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Trust and the Sharing Economy

What if everyone could be trusted? And everyone became willing to trust?

Unrealistic? Sure, if you insist on all or nothing.

But if we moved directionally toward those goals, it’s not hard to envision significant improvement. Increased trustworthiness, and increased propensity to trust, would most likely lead to:

  • Fewer and simpler contracts
  • Fewer lawyers and lawsuits
  • Less transaction complexity
  • Lower insurance costs

This is not pie in the sky. There is an emerging part of the economy that does precisely this: it’s called the Sharing Economy, or Collaborative Consumption.

The Sharing Economy

The Sharing Economy is composed of assets which were previously owned by single entities (either persons or corporations), but which have been freed up to be used by many. Perhaps the best-known example of the concept is ZipCar.

In principle, the concept can apply to any asset used at less than its full capacity. That includes all manner of goods.  Airbnb has made a business of helping people rent out their homes. Couchsurfing is just what it sounds like.

This can sound like pure 20-something left coast social experimentation, but it’s also gotten the attention of General Motors. It’s not fundamentally different than when McDonalds figured out it could use its under-utilized real estate to serve breakfast.

In fact, the Sharing Economy is resurrecting some 19th century ideas like the Grange Movement that helped stimulate the Great Plains agricultural economy.

For that matter – remember libraries?

Trust: the Backbone of the Sharing Economy

The Sharing Economy is, pure and simple, about trusting strangers. How, in an age of global markets and internet-based communication, can we do that?  Or to make it more personal: what would it take for you to rent your house or apartment for a week to someone from France you met online?  And how, finally, can you make that answer scalable?

That, it turns out, is one of the fascinating aspects of the Sharing Economy.  It doesn’t make sense for each sharing business model to develop its own proprietary database, any more than it makes sense for every mortgage lender to develop its own creditworthiness database.

Hence, the race is on to determine who will develop the FICO score of trustworthiness, the most dependable metric, the database that will provide the underpinnings of a potentially considerable amount of economic activity.

Trust Metrics

I have written a White Paper on this subject: Trust and the Sharing Economy: A New Business Model. [I should add here – full disclosure – I am an advisor to and have a financial interest in one of those players, TrustCloud.]

The Sharing Economy is a microcosm for observing trust concepts I’ve been writing about for years. For example:

  1. Trusting vs. being trusted: If you have an apartment you’d like to rent out, you are the one doing most of the trusting; your question is about potential renters – are they trustworthy? So often missing in general discussions of trust (“trust in banking is down…”), the distinction is obvious and vital here.  What’s needed is trustworthiness ratings of the potential renters.
  2. Reputation vs. trustworthiness: It’s easy to mistake reputation for trustworthiness, and some previous online trust metrics have done so. The result is data that suggest Perez Hilton and Justin Bieber lead the pack in trustworthiness.  Does not compute.
  3. Trust comes in several flavors, and is all about context. Unlike digital recordings, some forms of trust don’t travel well (remember the game of “telephone?”). Or as I’m fond of saying, I trust my dog with my life – but not with my ham sandwich.

In the race to build trust metrics, it’s tempting to over-emphasize the technical aspects of the problem. But in the case of trust (as with knowledge management), the more important problem to solve is to correctly define trust and its indicators.

I’ll be writing more about this in future.

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Many Trusted Advisor programs now offer CPE credits.  Please call Tracey DelCamp for more information at 856-981-5268–or drop us a note @ info@trustedadvisor.com.

For continued reading check out: Trust Is Not Reputation

Trusted Advisors: Are You Joking?

A doctor, a lawyer and a rabbi all walk into a bar.

The bartender says: “What is this, some kind of joke?’”

Notice: It’s never a manufacturer, a schoolteacher and a dancer who walk into the bar and serve as setup-lines for our jokes.  Instead, it’s those who should be our most trusted advisors: doctors, lawyers, spiritual leaders.

Ever wonder why?

Untrustworthy Advisors?

I am one who trusts.  I strongly believe that the vast majority of people in each of these professions, or callings, can be trusted with my life.  And yet I still find the doctor-lawyer-preacher jokes pretty funny.  Which got me thinking about why these folks are the protagonists of so many stories and jokes.

Here are three reasons I came up with:

1. Because these are meant to be respected professions, it’s easy to laugh at the bad apples and contrarian behavior.

2. Because we need our doctors and lawyers and spiritual leaders to be truly trustworthy advisors, the experience of dealing with them can be pretty emotional.  We are, in many cases, entrusting them with our lives, our money, our most personal family matters and more.

Trust is risky – the very definition of trust means we are taking a risk in relying on the advice, actions or discretion of someone else.  And that can be scary.  With so much at stake, we need the release that humor offers when dealing with serious, scary themes.

3. Perhaps the greatest reason these trusted advisor are so prominent in jokes is that they represent different aspects of ourselves, internal paradoxes we are trying to manage and integrate.  The doctor –the body, or the physical; the lawyer – the head, or the intellectual; and the rabbi/priest/preacher —  the heart, or the spiritual. These jokes are a form of stories—metaphors for aspects of life.

My Musings and Yours

These are my musings about the doctor, lawyer and rabbi who just walked into my bar.  Seriously, now, let’s share a beer and talk this through.

Trusting Delta

From Delta Airline’s Website, Delta’s Force for Global Good

“Delta is firmly committed to our environment, safety, and social responsibility. We demonstrate these commitments in hundreds of ways throughout the world on a daily basis as we partner with our employees, vendors, customers, civic, and non-profit organizations to make a difference in the communities where we live and work. Many of our programs are award-winning and industry-leading. We don’t do them for the awards. We do them because they’re the right thing to do.”

Richard H. Anderson
Chief Executive Officer, Delta Airlines

From the Atlanta Business News, July 27, 2011

Airlines Spoil Fliers’ Unplanned Tax Holiday

Airlines have complained for years that taxes added to ticket prices drive up the cost of travel. But when those tax collections stopped last weekend and airlines had a rare chance to give fliers a break, most opted to keep prices the same and pocket the difference.

For Atlanta-based Delta Air Lines, that amounts to be $4 million to $5 million a day in extra revenue, the company said Wednesday.

A Congressional stalemate led to a partial shutdown of the Federal Aviation Administration Saturday, preventing the agency from collecting about $200 million a week in ticket taxes.

Delta and other major carriers then increased base fares to cover the lapsed taxes, saying they need the extra money to cover high fuel costs. The result is that travelers are paying roughly the same total price as before, instead of getting a discount from the unplanned tax holiday.

“It just seems like it was the perfect chance for the airlines to throw a bone in consumer satisfaction,” said FareCompare.com CEO Rick Seaney…

…Delta’s official statement on the matter: “Given the high cost of jet fuel, Delta has been competitive with other airlines that increased their base fares following the expiration of funding for the Federal Aviation Administration to adjust for the taxes no longer being collected.”

Why Trust Statistics Can Be as Misleading as Crime Statistics

In each pair, guess which city has the higher violent crime rate? 

Lexington, KY vs. New York City    ___

Tucson, AZ vs. Los Angeles, CA    ___

Tulsa, OK vs. San Jose, CA           ___

St. Paul, MN vs. San Antonio, TX   ___

Memphis, TN vs. Detroit, MI           ___

Minneapolis, MN vs. Houston, TX ___

As you might have guessed, the data are a bit counter-intuitive. In each pair, it is the smaller City (listed first in each pair) that has the higher crime rate. Data are from the FBI and the US Census Bureau.

The FBI goes to some trouble to warn against using their data in precisely the ways I just did—to rank cities by their crime rates.   The FBI says:

For example, one city may report more crime than a comparable one, not because there is more crime, but rather because its law enforcement agency, through proactive efforts, identifies more offenses. Attitudes of the citizens toward crime and their crime reporting practices, especially concerning minor offenses, also have an impact on the volume of crimes known to police.

They are quite right to warn. During the Nixon administration, the US government founded the Law Enforcement Assistance Administration within the Justice Department. On the statistical front, the LEAA developed the National Crime Victimization Survey, an antidote to the FBI’s Uniform Crime Reporting. The UCR had simply measured police reports; the LEAA took a survey approach, by contacting the whole population. Results varied widely, particularly in cities like Philadelphia, with police forces long suspected of under-reporting crime stats.

Trust Measurement and Definitions

Trust statistics are even more suspect than crime statistics, I suggest. In part this is due to definitional issues. On Edelman PR’s Tweetlevel tool, the New York Times twitter account scores 94.2 on trust—lower than Perez Hilton (94.3) and Justin Bieber (the King of Trust, at 97.5).

Trust Measurement and Volume vs. Frequency

But more importantly, human beings are likely to confuse buzz, spin and hustle with underlying reality; raw numbers with frequency.

Ask yourself: compared to ten years ago, with how many people outside your immediate family and co-workers do you interact daily?

# of Daily Interactions

a. 10 yrs ago

b. today

Walking around

   

Phone

   

Email

   

Facebook

   

Twitter, Linked-In

   

Customers

   

Suppliers

   

Industry

   

Retailers

   

  Total

   

 Now:then (b:a)

   ————-

 

Go ahead, fill it in. And let us know what your two columns added up to, this could be an interesting social statistic. (My own scores were 43 vs. 225, for a now:then ratio of 5.23).

Your now:then ratio indicates the number of Trust-Pointä opportunities you have in a given day: in my case, over five times what I used to have.

My bet is that, on any given day, I will have more instances of distrust than I had ten years ago. And yet—on any given day, I will be disappointed by far fewer people proportionately than I was ten years ago. 

Now: suppose I answer a trust survey that asks me, “How trustworthy do you find people these days?” 

·    How many of us answer “not as much as before” because we’re thinking of the increase in the absolute number of untrustworthy interactions?

·    How many of us answer “more than I used to” because we’re thinking of the decrease in the frequency rate of untrustworthy interactions?

I honestly don’t know the answer to that one. Nor, I suspect, do the people answering the survey themselves. Which suggests, if anything, that the people doing the survey haven’t got much of a clue either.

Caveat statisticator!

Why Pulling Yourself Up by Your Own Bootstraps is Hard

I used to suffer from a particularly bad version of one part of the human condition—a tendency to see things as all about me. I tried like crazy, in many ways, to pull myself up by my own bootstraps. I’ve gotten, well, better; but it wasn’t because of my bootstrap pulling.

I also reached a difficult point once years ago in studying the pedal steel guitar. I was taking private lessons from a real master, and trying very hard on technique. He gave me tons of advice (including most particularly to lighten up), and I tried my darnedest hard to take it all—pulling myself up by my own bootstraps. I never did get better, and finally sold my guitar a year ago.

Pulling On Our Own Bootstraps Just Burns Leather and Calories

Think about the physics of pulling ourselves up by our own bootstraps. It’s an impossibility–which of course is why we like it as a metaphor. But life is not a metaphor, while it is constrained by physics.

So—why doesn’t bootstrap-yanking work? And why do we keep trying it?

The Pedal Steel Story

In my guitar case, the immediate cause was clear. I was trying too hard. I’d try to play free and easy—I’d try so, so hard. Which of course was the problem. 

My hands would cramp up, I was trying to so hard.  And I knew trying so hard was the problem. That made it worse, because I knew it was ‘just’ a mental issue. Which made me worry more, which made me try harder. (Substitute golf if you prefer a more conventional metaphor).

It was a vicious circle; a negative feedback loop as bad as any that Jimi Hendrix generated. And knowing the problem didn’t help solve it. It was not one of those unconscious incompetence things. My knowledge got in the way. It was one of those “you can’t solve a problem at the same level the problem was created” problems.

I still love pedal steel music. (Everyone knows Jerry Garcia’s lick on Teach Your Children, but Garcia knew he was a rank hack by Nashville standards: go listen to every note played by Tom Brumley on Buck Owens‘ original version of Together Again.) I just don’t try to play anymore.

The Life Story

In mid-life, I became aware that a lot of my problems were caused by my tendency to overly see things around me as being about me. In the terms I later developed in the Trust Equation we use at Trusted Advisor Associates, I suffered from high self-orientation.

A few years ago I suddenly remembered something I used to say back when I was “in it.” When someone close to me would say something critical about me, and I took it way too personally—even though I knew I was taking it too personally–I would describe the condition as “like having someone point a gun at my head and telling me to calm down.”

At the time, I was just trying to explain to people why I felt paralyzed to think my way out of my self-obsession. Now, in the rear-view mirror, I see it differently.

I see now it was the perfect metaphor, because the metaphor, and my own use of it, were both stuck squarely in my old paradigm. Because everything was about me, I just didn’t have the tools to imagine something that wasn’t about me. My prison was self-limiting because it was self-defining. 

The Bootstrap Story

You can’t talk about this sort of issue in a linear kind of way; you have to deal with metaphors and paradoxes. Gödel’s incompleteness theorems probably apply here, though frankly the math is beyond me.

I’m reduced to platitudes, which I find reassuring in their simple memorability. In addition to “you can’t solve the problem at the level it was created,” I like:

·    When you dig yourself into a hole, first, stop digging;

·    A lawyer who defends himself has a fool for a client;

·    Try not thinking about pink elephants, and

·    You empower what you fear.

My only solutions boil down to three:

1.    Give up. Really. Just stop. If it’s not meant to be, stop fighting. Universe 1, you 0. You’re really not at the center, after all; act like it. Just go be you.

2.    Laugh.  Make sarcastic jokes about it. Get a kick out of your insanity. Find the sick humor in it all, and focus on the humor, not the sick.

3.    Ask for help. Not with the problem, but with the meta-problem. Then accept it. See step 1.

Abuse of Trust: Anatomy of a Breakdown

From this blogpost’s title, you’re probably assuming this is about the BP oil spill, or the SEC’s settlement with Goldman Sachs, the recent financial legislation, or a new perspective on Bernie Madoff.

Instead, I want to shine a flashlight on l’affaire Sherrod. From a trust perspective.

For those of you outside the US, the bare narrative is this: Fox News played a videotape of a speech by a federal government employee, which appeared to be racist, and called for her resignation. In very short order, the government did indeed fire her, without checking on the facts.

The Shirley Sherrod Case

Those of you in the US, I’m not going to link here to any more background. The newspapers are full of it.

What I do want to suggest is to offer a case example of how trust breaks down, in the only terms that matter: yours.

Here is a link to the original Fox video; the first 45 seconds are about this story.

Here is the foxnews.com coverage of the video, on July 20—a quick read.

Now: most of you know what came next. But you almost certainly know it from secondary sources. Rarely, these days, do we actually get to make up our own minds from primary material.

We have an opportunity here to contrast punditry with original source material. Ask yourself what you know of the Army-McCarthy hearings in the 1950s. Google it a bit if you want. Then compare it with the actual video, here.

In the same vein, may I strongly suggest that all of you seize this opportunity to view Ms. Sherrod’s original video in its entirety. It’s not a light request: the entire video lasts 43 minutes, and the ‘hot stuff’ is scattered throughout the middle section. 

I still suggest you look at it. This is a teachable moment. But don’t be taught by what you hear from the Wall Street Journal, or the New York Times, or the NAACP, or pundits of the right or of the left–the signal-to-noise ratio is huge. Instead, seize this opportunity to teach yourself.

I won’t say anymore just now; I’ll add my own comments in a few days. 

There is a ton of learning to be had by each of us watching the original source material—at roughly the same time the opinion makers are all ossifying the official learnings. 

There is to be had here learning about how we come to trust, who we trust, how much power we grant to those we trust, and the benefits and risks of trusting others.

So–if you can find time to watch the original, please share with us what you learned from it.

Trust, Obligation and Winter’s Bone

The other night I saw the movie Winter’s Bone, which won the Grand Jury Prize at Sundance, and richly deserves any of the future honors it’s sure to collect.  

The movie takes place in the mountains of the Missouri Ozarks. Ree Dolly is the 17-year-old girl whose father has skipped bail, leaving her to support her two younger siblings and an Alzheimer-addled mother.

If you believe in character development as the mark of a good movie, this one lays down the marker early. As they go to bed hungry, while neighbors down the road skin a deer, her brother asks why they can’t ask the neighbors for some. Ree tells him coldly: “You don’t ask for what oughta be given.” In a sense, the movie consists of challenging that statement with the obligations of kinship and society.

Only in retrospect was it clear that the plot had been foreshadowed in the movie theater itself. It was one of those downtown New York art theaters that fill up on a hot weekend afternoon.

We settled in two seats from the end, and a seat away from a single man, who had another empty seat on his other side. As the theater filled up, a woman sat near us, and then asked, down the row, “Would you all mind everybody moving down one seat?” 

I looked at her quizzically. “I’d like to be able to sit with my parents and sister,” she explained, “and if you all move down, we can take the first four seats.” We grumped a bit but moved down. The man now beside us didn’t move.

“Would you mind moving too sir? Please?”  

The young man said, “Yes, I would mind, thanks.” I settled into my seat to watch what happened next.

“You see, I’d like to be able to sit with my family,” the woman explained. “Would you mind, please?” Silence. “Would you mind moving over, sir?” she said, more loudly.

“I’ve said it once, I’ll say it again, that should be enough. Yes, I would mind. How many times must I say it?” he said.

The older man, sitting on the end of the row in front of us turned around and said, “You must be from New York, I suppose, not moving and all.” Silence from the man.

“Sir,” the woman, “I’m trying to ask very nicely…” “And you’re still getting the same answer from me,” the man interrupted. “You might want to stop talking about it now.” 

Which she did. Though I must say the exchange stayed on my mind through the movie.

And as I said, the movie was about the clash of “Don’t ask for what oughta be given,” vs. the obligations we hold to others. And it made me think.

Here’s where I ended up.

If you never ask, you have no reason to complain when you get nothing. And sometimes you have a right to ask, even on fairly general principles.

On the other hand, there are some limits to asking. As far as I’m concerned, the man would have been within his rights to say, “Look lady, I came here early to get the one seat I wanted to sit in. You came here late, looking to get four seats, and to get them by begging. 

“And when you didn’t get them by begging, you proceed to extortion by guilt-tripping. Sometimes I move over. Today I don’t. At the last you should stop it.   At best, you owe me an apology.”

What do you think? What do we owe each other? What right do we have to ask? Where are the boundaries? And where are the lines that are meant to be crossed?

Put another way, who can you trust? And how and when do you have the right to ask for trust?

 

 

A Trust Bubble?

I read a blogpost about capital ratios entitled The Mystery of Capital.  A commenter to that post introduced an intuitively appealing term I hadn’t heard before: the “trust bubble,” as in

“what has popped is not really the housing bubble, nor even the credit bubble, but the trust bubble. And as always when a bubble bursts, we all rush to the opposite extreme. Now, no one trusts anyone else, economically or politically, and no society can function without trust.”

Credit for the line goes to commenter jrw, whose real name I can’t deduce from the un-hyperlinked initials. It’s an intuitively appealing turn of phrase, and I wasn’t the only one who found it a grabber.

But like so many things trust-related, it doesn’t bear up under examination. A bubble is when things inflate—we have a bubble in tulips, or in gold, or in tech stocks. They get over-valued, then the bubble breaks.

So—did trust get vastly overdone? Was trust over-rated, before it took a crash? Listen closely, and you can be forgiven for being confused; that is language crafted to obfuscate, not to clarify.

Another such grabber line is “trust but verify.” Like light beer, it sounds great–but has less meaning. Let me explain.

Deconstructing Trust

Let’s think very simply about how we use the word ‘trust’ in its most concrete sense. I trust you; or I don’t. You are trustworthy; or you’re not. If I (trust you), and you are (trustworthy), then the result is—trust.

In the above sentence, “I trust” is a verb, "trustworthy" is an adjective, and the resulting “trust” is a noun. Trust is a result, an outcome: it’s not a thing in and of itself.

Yet we have all manners of surveys purporting to measure ‘trust.’ What is it they’re actually measuring? In long run social surveys, ‘trust’ is often used to indicate people’s propensity to trust, i.e. the verb meaning from above.

But in other surveys, for example when we say “trust in Goldman Sachs is down,” do we mean that people are less trusting? Or do we mean that Goldman Sachs is less trustworthy? All we know from “trust in Goldman is down” is the end result.

Identifying the Real Trust Problem

You can’t create good social policy without knowing whether the problem lies with the trustor, or the trustee. Do we have a trust-ing problem? Or a trustworthiness problem?

Professor Roderick Kramer of Stanford doesn’t necessarily state that the problem lies in trust-ing, but that’s where he focuses on for solutions. Consumers can best protect themselves by practicing ‘tempered trust.’

That doesn’t mean he thinks Bernie Madoff is blameless, of course. But if one’s attention tends to be placed on what Madoff’s victims could have been done differently, it tends to draw attention away from Madoff’s assault on trustworthiness. Regardless of Kramer’s intent, the perhaps unintended effect is like what the mortgage brokers’ and credit card industries have said—the solution to abuse is better consumer education.

I want to say to those industries (please imagine here a full Lewis Black rant ‘n rage tone), “No It’s NOT! The solution to abuse is—to stop the abusers! Not to better educate the abused!”

While business surveys often fail to distinguish between ‘trust’ and ‘trusting,’ there are social trends scholars who are extremely precise about their measurements of trust, and about what trust means. A great example is Dr. Eric Uslaner, of the University of Maryland.

When Uslaner says trust is down (and he does), he means long-term propensity to trust, or what I’m calling trusting-ness.  Long-term as in decades and generations. And propensity as in do you tend to leave the door unlocked, do you impute bad motives to strangers. It’s a lot more psychological, broad, and deep-based than a temperature-taking about a specific institution or person compared to the same question a few months prior.

Again: what is it we think we’re measuring when we purport to measure trust?  It makes a difference.

Ronald Reagan Had It Wrong

He may have had it wrong many ways, but here I’m just talking about when he said, “trust, but verify.” Like the “trust bubble,” it sounds great. But in fact it plays on another ambiguity about trust. This ambiguity comes from the relationship between trust and risk.

If you think about it for a moment, there is no trust without risk. If there weren’t risk, we wouldn’t call it trust, we’d call it “probabilistic decision-making.” Bluntly put, if you have to verify, it ain’t trust.

There is one component of trust that is an exception to that statement—the idea of ‘reliability,’ as in ‘I can trust that pipeline won’t blow’—in which trust very much is linked to verification. But it’s the mechanical sense of trust; it has to do with engineering, physics, the behavior of impersonal forces. In all the other senses of trust—which touch on ideas like intentions, deception and transparency, and vulnerability—verification has precious little to do with it. Reagan was just speechifying.

Finally, there’s the comment that started this blogpost. Was there a bubble in trust? In trusting? Or in trustworthiness?

There certainly was not a trustworthiness bubble: quite the contrary—trustworthiness was declining with every level of derivative abstraction.

Nor does it seem to me there was a ‘trusting’ bubble. I don’t think people’s propensity to trust financial institutions was increasing at the same time general social trust was steadily declining.

And if both trustworthiness and trusting-ness were undergoing declines,then–how could there have been a "bubble of trust?"

The vocabulary of trust is seductive, but the meaning of trust is slippery. Be careful to think simply and clearly when it comes to broad generalizations about trust.  Bad stuff went down; it’s critical we think clearly about what is to be done.

The Language of Moral Education in Business: a NYTimes Moment in Time

Yesterday, May 2, the New York Times initiated an interesting global experiment: asking huge numbers of people, all around the planet, to take a single photograph—all at precisely the same time, 15:00 GMT. Read more about it here

A cool experiment? Indeed. Imagine the impression of thousands (hundreds of thousands?) of photos, all of precisely the same moment in human history. I can’t wait to see it.

But that’s not what I want to point out. Because the way in which the Times announced the contest tells us about how to develop a sense of morality, a shared sense of ethics, in a large group: in this case, a world population.

Here’s that link again:

If you read it, you’ll be struck by the language, as were many of the early commenters on the article. Here is some sample language:

Do I have to take my picture at exactly 15:00?
No. We don’t expect atomic-clock precision. And we’d rather you send a good picture taken one minute after the hour than a mediocre picture taken exactly on the hour.

What if I cheat?
Come on. Why would you?

Look, we trust you. Besides, there aren’t enough cups of coffee in New York to keep our tiny staff awake for the time it would take to peruse the metadata in every single JPEG we receive. So we’re relying on you to understand that any significant departure from the benchmark hour only subverts the communal enterprise.

Of course, if we’re presented with evidence that your entry wasn’t taken close to 15:00, we’ll remove it from the gallery.

What about adding or subtracting or combining elements?
Again, don’t…

And if I do so anyway?
Really, why would you? We’re not going to pore over submissions looking for fakery and fraud. But we will remove any photographs that are demonstrably manipulated. Please, just spare us.

The Language of Moral (Business) Education

The Times is attempting to deal with a group. In this case, a remarkably global, diverse, and very loosely connected group. If even small numbers of people behave badly, they have the power to subvert the project.

I suggest this is a typical situation for moral education. What do you do to encourage members of a group to behave in a way that encourages the greater good for all?

  • You could simply depend on the free market of ideas, believing that if the photography idea is a good one, it will survive the market; and it doesn’t survive the free market, then it was a bad idea that didn’t deserve to live in the first place.
  • You could define a set of incentives to encourage the right group behavior, define metrics to measure the right group behavior, then tune the incentives to maximize it. 
  • Alternatively, you could enact a set of regulations about the contest. You could then have a government agency enforce them.

Or–you could choose the tools of moral education.

You acknowledge your powerlessness to compel the behavior of others. Instead, you appeal to their conscience.

What about cheating? You go directly to the potential cheater and say, ‘Really, why would you?’ What’s to keep someone from cheating? Again, make it personal: say, ‘Look, we trust you…We rely on you…to not subvert the communal enterprise…Please, just spare us.’

This is the language of moral education. Appeal directly to the individuals. Appeal to their innate sense of community. Acknowledge the absence of your power to compel their compliance. Indeed, acknowledge your dependence on their willingness to comply.

That’s the language of moral education. It’s disarmingly honest, transparent, and vulnerable. It acknowledges an individual conscience.

And it works.

Amazing, isn’t it, how infrequently we think of applying it to our challenging business situations.
 

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.

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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