Real People, Real Trust: How One Account Executive Stands Apart

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Ralph Catillo is an Account Executive with Gallagher Benefit Services, one of the largest employee benefit agencies in the northeast region of the United States. Read Ralph’s no-holds-barred replies to questions about what it really takes to be a trusted advisor—and how the lessons he has learned apply at home as well as at work.

First Impressions

I know Ralph because he was a champion for a Trusted Advisor immersion workshop I led for his company in 2010. The first time we ever spoke on the phone, I was immediately struck by two things about him: his humor and his candor. Within minutes of interacting with Ralph, it’s crystal clear that he has nothing to hide. You get the sense that he’s quick, yet not in a rush; he’s knowledgeable, yet more interested in what you have to say than what he knows.

I began the interview for this article by asking Ralph a simple question: What does it take to be a trusted advisor? With characteristic dry wit, he immediately said, “I show up with a brown bag full of cash. It’s all been laundered.” Then he got serious for a moment, because more than anything he’s a thoughtful guy. His answer was simple: it takes honesty and purpose.

The 1-2 Punch of a Trusted Advisor: Honesty and Purpose

“You have to be 100% transparent, and 100% with no agenda other than doing the right thing. That’s really all there is. If you put aside your agenda, and your role, and really just come from the perspective of what is the best thing for this situation, whatever it may be, then you’re on the right track.

“The challenge is, the best thing for this situation might not be clear from the onset. So you have to get comfortable being in a zone of not knowing, where others are sometimes uncomfortable, and just put it all out there. You don’t have to have the answer, and you definitely don’t have to be the smartest one in the room. Everyone—me included—gets tripped up trying to be the smartest in the room, as opposed to coming at it with open ears and eyes. The best idea usually comes when you don’t come at it from an angle.”

As for honesty, Ralph says, “We’re in the services business, so it’s all about relationships. You have to be yourself. When you’re not, it’s unhealthy and unproductive.”

I asked Ralph about the courage it takes to do what he prescribes. He laughed. “Courage? I think it’s a lot more courageous to try to skirt an issue or be someone you aren’t—you put yourself at much greater risk. If I put all my cards on the table and I don’t get the business, well, at least I know I did everything I could.”

Nature or Nurture

I asked Ralph if he came by his approach naturally, or if he had learned it over time.

“I’ve evolved to it. When you’re in school, you’re trained to get the right answer. No one teaches you how to have conversations and day-to-day interactions. Then you take that right-answer mindset into business and it doesn’t work. In fact, that’s why I think so many managers struggle and fail—because they try to force what they think is right on others.

“I’ve definitely butted heads with people a lot along my own learning curve. Fortunately, I had a great role model and mentor along the way.”

Mentoring and Stewardship

Ralph credits David Friedman with his mindset about building trust in relationships. David, who joined his father and a part-time secretary 28 years ago in a small insurance practice located above a storefront on Main Street in Moorestown, NJ, later became the company’s first and only President when they incorporated as RSI in 1994 (later merging with Gallagher). Ralph says, “My first foray into trust-based relationships was through the RSI Fundamentals, which David created.”

The Fundamentals, which have since been published as a book, are 30 tenets that inform every employee’s day-to-day behavior. They include directives like:

  • Work from the assumption that people are good, fair, and honest.
  • Create a feeling of warmth and friendliness in every client interaction.
  • Take responsibility.
  • Be quick to ask and slow to judge.

“Those 30 Fundamentals changed my whole thought process and approach. Because of the Fundamentals, we’re deliberate about the mindset we bring to our interactions. We use a common language. And we have the right people too—we’re careful about hiring.”

Ralph credits David for David’s personal mentoring and stewardship of Gallagher Benefit Services. “It’s thanks to David that our company has developed and sustained this kind of culture. I’m not a lone ranger in my organization; it’s a top-down thing. That doesn’t mean it isn’t sometimes a challenge. It’s still uncomfortable to walk the talk, and not everyone is great at it. But at least we have a shared understanding about what we aspire to.”

It’s Business; It’s Personal

Ralph sees a lot of parallels between trust in business relationships and in personal relationships.

“Consistency breeds trust. I see that as a professional, as a friend, and as a father. With my kids, all I want them to do is communicate, without fear of repercussions. That takes a lot of time and experiences and leading by example.

“Just yesterday my teen-aged son had his buddies over after school, before I came home from work. They’d come from the pool, and one of my son’s friends sat in my chair in his soaking wet suit. As soon as I got home, my son pulled me aside, told me what happened, and took responsibility for it. He was surprised when I thanked him for being up front and direct about it, instead of getting angry. I reminded him what I want more than anything is for him to just keep talking to me. A chair is a chair; it can be cleaned up. But the next time it might be something far more worrisome, like someone approaching him with drugs. I want to be a parent, and a resource, not the judge and jury.”

Keeping it Simple

Ralph’s perspective on leading with trust in all his relationships is a lot like the guy himself: uncomplicated, direct, thoughtful, real.

In the words of the famous artist, Leonardo DaVinci, “Simplicity is the ultimate sophistication.” Thank you, Ralph, for sharing your art with all of us.

Connect with Ralph on LinkedIn.

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The Real People, Real Trust series offers an insider view into the challenges, successes, and make-it-or-break-it moments of people from all corners of the world who are leading with trust. Check out our prior posts: read about Chip Grizzard, a CEO You Should Know.

Getting Up Close & Personal with Trust Tips

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We’re about halfway through our countdown of Trust Tips leading up to the release of  “The Trusted Advisor Fieldbook: A Comprehensive Toolkit for Leading with Trust,” a new book written by the two of us—Charles H. Green  and Andrea P. Howe—to be published by Wiley Books, on October 31, 2011.

We try to keep our tips applicable to nearly every workday. That way you can apply them now and see positive results quickly.

You can get the Trust tips delivered straight to your Twitter feed by following us directly (@CharlesHGreen and @AndreaPHowe) or by searching with the hashtag #TrustTip.  I’ve really been enjoying the thought-provoking discussions we’ve been having and I would encourage you to join us.

But as Twitter isn’t for everyone and as we don’t want to leave anyone out in the cold we also keep a running list of the tips here on the site—see below:

If you need to catch up, see our recaps of Tips:

Below are the most recent, Tips #80-75

#80: Two sure trust-killers: a tendency to blame, and an inability to confront

#79: Name one trigger or fault you have; decide how to coopt it

#78: Don’t interrupt. If you do, apologize. Even if you’re a New Yorker.

#77: Did you just name-drop? Why? Who did it help? Check your motives

#76: Call your client once in awhile just to find out how he/she is

#75: Reduce your APM count (acronyms per minute)

#74: If you can’t present it without PowerPoint, go work on your presentation skills

#73: Spend time in your client’s shoes–imagine what it’s like to be him/her; role play with a colleague

#72: Cultivate an attitude of curiosity–think in advance about what questions you want to ask

#71: Try doing your thinking out loud; with your client. Don’t hide it away.

A Couple of Our Favorites

#72: Cultivate an attitude of curiosity–think in advance about what questions you want to ask.

In much of our professional life, our dominant attitude is one of self-focus.  We may be worried, or excited, or intent—but in all such cases, we are self-absorbed.  But the key to success in much of our professional life is to be outward-facing, customer-focused, other-oriented. Fine, you say—but how do you do that?

One way to do it is to cultivate an attitude of curiosity. You can cultivate it by intentionally setting aside time to wonder—wonder why this situation is so, and why things work that way, and where this other thing first came from.  Wondering can lead to questions, and once you have questions, you have a great basis for an other-oriented conversation.

You can make curiosity a habit that way; a habit that results in an attitude. And an attitude results in behaviors that are client-focused.  Your clients will notice.

#80: Two sure trust-killers: a tendency to blame, and an inability to confront

Phil McGee coined this one, and we love it.  Blame—the tendency to deflect bad news onto others, while disproportionately taking credit ourselves.  Blame violates several principles—it is greedy and self-oriented, but it is also deceitful, since it incorrectly assigns responsibility.

The flip side is an inability to confront.  If you can’t constructively confront issues, you can’t speak the truth.  And if you can’t speak the truth, you can’t be trusted.  Note that you don’t have to be brutal to be a truth-teller, that’s not much better than sugar-coating.  But with good intent and careful communication, you can nearly always speak to any issue truthfully.

If you can do that, you can be transparent, open, and have direct and powerful conversations with everyone.  And if you can constructively confront, by the way, there is no longer much reason to blame.

 

3 Minutes to Create a Great Impression

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It was five months ago, but I remember it like yesterday.

I had given a speech for an important Fortune 500 client. The event had about 300 attendees, and I was one of several speakers.

The person preceding me overran his time, cutting 15 minutes into mine. That is rude to other speakers, and to the audience, who have the right to view an agenda as a promise. I never do that to others, and don’t like it when someone does it to me.

I let it throw me off a bit; I didn’t give my worst speech, but it wasn’t my best either. This bothered me for the next two days.

A Turnaround Impression

Until, that is, I received a card in the mail. It was from my client’s senior-most person in attendance, the host of the meeting I’d attended.  The card was hand-written, and clearly written by him (at least, that’s what I think).

It was personalized, gracious, and thoughtful.  If it was scripted, my compliments to the staff writer, because it felt very genuine to me. I was floored.

3 Minutes to Impact

It can’t have taken my client more than 2 minutes to write the card, perhaps less—though clearly he’d given it more than a moment’s thought.  Let’s say he gave it a minute.  That’s a lot of thought; and yet only a grand total of 3 minutes.

And remember, this was a client, sending me, the speaker/consultant a thank you note—I should be the one sending it to him!

Again—I was floored. And very touched.

Can You Find 3 Minutes Per Week?

How often do you encounter opportunities to send someone a note?  Let’s be conservative and say once a week.  At once a week, that feels like a pretty special event—there are only 50 or so per year.

That’s about one-tenth of one percent of your weekly time. What other three minute weekly activity could generate that kind of personal impact, make somebody’s day, reach out and touch someone so powerfully?

You Can’t Write an Insincere Note

And don’t tell me it’s insincere.  I defy you to sit down and write a thoughtful thank you note to a business connection and tell me you did it with a greedy scowl.  I don’t believe you’re that cynical (and I don’t even know you!).  And if you’re sincere, then the odds are very good indeed that your sincerity will come through.

I used to get occasional handwritten notes from the folks at Continental Airlines’ One Pass organization. Were those notes part of an organized plan? You bet. But insincere? No way—someone sat down and hand-wrote a note to me; that is an act of respect, and I felt it.  Are you listening, United?

Try it. Plan on writing a 3-minute note to someone next week.  Who will be the lucky recipient?  And how will you feel about it?

Write and tell me—I’d like to hear about it.

Think Before Sending

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What would you do?

That’s what my daughter’s 8th grade class was asked last year. The subject: texting secrets.

One girl had texted to a friend another friend’s embarrassing secret. But she didn’t just send it to one BFF— the text went out to everyone in the class—including, of course, the hapless girl whose secret was no longer.

Sound familiar? I recently received a message sent from one educator to a couple of colleagues regarding a student.  It also went to the institution’s entire mailing list.  This happens a lot in business too.  “Reply all” inadvertently pressed sends messages to the wrong person or people, or to entire lists.  Sometimes those slipped messages lead to a career and/or personal life hurt or destroyed.

The cause: carelessness, haste, anger? Doesn’t really matter. Who would think a simple button on a screen marked “send” could cause so much havoc?

Not Just Another Reply-All Horror Story

We could talk about how to recover from the gaffe via an apology. We could talk about how to use email properly.

Or–we could discuss how these types of issues affect trust.  And they do.  Think of this from the perspective of the Trust Equation.  Sending to the wrong person or group of people reduces Credibility and Reliability.  What gets inadvertently shared decreases Intimacy–after all sharing a secret shows a lack of discretion, even if done by mistake.

Here’s what my daughter learned as a result of this exercise with her class:

  • Double check everything before sending any electronic message (email, text, Facebook, IM)
  • Consider the medium–should the message be sent electronically, or is it better delivered in person or by phone
  • Should it be sent at all, by any medium (is it gossip or otherwise inappropriate to share)
  • Be prepared to do the right thing in the event things don’t work out.

The Big Lesson—Less Is More

As I thought about it, I think the third point—“should it be sent at all”—is by far the more powerful lesson my daughter learned that day.  Think it through.  Take a deep breath.  Count to ten. What’s your role in the situation?  What will the consequences be? Will saying anything really matter in a positive way?

These are profound lessons for all of us.  Adults suffer all the time from not having learned these lessons earlier in life.  How often do we act out and regret later?  How often do we say hurtful things even when we don’t mean to and suffer remorse?  How often do we hurt those we love?

Some time ago I learned from a lawyer colleague I respect and trust, that when it comes to the written and spoken word, less is more.  Shouldn’t we at least think about this before we hit Send?

I think my daughter learned a few rules of email etiquette that day—and one massive lesson about living life as a human being.

I’m pleased it was a topic for an 8th grade class, and it’s not the first time her school addressed real world issues.  I just hope we don’t have to wait for this generation to grow up before these valuable lessons are commonly used in the business community.

I’m Sorry IF I Upset You

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Don’t you hate the “IF” in that phrase? It’s like the canned, fake apologies we receive from call center employees reading from a script. Yet we hear “I’m sorry if I upset you” or something just like it over and over again from business colleagues and yes, even friends.

What is an apology?

What is an apology and when should we provide one? A few years ago, I ran across an expert, Lee Taft, a Dallas lawyer also educated in ethics and religion at Harvard Divinity School, and who was recently highlighted in the Dallas Morning News. He takes a holistic approach to dispute resolution, and an apology is at the center. He believes that “if someone is at fault in causing harm, the party causing the injury should offer a fault-admitting apology, an explanation of what happened and reparation.” His five step process, explained on his website, includes: Remorse (experience of sorrow/regret), Explanation, Apology (expression of remorse), Accommodation (reparations) and Lessons Learned.

When I acted as a mediator, I was amazed at how fast an apology led to a settlement. Of course, the lawyers feared that an apology was an admission of responsibility (and it was), but in reality it was more than that. To the person receiving the apology it meant that the person giving it actually felt sincere remorse, and wasn’t going to do “it” again to someone else. That assumes, of course, that it was a sincere apology, pretty much following Lee’s formula, rather than just going through the motions.

More apology on the web

Getting to know Lee got me thinking more deeply about the topic, and I looked into what’s available on the web on apology. Here are some great sites with valuable contributions on the subject:

PerfectApology.com. It’s got everything you wanted to know about apologies. A section called “Apology Central” even has pages on “how to apologize” (complete with ads somehow related to apologizing); “Apology Ideas” for sharing ways to apologize; and an “Apology Board” where people can post their apologies for others to learn from.

Those who created this site say they are “a few friends and colleagues who have always been on the lookout for the perfect apology.” They created the site because “we’re human, we tend to screw up on occasion, and we inevitably need to deal with the problem.” They’ve even created an Apology Blog. One of the things I like most about this site is that both the developers and the contributors seem to be into acknowledging the offense that needs an apology, rather than simply making excuses. And they give advice on how to say you’re sorry in a variety of situations. So, next time you mess up, take a look at the How to Say I’m Sorry page.

Mediate.com. This site devotes a full page to articles about apology in the context of disputes in a variety of legal settings. It was there that I discovered Vivian Scott, who wrote the best titled blog I’ve seen on this topic: “I’m Sorry You’re Such a Crybaby Isn’t Really An Apology”. In fact, I liked the title so much that I called Vivian to learn more. Turns out she authored “Conflict Resolution at Work for Dummies” and has other writing to her credit. In “Crybaby” Vivian says that when she “hears an apology laden with sarcastic tones or Ill-chosen words [she tries] to give the speaker the benefit of the doubt and assume the reason he’s delivering such a lousy apology is because he’s uninformed about the must-have attributes of a real one.” Her blog is a must read for the four elements of a real apology.

WriteExpress.com. If you ever wanted to know how to write just about anything, take a look at this site. I’ve hyperlinked the apology page, and there’s so much more here.

It’s Personal

I’d like to share an additional perspective on apology. Inspired by numerous encounters with those plastic call center apologies, I’ve suggested to my coaching clients a distinction between the need for an apology (which includes acknowledging what happened and taking responsibility) and the need for simply the acknowledgment and taking responsibility without feeling and expressing remorse. Lee Taft’s apology approach includes: “the party causing the injury” should offer the apology. To me, an “injury” occurs when there is personal harm. I define “personal” pretty broadly – something like when the action we do or words we say have a negative impact on others – their jobs , their finances (like affecting a bonus), their lives, their health, and even their egos. In business, there are things we do that merit apologies, and other things that merit only the acknowledgment and taking responsibility portion of apologies. When there is a need for an apology, follow the advice of the experts and give a complete and sincere one. If not, acknowledge what you did, take responsibility and move on.

If you have anything to add, or other suggestions of where to find great advice for apologies or blogs on the topic, please post!

Managing For Trust

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Supposed you asked me the score of the latest Boston Red Sox vs. New York Yankees game, and I told you “12.”

You: Twelve? What kind of score is that?

Me: Twelve points were scored in the game; you asked the score, that’s it.

You: Well, who scored how many?

Me: New York scored 7 and Boston scored 5.

You: Well thanks; you could have led with that!

Silly. But that’s exactly what happens with trust metrics. People say, “Trust in business is down.” Cue the dialogue.

You: Trust is down? What kind of metric is that?

Me: Well, some people trust less, some businesses are less trustworthy; the net is down.

You: Wait: how much of the “down” is made up of people trusting less; and how much of the “down” is made up of business being less trustworthy?

Me: 73% of it is business being less trustworthy; 27% of it is people being less inclined to trust.

You: Well thanks; you could have led with that!

Are you trying to improve trust in your organization? You might want to start with clarifying the problem you’re trying to fix.

Are you trying to create more trustworthy employees and managers, so that customers and other stakeholders will trust you? Then focus on the personal attributes of trustworthy people, and on the kinds of principles and values that are observed in trustworthy companies.

Or are you trying to get your people more willing to trust others? Getting better at trusting means better risk management, delegation, personal growth, people development and innovation, to name a few benefits.

What is it that you are trying to manage?

Never mind, “You can’t tell the players without a scorecard.” Heck, you can’t tell the score without knowing what game you’re playing!

Building Trust By Design

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Pat’s story…

This past Memorial Day at our family picnic, neighbor Pat Pannone shared a story. An architect who often gives away his professional expertise as a volunteer on projects, Pat at times is asked by fellow volunteers to do architectural work for them. About a year ago, one of them invited Pat to design a home renovation. It was a big job. The main reason for the renovation was to build a master suite. Pat was excited. A job this size was something he enjoyed doing, and the fees would more than address some expenses that came with his newborn son.

Pat looked at the house and asked to see the attic. It had a large vaulted ceiling and was used for storage. He said he’d be happy to design what they wanted, but, perhaps they should consider having the attic converted into the master suite, and save themselves a lot of money. He suggested that they move their bedroom furniture there for a couple of weeks just to test it out.

The result – they loved it. No need for major work. No need for an architect. No fee for Pat. I asked what he thought about that. His response? He felt great about it! He could have done what the client originally asked and designed the addition. Instead, he was creative and thoughtful.

How Fear Chases Out Creativity

Some people are afraid of losing fees, especially when the fee will put food on the table. Pat had other work, so maybe fear is too strong a word. But he definitely wanted that new project. Letting go of that desire for the sake of the client is a great example of low self-orientation.

Wally Bock’s blog “Drive out Fear” talks about fear from a team perspective. He says: “When people are scared, what they think about is what they’re scared of. While they’re doing that, they can’t think of other things, like how to do a better job…”

If Pat had been worried about making sure he got that fee, he might not have seen the easy, low cost solution for his client.

Putting the Client First Pays Off

Pat smiled when he finished telling us about the big job that got away. The story wasn’t over, he said. 4-5 months later, that same couple called him again. This time, they were buying a new property, and needed an architect for a job that would not be solved by moving furniture into an existing room. And they wanted Pat because they knew he would put them first.

How about you? Have you met people like Pat? Have you ever managed to set aside your own fear and unleash your creative energy?

Showdown at the Used Car Corral

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They wanted to sell a used truck. My son wanted to buy one for his business. He asked me to come along to help negotiate.

An enticing ad had gotten us onto their lot. At this point, the truck was pretty much pre-sold. All that was left was to agree on a price that worked for my son, and to pass our mechanic’s inspection. Done deal.

That is…until they decided they had to sell us.

My son was an eager buyer. But instead of asking my son about his business, or even why he wanted the truck, the salesman was all about getting the sale.

The Negotiation

It started with a little lie: “There’s another customer looking at that truck now”

This annoyed my son. Claiming scarcity only works when it’s true. The only other folks on the lot were looking at cars, not trucks.

Then the salesman began to negotiate price. It turns out that the trade-in value was within my son’s range, but my son wanted a lower final price. After some discussion, the price went down a little and then I gave our bottom line number. It was ok. The salesman then stuck out his hand and said: “This is our final price. Deal?”

The “presumptive close,” accompanied by a smug smile. It just didn’t work.

He was all about trying to sell a truck; he couldn’t see this was about my son buying one.

Despite his eagerness, my son ignored the salesman’s attempt to close. We said he’d buy if the price was really final, with no additional document prep fee–and, we still needed our mechanic to look at the truck.

“EVERYONE pays the documentation fee,” said the salesman.

Funny; after more discussion, the price was reduced by the amount of the fee. Then came the final issue – our mechanic’s approval.

“Our policy is that we don’t let cars leave the lot for mechanic’s inspections. Very few of our customers even ask to have cars looked at by their own mechanics,” said the salesman.

My son called our mechanic from the lot. The mechanic said he’d never heard of a dealer taking that position.

My son got more doubtful by the minute.

The salesman explained that the reason customers aren’t concerned with having used cars seen by their own mechanic is because they buy the dealer’s extended warranty which protects them. Another follow-on service for us to buy, in other words.

We said no, and got up to leave, whereupon the salesman made another offer: “We’ll give you another $500 off.”

I said my son would pay the price without the additional $500 off, as long as the mechanic could OK the truck, but he couldn’t buy without that inspection. The response: “Do you want to put down a deposit? There’s another customer interested, and the deposit will hold it for you.”

They just weren’t listening. At this we gave up and left, disappointed and discouraged. My son really wanted to buy the truck. But we understood they had a policy, and we accepted that was endgame.

But Wait There’s More…

Then, two minutes after driving out, my son’s cell phone rang. Now the dealer was willing to bring the truck to our mechanic–a request we never even made. This last sale attempt convinced my son: “I wouldn’t buy a truck from them at all. I don’t trust them.”

A Few Simple Guidelines

How did this seller permanently lose such an eager customer? What are the lessons this dealer can learn?

  1. Just stop with the lying. Just stop it. Why do dealers lie so much?. Lying loses trust, and trust loses sales.
  2. Don’t fake scarcity. Yes it’s used a lot as a sales tactic. That doesn’t make it right.
  3. Make sure policies are grounded in some principle that is important. “You can’t take the truck to your mechanic” was a policy. And if you’re going to claim you have a policy, at least have the good sense to stick to it.
  4. Stop with the closing. Good closing happens when the buyer is ready to buy. It doesn’t happen because the seller says “deal!”
  5. Listen to your customers. Should it really be that hard?

I guess it’s not all bad. My son got to see how trusting (or not trusting) the salesman can affect a decision to buy even more than the object itself. I’m pretty glad about that.

Trust Primer Volume 11

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Our goal at Trusted Advisor Associates is to help people and their organizations become more trustworthy and trust-enhancing. It’s always exciting when we meet people who believe as we do. It’s even more exciting to talk to those who have found success by applying the same principles we talk about.

This month we place a spotlight on real trusted advisors, success stories of real professionals who make trust part of the foundation of their business strategies.

The Trust Primer Volume 11 features three powerful interviews: Chip Grizzard, CEO of Grizzard Communications; Jeb Brooks, son of author Bill Brooks and Executive Vice President of the Brooks Group; and Mahan Khalsa, partner of Ninety-five-5 and author of Let’s Get Real Or Let’s Not Play.

Each of these three demonstrate in their own unique ways how concepts of trust have played out for them in sales and leadership careers.

Get the Trust Primer volume 11 here

If you enjoy this ebook, you can email it to friends by following this link. Better yet, stop by the blog and join in the conversation. If you received this from a friend or colleague and would like to subscribe to the series, click here.

Serving To Win

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Which of these statements resonates more with you?

1. I try to win, because losing sucks.

2. I try to serve my clients, because then I win too.

3. I try to serve my clients, which generally works out best for me as well.

If you chose #1, OK, I get it, I like competing as much as the next guy, but come back another time, we’re not talking to you today.

Today we’re talking about service, winning, and the link between them.

Do you serve to win? Does serving cause winning? Or is winning an occasional byproduct of serving?

What it comes down to is: Why are you serving?

Does Doing Good Cause Doing Well?

There’s a myth being perpetuated by well-intended, wishful-thinking, creative, holistic people out there: the myth that if you do right, you absolutely will do well.

In its more extreme forms, this belief would suggest that all highly ethical and socially responsible companies always make more money, every quarter.

Of course, there’s no shortage of cynical, embittered, hard-bitten “realists” who just can’t wait to whump the idealists upside the head with a good “oh-yeah-take-Bernie-Madoff” or two.

Who’s right?

Prisoner’s Dilemma

Social scientists and game theorists are enamored of The Prisoner’s Dilemma, a two-person game about cooperation and competition. In each game, each player can choose to cooperate or compete.

  • If one chooses to cooperate and the other to compete, the cooperator gets 10 years in prison, while the competitor goes free.
  • If they each choose to compete, they each get 5 years in prison.
  • If they each choose to cooperate, they each get 6 months in prison.

The person economists assume we all are—rational maximizer of self-interest—will rationally choose to compete. So will his competitor. Boom.

That approach sums up approach number 1—play to win. Turns out that businesspeople in controlled tests of prisoner’s dilemma strongly favor approach number one; it fits with what they learned in business school, be number 1 or 2 in your market, competitive advantage, etc.

In a connected world: boom. So much for statement number 1 at the outset of this post. Because in the real world, prisoner’s dilemma doesn’t just get played once.

Playing the Game More than Once

Part of the “trick” of prisoner’s dilemma is to play it more than once. Over time, the optimal strategy turns out to be “tit for tat,” i.e. assume the other party will cooperate, and do likewise. This generally ends up in iterative decisions to cooperate, with only occasional breakdowns of order.

But why do people continue to choose “cooperate?” Is it because the economists are right, and we’re all rational maximizers of self-interest who look at the long run? Do we calculate the odds and figure that the net present value of cooperating is greater than that of competing? Turns out it’s a little murkier than that.

Playing the Game With More Than One Player

In addition to frequency, the game is affected by participation. If there are high levels of information, visibility and interaction about how other players are engaging in the same game, then the cooperation strategy becomes even more dominant. There are fewer defectors from the cooperative strategy trying to squeeze in that last little bit of competitive edge.

Fewer Madoffs.

But: if you have more people choosing to tweak those odds, looking for just the right moment to sucker-punch the other guy after having lulled them into somnolence by a series of apparently cooperative gestures, looking to gain that final advantage—then the system starts to fall apart.

Why We Play the Game Matters

Prisoner’s dilemma is a pretty good metaphor for life. The economists’ fiction of individual actors is just that—a fiction. Francis Fukuyama puts it this way in The Origins of Political Order:

It is in fact individualism and not sociability that developed over the course of human history. That individualism seems today like a solid core of our economic and political behavior is only because we have developed institutions that override our more naturally communal instincts. Aristotle was more correct…when he said that human beings were political by nature.

The only serious debate is between statements two and three. Do you cooperate to win? Or do you cooperate because—that’s what you do? It’s the latter attitude, held by enough people over a long enough time period, that drives economic wealth.

  • A business strategist who advises any given company to be socially responsible because they’ll make more money that way is detracting, not contributing, to social responsibility;
  • An investor looking for socially responsible companies solely in order to make more money on their investment is a risk-seeking investor;
  • A society of people who cooperate “in order to win” is in trouble.

The Paradox of Trust

Belief number two—serving your clients because that way you win—is ultimately self-defeating. Because if “to win” is your ultimate goal, you’ll sooner or later end up facing a situation where you have to choose between serving and winning. And you’ll choose winning.

And then people will stop trusting you. And that disease is communicable.

Two variables make it all work: time, and numbers. Play the game enough times, with enough players, and it works. Where it goes wrong is when we:

  • Start managing to quarterly earnings
  • Start analyzing performance metrics in the short term
  • Analyze individual psychology outside of group psychology
  • Use the language of self-interest instead of group interest.

The paradox is: economics work if we justify it ethically. But if we try to justify ethics economically, it all falls apart. Beware of those who justify ethical behavior by the bottom lines.

Answer three—serve your clients because things generally work out better that way—is the “right” answer for all of us. If we remember to keep it long-term, and keep it social, then it works.