Top 8 Facts About Trust and How to Become More Trustworthy

Trust is a tricky thing. When you’ve got someone’s trust it’s great: you can sell them more stuff, get more favors, ask for more, and generally benefit a great deal. But when someone doesn’t trust you, forget about it, you’re in big trouble.

So what do we know about trust? Turns out a lot! After years of research and 12,000+ responses to a recent trust quiz, we’ve compiled a list of the Top 8 Facts About Trust.

  1. Trust = Credibility + Reliability + Intimacy + Self-Orientation
    Trust can be measured across four key factors, including credibility, reliability, intimacy and self-orientation. Credibility is all about what we say, our skills and credentials. Reliability is all about the actions we take and our predictability. Intimacy is tied to how comfortable people are confiding in us, and our empathy. And self-orientation is about ego.  Learn more about The Trust Equation here.
  2. Expertise Does NOT Equal Trust
    Your expertise in something doesn’t guarantee people will trust you. So overemphasizing your expertise isn’t always the best way to succeed.
  3. Women Think They’re More Trustworthy
    Are women more trustworthy? Probably. Women certainly think they’re more trustworthy, especially when it comes to intimacy. Fair enough – women are more in touch with their feelings and definitely care more about others, but what about all the gossiping they do?
  4. Things Get Better With Age
    At least that’s true when it comes to trust. People think they’re more trustworthy, and are perceived that way, the older they get. So by the time you’re 75, you’ll have people eating out of the palm of your hand!
  5. Balance is Good
    People are considered more trustworthy when they rank all four trust components very close together. So the more balanced you are along the four trust components, the better. If you’re super credible but not intimate at all, trust drops.
  6. Most People Aren’t Balanced
    Survey results show that most people do emphasize 1 or 2 trust components more heavily than others. For 53% of respondents to the survey, Reliability was ranked as the highest. Intimacy and Self-Orientation ranked lowest at 28%. It turns out we think we’re reliable, but we don’t want to get too close to people and we’ve got big egos! Sounds about right to me!
  7. We All Think We’re Experts
    Even though expertise is the least effective strategy for gaining someone’s trust, it’s the one that people use the most often. People like to define themselves by their expertise and skills. But it looks like we’re not impressing a whole lot of people … at least when it comes to trust.
  8. Trust Can Be Taught
    If you’re not trustworthy, don’t worry. You can be saved. Trust can be taught, by focusing on your weaknesses in any of the four trust components. Actually, intimacy skills are the most easily taught. We’re talking about soft skills here — let’s keep this out of the bedroom! Truth is, it’s easier to learn to listen and to empathize (i.e. intimacy) than it is to gain an advanced degree (credibility / expertise).

So now that you know the Top 8 Facts about Trust, you can use them to improve your own trustworthiness … or do a better job of faking it! Trust matters. Don’t forget it. You’ll sell more, get better jobs, find better looking dates (OK, I don’t have scientific proof on that one, but it sounds good!) and succeed overall. So get intimate, keep the ego in check, don’t focus too much on your expertise, and continue aging — and you’ll be all set!

For more learning and tools on building trust:
1) Take the Trust Quotient Quiz

2) Read Our White Paper: Think More Expertise Will Make You More Trusted? Think Again

3) Read Article:  Ten Myths about Selling Intangible Services

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THE TRUSTED ADVISOR FIELDBOOK

The pragmatic, field-oriented follow-on to the classic The Trusted Advisor. Green and Howe go deep into the how-to’s of trusted business relationships—loaded with stories, exercises, tips and tricks, and deeply practical advice.
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TRUST-BASED SELLING

TrustBasedSelling“Sales” and “Trust” rarely inhabit the same sentence. Customers fear being “sold” — they suspect sellers have only their own interests at heart. Is this a built-in conflict? Or can sellers serve buyers’ interests and their own as well? The solution is simple to state, hard to live—and totally worth the effort.

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THE TRUSTED ADVISOR

The Trusted AdvisorThis classic book explores the paradigm of trust through the filter of professional services. It is a blend of thought and practice, clear ideas and practical suggestions, and it has found a place on many professionals’ working bookshelves.

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2010: The Summer of Trust

This article was first published in Businessweek.com

What would become known as the Summer of Love was already taking shape in January 1967, in the Human Be-in at Golden Gate Park. The phrase itself—Summer of Love—was bandied about for months that spring by national media, building up demand among students impatiently waiting for the school year to end. The Grateful Dead, the Merry Pranksters, Free Love, Be-ins, Hippies, and Timothy Leary were all part of the mix. At the time, “Love” was a euphemism for various things: music, progressive political policies, psychedelic drugs, sex.

But however the word was used, it eventually became clear that the legacy of that summer was anything but love. As PBS later put it, “by 1968 … an alternative lifestyle had descended into a maelstrom of drug abuse, broken dreams, and occasional violence.” The summer of 1967 was also the Summer of Riots in Newark, Detroit, and 126 other U.S. cities.

You could argue that the level of talk about “love” was inversely proportional to the love that resulted. Which brings us to 2010, and the Summer of Trust.

Distrust, Anger and Discontent

In 2010, “trust” has bloomed in the public’s consciousness the way “love” did back then. I’ve been focusing on trust for 13 years now, and the amount of attention I see focused on the subject is unprecedented.

But—what will be the legacy of the Summer of Trust? Will we look back on all this focus as a time of consciousness-raising, enabling an increase in a crucial element of business and society? Or, like the Summer of Love, will more talk actually signal the reverse—the beginning of even more malfeasance and declining trust?

Trust has certainly gotten the full attention of the measuring and tracking industries. Beginning in January, the Edelman Trust Barometer celebrated its 10th edition at Davos.Gallup hit the headlines with its Confidence in Institutions poll. Both showed new lows for various forms of trust. The Pew Research Center weighed in, showing trust in government down, with distrust, anger, and discontent all on the rise.

Perhaps most obviously, the “T” word got considerable play with current events. Think how quickly we came to connect “trust” (as in “abuse of” or “failure of”) with: BP (BP) (April); Goldman Sachs (GS) (April); Toyota (TM) (February); GlaxoSmithKline (GSK) (July); congressional ethics (August); the press and the White House (July); Tylenol manufacturing (JNJ) (May).

In the press, CNBC hosted a distinguished panel of experts on the subject of restoring trust in business and markets. And Forbes produced a 19-article special on trust.

HBR’s special edition was there a year before, and BusinessWeek declared The Great Trust Offensive to be the new high ground way back in fall ’09).

Tower of Babel

Trying to make sense of all the above is daunting. What other subject matter is eclectic enough to merit press coverage on issues from leadership to economics to psychology to politics to marketing? Some of this is due to the sheer cantankerous mess of the word itself. Our casual use of the word “trust” fails to distinguish between a noun (“trust is down”), a verb (“trust me”), and an adjectival phrase (“politicians are less trusted than lawyers”).

This is not a trivial issue of semantics. We use the same word for long-term social belief systems (e.g. “democracy works”) that we use for feelings that follow economic cycles (e.g. “I trust the President”). Beneath this definitional difficulty lurks real confusion about social policy. If trust in government is down, does that mean that people are less trusting? Or that government is becoming less trustworthy? Ditto for the SEC, the local school system, and the mass media. Is the problem that we trust less, or that people, policies, and institutions have genuinely become less worthy of our trust?

If indeed the bigger issue is trustworthiness, we need to look to codes of conduct, approaches to governance and regulation, and misaligned goals and incentives. If the issue is that as a people we have become less and less inclined to trust, then scholars would tell us the root issues are such things as economic disparity, the perceived inability to better one’s life, and a generalized sense of good or ill will on the part of others. Intelligent policy discussions can’t be held if we don’t cultivate the data, even the language, to make such simple distinctions.

We sometimes forget a simple fact about trust: It’s about relationships. There has been an explosion in the number of relationships we all maintain. Fragmented business models (think outsourcing) have increased the number of relationships we maintain with customers, suppliers, new and old co-workers, and industry contacts. These new relationships are hyper-fueled by the growth in new social media (Twitter, LinkedIn, Facebook, blogs, and e-mail), in turn supported by faster Internet speed and lower costs. Just imagine how many people you interact with daily, as compared with the number 10 years ago.

Given the growth in our interactivity, we are in many ways far more trusting than we were just 10 years ago—in the amount of information we share online and the number of people we share it with. A higher number of untrustworthy interactions is compatible with a lower rate of untrustworthy interactions. So is trust up or down? Perhaps both.

Where the Weak Links Lie

Nonetheless, surveys saying “trust is down” are almost certainly saying something meaningful. And three sectors are most at risk of becoming the Newark and Detroit of this Summer of Trust. They are government, business, and the press.

The Shirley Sherrod case was a frightening example of trust breakdown for government and media. Just as with the recent financial meltdown, it became apparent that an infection in one part of the system was immediately reflected in another. Everyone—from mainstream news to bloggers to politicians—immediately bought a story that was presented horribly out of context.

The CNBC panel discussion showed the dysfunction at the junction of media and business. A panel of distinguished experts, summoned to talk about “restoring trust in business, the markets, and government,” found they couldn’t agree on much other than the need for tax cuts, a politician-like response to a critical social question stated, yet unenforced, by the media.

All three sectors—politics, business, media—are suffering from a rapid replacement of relationships by transactions. When time is short, feedback is instant, and attention spans are measured in nanoseconds, we get daily sound bites expressed at high decibel levels around issues that cry our for longer, thoughtful, collaborative discussion.

As the world of business becomes more and more interdependent and tightly connected, the implications for trust are twofold. On the one hand, the need to interact smoothly may be the major force driving us to increased trust relationships.

On the other hand, if those relationships are made up solely of low-trust, short-term, market-based transactions, the same need for interdependence will put us at greater risk of Black Swan events, thus threatening systemwide trust. We need to figure out how to integrate long-term relationships and shared goals with business models that link multiple organizations.

Trust Me, I’m from HR/IT/Legal/Finance

When we hear the phrase “Trusted Advisor,” most of us think of external experts: consultants, actuaries, accountants, lawyers, the professions. But there is another group for whom that term is at least as relevant—maybe even more so. That group is made up of internal staff functions: and mainly the “Staff Big Four:” HR, IT, Legal and Finance.

These internal staff have exactly the same challenge that their outside brethren have—to successfully persuade and influence others, over whom they have exactly zero direct authority.

But it’s worse for internals: first, because they eat in the same lunchroom as their clients and are known by their first names, they tend to not get the same respect that outside experts do.

Second: an internal consultant can’t fire his or her client. They are joined at the hip, like a married couple, for better or worse.

The Big 4 functions represent a big chunk of our business, not far behind trusted advisor work, and about the same level as Trust-based Selling work. And although the keys to success are pretty much the same for internal advisors as for externals, there are some distinct cultural problems that each of the Big 4 functions face.

Differences Between the Big 4 Functions

  • The IT Challenge. Ask any line employee. “The problem with IT,” they’ll say, is “they use too much jargon and don’t deliver on time or on budget.” Strip out the value-laden words and what we hear is that IT has a reputation for being non-user-friendly, and that its big trust opportunity may lie in improving reliability.
  • The HR Challenge. Unlike their IT brethren, HR suffers from speaking the same language as everyone else; which means everyone else feels equal to them in expertise. AS HR folks will tell you: “they can’t get no respect;” and they more they ask for it, they less they get.
  • The Legal Challenge. You know this one too. “The trouble with lawyers is, they always tell me what I can’t do, and don’t help me with what I can do.” Let’s translate that into simply a predilection for avoiding Type 1 error (doing the wrong thing) at the cost of Type 2 error (not doing the right thing). Let’s call this one a misalignment around risk profiles.
  • The Finance Challenge. Finance tends to speak clearly, meet deadlines, and be very sober about risk. In fact, very sober about pretty much everything. The fear that clients have of finance people is that of being relentlessly ground down on budgets, financial analyses, plans and forecasts. They are relentlessly, somberly, right.

Each of these groups can take some simple, solid steps toward improving their level of trust by their clients. (And if you’re an external, keep reading: this applies to you too).

Key Trust Opportunities by Function

Improving Credibility. More an issue for HR than the others, remember that credibility is not only—in fact, not even mainly—an issue of credentials. The average internal client is not impressed that you have advanced degrees, or that you are a recognized expert in OD. You can argue that’s not fair, but arguing fairness just digs the hole deeper.

What improves credibility is the capacity to apply your knowledge to a specific client situation—in their language. Instead of letting the client know that you’ve seen the latest, greatest research on teaching emotional intelligence—instead, use emotional intelligence yourself to help identify, and identify yourself with, client issues. For example, “Joe, do you find your people are as involved in work as you’d like them to be? Where do you see that playing out? And how big an issue is it for you? In what terms?”

Improving reliability. Reliability—an issue that affects IT more than the other Big Four—is one of the four key components of the Trust Equation, and one of the easiest to correct. Simple awareness is a good place to begin. Reliability lends itself far more easily to measurement than do the other components of trust (credibility, intimacy, low self-orientation); figure out good measures of reliability, and track them. Think you’re already doing the most you can? Try increasing the number of promises you make, even small ones; then make sure to meet them.

Improving Intimacy. Intimacy is the variable that makes an advisor ‘client-friendly.’ Intimacy skills are what make a client feel comfortable sharing, or not sharing, information with you. If you’re being constantly shunted into a role which is far short of your capabilities, this is one area to focus on (the other is self-orientation—see below).

You don’t have to resort to commenting on kids’ pictures, college degrees and ‘how ‘bout them Bulls.’ Make it a point to learn things about your clients’ business lives—then ask them for help in understanding things that you genuinely don’t understand about them.

Self-Orientation. We find that nearly everyone can improve their trustworthiness by getting better at lowering their self-orientation (see “Get Off Your S”). Within the Big Four internals, this is particularly useful for HR and IT organizations. Too many clients see HR as whiney, and lawyers as officious: both of which are forms of overly developed self-orientation.

The solution is harder than for the other issues, but well within reach. Simply be very, very sure to see issues from the client’s vantage point—not just from yours. No one’s asking you to abdicate your professional perspectives, just to see it as well from the other side of the table. If a client says to you, “We want to do X, how can we do it?” make sure to start with, “Interesting idea; let me make sure I understand what this means to you. Tell me more about what you could do with this, how it would make you more successful. I want to make sure I know where you’re coming from before I try to comment.”

Risk-Orientation. Both Finance and Legal get heavily tarred with the brush of being too risk-averse. To some extent that may seem unfair; after all, part of their job is indeed, to manage downside risk.

But organizations that adopt an adversarial relationship, where Legal represents the downside and management argues for the upside, are creating vast areas of unnecessary cost, mistrust and confusion. It’s far better to create collaborative relationships, where issues can be sorted out mutually.

While improving self-orientation and intimacy skills are certainly relevant for many legal and financial people, there is still an underlying disconnect about risk. This disconnect has to be called out at the start. It’s no good having lawyers and Finance people suggesting, from the get-go, that their role is to reign in the irrational exuberance of those id- and ego-driven people out there in the market; we can look at the pharmaceutical and investment banking industries as pockets where the relationship has deteriorated into such a caricature, and it is not pretty.

Instead, staff people have to state the terms at the outset: ‘We are here to collaborate with you in jointly determining the right amount of business risk to take on, consistent with legal, regulatory and market-based risk. We all work for the same organization; and we’re committed to working with you.’

Then, walk the talk.

Open Letter to Clients: Why You Should Drop RFPs

This article was first published in Raintoday.com

Dear Mr. or Ms. Client:

You may be tempted to reject this letter because the author is a seller of services rather than a buyer and therefore might be biased.

In a nutshell, that’s what’s wrong with RFPs (Requests for Proposals). They reject the upside benefits of experience in order to avoid the downside risk of undue influence. That’s a bad deal for the client, but there are things both client and provider can do to improve it.

When to Use RFPs

RFPs in their simplest mode are formal invitations from a buyer company to a limited number of sellers to propose on a project. They describe what the buying company is looking for in terms of approach, credentials, models, project management, evaluative criteria, and pricing. They typically come with a due date and generally offer very minimal contact with the seller in advance of that date. What contact is offered is carefully made available to all sellers.

Let’s acknowledge that there are situations in which RFPs are appropriate and desirable. First and foremost are government contracts. Unlike private companies, governmental entities are “owned” by all citizens. And the appearance of improper influence is per se destructive of our faith in government. Most citizens don’t begrudge the use of RFPs as a blunt instrument way to ensure transparency, lack of favoritism, and corruption.

In the private sector RFPs are also occasionally desirable, such as if there’s a history of purchasing abuse by the buying firm or a concern about undue exposure to an oligopolistic supplier industry.

The virtues of RFPs in these cases are clear: they proscribe “unfair” behaviors like access to internal managers, pre-existing personal relationships, or excessively subjective decisions. In such cases, the RFP performs an important role of guaranteeing some transparency and consistency of approach. As one buyer put it, “It allows us to compare everyone on an apples-to-apples basis.”

Fair enough. But then there are the other cases—cases where RFPs are used for other reasons entirely to the detriment of the buying organization. Let’s turn to those.

When not to Use RFPs

Here are some of the other reasons buying organizations often resort to RFPs:

  • “The people in finance are comfortable with a Big 4 firm in here, but marketing wants a firm with serious marketing capabilities. An RFP will let us compare the pros and cons independently.”
  • “The suppliers out there all know way more than we do, and we’ll get taken to the cleaners if we’re not careful.”
  • “The people we have managing the buying process are not experienced at buying. They are vulnerable, and can easily be swayed by experienced sellers who can put one past them.”
  • “We have people whose job it is to make purchase decisions, and we want to make sure they do a thorough, objective job.”
  • “We want to send a message loud and clear about what it is we want and don’t want. We will define the problem, and we don’t want vendors telling us they need to do massive studies starting at the CEO’s office to fix it.”

These motivations boil down to five uses of RFPs: to resolve political conflicts, to mitigate low product expertise, to substitute for purchasing expertise, to leverage existing purchasing expertise, and to prevent escalation of the original problem statement.

All, however, have two things in common. They prevent dialogue between buyer and seller, and they predefine not only the problem but much of the solution as well.

It’s hard to imagine a worse way to buy something complex. Would you tell your family doctor just what medical condition you had and how to treat it? Would you instruct your accountant in the tax code and how to deal with the IRS? Would you buy a first house and tell your broker, banker, and home inspector just what they had to do?

The simple truth is we give up a lot when we refuse on principle to listen to the expertise possessed by the sellers of complex services. The question is do we get enough in return to make it worthwhile to remain willfully ignorant?

What You Gain, and Lose, with an RFP

What you gain with an RFP is simple: a reduction in the risk that a seller will talk you into something you don’t think you want. Let’s examine that.

At the root, this is a fear-based concern. Fear that “those vendors” have bad motives, that we as clients are not clever enough to outsmart them, that our ignorance is a weakness to be defended against. And most of all, fear that we will somehow be persuaded to change our mind against our will (as if the act of buying makes our will either disappear or become itself suspect).

Put more simply, RFPs are a natural outgrowth of an inability to trust not just a buyer but buyers in general. We don’t have to claim that all sellers are trustworthy to see that this inability to trust comes at a great cost to buyers.

When buyers refuse to trust and resort to an RFP, they shut themselves off from information only the sellers have. More important, they shut themselves off from the perspective that sellers have gained from long experience with other buyers.

RFP buyers also believe (falsely) that their diagnosis has been confirmed because they interpret a bid as validating their problem statement. Yet, as David Maister, author of Managing the Professional Services Firm, once wrote, “The problem is almost never what the client said it was in the first meeting.” That’s not a claim that clients are dumb and consultants are smart; it’s an observation about how talking solely to oneself rarely results in insights as good as those that come from talking with others.

Most of all, clients who resort to RFPs deprive themselves of the best kind of advice at a time when they can most use it and can even get some of it for free. Any good professional will bring to the sales process some level of insight, perspective, and information that the client didn’t have, if only to demonstrate their competence. (If a consultant doesn’t sell that way, the client is justified in rejecting them because it reflects a stingy self-orientation that will probably manifest itself again in the engagement.)

Finally, the use of an RFP is the ultimate indication that the client fears insight and information from the outside world. This closed view of the world doesn’t just hurt buying decisions; it hurts in viewing competition, customers, and trends that affect the firm in general. The belief that one can have one’s will hijacked by another is a form of victimhood that doesn’t play out well in the medium run, never mind the long run. The ostrich “head in the sand” strategy is not a good one.

What’s a Client to Do?

Here are four key steps a client can take to gain from the proposal process without having to resort to RFPs:

  1. Invite several firms in, one at a time, to talk on a casual basis about your general issue of concern. “We don’t think we’re getting enough productivity out of our workforce, and suspect employee engagement might help,” or “We’re not sure how to use social media in our marketing” are the kinds of statements that are sufficient as an agenda.
  2. Tell them you don’t want a long presentation; you want an informal discussion about those issues, and you want them to help you think about your options in approaching the issue. Tell them you have no pre-determined outcome of the meeting.
  3. In the meeting, be open to their suggestions—if they make sense to you. If they want to talk to others in your organization, ask why, and if the answer makes sense to you, make others available. If it doesn’t, say no. Feel free to say you’re talking to others. You have nothing to hide. Your objective in the meeting is to improve your decision about how to address your issue.
  4. Trust your gut feeling. Did they talk about you and your issues, or did they talk about themselves? Did you feel “sold” to or listened to? Did they seem street-smart or just book-smart—or not smart at all? Were they willing to take some risks with you, or were they overly cautious? Could you see working with these people for an extended period of time? Do you trust their motives? Do their plans make sense?If you can’t answer “yes” to enough of those questions, then you’ve gotten more risk-protection than you would have from an RFP—and all it cost you was a few meetings. And you probably learned quite a bit along the way.More than likely, though, you’ll hire one of the firms you met this way. And if you do, you’re already well along the way of getting to know each other—which improves the odds of doing the right work, and doing it well.

Don’t be afraid to talk. Without risk, there is no opportunity for gain, and no one can force you to make a decision you don’t want.

Competitive Strategy and Business Legitimacy

This article was first published in Businessweek.com

The Economist once called Michael Porter the “doyen of living management gurus.” Porter is the guru of competitive strategy, the one who told companies that their route to success lay in competing not just against their direct competitors, but against their suppliers and customers as well. A great number of companies have spent the last 20 to 30 years doing just that.

So when Michael Porter says something new, it’s worth noting, as with his recent piece for Businessweek.com, “How Big Business Can Regain Legitimacy.” The idea of regaining legitimacy implies that legitimacy has been lost, which is precisely Porter’s point. And the loss of business’ legitimacy is a shame not just for business, but for society at large.

There is no “legitimacy index,” and any attempt at mapping something as ephemeral as legitimacy will be fraught with subjectivity. But let me suggest a commonsensical outline. Legitimacy broadly tracks such social phenomena as trust and confidence, heroes vs. villains, and the popularity of going into business as a career choice. By these indicia, the socially perceived legitimacy of business was low in the 1960s, high in the ‘80s, and is at a nadir now.

Lowest in a Decade

Somewhere in the ‘90s the tide began to turn. The dot-com meltdown, Big Oil, Long-Term Capital Management, Enron, Hurricane Katrina, Bernie Madoff, and subprime mortgages have all played a role. By January 2009, a major survey showed trust in business at a 10-year low.

In a couple of decades, we went from a President repealing Glass-Steagall to a President firing the chief executive of General Motors; from a doctrinaire laissez-faire Fed Chairman to the SEC suing Goldman Sachs (GS) and the Justice Dept. suing BP (BP). The decline in public trust of business parallels the new adversarial relationship between business and government. This is what Porter means by the decline in legitimacy of business: Businessmen are no longer social heroes, and the political class can no longer be seen to be their friends. A reminder came just last month, with the Senate’s passage of a major financial reform bill, despite intense industry lobbying.

Ironically, in the rear-view mirror we can see that Porter himself was partly responsible. Thought leaders have impact. Porter’s major impact was describing business itself as an ongoing Hobbesian state of competition—not just between competitors, but between companies and their customers, suppliers, and social institutions. Corporate success is defined as gaining sustainable competitive advantage over all one’s competitors. Adversarial relationships in Porter’s worldview are simply the Way Things Are.

The Gekko Era

In the ‘80s, there was a common viewpoint about business’ relationship to society. Milton Friedman spoke the economists’ version—companies owed no social debt beyond being profitable. Reagan’s “government is the problem” was the political version. Porter was the thought leader for business; business’ relationship with government and society was one of competition, not of collaboration toward some higher, joint purpose. Hollywood packaged it all into Gordon Gekko—the antihero of Wall Street.

These messages all converged. Business was the source of its own legitimacy. It needed no external endorsement. It would work best when left alone, allowing Darwinian forces to work their magic.

That now seems a long time ago. Society and government are reasserting their controlling rights to business legitimacy. Regulation is back in; the American taxpayer now owns some chunk of American industry and doesn’t trust the prior management team. Today’s message from the public and government is: We don’t trust you, the free lunch is over, and as long as you continue this adversarial competitive mindset, we will continue to deny you legitimacy. It went beyond the Reaganesque complaint about government being the problem. One of Goldman Sachs’ defenses in its current litigation is caveat emptor—an argument for the bazaar, but not one for social legitimacy.

Positive Engagement

But social legitimacy comes from finding a role in society—not from complaining about society’s intrusions, albeit in the form of government.

Here’s what Porter himself says about the need for business to regain legitimacy:

“Business must find a way to engage positively in society, but this will not happen as long as it sees its social agenda as separate from its core business agenda.”

Porter is surely right about that. He goes on to argue against further CSR (corporate social responsibility) initiatives, saying that it is shared value creation, not charitable donations, that will most effectively leverage corporate capabilities to improve social conditions. Such efforts will “give purpose to capitalism and represent our best chance to legitimize business again.”

This is vintage Porter: The sustainable competitive mandate is once again front and center but now in service to social challenges such as urban blight, inequality, and unemployment. But how does he suggest business regain legitimacy when the very competitive paradigm he helped champion seems implicated in the destruction of that legitimacy?

At this point, Porter loses me. He suggests that small business and major corporations alike must focus on job creation and entrepreneurial energy to eliminate inequality in our inner cities—all the while contributing to the competitive advantage of the individual companies. How’s that again?

A Focus on Time, not Space

In place of CSR, Porter recommends community revitalization. But what sustainable-competitive-advantage-seeking company will recruit disadvantaged local employees from local communities, instead of hiring trained workers from broader markets? Coming from the godfather of competitive advantage, the message is strange; a cognitive disconnect.

Porter is right that the key to legitimacy lies within business, not outside it. But he underestimates the power of a belief that he himself helped create—the belief that business’ best interests are in opposition to those of society, government, customers, and suppliers. But he’s got the wrong dimension. It’s not about geography or demographics. It lies in focusing on the dimension of time, not space.

The bigger challenge for legitimacy is to realign business missions to be consistent with, not in opposition to, those of other stakeholders. The easiest way to realign may be to start by focusing on time frame. Many relationships appear competitive in the short term but can be mutually beneficial in the long term: We have chosen the wrong vantage point. The old Goldman Sachs used to say, “we are long-term selfish.” That still makes sense, if we can stop focusing on business as one-off, competitive transactional deals between traders.

Perils of Short-Termism

U.S. business in the last half-century has become overwhelmingly short-term driven. The usual complaint about quarterly earnings myopia is just the surface.

We have moved resources from relationship-driven business models to market-based, transactional business models (40 percent of recent U.S.corporate profits came from the finance sector; mortgage loans were four steps removed from the homeowner; 25 percent of daily New York Stock Exchange volume is machine-driven).

Our financial language relies heavily on capitalized value and other metrics that define value in single-number, here-now financial terms.

The majority of my clients tragically hold two contradictory beliefs:

  1. A long-term business strategy beats a series of short-term strategies.
  2. No one (outside of Warren Buffett and some private equity firms) is financially motivated to follow long-term strategies.

To believe both is to believe that “the system” controls us; that we are all driven to behave badly; that we are all so untrusting of each other that we cannot live in the long term. We have painted ourselves into such a corner of short-termism that we cannot conceive of relationships without monetizing them. In substituting markets for relationships, we traded trust for liquidity.

Thus we get an oil industry focused on offshore drilling instead of conservation and alternative energy. We get a health-care industry focused on maximizing transaction costs rather than health-care outcomes.

An Emphasis on Collaboration

Business legitimacy won’t be regained as long as it remains all about competing successfully with other stakeholders rather than collaborating with them. It can be regained if business can reembrace Peter Drucker’s admonition that “the purpose of business is to create and serve a customer.” A solid step toward that goal would be to force ourselves systematically to look past the short term in all our business affairs.

And business is being rudely reminded that legitimacy derives from society, which occasionally makes its will known via the political system. The smart bet would be to collaborate, not compete.

Porter is right that legitimacy must come from within business itself, not from charity, CSR—or community development. But his own doctrine of competition will continue to work against business solutions for social problems until and unless it rids itself of the poison of short-termism.

Rebuilding Trust in the Financial Sector

This article was first published in Businessweek.com

“Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed—a deficit that is larger, and harder to correct.”

Joseph Stiglitz

“‘Is not commercial credit based primarily upon money or property?’ the committee’s counsel asked. ‘No, sir,’ [J.P.] Morgan replied. ‘The first thing is character …. Because a man I do not trust could not get money from me on all the bonds in Christendom.'”

J.Pierpont Morgan

Trust is the bedrock of financial institutions, according to authorities including, but hardly limited to, the two cited above. Yet trust in the financial sector lags even trust in government, itself now at a 50-year low, according to recent survey data from Pew, Edelman, and Harris. This is not merely an economic issue, or even a legal issue. It is also a social and moral issue.

That raises a vexing public policy question: How do we go about rebuilding trust? Trust goes well beyond the narrow realm of statistical dependability. It raises issues of character, of the ability to accept the word of those with whom we do business. At the simple level of accepting a piece of paper as “legal tender” because a government says it is, all financial institutions and transactions ultimately rest on personal, emotional, and social trust. Yet our usual approaches to rebuilding trust fail on all these counts.

Most solutions to rebuilding trust in the financial industry boil down to four generic approaches: structural, regulatory, compliance, and incentives. They are all rooted in either economic or legal perspectives.

Breaking Up the Big Banks?

None of them deal with trust—both a social and a moral issue—in either social or moral terms. That failure suggests why all four customary approaches are themselves inadequate. Here’s how and why we need another approach.

Structural Structural change in the industry includes solutions such as reviving the Glass Steagall Act or breaking up too-big-to-fail institutions. But the dominant trend in financial services since 1990 has been consolidation, not breakup. Switching directions might not be easy and doing so calls for judgments about what size financial institutions makes sense since some experts—for instance, Larry Summers—argue that we need fewer, not more, small financial institutions.

Would breaking up work? Note that Canada’s banking system is far more concentrated than that of the U.S., yet performed far more safely in the recent crisis. The U.S. has done breakups successfully in the entertainment, telecom, and oil industries. However, breakup in the accounting industry came coupled with massive paperwork. Can it be done more cleanly in the financial sector than in accounting? A breakup policy is a massive and expensive bet to place in the face of conflicting data.

The structural solution has one major problem: It tries to solve an issue of social trust via the law.

Regulatory. Some suggest greater regulation, either by giving discretionary power to regulators (e.g., capital requirements) or by more aggressive enforcement, as in the recent Securities & Exchange Commission suit against Goldman Sachs (GS). A look at the last eight years suggests, however, that ineffective regulation has been part of the problem.

Not only the SEC, but the Federal Emergency Management Agency, the Environmental Protection Agency, the Federal Aviation Authority, and the Food & Drug Administration have been criticized for ineffectiveness in recent years.

Some of the regulatory problems lie in the unequal power of governmental institutions vs. the comparatively wealthy industries they regulate. The gaps are particularly apparent in the securities and pharmaceutical industries. To the extent that money implies sophisticated operations, it is economically and politically problematic—if not impossible—for a regulator to achieve parity. One could even argue that the regulated always end up in control of the regulators.

The regulatory solution has one major problem: It tries to solve an issue of social trust with politics.

Compliance. A further approach to restoring trust is to define a set of observable processes and activities and to presume that if companies’ actions are in compliance with them, that their resulting behaviors will be trustworthy.

The compliance approach suffers two defects. First, it requires the inference that good input generally results in trustworthy output—often true, but hardly a slam dunk. Second, it substitutes mechanical behaviors and processes for intentions and values. Not only do behaviors not imply specific motivations, but the act of substituting behaviors for ethical motivations tends to decrease the role of motivations in the first place.

Compliance requires a far lower threshold of behavior than following trustworthy motives. It’s no accident that so much of the financial industry prefers compliance-based standards to fiduciary standards. Compliance is a much lower standard that doesn’t require client-focus.

The compliance solution thus has one major problem: It tries to solve an issue of social trust with business processes and data observations.

Incentives It’s common for financiers, lawyers, business students, and politicians to say that the issue boils down to preventing perverse incentives in the economic system. So common, in fact, that it’s easy to overlook two huge flaws in this argument.

First, to say that the problem is a need for incentives must raise the question: Who shall design the incentives? The “free market” has proven inept at it; worse, it’s hard to point to a superior centralized-design model.

Second, this view of companies and leaders makes them indistinguishable from rats in a maze being led one way or another by bells, lights, and cheese. It makes management an exercise in mechanics and pretty much gets rid of the notions of personal trust and ethics.

The incentives solution thus has one major problem: It tries to solve an ethical issue by reducing it to a matter of neoclassical and behavioral economics.

There is one remaining solution. It is fairly obvious, yet it usually gets rejected out of hand in a business culture that has come to pride itself on being scientific, logical, and metrics-driven. That solution is for society to demand personal trustworthiness from the leaders of its institutions.

Before exploring just how to do this, let’s examine the proposition itself. Here’s what Warren Buffett had to say: “Avoid business involving moral risk; no matter what the rate, you can’t write good contracts with bad people.”

Here’s what Alan Greenspan said in testimony in July 2002: “”Our market system depends critically on trust—trust in the word of our colleagues and trust in the word of those with whom we do business.”

Those are highly credentialed capitalists. Yet, despite the support for social trust from economists and corporate leaders, the idea of improving personal trustworthiness has little presence in most proposals to improve trust.

Corporate Defence: “It’s not Illegal”

Not one of the four traditional solutions to increasing trustworthiness in the financial industry aims at raising personal trustworthiness on the part of leaders.

If anything, they are absolved of personal responsibility to any stakeholder constituency—particularly customers. Even the Sarbanes-Oxley Act’s requirement that chief executive officers personally sign off on accounting statements has had the perverse effect of making CEOs far less candid, as I found in an interview I did with L.J. Rittenhouse.

The dominant belief in business today is that a company’s sole social purpose is to make profits. This regrettable belief led to the spectacle last summer of three insurance companies testifying in Congress that they would not drop their policy of pursuing extraordinary rescission because it wasn’t illegal.

When companies are charged with immoral and unethical behavior and the corporate response is “it’s not illegal,” we have lost something more—our ethical anchor.

We need to look elsewhere for serious improvements in personal trustworthiness. There are three particular sources:

  1. 1. Business Schools. This means not only MBA programs, but executive-education programs as well. Universities should be urged to undertake large-scale programs to reexamine the fundamental role of personal ethics and character and to teach it in a variety of ways.
  2. 2. Boards of Directors. Ben Heineman has written eloquently for this Web site about the governance needs in this area. Here’s what Warren Buffet wrote in Berkshire Hathaway’s 2009 Shareholder Letter: “The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed.”
  3. 3. Industry Associations. Directors of industry associations need to recognize that short-term selfish behavior is harmful to their constituencies in anything beyond the short run, then focus on broader agendas that improve the long-term health of their members’ industries.

As for the rest of us: If the language of ethics and morality sounds stuffy, stilted, and decidedly unhip, we need to get over it—quickly. The problem goes far beyond Goldman, subprime mortgages, and government. This is what a crisis in public trust looks like. We can’t look solely to economists and lawyers to lead us out of it.

Are You Talking Your Way Out of a Sale?

This article was first published in Entrepreneur.com

What’s the best way to answer the question, “So, tell us a little bit about your company?”

If you’re like most salespeople, you view this as a sincere invitation to rattle off all those key points you’ve rehearsed, all those selling points and value propositions you’ve developed, tweaked and improved with each pitch.

But when customers ask that question, they are not, in fact, all that interested in hearing about you. It’s not that they’re lying to you, their intentions are good. The problem is they never went to buying school, and frankly they just don’t know what else to ask you.

Unfortunately, they use the words “tell us about yourself”—and we hear it literally. They’re not interested in your story—they want to hear about their story. This is often the fork in the road that can send you down the path of literally talking your way out of the sale.

How Do You Make Your Story Their Story?

First, if the client asks you to tell them about yourself, you shouldn’t embarrass them by refusing to do so. But you can quickly turn the conversation back to them. And once they start talking about themselves you have an opening to weave your story lines into theirs.

You may recognize this as a form of samples selling. Product salespeople know it well—instead of talking about the product’s features, give the customer a sample. If you’re selling cars, offer a test drive, if you’re selling ice cream, hand out little wooden spoons.

The way you do samples selling in complex, intangible services is to actively engage the client in a discussion about their situation. Now, in the context of their situation, you can demonstrate your capabilities in a meaningful and relevant way.

You don’t want to be a name-dropper or a show off (that’s just annoying), but if you’re having a serious conversation with the customer you’ll easily find places to say things like:

  1. “Ah yes, that’s just what Intel did in a similar situation,”
  2. “So, doesn’t that leave you with just choice a and choice b?
  3. “Most of the time, that ratio is less than half, isn’t it?”
  4. “The majority of my clients choose to do X rather than Y; which way did you go on that issue?”
  5. “Have you ever thought of outsourcing that process?”

Think of selling this way as showing, not telling. You are actively engaged in showing the customer how you fit into their story—and you’re helping them tell that story going forward.

Let your competitors sell by telling their story. It won’t work very well because the only story the clients are interested in is their own. You be the one to work your way into their story. Work your way into their story—don’t talk your way out of it a sale.

Why Should We Buy from You? Good Question!

This article was first published in Customer Collective

You know the scenario. You’ve worked to get the first meeting set up, and you’ve finally got it. It may or not be a full-blown pitch, but you know there’s going to be one question at the heart of the meeting. You may or may not hear the question phrased precisely this way, but it’s implicit:

“So—let’s cut to the chase; why should we buy from you?”

You have a strong feeling that the way you answer this one question is going to be crucial to your success. And you’re probably right.

What’s Behind that Question

The actual body language of the client may vary, but the emotion implied by the question pretty much translates as:

“All right, Ms. or Mr. Hotshot, it’s put up or shut time. You’re on the line. Do something to impress me; let me see what you’ve got. I’m just going to stand here with my arms crossed and watch you perform. And, it goes without saying—you’d better be good.”

It is, in other words, about as high pressure as it gets.

But if we can stop the fear for just a moment, we can ask what’s behind the client’s setting up of this little drama.

Often there’s a bit of a power game going on; the client is not-so-subtly telling you who’s in charge here, who’s got the decision-making power and who ultimately calls the shots.

But the client also has his or her own fears. They sense that in this one area, you have more expertise than they do; you know much more about the pricing than they do; and that they don’t even have a good idea of how they’ll make the decision. Those are good grounds for feeling fearful—and for perhaps wanting to even-up the balance of fear.

Additionally, the client generally doesn’t really know what else to ask (unless they are a professional purchasing agent). By saying “tell us about yourself,” they are trying to sound definitive, while internally just hoping you’ll say something that makes a great deal of sense to them, that will make their decision easier.

They also hope that by phrasing a question this way, they’ll get the ‘best case’ for each firm they talk to, thus making comparisons easier for them.

And finally, in one sense they actually do mean what they’re saying. They’d love it if you really could convincingly explain to them why they should buy from you—it’d make things easier, and give them a script for the uncomfortable job of telling others why they didn’t get chosen.

There’s a lot of psychology going on here, and your answer needs to deal with all of it. Fortunately, there’s a very good answer that does just that.

Your Answer Must Respond to Several Questions

Given all that’s behind the question, the ideal answer should do the following:

  • set the client at ease
  • make them feel they asked a great question
  • answer their question in a direct and literal way
  • give them a comfortable road forward.

So here’s a generic form of the ideal answer to, “Tell us why we should buy from you?”

“Gosh, I’d love to tell you why you should buy from us, but of course the truth is, we’ve just met. It would be arrogant of me to start telling you at this point what you should do before we know more about each other.

“I don’t want to be evasive, however, so let me suggest this. I can tell you right now the main two reasons our customers have chosen to buy from us. And, I can tell you two reasons why some people who chose not to buy from us made that decision.

“That should help a little. But to answer the question for you—the only answer that matters—I’d suggest we talk about your issues. We’re happy to take the lead—we see three key issues for you and will be glad to say what we suspect about them—but it should be a dialogue between us about how we each see those issues and what we know about them.

“And on the basis of that discussion, I think we’ll both know pretty well within 30 minutes whether you should, or shouldn’t, buy from us. It’ll probably be as clear to us as it is to you. And by the way, if it looks like you shouldn’t buy from us, we’ll be right there with you, because the last thing we want is to get involved in something that isn’t right for us.

“So, what do you say? Let’s talk about those three issues, shall we?

That answer sets them at ease, compliments their question, provides direct and literal responses, and offers clear next steps. And It has one added virtue: it’s the truth.