Four Principles of Organizational Trust: How to Make Your Company Trustworthy

Here’s a “Golden Oldie” post from 2011. Has anything changed in the passage of five years?

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iStock_000018524776XSmallTrust, in case you hadn’t noticed, has gotten “hot” lately. But much of it sounds very vague—soft, fluffy, nice-to-have, the buzzword du jour.

I’d like to do my part to make it real.

To me, that means breaking it down and making it sound; tapping into the strategy and mysticism, but also staying grounded in the tactical and the practical.

So let’s review some context; then talk about four specific operating principles a business can hone in on to improve its trustworthiness.

Putting Trust into a Workable Context

I’ve suggested elsewhere that “trust” is too vague a term to work with. To do something practical, we need first to identify the trust realm: are we talking about personal trust, or business/organizational trust, or social/institutional trust?

The next question is about the trust role: are we working on being more trusting? Or more trustworthy? They are not the same thing.  And “trust” is the result of them both interacting.

Building a Trustworthy Business

In the realm “personal” and the role “trustworthy,” we can point to personal beliefs and behaviors as indicated in the Trust Quotient. But in business, trustworthiness is built through a set of daily operating principles. Trustworthiness is built from habitually behaving in accordance with a set of commonly shared beliefs about how to do business.

I suggest they can be boiled down to four.

The Four Trust Principles

1. A focus on the Other (client, customer, internal co-worker, boss, partner, subordinate) for the Other’s sake, not just as a means to one’s own ends.  We often hear “client-focus,” or “customer-centric.” But these are terms all-too-often framed in terms of economic benefit to the person trying to be trusted.

2. A collaborative approach to relationships.  Collaboration here means a willingness to work together, creating both joint goals and joint approaches to getting there.

3. A medium to long term relationship perspective, not a short-term transactional focus. Focus on relationships nurtures transactions; but focus on transactions chokes off relationships. The most profitable relationships for both parties are those where multiple transactions over time are assumed in the approach to each transaction.

4. A habit of being transparent in all one’s dealings.  Transparency has the great virtue of helping recall who said what to whom. It also increases credibility, and lowers self-orientation, by its willingness to keep no secrets.

Executing on the Trust Principles

What are the tools an organization has at its disposal to make itself more trustworthy? Any good change management consultant can rattle off the usual suspects, but for trustworthiness, the emphasis has to shift somewhat.

The usual change mantra includes a heavy dose of behaviors, metrics and incentives. Some of that works here, but only to a point.

For example, Principle 1, focus on the Other, is contradicted by too much extrinsic incentive aimed at leveraging self-interest–it undercuts focus on the Other.  And Principle 3, relationship over transaction, forces metrics and rewards to a far longer timeframe than most change efforts employ.

Another great shibboleth of change is that it must be led from the CEO’s office. But with trust, it ain’t necessarily so.  Trustworthiness is a great candidate for infectious disease change strategies; guerrilla trust strategies can work at the individual level, and individual players can lead. Behavior in accord with these principles cannot be coerced; the flipside is, it can be unilaterally engaged in.

The most powerful tools to create a trustworthy organization are things like language, recognition, story-telling, simply paying attention to the arenas where the principles apply—and the will to apply them.  Role-modeling helps; some skill-building helps.  But most of all, it is the willingness to notice the pervasive opportunities to work in accordance with this simple set of four principles.

Trustworthiness breeds trusting (the reverse is true too); the combination is what leads to trust. Which, by the way, is quite measurable in its impact on the bottom line.

Living Inside a Pariah Company

Doggie at Door Exile iStock_000042122536_smallLast week I wrote a very critical blogpost about Volkswagen. I was, of course, hardly alone in doing so; the scandal has created tremors beyond even recent examples.

But in the days since, I’ve been trying to think in different terms – in particular, what must it be like to be an employee of VW in these difficult days? What is the view from inside the glass, looking up and out? What tensions must it cause people – and what can they do?

The Pariah Organization

My good friend Matt Nixon started writing a book last year, tentatively titled “Working for the Pariahs: Can Good People Stop Organizations Going Bad?”  He send me an early draft outline last year, and I’m re-reading it again now.

Matt has the credibility to write this book: an MBA, he spent over a decade in consulting (Accenture, Towers Perrin), then another decade as a VP at Shell Oil and later an MD at Barclays. He knows something about whereof he speaks. Combined with a classical English education and a wide network, the book makes for illuminating reading. [Matt – when are you going to finish this book?]

Matt suggests that being a pariah organization (think “outcast” and “exile”) is a phenomenon on the increase (just because you’re paranoid doesn’t mean they’re not out to get you, it’s really true).  He also points out that pariah-dom is about much more than individual moral failings – it is trackable at an industry level (another gut feeling ratified by data).

He provides some diagnostics and descriptive models to identify and predict pariah-like conditions in organizations. Particularly telling is his critique of “false metamorphosis,” the consultant snake oil of “transformation” that has been overblown. True change, he suggests, requires a lot more, and is a lot more uncommon.

But what about VW’s employees? As Matt notes from other pariah organizations, a great many people in such companies feel bewildered and unfairly treated.  They see themselves, and their company, as largely ethical, and remain quite positive about staying with the organization they are part of.

The overwhelming criticism of their organizations feels like torches and pitchforks.

At a time of crisis, Matt suggests employees go through a predictable sequence of emotions – shock, followed by anger and shame, swinging back to resurgent loyalty, and ending in a blend of guilt, responsibility, and denial. He talks as well about three “tribes” of employees: Loyalists, Mercenaries, and Heroes. The three tribes react differently to the four phases.

What Can Be Done?

I hope Matt finishes his book. It’s got some great insights for organizations and leadership. For me, for right now, I want to focus on what an individual at VW might be thinking about, what they can do, and what we can do to support them.

Human beings are delicate creatures. We process information that is critical of us in very self-protective ways. We will take advice from a friend that we would never take from a stranger.

As outsiders, this means we have to temper criticism with the recognition that exceeding few employees assume personal guilt. The vast majority feel very little personal accountability for the sins of the organization, and personalizing accusations doesn’t help them come to grips with any objective truth.

The increasing demand for personal civil and criminal accountability of leaders in pariah organizations is, I think, a good thing. But it must be tempered by some focus on responsibility – our criminal justice systems are easily inclined to focus on the underlings, and not the leaders. Indiscriminate demonization of employees is counter-productive. In the VW case in particular, the role of culture and corporate environment seems a strong contributor, rather than a simple case of “bad apples.”

As employees, the challenge is to see this as a “Santa Claus” moment: as in, “there is no…”  This did not happen in a vacuum; as Matt notes, the cult of leadership is partly to blame for obscuring the truth that corporate cultures “eat strategy for breakfast,” not to mention well-intended but impotent compliance programs. It’s critical to employees – for their own psychic health, as well as that of the organization – to be constructively schizophrenic.

They need to both feel secure in their own good intentions and, at the same time, be able to objectively see how things could have gotten to this point. As Henry Mintzberg angrily points out, this kind of phenomenon is best seen not as a scandal, but as a syndrome. And only insiders have access to the “real” story.

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Moral outrage has its place in the reform of business. So does shaming, by bringing business issues outside narrowly proscribed economic boundaries and into the social realm as a whole.

But blame and shame are two-edged swords, and very hard to control. At a social level, their overuse just promotes entrenched ill-will; look no further than the current state of US national politics.

At an individual level, blame and shame keep us from seeing and accepting reality, as it is. In a very real sense, as my friend Phil McGee puts it, “Blame is captivity – responsibility is freedom.”

As we look at the VW scandal/syndrome, we need to balance our outrage with a sense of respect for other individuals, and our defensiveness with a willingness to see things as they are.

Question Obsession: The Consultant’s Nemesis

Consultants and salespeople (especially consultative sellers and sellers of consulting) have learned one mantra, and we love repeating it. It is the mantra that says, “Listen first; talk later.” In other words, it’s all about the question. Ask a great question, the logic goes, and all else will fall into place.

That is the great lesson of Sales and Consulting 101. The trouble is, if you never graduate from 101, you will end up in quicksand because an obsession with questions ultimately leads nowhere.

The Obsession with Questions

There’s good reason for the Sales 101 and Consulting 101 lesson of focusing on questions. Go no further than Neil Rackham’s SPIN Selling, in the case of sales, or Peter Block’s classic Flawless Consulting for consultants. Each one shows with wisdom and data that artfully posed questions generate dialogue and interaction, and that is always superior to pre-emptively beating up the client with the answer.

Of course, we often forget our 101 lesson and go into meetings with answers blazing. But that’s not what this article is about. This article is about the downside of obsessing with questions. It’s what happens when we turn the 101 lesson into a mantra, and we begin to focus on questions alone.

Is questioning an obsession? Try doing a web search on “Top Ten Sales Questions;” you’ll get millions of results.

Now ask yourself whether you recognize these themes:

  • Should I ask open-ended or closed-ended questions?
  • Should I ask about implications or needs?
  • Should I ask about the client’s opinions or offer “challenger” questions?

As one sales website puts it, “Get the answers to these questions, and take action based on those answers, and you’ll get the sale. It’s that simple.”

No, it isn’t.

The sales version of question obsession manifests in lists. The consultant version of question obsession manifests in the Great Keystone Arch Question—what is the central supporting element?

You can recognize this form of obsession because it leads consultants speaking among themselves to say things like, “If we can set the data up right, we can frame the discussion such that when we finally pop the Keystone Arch Question, the whole logjam will be released. They’ll feel the pain, envision the solution, and fall all over themselves in a rush to buy our solution.”

No, they won’t.

That’s because good questions are necessary—but not sufficient. You have to have them, but they won’t get you to the end zone.

If all you do is focus on questions, you’ll end up obsessed with yourself, with your solutions and products, and with how clever you are. That’s called high self-orientation, and it will kill trust and sales both. Question obsession is quicksand for salespeople and consultants alike.

Beyond Question Obsession

The narrow purpose of a question is sometimes to get an answer. But there are broader purposes to most questions, and certainly a broader purpose to the art of questioning itself. One is to create a greater sense of insight for the client. Two others are to improve the client relationship and to give the client a sense of empowerment.

These goals are best accomplished not so much by focusing on the “what” of the question but on the “how.” Some examples:

  • Questions to create insight: Consultants often come up with “insights” that only an MBA could understand or that leave the client feeling helpless. These are not useful insights. We don’t want to leave our clients saying, “Gosh, that’s really smart. How will I remember that?” Rather, we want them to say, “Oh, my gosh, of course! it’s so clear when you put it that way, isn’t it?” Our objective is to create insight, not to demonstrate that we have it.
  • Improve the relationship: The better the relationship—buyer/seller or consultant/client—the better everything else gets. Innovation, profitability, time to market, and insights all improve with relationships. Great questions allow the parties to get closer together, more comfortable sharing the uncomfortable, and more willing to take risks by collaborating. Questions such as, “Let me ask you, if I may, do you personally find that scary?” have nothing to do with “content” insight, but they are critical to advancing the relationship.
  • Create client empowerment: The point of all this questioning is not, ultimately, to understand things. It is to change them. And change will not happen if the client feels the insights are threatening, depressing, or out of his control. The key to action is to help the client see ways in which they can change, take control, own, and improve their situation.

It’s not what you ask; it’s how you ask it. All three of these broader objectives have little to do with the content of, or the answer to, a business question. Instead, all of them focus on the outcome of the question-answer interaction. From this perspective, it is not what you ask that is important, but how you ask it. We need to get past the Q&A outcome, which is just about knowledge, and focus on the outcome of the interaction, which is how we help our clients drive change.

Avoid the quicksand: get past questions for questions’ sake, and focus on real business outcomes.

Bloggers’ Top 10 Annoying Spelling Errors: Spellcheck Won’t Save You

You may be uneducated – but you needn’t advertise the fact.

Of course, we all understand typos – though the sight of them uncorrected on a blogpost suggests serious amateurism.

But what’s worse is a spelling error that is more than a spelling error – that belies a failure to understand the difference between two very different words. If you think you ever watched a Western movie that involved sending in the calvary, you are not only mistaken, you are flaunting your ignorance.

Spell-check will not help you here; these are words that have two very different meanings. If all you do is rely on spellcheckers, then all you’ll get is correctly-spelled indications that scream out loud you don’t know what you’re talking about.

You may not have graduated college – but why advertise the fact? And if you did – why make it look like you weren’t paying attention?

Study this list of examples I’ve encountered over the years – my Top Ten Most Annoying Spelling Mistakes. (Non-native English speakers get five free passes).

  1. Cavalry vs. Calvary. A cavalry is a group of horse-mounted soldiers. Calvary is the name of the hill on which Jesus was crucified. The only cavalry at Calvary that day was Roman.    
  2. Compliment vs. Complement. To compliment someone is to say something nice about them; a complement is something that goes well with something else. Being complimentary is a nice complement to a set of good manners.
  1. i.e. and e.g.  i.e. is short for the Latin “id est,” or “that is.” e.g. is short for the Latin “exempli gratia,” or “for example.”   “I’m from Missouri, i.e. show me,  e.g. by citing a few cases.”
  1. Memento and Momento. A memento is a piece of memorabilia. A momento is Spanish or Italian for the English word “moment.” Un momento, por favor, I just want to grab a memento of my last day in Madrid. 
  1. Chord and Cord. A chord is a harmonious set of intervals played at one moment; an idiomatic use is “struck a chord,” meaning ‘resonated with.’  A cord is a length of rope or string.  To make it more musically confusing, we all have vocal ‘cords’ – not chords.  That movie struck a chord with me, especially when the lead character yanked on the cord and proceeded to exercise his vocal cords at full strength. 
  1. Effect vs. Affect. Effect, the noun, is a result – to effect, as a verb, is to bring something about. To affect, the verb, is to influence something – affect, the noun, is a demeanor.  The effect of his affect was to change everything; he affected world politics, and thereby effected world change.  
  1. Pare and Pear and Pair. To pare is to strip something down to its essentials. A pear is a fruit you eat. To pair is to match up with another.  Would you please pare down that pear? I want to pair it with another pear that is already pared down considerably. 
  1. It’s and Its. “It’s” is a contraction for “It is.” Its is the possessive form of “it.”  It’s about time that cartoon rabbit got its own TV show. 
  1. Sight vs. Site. Sight is the ability to see, one of the five senses. Site is a location. He chose the new factory site on paper alone, sight unseen. 
  1. Reader’s Choice. What’s your nomination for number 10 on the list of most cringe-worthy spelling mistakes?  I’ll print all good answers, and the best three get a free copy of one of my books.

 

 

 

 

 

 

Building the Trust-based Organization

The Elephant of TrustDo your eyes glaze over at that title? Mine do. I always click on such titles, but am usually disappointed when I get what feels like low-content or high fluff-quotient material. So I set out to tighten up the perspective.

Tentative conclusions: sometimes the issue really is vague, fluffy, fog-sculpting content. More often, however, it’s more a situation of the blind men and the elephant: all describe a key component of the answer, but none have a holistic perspective.

The Parts of the Elephant

This is not an exhaustive taxonomy, but a great number of pieces about creating trust in organizations do fall into these categories. Here are the equivalents of the blind men seeking to describe the elephant of trust.

Trust as Communication. “Communications is fundamental to earning trust,” says Jodi MacPherson of Mercer in Ivey Business Journal. “At the heart of building trust is the process of communication.”

This approach gets one thing very right; trust is a relationship, not a static set of virtues or characteristics. Hence the connection between parties is key, and communication is the basic way parties relate to each other.

However, the communication approach begs one huge question – the content being communicated.

Trust as Reputation. The Edelman PR firm’s annual Trust Barometer has been a major communications success.  A sample statement:

Corporate reputation and trust are a company’s most important assets, and must be handled carefully…Beyond safeguarding a reputation, the 2012 Edelman Trust Barometer findings reveal that businesses acquire a greater license to operate as they expand their mission and create more meaningful relationships…By identifying a company’s assets and weaknesses in the realm of trust, we help corporations uncover, define, exemplify and amplify their authentic identity in ways that resonate with stakeholders and inspire support of their business mission.

This approach has one big risk: by equating trust and reputation, the emphasis naturally falls more on managing the perception of the trustor, and less on managing the trustworthiness of the trustee.  It is also inherently corporate, and therefore impersonal.

Trust as Recipe.  There are probably more approaches that fall into this camp than any other.  It includes lists of (typically 4 – 6) actions, principles, insights, definitions, concepts which, if considered or managed or invented or followed or preached about, result in greater trust in an organization and between that organization and its stakeholders.

A good example is Ken Blanchard Company’s The Critical Link to a High-Involvement, High-Energy Workplace Begins with a Common Language.  They offer  four trust-busters (one of which is lack of communication), five trust-builders, and three rules to building leadership transparency.

Trust as Rules-Making. A Harvard Law blogpost titled Rebuilding Trust: the Corporate Governance Opportunity, Ira Milstein points out the critical roles that can be played by boards and shareholders in increasing trust.

A similar point is made from an Asian perspective, in Corporate Governance: Trust that Lasts, author Leonardo J. Matignas says “Corporate governance is not premised on a lack of trust. It simply ensures that trust is accompanied by practices and principles that will further strengthen it.”

While these views may appear slightly narrow, they’re part of a broader governance category that says corporate trust lies in better rule-making. If the game is out of control, we need to clarify the rules, tweak the goalposts, empower the referees, and not be afraid to make changes to the environment in which business operates legitimately as business.

The strength of this view lies in its linkage of business to society – the implicit statement that there is no Natural Law that says business has any right to stand alone outside a broader social context.

Trust as Shared Value. In Michael Porter and Mark Kramer’s notable 2010 HBR article Creating Shared Value, Porter auto-performs a conceptual sex-change operation on his previous work. The author of Competitive Strategy and the Five Forces affecting competitive success boldly charts out a world in which companies take the lead in formulating multilaterally beneficial, long-term projects for the greater betterment of all stakeholders. The lions and the lambs can get along after all, it seems.

Porter and Kramer deserve mention here because they have pinpointed something few others do – an unflinching claim that economic performance at a macro level is consistent with firms behaving at a micro-level in longer timeframes and in more multi-stakeholder collaborative manners. (Incidentally, this view reclaims Adam Smith from the clutches of the Milton Friedmans and Ayn Rands who suggest competition is purely about survival of the fittest, and restores to him a sense of Smith’s broader views as reflected in his Theory of Moral Sentiments).

They are not entirely alone. The Arthur Paige Society a few years ago published The Dynamics of Public Trust in Business, which similarly stated:

…trust creation is really an exercise in mutual value creation among parties who are unequal with respect to power, resources, and knowledge. We believe that a core condition for building public trust is the creation of approaches that create real value for all interested parties—businesses and public alike.

Of all the views, Trust-as-Shared-Value is the one most breathtaking in scope. The issue facing it is one of execution. There is a bit of a “then a miracle happens” quality, perhaps inevitable given the scope of envisioned change.

Seeing the Elephant Whole

All the five generic approaches above get something important right – but none of them constitute a full answer to “How do we make trust-based companies?”

So what would constitute a good answer?  It must have three parts: a Point of View, a Diagnosis, and a Prescription.

Crudely speaking, in the list above, Porter/Kramer’s Shared Value is a point of view lacking a prescription. Trust as Rule-Making is a diagnosis without prescriptions or a point of view, and Trust as Recipe is pretty much prescriptive in nature.

In Part II of this post, I offer my suggestion for how to best answer the question across all three dimensions.

A Tale of Two Cities: Trust and the iPad

photo by Sean MacEnteeSuppose you’re a high school administrator in a metropolitan area. Your district has the opportunity to use a number of iPads at subsidized rates to help in the students’ education.

Would you:

a. Be sure to load up the tablets with educational software and put in some restrictions on social media sites,
or,
b. Leave the devices pretty much the way they are out of the box, with no particular restrictions?

This happened. One district was in Los Angeles; the other, Burlington Mass, a suburb of Boston.  The question du jour is:

Which school district went with which approach?

So Much for Laid-back West Coasters

Westchester High, part of the Los Angeles Unified School District, went with option a.  Let’s just call it, oh, the “We don’t trust you kids” option.

Burlington (in the heart of Boston’s famed Rt 128 tech corridor) did the loosey-goosey thing.

So much for east coast / west coast stereotypes.

But what’s interesting was the result.

The Fruits of Low Trust

Students in LA took only a few days to hack the filtering software, thus getting into the verboten territories of Facebook and Pandora. The school district:

treated the security breach as a crisis. At Westchester High and two other schools where students managed to liberate their iPads, it ordered that all tablets be returned. In a confidential memo intercepted by the Los Angeles Times, LAUSD Police Chief Steven Zipperman warned of a larger student hackathon and suggested the district was moving too quickly. “I’m guessing this is just a sample of what will likely occur on other campuses once this hits Twitter, YouTube, or other social media sites explaining to our students how to breach or compromise the security of these devices,” wrote Zipperman. “I want to prevent a runaway train scenario when we may have the ability to put a hold on the rollout.

There are plenty of folks who see the LA experience as a fiasco, serving the interests only of tablet producers like Apple.

The Payoff of High Trust

But then there was Burlington. Other than installing a porn filter, the district consciously chose to avoid the “lockdown” approach, instead offering “digital literacy” classes where kids could develop a web presence to impress college admissions officers.

The students already intuitively knew how to use the equipment. They took to it like ducks to water, rapidly outpacing the faculty, who then dug in to catch up with their students.

The teachers now go to a student-run Genius Bar.  The English department created an online vocabulary textbook that saved budgeted funds. And the kids behaved themselves.

The program was enough of a success that they’re expanding it to middle school students.

The Moral of the Story

Too often when we speak of trust, we speak only of static components – moral values, credentials, observing rules.  But an enormous amount of trust is governed by the reciprocating, interactive rules of human behavior.

Specifically – one of the best ways to make someone trustworthy is to start by trusting them in the first place. People hugely live up – or down – to what is expected of them. So much of the cure for low trust lies not in yet-more regulations and audits, but in more risk-taking that requires trust!

Are you listening, banks? HR departments? Employment lawyers? Teachers? The cure to low trust is frequently – more trust.

Trust Inc.: Strategies for Building the Trust Asset – Chapter 1

Trust Inc coverThis is an abridged version of the opening chapter – “The Business Case for Trust” – of the just-published  Trust, Inc.: Strategies for Building Your Company’s Most Value Asset. 

The book is a collection of 30-plus articles by diverse authors on trust in business. Edited by Barbara Kimmel of Trust Across America, the book covers issues ranging from measuring trust, diagnosing its presence or absence, managing trust and increasing trustworthiness, to improving people, companies, industries and societies.

Barbara and I co-authored the opening chapter. Other authors in the book include names like Steven M.R. Covey Jr., Ken Blanchard, James Kouzes and Barry Posner, Peter Firestein (investor relations), Laura Rittenhouse (financial candor), Jim Gregory (branding), and Linda Locke (reputation). And more.

Have a taste of the book, below. And click through here to see a complete table of contents and authors list. Whatever your interest in business in trust, you’ll find something here the addresses it.

The Business Case for Trust

by Barbara Brooks Kimmel and Charles H. Green: from Chapter 1 of Trust, Inc.,publisher Next Decade, November 2013.

Trustworthiness — once exemplified by a simple firm handshake — is a business value that has suffered erosion. We see this in how the public has grown increasingly cynical about corporate behavior—with good reason.

The PR firm Edelman found in a recent “Trust Barometer” survey that trust, transparency, and honest business practices influence corporate reputation more than the quality of products and services or financial performance. And yet, scandals and bad behavior continue to pile up.

Our view is that a company seriously interested in its reputation must increasingly focus not just on “business performance” as it is traditionally understood, but on being seen as trustworthy too.

We believe there is an important, material business case for trust. This doesn’t mean that trust isn’t or shouldn’t be justified on moral or societal grounds. Of course it should. But trust makes for good business as well. This essay will put forth the business case for trust by exploring the gap between low- and high-trust organizations’ performance. We will also offer a framework for assessing corporate trustworthiness, and point the way toward strategies for creating a trust-enhancing business model.

First, let’s look at the costs of low trust.

How low trust affects stakeholder outcomes

Low Trust in Society

Business operates in a social context; because of that, low trust in society-at-large costs business. Indirect examples include the TSA airport security program ($5.3 billion, not to mention the impact on tens of millions of business travelers), and the criminal justice system ($167 billion in 2004). Both of these examples are funded by taxes on individuals and business.

Businesses also shoulder direct tangible losses from crime ($105 billion), where they are often the victims.

A more obvious social cost for business is the cost of regulation. Economist Clyde Wayne Crews releases an annual report entitled “The Ten Thousand Commandments” that tallies federal regulations and their costs. In 2010, the federal government spent $55.4 billion dollars funding federal agencies and enforcing existing regulation. In 2013, The Washington Post reported that “the federal government imposed an estimated $216 billion in regulatory costs on the economy (in 2012), nearly double its previous record.”

Doing business in a low-trust environment is costly. Whether or not you believe that companies can, or should directly impact social conditions, one thing is clear. In aggregate, business bears a lot of weight for the cost of low-trust in our society.

Low Trust in Business Practices

Social costs on business, however, are just the tip of the iceberg. Far bigger costs are exacted by simple business practices. Consider the
need for detailed financial audits. The Big 4 accounting firms’ aggregate global revenue is $110 billion5, of which about one quarter is made up of audits in the U.S.

Consider lawyers: there are over 1.2 million licensed attorneys in the United States, more per capita than in 28 of 29 countries (Greece being the 29th). The cost of the tort litigation system alone in the United States is over $250 billion—or 2% of GDP. It’s estimated that tort reform in health care alone could trim medical costs by 27 percent.

All these are examples of transaction costs: costs we incur to protect or gain (we hope) larger economies of scale, markets, or hierarchies. Transaction costs add no value to the economy per se; they just foster favorable market conditions so that other economic factors (e.g. markets, scale economies) can add value.

But there comes a point at which the addition of more non-value-adding transaction costs ceases to be positive and becomes burdensome. It’s clear to us today that we are well past this point. A Harvard Business Review article from 8 years ago (Collaboration Rules by Philip Evans and Bob Wolf, July 2005) suggests that nearly 50% of the U.S. non-governmental GDP was, as of 2005, comprised of transaction costs. Imagine the impact of redirecting even a small proportion of these monies to value-adding actions.

Their research goes on to say that, in such an economy, the most productive investments are often not those that increase scale or volume, but those that reduce transaction costs. And the most viable strategy for reducing massive transaction costs? Trust.

Low Trust and Employee Disengagement

Disengagement occurs when people put in just enough effort to avoid getting fired but don’t contribute their talent, creativity, energy or passion. In economic terms, they under-perform. Gallup’s research places 71 percent of U.S. workers as either not engaged or actively disengaged. The price tag of disengagement is $350 billion a year. That roughly approximates the annual combined revenue of Apple, General Motors and General Electric.

According to The Economist, 84 percent of senior leaders say disengaged employees are considered one of the biggest threats facing their business. However, only 12 percent of them reported doing anything about this problem.

What does disengagement have to do with trust? Everything. In a Deloitte LLP ethics and workplace survey, the top three reasons given for employees planning to seek a new job were:

  • A loss of trust in their employer based on decisions made during the Great Recession (48 percent);
  • A lack of transparency in leadership communication (46 percent); and
  • Being treated unfairly or unethically by employers over the last 18 to 24 months (40 percent).

A lack of trust in the employer is at the heart of each of these reasons. To the extent that plans to find a new job are a proxy for disengagement, the case is clear. Lack of trust drives away employees.

In discussing the survey, Deloitte LLP Board Chairman Sharon Allen notes:

Regardless of the economic environment, business leaders should be mindful of the significant impact that trust in the workplace and transparent communication can have on talent management and retention strategies. By establishing a values-based culture, organizations can cultivate the trust necessary to reduce turnover and mitigate unethical behavior.

The survey also provides some interesting data on the business case for organizational trust. When asked to rate the top two items most positively affected when an employee trusts his or her employer, employed U.S. adults made the following top rankings:

  • Morale (55%);
  • Team building and collaboration (39%);
  • Productivity and profitability (36%);
  • Ethical decision making (35%); and
  • Willingness to stay with the company (32%).

As Mary Gentile eloquently states later in this book, “Very often the most visible, most costly challenges to the public trust in business are fairly predictable: deceptive marketing practices; falsified earnings reporting; failure in safety compliance; lack of consistency in employee relations; and so on.”

In other words, the ability to manage the costs of low trust –whether arising from society, from business practices, or from management practices—is to a great extent within the control of the corporation. And yet, it is largely not being done—with sadly predictable results.

Continue reading:
How high trust improves stakeholder outcomes
A framework for assessing trustworthiness
Trustworthiness in Action

Trust Quotes: Interview with Barbara Kimmel, of Trust Across America

Trust Inc bookI got to know Barbara and Jordan Kimmel some years ago when they were forming the initial idea for what became Trust Across America, an organization devoted to improving corporate trustworthiness.

Barbara edited a book which is about to be published (November 1), called Trust Inc.: Strategies for Building Your Company’s Most Valuable Asset. This seems like a good time to interview her on Trust Matters. Enjoy.

Q. Barbara, congratulations on the new book, which is most impressive: I got my advance copy a few days ago. Before we get into that, however, tell us about Trust Across America – Trust Around the World.  What is it, how did you come to found it, and what is its purpose?

A. Very simply, TAA – TAW is an umbrella organization and clearinghouse whose mission is enhancing trustworthy behavior in organizations. We got the program rolling in 2009 in the wake of the financial crisis, realizing that no group was addressing organizational trust from a holistic and collaborative perspective.

Today we sponsor four main initiatives:

  1. The FACTS® Framework measures the trustworthiness of 2500 public companies using 5 quantitative indicators of organizational trust;
  2. Communications efforts, featuring programs like our Trust Talks YouTube Channel, Trust Across America Radio, Blog roll, Trust Breakfast Roundtables, Trust Workshops and a Reading Room, to name just a few.
  3. The Alliance of Trustworthy Business Experts (ATBE) formed in January 2013, is a growing group of global experts working collaboratively, through a number of initiatives, to tackle trust head on.
  4. Most Trustworthy Programs. Every year we name our Top Thought Leaders in Trustworthy Business and our Most Trustworthy Public Companies.

Q. The new book is a collection of 30-plus author-experts on trust. It’s got an introduction by Ken Blanchard and book cover quote from Steven M.R. Covey –

A. – not to mention the opening article by you and me writing together!

Q. – thank you, thank you. Now, where did the idea for the book come from?

A. Well, here are some headlines from 2012 to the present. They serve as a good starting point to answer your question.

The Washington Post reported that “the federal government imposed an estimated $216 billion in regulatory costs on the economy (in 2012), nearly double its previous record.”

The cost of the tort litigation system alone in the United States is over $250 billion. – or 2% of GDP  (Forbes, January 2012)

“Americans are fed up with politics, not government, study says” (trust in government at 50 year low for five years running)- September 2012, Government Executive

The Big 4 accounting firms’ aggregate global revenue is $110 billion, of which between 40-50% is made up of audits. (Going Concern, January 2013)

The six biggest U.S. banks, led by JPMorgan Chase & Co. (JPM) and Bank of America Corp., have piled up $103 billion in legal costs since the financial crisis, more than all dividends paid to shareholders in the past five years.  (Bloomberg, August 2013)

I’ve had the honor of meeting dozens of global experts, each with his or her unique perspective on organizational trust. It occurred to me that if I could bring them together to write a series of  essays, perhaps we could collectively begin to provide a new roadmap for organizational trust.

Q. OK. Now, with that as background – tell us a bit about the book itself?

A. There’s a well-documented business case for trust ranging from deepening employee commitment to higher profitability. This book contains a lesson for everyone, from CEOs to Boards, senior management, and small business owners. Trust is a core quality of all great leaders and organizations.

We have 34 experts in all joining forces to tackle organizational trust. In addition to Covey and Blanchard, we’ve got Kouzes & Posner, Patricia Aburdene, and Linda Locke, to name just a few.

Through dozens of case studies, real world situations, models and examples, the book talks about:

  • Why trust matters
  • How trust works in practice
  • What it takes to be a trustworthy leader
  • How trustworthy teams impact business
  • How to restore trust
  • What the future holds in store

The book also has 3 appendices:

  • Definitions of organizational trust from a global perspective
  • Examples of vision and values statements
  • A call to action

Q. We see boatloads of survey data about how trust is down these days, in almost every institution. What should we make of all that?

A. Charlie, you and I have spoken about painting trust with broad brush strokes. Industry is not destiny. There are many organizations that are exhibiting high levels of trust. It all boils down to culture and leadership. We see companies that rise to the top of our FACTS Framework, year after year. Those companies outperform  their peers and benchmarks like the S&P – in terms of stock market performance. This proves that trustworthy companies are not sacrificing profitability.

Q. I have seen some of that data and it is really impressive. In fact, the whole broad basis of the initiative is impressive. Anything you want to add from the bully pulpit here?

A. Thank you for the opportunity to talk about our new book and our goals for TAA –TAW. We are chipping away at the organizational trust issue and plan to continue to create new tools and programs. I urge your readers to drop me a note if they have something to add to the conversation or would like to roll up their sleeves and get involved. Barbara@trustacrossamerica.com

 

Barbara Kimmel, Executive Director, Trust Across America – Trust Around the World

 

 

 

Nice Place Here, Shame if Anything Happened

copyright Nate Osborne 2013It’s the opening to dozens of gangster movies. The mob guy with a rakish hat and a sneer sidles into the hard-working good citizen’s retail establishment, knocks some cigarette ash on the floor, and says, “Nice little business you got here, mister. It’d be a shame if something were to happen to it, know what I mean?”

And we do know what he means, and so does the terrorized citizen. It’s the protection racket. If you pay, then indeed, nothing happens. If you don’t pay, well, it’s amazing how bad stuff just happens.

Of course, that doesn’t happen in business today.  Right?

The White-collar, Fully-legal, Hands-clean Shakedown, Corporate Edition

In fact, something much like that does happen – though it’s highly sanitized. It’s legal; no individual has bad or evil intentions; and it’s justified as a business best practice. But the effect is the same – the business at the end of the food chain pays a lot of “insurance” for bad events that don’t look like happening. And instead of mobsters getting rich, it’s lawyers and insurance companies.

A simple example. My firm recently sold a single, one-day, off-the-shelf learning program to a corporate client. The contract and statement of work proposed by the client ran to over 10 pages of fine print.

On our end, it went through the hands of four people, including our lawyer, who I struggle mightily to keep under-employed. On the client side, we know personally of three people with whom we interacted, and I am guessing there were more. Total elapsed time was 2-3 months.

The contract included fairly typical clauses to the effect that we would not steal their intellectual property, lists, or secrets; generously they agreed to return the favor.

It also included clauses saying that we would generally indemnify them against everything from lawsuits about IP to people falling on their sidewalks to taking bad advice from us. (And here I worry about trying to get clients to take my advice!)

Most interesting to me was the clause that – at their request – we would submit our trainers to drug testing and to criminal record searches, through whatever such means as the client would dictate, of course at our expense. Moi? Nous? I mean, we’ve got our faults, but…

All this in order to gain the privilege of giving a workshop on – wait for it – how to establish trust-based business relationships. (And yes, I am painfully aware of the irony, even if the client is not. But you go where you are most needed, and agreeing to a training session on trust is actually a pretty good first step.)

Sadly, this is not a unique story. In fact, about 80% of it is standard operating procedure these days. In this case, I sent an email protesting that we felt mildly insulted about the drug test thing. I received back a most polite and apologetic note assuring me that that was surely not the intent, and that they felt badly about it – it’s just that, this is just how business is done – you know, it’s not personal, it’s business.

And voila, we’re back at the movies. See what I mean?

What’s Going On Here 

I want to emphasize, there are no bad intentions here; there are no laws being broken. To use the business vernacular, this is risk mitigation. But it’s risk mitigation gone rogue.

It starts with companies themselves as victims of a shakedown. A lawyer – perhaps their own internal counsel – tells them that they are subject to grave exposure from a lawsuit by some wild-eyed plaintiff’s attorney. Since lawyers vastly prefer to err on the side of caution, they like to be armed with shotguns when they go to hunt fleas.

One form of protection, conveniently served up by insurance companies (who love their lawyer friends) is straight-up insurance. But, apparently cheaper than buying your own protection is to lay off that protection cost onto those who are employed by the company: their suppliers, their employees, and their customers.

And so we get oppressive do-not-compete clauses for employees; mandatory arbitration in the fine print for customers; and send-that-indemnification-downstream to contractors for any risk you can think of.

The Extortionate Impact on the Economy

I welcome the comments of those better versed in economics than I to more accurately describe this, but I can suggest the outlines of four broad effects.

One is simply over-insurance. If I have market power over you (as big companies generally do over little companies, and buyers generally do over suppliers), then I can force you to pay for my insurance. And, I’d prefer to be over-insured rather than under-insured thank you very much, and frankly I don’t care if you have to over-pay for it. In fact, I’ll get it back in nice lunches from my professional partners-in-crime.

I have no idea how to quantify this effect, but since the phenomenon covers every industry, my tummy says it’s Big.

Second, this kind of burden massively adds to the level of transaction costs in our economy.  Initially described by Ronald Coase in the 1930s, transaction costs are non-value-adding costs which enable value-adding through other means, e.g. economies of scale.

But there comes a point when transaction costs begin to overwhelm the possible value they can enable, and cutting transaction costs themselves becomes a more sensible way to achieve economic success.

Are we at such a point?  Consider that the US has the highest ratio of lawyers per capita of any country in the world.  And that the lawyer-per-capita ratio in the US has gone up by 250% since 1950. (Personally, I can assure the reader that the contracting process for training sessions like the one I describe above was vastly simpler 20 years ago. And I sincerely doubt clients got burned, whether by drug-addled trainers or via other means.)

Third, this shakedown amounts to a massive, systemic substitution of check-boxes in place of management to govern the natural friction that exists between contracting people. For example, it substitutes a gigantic system of criminal record checks in place of a few personal phone calls for references. Among the costs of such substitutions is a decline in trust. A big one.

Finally, when you pile on so many transactional, impersonal “risk-mitigation” steps, you open up wide opportunities for corruption of various types. Corruption isn’t just handing over bags with cash. How many times have you heard, “Oh don’t worry about that phrase, we never pay attention to that anyway, it’s just part of the standard form.” How many times have you read the fine print at the bottom of every online purchase you make?

Where there is such casual, wholesale and willful ignoring of agreements, there is a ton of room to become cynical and unobservant about said agreements.

The next level up is easy – think of robo-signing mortgage agreements. And note all the irate protestations by bankers about how this was really no big deal. It’s not such a long step from there to the bags with cash. (Some readers might enjoy Mark Twain’s tale The Man That Corrupted Hadleyburg).

The parallel with moving from locally-made mortgage loans to globally aggregated, tranched and securitized packages is evident. When you depersonalize, you desensitize, and you de-ethicize.

Shades of Shakedowns

Of the two, the gangsters’ shakedown is more honest. It is authentic; you know what you’re being told, by whom, and for what purpose. You know that the threat is real, the intent unmistakable. By contrast, in the modern corporate shakedown, there are no villains, everyone has plausible deniability; they all have clean consciences and clean hands.

The mob had corrupt lawyers who could game the system. In the modern corporate shakedown, it is the system that is doing the shakedown.  We have MBAs, lawyers, and actuaries all soberly attesting that they have lowered the risk of our business contracting system at every stage.

Does anyone else smell a Black Swan here?

The Alternative

A major issue with trust is how to scale it. But maybe an even bigger issue is forgetting what it’s all about in the first place – what we have lost. Here’s a reminder.

I had a conversation with a solo consultant the other day, a disgusted emigrant from corporate America. He now does consulting and coaching for small business clients. His entire contracting process is as follows:

At the beginning of every month, you will send me a check for $5000. For the rest of that month, I will answer the phone all the time whenever you call. Should I ever not receive my check by the fifth day of the month, I will know that you’ve become unsatisfied with my services,  and we shall both expect further conversations to cease.

He has never had a dissatisfied client. His cost of sales is minimal. His legal fees are zero. His risk is pretty much nothing – because he has created a trust-based relationship.

I find that completely unsurprising. That’s just how it works – if we remember to let it.

The Number One Mental Illness in Business

Watch Your Blind Spot.Sometimes we don’t think right. Often we don’t think right, and we don’t even notice it. (This is well-described in a book called Blind Spot, by Banaji and Greenwald).

People in business have big blind spots, just as we do in other social milieu. Recently I’ve run across two items that, together, highlight one of the biggest blind spots of them all.  I don’t know what to call it, and I’d like your help in deciding that.

The two items popped up in neuroscience, and in business strategy.

Neuroscience

I’ve written before about How Neuroscience Over-reaches in Business. In response to that particular article, reader Naomi Stanford sent me a stunningly good academic critique of the “neuro-leadership” research. Sober, laser-like, and devastating, it lists a number of reasons why the neuro-leadership crowd is up to non-sense.

It’s called Not Quite a Revolution: Scrutinizing Organizational Neuroscience in Leadership Studies, by Dirk Lindebaum and Mike Zundel. It’s tough going unless you love philosophy of science, but worth it if you’re into this issue.

I want to highlight just one of the many points they make, because it jumped out at me so strongly. In their words:

… we argue that a predominant focus upon neuro-science to the study of leadership as an individual difference excludes further important units of analysis…a more appropriate ontological locus of leadership resides in the dyadic relationship between a leader and follower – as opposed to a leader-centric or follower-centric locus…Our appreciation of the dyadic nature of leadership, coupled with the need to be contextually sensitive, is incongruent with the predominant view of organizational neuroscientists who view leadership largely as residing in the leader.

In other words: leadership is a relationship. It’s not [just] a character trait, a skill, or a neuron path residing in an individual, any more than is love, or trust. It’s a 1+1 = 3 situation. You can’t get to the whole by just analyzing the parts.

In leadership, this suggests the key doesn’t lie in examining (or training, or selecting) one party, but in understanding multiple parties in relationship.

What’s the name of this blind spot in neuroscience? The authors suggest it’s reductionism – a desire to break things down to simpler parts.

I think it also smacks of the cult of the individual.

Strategy

Until the 1970s, business strategy was thought of in metaphors of war, and distinguished largely from tactics. But in the late 1960s, Bruce Henderson took a backwater part of strategy – competitive strategy – and turned it into a quantitative, matrix-hugging bounded idea set. Michael Porter put the finishing touches on it in Competitive Strategy in 1979.  The triumph of this view was so complete that the adjective has been redundant ever since. We now think all strategy is competitive strategy.

The essence of BCG and Porter’s worldview eerily presages the neuroscientists decades later. They saw the essence of strategy as lying within the single, solitary organism of the corporation (or the business unit, if you will).

Strategy, by this view, is all about the solitary struggle of each company to gain and sustain competitive advantage over the Hobbesian hordes who would do it in.  Nearly all business strategy today assumes the solitary nature of the business – the corporation is the atomic unit of business.

But strategy makes the same mistake the neuroscientists would make later. We are increasingly seeing that the successful businesses are not those who see themselves as valiantly struggling alone against the odds – they are instead those who collaborate, form trust-based relationships, and basically get along with the rest of business and society – rather than constantly struggling to ‘win’ against everyone else.

Again, 1+1 = 3. Unless you insist on looking only at 1, and then at 1 – in which case you’ll always end up with 2.

Here’s a small example: the Top Ten most trustworthy companies, over a three year period, outperformed the S&P by 24%.

What’s the name of this blind spot? Perhaps it’s reductionism again. Perhaps it’s the delight that economists like Milton Friedman take in pushing abstract models to the hilt. Perhaps it’s the alienated angst of Ayn Rand lovers. Perhaps it’s the thrill of the old Wild West rugged individualism, or maybe it’s just protectionism.

But whatever – I think the blind spot is the same in both cases.  It is a case of looking to individuals, instead of to relationships, for answers to what are most completely seen and understood as relationship problems.

The blind spot we’re stuck in – focusing on individuals, not relationships – carries multiple penalties. We should interview people for how they get along in groups – but instead we scrutinize their individual performances. College admissions look mainly at SAT scores and grades, not at social abilities. And I’m not even going to mention Congress.

In strategy, Michael Porter is an interesting case. A brilliant mind, he knows full well that the imperative of businesses these days is to get along. But in his recent writings, he is struggling to square the circle – to explain why a company must get along with others in order to gain maximum competitive success. The goal is inconsistent with the tactics for getting there. Companies who “do good” in order to “do well” end up doing neither.

We really need to stop seeing things this way in business, as elsewhere. We live in a relationship world. Thinking we are solitary Robinson Crusoes floating around on our solitary islands is sub-optimizing at best, and destructive at worst.