisis five years before it happens. And you don’t need a crystal ball for this. If you’re a multi-national company of scale, it’s impossible to avoid reputational mishaps. Some day, somewhere, someone will—intentionally or by neglect—commit a reputation-compromising act in your name. The inevitability must be an integral part of your thinking. So, you have to have a culture in place well in advance that enables you to respond appropriately to events that never crossed your mind before they happened.

People call it crisis communications, but it’s much more than that. Communications, by itself, never fixed anything. People also call it crisis management. But the crisis has already occurred, so the opportunity to manage it is past. You could call it management of the aftermath, and the only way to manage the aftermath effectively is to participate in it.

Which means, to some degree, participating in the emotions of those you have harmed. Referring to a person in the CEO position, the corporation becomes the person, and vice versa. If, as an individual, you have empathy toward a family who’s lost a father or a mother, you have to show that same empathy as a corporation.

Beyond this, the best piece of advice available on the subject is to resist the temptation to let your lawyers protect you. They can’t. There’s a short list of companies that have come out of disasters with stronger reputations than they’d had before. In all cases, they did so because they were able to identify with those who were angry with them. Enlightened leadership means understanding there’s no Plan B.

CHG: Let me challenge you on one small item: you assert that the most important constituency is investors, though you also advocate systematically managing a wide variety of stakeholders. Isn’t investor turnover increasing radically these days? Does that diminish your point?

PF: The building of reputation can’t be about anything but what motivates management – and that has to do with investors’ willingness to value the shares at higher levels. Turnover? If someone’s selling, someone else is buying.

There’s no altruism in business, nor should there be. But the cold fact these days is that sustainable behavior means supporting legitimate social interests. You don’t have to like it, and you don’t have to take a “nice” pill to do it. It’s just business, but business has changed. Here’s where investors’ interests enter the social sphere: A company facing a social and regulatory headwind is likely to have higher capital costs and less-than-certain chances of strategy execution.

Investors don’t like that. It’s not the job of a corporation to address social interests—except where doing so is the only avenue to making business successful. And that’s already become the normal condition in most industries. I just read a wonderful quote by a Canadian union official named Stephen Hunt who, in a speech about social responsibility in mining, could have been referring to any industry when he said: “A mining company is only as good as its opposition.”

CHG: You’ve dealt with dozens, maybe hundreds, of CEOs. What has been the most common blind spot or weakness you have seen regarding good reputation management?

PF: It may be my sunny disposition, but I can’t remember at the moment meeting a business leader who wasn’t driven by earnest good intentions. Sure, I’ve known my share of indicted folks; but I liked them, too. There’s something about giving yourself over to a goal that’s not that different from love of family. It’s personally attractive.

I had the great good fortune to grow up in the Sovereign State of Indiana, and it wasn’t until I was in my thirties and working in a New York trading company that I came to realize that high intelligence in a person does not necessarily equate to noble intentions.

Because you are using the world to build wealth, the way you treat that world will follow you.

The most common blind spot (since you asked) is a lack of balance, which I guess can be closely associated with laser focus on a goal. Perhaps a better way to describe it is to call it a lack of context. Because you are using the world to build wealth, the way you treat that world will follow you. It wouldn’t hurt us to remember once in a while that American native populations held profound respect for the game they had to kill in order to live.

I once sat down to a dinner meeting between a CEO and equity analysts in an elegant New York hotel. The CEO was among the most prominent European industrial titans of the last half century (a client). His dozen or so guests were invited there to eat and ask him questions. He opened the conversation this way: “My father taught me,” he said, “that to make a living, you have to rub other people.”

He was assuring them of his accessibility. There was no imaginable reason for him to endure their earnest self-importance had he not wished to. He didn’t need them. But hosting them reflected his idea of how the world worked. There was no amount of esteem or money that could free you from the need to engage.

CHG: You have a fine sense of the historical about you. We’ve been through this kind of business reputation downturn before, certainly in the US. What’s different this time? What should we learn from the past?

PF: The past can be a deeply misleading subject because there isn’t much that hasn’t happened in it. If we’re talking about the past experienced by those of us who have come of age since World War II, in which America emerged triumphant in an otherwise devastated world, there’s a strong argument suggesting that’s the most unrepresentative of all the pasts available for our consideration.

One thing we’ve learned from the past is that the notion that things are different this time provides an assured road to ruin—as does a sense of invincibility and the belief that we’re smarter than those who have come before.

The reputation of business—as cyclical as anything else—will continue its descent until a new ideal appears to propel it upward again. Perhaps the last ideal that floated the reputation of business involved the building of the industrial world and the opening of the West. Dust from the explosion of that ideal is still settling around us. Perhaps the next upswing will come from the ideal of restoring the environment—in other words, from respect for the same earth the last ideal wrecked.

It is certain that we don’t get to decide these things for ourselves. In trying to come to terms with the cycles of sentiment, I have taken comfort in a phrase coined by New York Times Columnist David Brooks. The term is “epistemological modesty” and refers to the inescapable fact that, no matter how hard we try, we really don’t know very much. Everyone’s familiar George Santayana’s saying: "Those who cannot remember the past are condemned to repeat it." Not being much of a comedian, Santayana forgot his punch line: “So are those who can remember it.”

CHG: Let’s imagine this blogpost got forwarded to 50 CEOs. On the whole, on the average, what are the top 2-3 things CEOs need to hear?

PF: Sir or Madam CEO: I have nothing but good news for you. It is this: You have more control over the fate of your company, your reputation, and your career than you imagine.

Do you look at your critics—the trigger-happy media, activists with a bone to pick, investors and analysts who just don’t get it—and tell yourself that not one of these people has ever run a company for a day? So, how could any of them understand what you’re trying to accomplish?

In their lack of fairness lies your advantage. During the latter part of the 20th Century, when anti-tobacco activists tried everything they could think of to put cigarette makers out of business, their nearly constant companion was a Philip Morris public affairs executive named Steve Parrish. He spoke at their conferences and kept in close touch with the principals of organizations that opposed him.

While absorbing all their slings and arrows, he offered them a continuous flow of new information about the manufacture of smoking products, including the companies’ efforts to reduce their deadliness. He discussed regulation of the industry, which eventually came to pass. The result was that—whether we like it or not—tobacco companies survive as a highly-profitable business.

Parrish’s strategy was to increase his adversaries’ knowledge of the tobacco industry—a counterintuitive approach if there ever was one. The byproduct of this flow of information was that he continually moved the goal posts on them, preventing closure of the argument despite an extraordinarily hostile environment and an enormous consensus against him.

CEOs have at their disposal one of the modern world’s most powerful weapons: Information. Gifted corporate leaders will use it to engage adversaries, induce them to invest in dialogue to the point that it cannot reasonably be abandoned, and, by that route, achieve a workable consensus. If companies whose products kill you can do this, why can’t anyone?

CHG: How much difference can individuals make?

PF: Excluding natural disasters, change comes from nowhere but individuals. Historical forces, wars, financial trends, market bubbles and collapses, the discovery of penicillin, and the invention of cheap global digital communication as well as post-modernist art can all be summed up in single word: Behavior. Even mass behavior has to start with an individual—a notion that may lead us to one definition of leadership.

CHG: In your book, you carry on an extended discussion about how very good companies, at least for a period of time, seem to lose direction. Merck during its Vioxx episode is one example you explore. You also suggest a concept called “Structural Corruption.” What’s this about, and what insight can you offer about the mechanism by which some companies seem inexplicably to turn south?

PF: I use Merck as an example because it was a fantastic company for over a century and is a truly admirable one today. But Merck’s Vioxx interlude, during which it seemed to want to overturn the last 400 years of the scientific method by subordinating disclosure of pharmacological research to the desires of its marketing department, shows how even great companies can become confused when they allow commercial factors to cloud their judgment.

The scientific method says you base conclusions on observed fact. Merck hid harmful side effects of its drug in order to sell more of it. I maintain that the people inside the company would never have behaved this way in their private lives. Their judgment suffered from an insularity within the company that distorted their frame of reference. There was a kind of “echo effect” at work in which people gradually talked each other into highly inadvisable actions—and many inside and outside the company suffered.

I came up with the term “structural corruption” to describe an impossible situation in which managers sometimes find themselves when their industry’s fundamental business model goes illegal. This describes parts of the insurance industry a few years ago when Marsh & McLennan enrolled its competitors in a scheme to rig bids for big institutional contracts and pay out illegal commissions. You couldn’t compete unless you played the game.

So, imagine a manager who’s invested his or her life in building a career in that sector, and has done so by behaving ethically, and then has to contemplate giving it all up in order to maintain a hard-won reputation. Imagine a similar manager trying to win a contract in a foreign country in which he or she is competing against a company domiciled in a place where the government winks that the payment of bribes to win business.

The concept of “structural corruption” is useful in distinguishing the dynamic in which even managers with the highest standards of conduct can become victimized by secular ethical trends. The questions people face in such circumstances can be life-changing. One secular ethical trend lies behind the Great Recession that began in 2008 and whose end is not yet convincingly in sight. But that’s another story.

+++++

CHG: It’s been a real pleasure meeting and talking with you; anyone interested in buying Peter’s book, which I recommend can find it here: Crisis of Character: Building Corporate Reputation in the Age of Skepticism

This is number 4 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #3: Dr. Eric Uslaner on the Nature of Trust
Trust Quotes #2: Robert Porter Lynch on Trust, Innovation and Performance
Trust Quotes #1: Ross Smith of Microsoft

Why Testimonials Are Over – Rated in Sales

How would you like to have Stephen R. Covey write a glowing book-jacket quote about you and your business?

What a great testimonial, right? Covey’s book The 7 Habits of Highly Successful People has sold 5 million copies since it’s copyright date of 1989. It is still—still—ranked number #85 on Amazon’s total rankings (including Harry Potter, etc.), and #1 in several sub-categories.

So a referral from Covey ought to be worth a ton. And by extension, references in general ought to be valuable, right?

Well, yes and no. And as usual, the no is more instructive than the yes.

Take the case of a new sales book: Sales Blazers, by Mark Cook. Right there on the cover, it says, “Sales Blazers is one of the most important books you will ever read.” –from the foreword by Stephen R. Covey.

"One of the most important books you’ll ever read. " That’s what Covey says, to you and to me, right there on the cover.

Now I don’t know about you—your reactions could be different than mine, to be sure—but for me, when someone tells me, flat-out, in a mass media outlet, that he knows what I will believe to be the “most important” anything in the world—watch out. That’s a red flag. I am already suspicious.

Now I’m thinking, ‘how dare you claim to know what’s important to me—much less “most important?”’ This is like TV ads that address me in the second-person singular as “America.” (“America, we know you love sports. That’s why we created pocket couch potato…”)

Lesson one about testimonials: all the testifier’s fame is put at risk if the testifier claims knowledge he doesn’t have—in this case, knowledge about me.

So now I’m predisposed to be suspicious when I check out the book. I note in the foreword that the author used to work for Covey’s son, at Covey’s company in Salt Lake City. Self-interest rears its ugly head like Putin flying over Alaska. Is this going to be an objective review? Cui bono?

I check out the (three) online reviews on Amazon. The first two are by people living in Salt Lake City. What a coincidence. (And, surprise, they’re positive).

Now I’m ticked off before I open the cover.

When I finally look at the book, it’s all about how leadership can improve revenue for a sales team.

OK, fair enough. I believe that. And I see the link between leadership and team performance. I also believe Covey knows something about that, so now he’s regaining a little credibility with me.

But as I read on, I notice the book is all about selling and revenue and achieving sales goals. Nothing about customers.

I mean nothing! I go to the index. There are 2 entries on “competitor,” and about 13 on "rewards". But “customer?” Not a one.

Now, there’s nothing wrong with leadership, revenue goals, or sales success. They’re all very relevant to sales, obviously. A book about it is perfectly valid.

But in my case—me, personally—I happen to believe very strongly that sales should be ultimately all about the customer. I mean by that—the end goal, purpose, meaning and intent of sales—is to improve life for the customer; and that if you do that, you too will succeed wildly in selling.

You don’t have to agree with my view on that, nor do Covey and Cook (and evidently they don’t).

But—if you’re going to tell me, in a mass medium, what I, me, personally, am going to consider one of the most important books I’ll ever read—then you’d better be right.

And in my case, he was wrong.

This looks like a decent book on leadership and sales force management. Is it "one of the most important books I’ll ever read?" No way, no how, not even in the ballpark with a ten-mile pole, not a chance, you-gotta-be-koidding me.

And that’s the trouble with testimonials.

If you’re asked to give a testimonial, restrict yourself to statements in the first person. If you solicit one, don’t over-estimate the impact.

But—the heck with you Charlie, you might say—’Is it working?’

See for yourself at Amazon’s ranking: At this writing, it was ranked #298,332.

For comparison, see the Top 100 sales books on Amazon, where the #100 sales book is currently ranked #27,000. Not even close.

Don’t over-estimate the power of testimonials.

And don’t squander your own precious credibility by claiming to know the customer when you don’t. A reputation is a terrible thing to waste.

 

 

Web Trust 2.0 vs Web Trust 3.0

Thought leaders John Sviokla and David Pogue both posted thoughtful pieces about the role of trust in a wired, Web 2.0 world.

Pogue—technology columnist for the NYTimes—writes about the positive impact of (intelligently-moderated) blogging on the reputation of the blogging host.   Sviolka, Vice Chairman of Diamond Management & Technology Consultants, writes about The Madness of Crowds, focusing on the dynamics of reputation systems, and how the web enhances them.

They’re both talking about the web as a means of enhancing one’s reputation—but they emphasize very different parts of trust. Who’s right?

They both are, of course, but I’d say Sviokla focuses on what I’ll call Web 2.0 trust; Pogue is talking about Web 3.0 trust.

Sviokla’s subject matter is eBay, Amazon, and Motley Fool’s Caps. He sees these as more powerful in trust-creation than blogs, because, as he puts it:

The problem with Wikipedia, and blogs, and user generated content is that many of them don’t have a strong reputation management process. Put another way, any idiot can have an opinion. The most important thing is does the person who is giving an opinion have a good reputation? Is that reputation attached to his or her opinion? Does the person own the downside risk of the adverse effects of their opinion?

Sounds good, right? Though, as whimsically pointed out in Trust Isn’t Transitive by Peter N Biddle, just because someone can fly a 747 doesn’t mean they can be trusted to carry a handgun. And though I might buy a book from someone with a good reputation rating on Amazon, that doesn’t mean I’d introduce them to my daughter.

That’s where Pogue and Web 3.0 trust come on. Notwithstanding Sviokla’s critique that blogs are unmeasurable and don’t hold people accountable, they perversely have the wonderful ability to humanize. That’s exactly what people are—unmeasurable and hard to hold accountable. And a significant part of how we come to trust them is related to how much we come to know about them—in precisely those hard to measure and slippery ways.

As Pogue points out, when Microsoft lets employees blog, you suddenly see the human side of the firm, and the “Dark Side” gets a little lighter.

In my terminology (the Trust Equation—Credibility plus Reliability plus Intimacy, all divided by Self-Orientation), Sviokla is heavily defining “trust” in terms of reliability. Pogue is emphasizing the intimacy component—not on blogs alone, but in moderated commented blogs—Diablogs.

The intimacy factor is inherently richer, because intimacy is where risk enters the trust equation. People and firms take calculated risks in blogging: how much to moderate, how much to reveal, how close to the edge to get, how one makes those judgments; all these things tell us a lot about the writer, the blog editor, and the firm. Reliabilty says something very deep—but not nearly as broad.

Intimacy also gives us the bandwidth of exposure to assess other’s self-orientation. Are they in it for themselves? Or do they seem to care about me? And self-orientation, I argue, is the single biggest factor affecting how we assess the trustworthiness of another.

Does Google really mean it when they say they “Do no Evil?” The answer won’t be found in Sviokla’s reputation management systems. It will be found in Google’s willingness to let its people speak, from the heart, about what they think. And, seeing their hearts, we will know the judgment to make about whether to trust them.

Not just for book buying, but for introductions to daughters and the like.