The Tyranny of Low Cost Strategies and the Gospel of Walmart

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High Frequency Trading is in the news again. HFT is highly computerized stock trading, which secures faster execution for bigger computers located physically closer to the stock exchange. It now amounts to over half the daily flow on the stock exchanges.  Critics argue it amounts to legalized front-running, is unethical, and should be illegal.

The issue was raised starkly in a July 24 2009 CNBC interview  wherein a critic of HFT (Joe Saluzzi) accuses a proponent (Irene Aldridge) of defending unethical behavior. Aldridge’s reply:

“How dare you accuse us being unethical! We are the ones cutting margins, you are the ones being unethical.”

Ms. Aldridge’s response captures perfectly the moral flip-flop that business has achieved in the past few decades. Never mind whether HFT amounts to front-running, involves collusive behavior by the exchanges, or is unfair to retail investors, says Ms. Aldridge – the moral high ground, the Ethical Trump Card, is Low Cost. In the name of lower prices, even fractions of pennies, all is justified.

The Gospel of Walmart

Let’s leave Wall Street for Main Street. We all know the Walmart story – low prices all the time. But as a Fast Company article wrote, back in 2007:

The giant retailer’s low prices often come with a high cost. Wal-Mart’s relentless pressure can crush the companies it does business with and force them to send jobs overseas. Are we shopping our way straight to the unemployment line?

If revenue were GDP, Walmart would be the world’s 25th largest economy. That is pretty big market power.

Walmart’s benefits are clear: lower prices, all the time, for millions of consumers. But along with those costs come trade-offs. The reduction of brand power. The exporting of jobs. The reduction of pay and benefits for workers in the name of lower costs to consumers.

More insidiously, what we get in the Walmart deal is lowest-common-denominator consuming. We get buyers who aren’t presented with quality alternatives, can’t recognize them if they are presented, and are trained to view low price as the primary Pavlovian trigger for purchasing.

That’s how we get tramplings at 5AM holiday store openings; that’s how the US produces twice the garbage per capita of Sweden; and I suspect (though can’t prove it) it helps us move toward becoming a nation of hoarders.

Is it all worth it?

The Tyranny of Low-Cost Strategies: Linking Wall Street and Main Street

What links high frequency trading to Walmart?  There is a common ancestor in the family tree of business thinking.

In the 1970s, thinking about business strategy took an abrupt turn – from CUS to COM.  That is, from being about the company’s relationship to its customers, to being about the company’s relationship to its competitors. (If you’re interested, the leading thinkers were Bruce Henderson, Michael Porter, and the Boston Consulting Group).

By 1980, the conversion was complete: anytime anyone said “strategy,” you knew it meant “competitive strategy.”

One of the most powerful points Porter made in his classic Competitive Strategy was that there were two successful generic strategies, and the first of them was Low Cost Producer. He who got the lowest cost got the greatest volume, which led to higher market share and higher profits, which led to lower costs, and so on. It was a road toward legal monopoly, insofar as laws permitted.

Porter’s rules were learned very well: by Jack Welch at GE, by Walmart, by the mortgage business, by Wall Street traders, and by every exec ed program in every business school in the world. It became – and I do not use the word lightly – gospel truth that the highest business good was to lower costs.

The root purpose of lower costs was to gain sustainable competitive advantage for the company. But the collateral benefit, the offshoot which could be spun for great PR, was that the consumer benefited as well. Allegedly.

This insight took only a little bit of tweaking (let’s revise Adam Smith and Milton Friedman, season with a dose of Ayn Rand and a dash of Alan Greenspan, and voila!) to come up with an ideology that said not only is low cost a successful business strategy, it is also the Key to Capitalism, which in a capitalist society is also the source of ethics. Allegedly.

This is how we get to Ms. Aldridge’s high dudgeon at being accused of unethical behavior (“Moi?!”) In this all-too-common alternative view of the world,  profit underlies ethics, business success is the root of morality, and low cost is the Ur-explanation that requires no further referent point for ethical discussion.

“We are the ones cutting margins – you are the ones being unethical.” In that statement, the transformation is complete: low cost is the new moral high ground.

Be careful what you wish for.

 

Cheating at Harvard: Shocked, Shocked!

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Perhaps you heard: half of a 250-person undergraduate class at Harvard has been accused of cheating on an exam. Here are:

Let’s get the irrelevancies out of the way.  First, the class was “Introduction to Congress.” Pause for yucks.

Secondly, there are the occasional whiners: “it was really hard, not fair,” or “they didn’t tell us how to define things.” Let’s not pause here either.

Moving right along, now, let’s assume that Harvard is no better or worse than other schools. You may agree or not, but I think the interesting issues lie elsewhere.

David Gebler, ethicist and author of the recent The Three Power Values, says: “It’s the worst hypocrisy to create a set of social norms and expectations in our society of which Harvard is the pinnacle, and then act as shocked as Inspector Renault in Casablanca that the students are acting unethically.”

He’s right. There are three interesting student reactions that seem to crop up in articles about the scandal:

  1. You mean, that was “cheating?”
  2. Come on, everybody does that.
  3. What do you expect me to do, the point is to win.

All three are serious causes for concern, but for very different reasons.

You Mean, That was Cheating?

This isn’t as dumb as many may think on first hearing.

The class in question was conducted making heavy use of teaching aides and study groups. This makes great sense given the need for collaborative workforces in the future. Unfortunately, if learning is primarily group learning, it puts pressure on the academic program and faculty to be very clear about boundaries between individual and group accountability.  (There’s a parallel here between group and individual bonus bases within corporations).

That raises many challenges, chief among them that the exam was “open internet.” In a day and age when everyone can share everything with everyone else in real-time, this goes beyond being just a barn-door of a loophole; it’s a fundamental failure to articulate the distinction between individual and group accountabilities.

This doesn’t mean students didn’t behave unethically; but it puts if anything more of a burden on institutions, particularly on schools, to delineate the boundaries.

Come On, Everybody Does That

To the extent this is true – and it’s considerable – shame on the role models.

As Howard Gardner points out in When Ambition Trumps Ethics, within the hallowed Ivy halls alone there are plenty of examples of

“professors [who] cut corners — in their class attendance, their attention to student work and, most flagrantly, their use of others to do research.

Most embarrassingly, when professors are caught — whether in financial misdealings or even plagiarizing others’ work — there are frequently no clear punishments. If punishments ensue, they are kept quiet, and no one learns the lessons that need to be learned.”

Gardner cites frequent, broad-based, research over time that suggests students over the last 20 years have become blasé about violations.  The majority think firing faculty for falsification of resumes is an over-reaction, and they don’t see much wrong with the behavior of the Enron gang in manipulating prices. After all, “everyone does it.”

I needn’t mention the coverups of the Catholic church, the repression of the ruling class at Penn State, or the general defense of cyclist Lance Armstrong, just to pick a few recent examples. And for heaven’s sake let’s not talk the fate of truth at political party conventions. Sadly, everyone really, really does do that.

“Everybody does that” is no excuse, widespread though it is. Cheating is unethical and should be condemned. But those doing the condemning are frequently those who, like Renault, are by default encouraging the behavior by their failure to act.

What Do You Expect – the Point is to Win

This is the most shocking of the attitudes. While the other two reflect some ambiguity in execution, this argument attacks ethics directly, claiming that ethics should be subordinated to the pursuit of success. A classic ends justify the means argument, which is in principle anti-ethical.

Rich Sternhell, retired executive, says he was not surprised by Gardner’s piece.

“By the time people get to Harvard (or Yale or Penn State or wherever) they have had to compete in ways that never tempted my generation. I note David Brooks’ observation of the recent GOP Convention, how all the speakers with the notable exception of Condoleeza Rice talked about “I” rather than “we”.

Every individual example of ethical violation weakens our community bond.  Baseball players worry about their contracts not the team. CEOs worry about their parachutes or share value, not the legacy of the company.  The concept of stewardship is rarely heard.”

I would throw in for equal blame our leading business thinkers.  We have become subconsciously infected by the doctrines of competitive advantage, shareholder value, and an Ayn-Rand-lensed perversion of Adam Smith’s invisible hand, so much that we have a generation that can’t tell ethics from economics.  We actually have game theorists in the Harvard Business Review arguing that throwing a match in the Olympics is in principle no different from a lob shot in tennis – since after all, the ultimate goal is to win.

People, the purpose of business is not to make a profit.  That way lies madness. And a generation of cheaters.

They are still morally to blame, but the people who raised them, taught them, trained them and role-modeled for them are at least as culpable.

 

 

Flo and Progressive Insurance – How Not to Do Trust Recovery

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How does a nice gal like Flo end up in a nasty fix like this?

Flo is Progressive Insurance’s TV fictional character.  Flo’s twitter handle (come on, you knew Flo has to tweet) is @ItsFlo and “her” bio reads, “Progressive’s always-happy-to-help insurance expert. Lover of discounts, unicorns and tacos. Plays a mean air guitar.”

So this headline had to be a bit of an image hit for Progressive:

Progressive Insurance’s Response to the Fisher Scandal is a Textbook Example of a PR Catastrophe.

Yes, you could say that. Click the link for the long, sad tale: the (very) short version is that Progressive insured a woman killed in a car accident. Progressive refused to pay her family a claim of $75,000 on the grounds that it had not been proven she had not been at fault – even though the other driver’s insurance company did not dispute fault.

Through some bizarre twists of law and amazing judgment on the part of Progressive, the woman’s family was forced to sue the other driver – and the woman’s brother claimed that Progressive’s legal team had, in fact, actually ended up working for the other driver.  Get that: the dead woman’s insurance company, in court, on behalf of the driver who killed her.

That story got legs on FaceBook, Gawker et al. Progressive responded with a tweet, saying they’d investigated and were “within our contractual obligations.” They tweeted the identical message to dozens of complainers.  Of course, the carbon-copy tweets then got put together on another site, making Progressive look even more ham-handed and insensitive.

Progressive then explained that, in fact, “Progressive did not serve as the attorney for the defendant in this case.”  Rumor quashed.

Except that, one hour after that posting, the internet sleuths came up with court records showing a Progressive attorney had been granted an allowance “to intervene as a party Defendant.” It depends on the what the meaning of the word “defendant” is, I guess.

And then Progressive lost the case anyway. And it all ended up on the “real” news too.

What Not To Do

Ah, where to begin. Let’s start with the easy stuff.

  • If you’re accused of doing something bad, and in fact you’ve been doing something that looks like bad, walks like bad, and rhymes with bad – for heaven’s sake don’t try to get off on a technicality. Don’t do it anyway, but especially don’t do it at a time like this.
  • Don’t confuse the law with ethics. “But it’s not illegal” is the last defense of the morally lame, and will never win in the court of public opinion. How well does “I’m not a crook” go over?  Does “within our contractual obligations” sound any better?
  • Don’t think you can outrun the internet. You are naked out there, and everyone’s waiting for you to deny the truth.  Simple answer: don’t do bad stuff, and if you do, don’t lie about it. Karma has a deputy these days called “search,” and it’ll getcha.
  • Pay attention to backlash, for heaven’s sake.  You pay good money for market research to give you feedback. When you get it for free in the form of bad publicity, look at what the optics are telling you! D’ya think defending your client’s killer might not play too well? D’ya think that robo-tweeting might not be a great social media strategy?  D’ya think that doubling down against a viral human interest story might suggest a little more PR sensitivity?

I’m a firm believer that we learn more by failure than by success.  If this hasn’t happened to your company, go knock on wood, and then go to school on Progressive. Such clumsiness shouldn’t go to waste: someone should learn from it before it happens to them.

Is Building Trust More Like Baking a Cake, or Like Being a Better Person?

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If you want teach someone to bake a cake, you’d give them a recipe. First, do this; then, do this. The result is ‘cake.’

You can be pretty confident of the effectiveness of your advice. Further, if someone presents you with a cake, you can confidently infer the steps they had followed to bake it.

If you want to teach someone to become a better person, it gets a little trickier. Defining ‘better’ turns out to be the least of it.  Are there Twelve Steps to Becoming Better? Why not five? Or does it take thirty? Worse yet:

  • If someone does the steps – how likely is it they’ll become “better?”
  • If someone is better – does it mean they followed the steps to get there?

And which approach characterizes trust?

Causality and Predictability

Strictly speaking, causality can never be proven. But casually, we infer it all the time. Tell any fool who doubts the power of causality to stick his finger in a flame and see what happens.

So if someone says to you, “Explain to me how you baked that great cake,” you can give an explanation that makes a great deal of causal sense.  “The key is  to whip egg whites just right,” you might say, and “make sure you bake it just a little longer than the recipe says.”

We understand immediately that whipping egg whites causes a change in consistency, and that time-in-oven affects moistness and firmness. On top of that: if they go home and whip the egg whites and bake it just a little longer, they are very likely to get the same results you did.

But if someone says to you, “Explain to me how you became a great person,” you might say, “A lot of suffering went into that.”  Or, “I read the most amazing book.” That leaves a lot unsaid.

First, a lot of people suffer without becoming great people. Suffering causes lots of things, becoming a great person being only one of many possibilities. Most importantly, does it mean that if you suffer, you will become a great person?

Ditto for reading a book. Maybe that’s how you became great, but how does book-reading in particular cause greatness?  And if I read that book, will I become great?

Becoming a great person is probably more like learning to love, or to write a song. You have to learn to be open, to listen to others, to struggle to understand what others mean when they say something. You probably have to get in touch with your feelings, feel the feelings of others, sometimes give up control.

For a million reasons, the dysfunction of our age is applying cake-baking solutions to great-people problems, rather than the reverse.

Snake Oil, Management Gurus and Trust

A lot of advice, wisdom and selling in this world exemplifies that dysfunction.

In the training business, we have baked in (pun intended) this sort of approach, by insisting that trainers supply language like “participants will master the skills and behaviors of X so they can produce results Y at a level of Q.”

But it’s hardly unique to training. Think of most self-help books, and an extraordinary number of blogposts and magazine-rack tabloids.

Here’s a generic formula you can use, with a few examples:

[Number] [Adjective] Ways to [Verb]  [Adjective]  [Object] to [Gerund phrase]

  • Six Key Ways to Attract High Net Worth Clients to Improve your Planning Practice
  • Ten Innovative Ways to Write Powerful Copy to Maximize Your Blog Traffic
  • Five Proven Ways to Attract a Super-Sexy Date to Amp Up Your Love Life
  • Twelve Most Powerful Ways to Deliver Hi-impact Coaching to Expand Your Consulting Practice

How many books do you know that propose to identify the X most critical determinants of a successful company? Can you say Good to Great? In Search of Excellence?

Cake-Bake Great People?  Or Be Great Cake Bakers?

There’s value in both approaches. But we need to be balanced about it, and as I said above, the greater danger of our time lies in mechanist explanations.

Take trust, for example. Here are two contrasting approaches.

The cake-baking example is  a new report from Edelman, on their annual trust barometer, called What Drives Trust. It uses regression analysis on survey data to suggest 16 Trust Drivers, including “offers high quality products” and “treats employees well.”

Fair enough. Of course, few companies set out to produce low quality products or treat employees badly. But there’s value in forcing them to compare their data with others. And the list of 16 as a whole tells a story, as opposed to other lists that might have been created.

More critically, though, is how the information will be used? Will it be deployed in project management fashion, assigning someone the job of treating employees better so that trust can be improved? Or is the value more heuristic in nature, making for richer discussions? In complex cases like trust, the latter is more clear.

The second approach is characterized by this Management Innovation Exchange video by CEO John Mackey, Can You Measure Trust?  He suggests Whole Foods’ primary metric is an output – morale – rather than inputs or causes.  He argues not against measurements, but in favor of feeling, intuition, instinct. We need more of this, he suggests, rather than more cake-baking metrics.  The best tool, he suggests, is to “be able to sense and feel.”

When it comes to trust, the value of metrics lie in getting us to think, rather than to task and manage. Even then, thinking alone is not nearly enough: trust also requires a bit of heart.

So do a lot of things. Not all life is like baking a cake.

How Can You Fix Ethics if You Can’t Spell Ethics?

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The Economist recently published an article called Fine and Punishment: The Economics of Crime Suggests that Corporate Fines Should Be Even Higher. It’s fascinating reading: it suggests that we can economically calculate how to deter corporate malfeasance.

As the article puts it:

The economics of crime prevention starts with a depressing assumption: executives simply weigh up all their options, including the illegal ones. Given a risk-free opportunity to mis-sell a product, or form a cartel, they will grab it. Most businesspeople are not this calculating, of course, but the assumption of harsh rationality is a useful way to work out how to deter rule-breakers.

In the US, anti-trust penalties run up to 40%; in the UK, they’re more like 10%.  In either country, the article notes, crime pays.  In fact, the ROI is downright incentivizing.  So it’s no surprise, the article suggests, that crime seems to be undeterred.

Prosecute the Bastards!

You might think, well then, raise the penalties – massively.  Here’s the Economist’s logic on why that is, tut-tut, really not such a good idea at all, don’t you know:

There are plenty of arguments against ultra-high fines. One is that false convictions carry too high a cost. Another is that fines of this sort could cripple firms, reducing competition.

Really.

Argument the first. The cost of a false conviction in a personal capital case is, let me see – oh yes, personal death. The cost of a false conviction in a corporate cartel case is – the falsely accused corporate entity pays money. Why do I feel the “too high a cost” argument doesn’t cut it here?

Argument the second. Ultra-high fines could reduce competition. Unlike anti-trust violations? Unlike price-fixing? Is this really The Economist proposing this twaddle?

Ethics Without the Ethical Part

Here’s the thing.  The entire article is about ethical issues, yet never once mentions ethics. It’s one thing to include a caveat like, “Here we’ll discuss a purely utilitarian view of ethical behavior.” Fine. But to never even mention the existence of another approach to ethics is fodder for paranoid amateur ethicists like me.

Do you think maybe, just maybe, one of the reasons white collar crime is so much on the rise is that no one – most especially not the Fourth Estate – chooses to describe unethical behavior as being – unethical?!

Some of it, I suspect, is style. In too many self-congratulatory business and academic circles it is just uncool to use that word. It’s hip to be a deconstructionist, neuro-whateverist, or a student of behavioral incentives – and maybe to study ethics in kind of an anthropological way.  But certainly not to believe in the stuff!

Sorry: if we conduct business solely as an exercise in self-aggrandizing profit maximization, then we will get self-aggrandizing profit-maximizing behavior. If we teach business ethics as a series of cases analyzing the balance of power between “stakeholders,” we will get what we teach.

What would it look like if we actually called ethical violations by their proper name?  We would have business, social end educational leaders insisting on massive sanctions, and not because of their deterrent power – but because of their symbolism.

Where is the language of outrage? To fix LIBOR rates, to rip off customers, to lie to the public – these things should be called by their proper names. Those names would be right and wrong, unethical, immoral, outrageous, anti-societal, sociopathic. Mostly just “wrong.”

The ultimate proper penalty is not more of the same lousy financial currency.  It is another currency – the currency of social respect.  We need to see condemnations, demands for apology – we need public shaming.

Not Just an English Economist Affectation

And now, ripped from the headlines: a few days ago, the IOC booted four pairs of Olympic badminton teams for intentionally throwing their games.  In an intriguing HBR article called Bad(minton) by Design, authors Scott Page and Simon Wilkie argue that:

While many are blaming the players, the real fault lies with the organizers for designing a tournament that encouraged throwing matches. The solution — apart from banning those pesky Danes and other “upsets” — lies in better design. [Italics mine].

They point out – quite rightly – that the design of the tournament (single elimination after pool play) provides perverse incentives to throw a match – assuming that your objective is to maximize your chances to win an Olympic medal. Interesting, to be sure. And their suggestions make sense; after all, why suborn unethical behavior unnecessarily?

We might even agree with the authors’ conclusion: “If you don’t consider incentives and strategic behavior, there will come a day when strategy trumps ethos. We would do much better to design organizations from the outset with Denmark in mind.”

Here’s the problem. In describing the situation, the authors suggest that throwing a game in order to win the tournament is in principle no different from a lob shot in tennis, or going out slow in the 5000m run – a short term tactic in support of a long-term goal.  Can you say, “the end justifies the means?”

I leave it to you, the readers. Can you spot the difference between a tennis lob shot and throwing an Olympic match? If so, congratulations – your ethical instincts are more intact than those whose profession is “competition economics.”

Bonus point: can you tell the difference between throwing a match at the Olympics and throwing the World Series? Me neither. Except that one is being “explained” in the Harvard Business Review as a case of misaligned incentives, and the other – quite properly – is considered the gold standard for sports scandals.

Would somebody please tell the economics profession that they’re missing a few letters in “ethics?” Particularly, the letters e, t, h, i, c and s.

Three Things You Need to Know About Trust: Part 2

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There are really only three things you need to know about trust. You can pretty much deduce the rest. The three parts are:

  1. Trust is a Two-player Game
  2. Trust Requires Risk
  3. Trust is Reciprocal

Part 2: Trust Requires Risk.

First, there is no trust without risk. Second, only one player takes the risk; this sets up a particular dynamic.

No Trust Without Risk

Ronald Reagan was blowing smoke when he famously said, “Trust, but verify.”  The truth is, if you have to verify, it’s not trust. If it’s trust, then it’s not about verification. (Tellingly, Lenin was fond of the same phrase).

At one extreme, trust is bordered by blind faith, which is unbounded by data or reason. At the other, we have statistics, where risk is strictly a matter of probabilities and assumptions, governed by the rules of mathematics.

Trust lies curiously in between faith and probability – and a little off the straight and narrow of the continuum as well.  A psychological relationship, it involves one party willingly putting itself in harm’s way of the other, with a significant but not perfectly quantifiable chance that the other may abuse the situation. No wonder we speak of it often with metaphors.

People say trust mitigates risk. That’s true, but it’s also true that risk creates trust. Without risk-taking, there can be no trust. We forget this when we try to create trust by eliminating risk.

Why is this important? If you remove temptation or risk, you create an artificial dependence outside of the critical trust relationship. For example, if you render financial institutions completely non-risky by over-doing tick-box compliance, you will also choke off trust. Trust eats risk for breakfast, and becomes stronger for so doing.

As with many things trust-related, this is paradoxical. Trust reduces risk, but it also thrives on risk. Robotic safety and predictability are components of trust, but small ones. A completely mechanical world may be risk-free, but it’s also trust-free.

One Player Takes the Risk

In its pure form, one party trusts, while the other is trusted. In my classes, it’s a running joke I play: would you rather get better at trusting? Or at being trusted? So far, every class has opted to get better at being trusted. Doh! That’s the non-risky choice.

It’s human nature to wish others to take the risk. Sometimes, we’re lucky. The other person asks us out first; the customer shows their hand first, reducing our fears about price; the interviewer shares something personal about themselves, setting us at ease.

If you’re willing to run your business dependent on the kindness of strangers, that’s fine. But if you prefer to make your own luck – or trust – you’re going to have to learn to take risks. As Wayne Gretzky said, you’ll never miss a shot you don’t take; but of course, you’ll never score a goal either.

One of the biggest barriers to trusting is the cult of trustworthiness. The professions in particular like to cloak themselves in the idea of a Trusted Advisor that is strictly about trustworthiness – but not about trusting.  Such ideas include the high-minded virtues of integrity, tell-it-like-it-is courage, and a professional remove. But they frequently don’t encompass vulnerability and emotional risk-taking.  They should.

———–

In the third part, I’ll talk about the reciprocity of trust – how the role of trustor and trustee gets traded back and forth, and what that means for the development of trust.

Three Things You Need to Know About Trust: 1 of 3

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There really are only three things you need to know about trust. You can pretty much deduce the rest.

I’m going to write about each of them in a separate blogpost, but here’s the one-liner version of each:

  1. Trust is a Two-player Game
  2. Trust Requires Risk
  3. Trust is Reciprocal

If you understand those three points, you can figure out things like trust recovery, rapid trust creation, and trust-enhancing cultures.

Trust is a Two-Player Game

For trust to exist, one party must do the trusting, and the other party must be trusted. That sounds dirt-simple, until you pick up the paper and realize how much talk about trust simply doesn’t mention it.

How many articles and surveys have you read that talk about “trust” as if it were some simple, unitary phenomenon?  Answer: most.

Those articles that say “trust is down,” “trust in banks has declined,” “people I know are more trusted–” all suffer one great defect: they don’t tell you why the trust is up or down.

It’s simple, if you ask the question correctly. If surveys show that trust in banking is down, is that because banks have become less trustworthy? Or because people have become less inclined to trust? One is a problem of ethics and trustworthiness; the other is a problem of risk-taking, education and fear.

You can’t design policies or laws or actions if you don’t know which problem you’re trying to solve.

If you can’t directly address trusting and trustworthiness, then measures of “trust” alone can’t be trusted – they could be influenced by exogenous factors like GDP growth.  And they are.

Trusting and Being Trusted

Trusting is about intelligent risk-taking.  Being trusted is about trustworthiness.

When someone says trust is really an issue of character or integrity, they’re talking about being trusted, not about trusting.

And when someone says, “trust but verify,” they’re talking about trusting, not about being trusted. (Though notice: if you have to verify – it’s not really trusting).

When you talk about trust in your organization, or with your clients or customers, you would probably prefer that others get better at trusting – to save you the trouble of getting more trustworthy!

We don’t have a lot of control over others’ propensity to trust, though we can certainly influence it.  But we have a lot of control over being trusted. And by far the best way to be trusted is to simply be trustworthy. One way to think about that is through the Trust Equation.

Trust is a Relationship

Trust is a relationship? Well, that’s what being a “2-player game” means. Before you think this is another “Doh” moment, note what it implies. It means the absence of trust is the absence of a relationship. It means when we think about business outside the framework of relationship, we are not thinking about trust.

What do market share, competitive advantage, markets, cost reduction, and value chains have to do with relationships? Not much. And therefore they have little to do with trust.

One driver of the level of trust is, simply, how we view business. Our view of business for the last several decades has been about competition, not about collaboration; about opposition, not about relationship.

A big reason those articles show that “trust is down” is because we have stopped thinking about relationships, and focused instead on competitive marketplaces.

Wanna know why trust is down? Start with the absence of relationships.

————–

Next post: Trust Requires Risk

Carpet Bombing Content Marketing and Trusted Advisors

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Let me connect a few dots. I’ll start with content marketing, and end up with entry-level minimum wage trusted advisors being advertised on Monster.com.

Always Be Publishing

Let’s start with an article about content marketing called “Always Be Publishing.”

The idea is simple enough; instead of talking about yourself, start a conversation. Don’t pitch yourself; instead, “Create a story that looks and feels like a real news story.” The article promises, “The more you share with others and the more often you invite others to participate and converse with you, the more likely your content will be shared.”

Fine, but note that if everyone followed this advice, we’d be inundated with posts on LinkedIn, Quora, Facebook et al, with everyone positioning themselves as a discussion-leading expert, whose objective is to drive more and more traffic, until we drown in traffic.

Oh wait, that’s pretty much what’s happening.

Carpet-Bombing Content

There are two problems with this carpet-bombing approach to content.

First, it is desensitizing. The pharmaceutical industry embarked on something like this for a decade or two, called “reach and frequency.” It meant blitzing doctors’ offices with come-hither wink-nod ex-cheerleader reps whose job it was to perform a canned script, get the doctors to sign a statement, and then leave them free drug samples.

I’m sure content-marketers would insist that this is not a valid analogy, but it’s not all that invalid either. The carpet-bombing of message is common to both. Just as with kids’ advertising on TV, the mind numbs after a while, and all that remains is the dull lizard-brain throbbing at the ghost of the memory of meaning.

The other problem with the “always be publishing” mantra is that it inevitably degrades quality. I remember during the “empowerment” craze, someone pointed out that if you empowered stupid people, you’d get powerful stupidity.  And unless you believe all content is created equal, this brings up the same conundrum.

The Word Formerly Know as Content

“Content” has become a word whose connotation has become content-neutral. Here’s what I mean by that.  Once upon a time, it was an epithet to say, “He’s all sizzle, but no content,” “that was zero-content consulting,” or, “the cover looked great, but the content didn’t live up to the promise.”

Nowadays, “content” too often means nothing more than the bits and bytes that take up space under a headline. (I want to take a moment to note an important exception, Valuable Content, whose very title insists on a value judgment; kudos to them. But they are all too rare).

All too common is SuperSpun Articles, from Jonathan Leger, who promises:

“Never write another article again! Generate thousands of highly unique [sic] top-quality articles at the push of a button!” …We GUARANTEE that no two generated articles will EVER have more than 25% duplicated content (usually far less than that). The odds are one in ten million that two articles will be 20% the same…”

He can do this because he’s generated “spinner” software that looks up synonyms and the like and generates nearly infinite variations on “content,” all of which are “unique” in the search engine optimization game driven by Google. And we have come to refer to this as “content.”

In this world, even the old line about a thousand monkeys typing for a thousand years and writing Shakespeare is no longer funny!  Because the “point” of “content” is no longer literature, or even meaning – content has become the pink slime of words.

The point of “content” is to push our reptilian buttons, increase our SEO ratings, and raise our Klout scores.

I can live with art for art’s sake having been lost; even education for education’s sake.  But when meaning for the sake of meaning is lost, I don’t know what to do.

What do words mean when words aren’t intended to have meaning?

Pink Slime Trusted Advisor

Here’s the other dot to connect (the first one was Always Be Publishing).

Exhibit 1. A Monster.com ad for Michigan Farm Bureau Insurance headlined Trusted Advisor / Insurance Agent. The ad says,

    • “We have over 400 trusted advisors across Michigan who markets [sic]  the products and services we offer.”

Exhibit 2. Trusted Advisor Account Service Management Sr. Advisor for Dell SecureWorks. Here is the first of seven “job responsibilities:”

    • Proactively monitor support distribution lists/customer service ticket delegations for potential escalated issues with customer accounts in order to curb potential dissatisfaction issues which may include responding to customer “how to” questions; Update customer delegate Helpdesk, Trending, and Incident tickets requesting update and closure
    • Knowledge requirements include MOAM1, LIAM1, and DCAM1

When Maister, Galford and I wrote The Trusted Advisor in 2000, we started by saying, “While none of us begin our career as a trusted advisor, that is the status to which most of us aspire.”

At the time, it seemed an unremarkable comment. Imagine our astonishment if someone had told us, “Hey, in only 12 years, there will be over 400 trusted advisors in just one insurance company – and in their Michigan operations alone!” Not to mention they’d be required to know MOAM1.

Words in a Meaningless Environment

Just because I’m paranoid doesn’t mean there’s nothing to be afraid of. I happen to believe that if we are subjected to a campaign of verbal carpet-bombing and told it’s marketing, and that if all of us are taught that the road to success is to always be publishing more content than our neighbors, then there are certain predictable outcomes:

  1. Words will progress asymptotically toward meaninglessness
  2. “Content” will become the verbal equivalent of beige, no longer requiring a qualifying adjective
  3. Writing will become mechanized

Oh wait, we already established that’s what happening.

4. The abuses of language outlined above will cross over. In addition to losing connotative meaning, they will cause us to lose denotative meaning. We will no longer be able to tell a trusted advisor from a transactional subject matter expert.

That means the first exhibit in our book, which portrayed a 4-step progression from subject matter expert to trusted advisor, will be rendered not just meaningless, but incomprehensible to many.

Apparently that’s already happened to the people who write employment ads.

Reputation Recovery

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When you are more virtuous than your reputation would suggest, you have a communications problem.

When your reputation for virtue exceeds the facts on the ground, you have a ticking business problem.

When Image and Reality Part Ways

When you have a communications problem, the communications team should hire a PR firm. Most firms do this.

But in the second case – where the reputation is better than the truth – most firms do not do what they should. They don’t even thank their lucky stars for having a better reputation than they deserve.

Instead, they begin to believe the hype.

Then one day, It Happens. The subsidiary defaults. The pipeline springs a leak. Animal byproducts show up in the food. Someone comes forward to testify.

Let’s be clear. These things just kind of seem to happen more often to the non-virtuous than to the virtuous firm. If the event truly is an anomaly, it doesn’t last on the front page. Acts of god don’t make good news for long.

But what about the non-virtuous firm?

When Disclosures Accelerate

When it turns out the smoke really did indicate fire, the non-virtuous firm all too often behaves predictably.  Having believed their undeserved hype about being virtuous, they then do what the virtuous firms did – they hire a PR firm.

Which is all too often the wrong thing to do – and hardly ever the main thing to do.

In an interesting display of PR sensitivity,  BP chose to hire Dick Cheney’s former campaign press secretary as head of PR, and a Wall Street PR firm as outside advisors.

Of course, there is a role for communications experts even in a crisis. With multiple constitutencies and tons of experience at keeping things secret, perhaps it made sense for Penn State to hire two outside PR firms.

But most non-virtuous firms aren’t looking for technical expertise; they’re looking to follow the lead of Muammar Gadaffi in seeking spin.

PR: a Delicate Balance

It cannot be an easy thing to tell clients seeking spin that the solution is to become virtuous. Clients want virtue now, and backdated if possible, thank you very much.

In such a milieu, the temptation for ambulance chasing is high. How can you keep on teaching virtue when the clients are paying you to shut up and stop the pain?

Yet that is what must be done. Arthur Page, the poster child for “good” public relations, had it right. He had a list of seven principles, the first of which was “tell the truth.” What a concept.

He also said that public relations is 90% doing and 10% talking about it. In other words, if you are virtuous, you’re not going to have much of a problem explaining crises.

Recovering Virtue

The fallen firm wants to know what they can do now to recover. After all, they always sought fast fixes in the past, and they worked. But there simply is no fast route to virtue recovery if you’re coming from a history of un-virtuous behavior.

At a personal level, it’s conceivable that someone could have an instant conversion and become virtuous, though I don’t think I’ve ever seen it – most conversions I have seen have come through pain and hard work.

And at a corporate level? Fuggedabout it. The fastest route to serious change is to change all the top leadership, and even then you’ve got habits, policies and cultures to change. Minimum 6-12 months, and I can’t off-hand think of an example where change has happened that fast.

Non-virtuous leaders who’ve been caught with their pants down don’t want to hear it, but the best way to handle crises is to prevent them happening in the first place. The best way to be trusted is to be trustworthy.

Spin is not the solution; spin is the problem.

You may not be able to change by tomorrow, but you can always start the journey today.

 

 

 

 

Find the Fear and Swim Upstream to Trust

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Fear is the root negative human emotion. Scratch the surface of other negative feelings, and you will find fear at the core.

Fear Drives Behavior

If you accept this description of fear, it means you can roadmap people’s emotions. It also means you can diagnose your own.

Fear is the main driver of dysfunctional human behavior. When you see people being passive aggressive, secretive, avoiding, combative, resentful, backstabbing, gossiping, or otherwise misbehaving, teach yourself to ask, “What are they afraid of?” This drives good consulting and coaching.

Fear is a major driver of organization behavior. A culture that uses negative norms (think “that’s a career limiting move”) to enforce compliance is an organization that is fear-based. Learn to notice negative norms, so you can  envision alternatives.

Fear motivates much buying behavior. B2B marketers are taught to “find the pain point.” B2C marketers know the desire to join the in crowd is trumped by the fear of being in the out crowd; “you smell” out-shouts “you can smell nice.”

Fear plays a huge role in politics, as the daily papers demonstrate daily.

In all these cases, fear is the enemy of trust. And trust is the antidote to fear.

Trust Drives Relationship

At root, fear is the fear of a bad relationship—an Other who will hurt us. The effect is to keep us out of relationship.

Trust is the hope of a good relationship. It inclines us to seek relationship with an Other, so that we can gain the benefits of relationship.

You create self-trust by facing and overcoming your own fears. You create trust with Others by trusting them – by being the one willing to first face the fear.

You create interpersonal trust by taking a risk, encouraging the Other to reciprocate. You create organizational trust by creating an environment that encourages emotional risk-taking, dissipating fear.

Trust in politics comes from uniting, not from dividing. Trust in government comes more from principled policies and sharp enforcement than from finely detailed procedures, prohibitions and protocols.

Trust in a culture comes about by ten thousand daily acts of etiquette, courtesy, and generosity, each taken with no calculated return on investment aforethought – and each returned in the same spirit.

Trust in all these relationships rests on an ability to directly confront and speak the truth to each other.  Not speaking truth is the functional equivalent of lying; it feeds fear and alienation, and is the first step to trust-rot.

(Thanks to Seth Godin for jogging my brain on this one)