A High Trust Strategy in a Low Trust Industry
Differentiation. It’s one of the two generic competitive strategies.
You’d think it’s a no-brainer. If everyone sells coffee in supermarkets based on price, invent Starbucks. If water is free from the faucet, invent Perrier. If fund performances are undifferentiated, invent index funds.
So, if your industry ranks near the bottom in trustworthiness – why not invent a trust-based company? Would that not be obvious?
Let’s not make it too tough, by tackling used cars or Congress, but let’s take the next-worst trust-scoring industry – financial services.
In a recent Gallup survey, of 22 professions, the most trusted was nursing – as it has been for many years. 85% of respondents rated nurses high or very high in “honesty or ethical standards.”
Financial services were represented in the survey by banking, insurance, and stockbrokers.
- Bankers were ranked 11 out of 22, with 28% rating them high or very high. That puts bankers below psychiatrists and chiropractors.
- Insurance people get only a 15% rating, which ranks them at number 16 out of 22 – below lawyers.
- Stockbrokers rank 19th out of 22, with only 11% saying they are high or very high. Well, at least they beat congress!
There is some evidence that financial planners, had they been included, would have scored better, though I doubt investment bankers, traders, mortgage bankers and credit card companies would have raised the industry’s average. And the Edelman Trust Survey puts it even more starkly: “Financial services and banks are the least trusted industries for the third year in a row.”
Net net – by and large, if you’re in financial services, people don’t trust you, your company or your industry.
Again – wouldn’t it be a logical, obvious, in-your-face strategy to build a highly trusted company? Sure it would.
And so, the big question – why hasn’t anyone done it?
Why Are There No High Trust Strategies in Finance?
I can think of five possible answers to this question, and the first one is to deny it.
- Wait – some companies really are high-trust.
- The nature of the business is highly competitive – you can’t be high trust and stay in business.
- The industry is full of untrustworthy, greedy, anti-consumer people.
- The industry is so over-regulated that trust never has a chance to get traction.
- The industry simply does not understand the nature of trust.
I’ll give my analysis in the next blogpost.
Meanwhile, what do you think? Are those the five possible answers? Which one strikes you as right?
Great blog Charles. I think the answer is probably a mix of all of the above. Another factor that plays a part is greedy shareholders. Their demands for higher and higher returns is a distraction to CEO’s who should be focussing on customers.
Good point, Stephen. Shareholders definitely do play a role here, and that role is even more sharply focused by fund managers and their quest for quarterly stats. It seems to me that a lot of short-term behavior lies right there, in the mega-bucks paid to endowment fund managers who get compensated basically for short-term performance.
I would say a combination of #1 and #4, plus one other unnamed – being the media whipping boy. I wonder if the media hammered on doctors, nurses, or others as often as “evil banks” if there trust level would be impacted? Maybe not… but having senior senators telling the American people that banks are evil for charging fees so they can overcome regulation, then having the media jump on the bandwagon can’t help.
I don’t think the industry is filled with untrustworthy people – I have worked for banks for about 15 years and, while there are a few exception, most have been excellent people just trying to make a living. I also think the industry undstands trust, but just can’t overcome the stacked negative press and congressional beatings… a this point, many have just thrown up their hands and said “screw it, lets just keep doing what we are doing.”
And lastly, I would love to see those numbers split up better; Main Street and Wall Street are vastly different. But until media, certain NY senators, and unconstitutional financial bureaus stop beating community banks to death with rhetoric, nothing will change
PS – looking forward to your next blog post to see your opinion.
Ah ha – this is a very interesting question, but not for the most obvious of reasons.
I recently attended our annual general meeting at the golf club. One agenda item to be voted on was about having cloured flags at the side of each green to indicate where the hole was – front, middle, back. The discussions was lively. And then a vote came. I observed to guy to my right that only those who could actually hit the green for 150 yards should be voting, after all since only about 15% of the players there could hit the green, knowing where the flag was positioned wasn’t their problem. Amd so it is with bankers.
I seem to be surrounded with freinds who will sound off about crooked bankers, bankers without integrity, greedy bankers. But ask, and you find out none of them can define what they mean by banker (investment banker, retail banker, broker, cashier!?) and secondly they don’t actually know any bankers who have been in a position to have done any of these ‘bad’ things. They have never met, done deals with, or needed the services of an investment banker. Yet everyone has an opinion – based on what. Obviously not personal experience. Not even hearsay from freinds or relatives.
One is left asking whether or not banking integrity really is in jeopardy. Is commercial and retail banking credibility really in need of overhaul or just better PR – or a restraining action on Politicians who run a blame culture against bankers.
The intersting issue with this question is whether we are dealingg with real reality or just charging windmills like Don Quixote. Is banking itegrity really dead? Do we really have credible personal facts to demostrate it
Chris,
I have to agree with you about the negative press that bankers get, based frequently on not much; Ronald makes much the same case. We all talk like we can hit the green regularly, when the truth is otherwise.
Then again, I generally find where there’s smoke, there at least used to be some fire. Usually.
Have a look at my comments tomorrow, and I hope you’ll come back and critique it.
Charlie,
My observation is that many of these professions are compensated based on performance, that is money they earn or secure from others. Self orientation is a very powerful denominator and can quickly reduce trust.
If you look at nursing and they way they approach their job…it is all about caring for the patient. Good lesson there.
Have a great day,