Trust Quotes: Interviews with Experts in Trust features interviews with experts who deal in exceptional ways in creating higher trust in workplaces, business practices, and society—both in theory and in practice.

Trust Quotes: Interviews with Experts in Trust is a project of Charles H. Green’s Trust Matters blog.

Rich Sternhell on the Evolution of Trust in Business (Trust Quotes #13)

Rich Sternhell was a Managing Principal at Towers Perrin, now Towers Watson, until his retirement last year. He was a Towers Perrin Board member, and chaired Board committees including client relationships, technology and quality; he not only consulted, he managed. He ‘sat in many chairs,’ as he puts it.

His career, post-MBA, covered four decades that saw radical shifts in employee compensation, consulting, and the role of management. Now free to indulge the thoughtful side of what he has seen, he agreed to share some insights with us.

CHG: Rich, thank you for sharing your thoughts with the Trust Matters audience. You’ve got some big-picture perspectives for us, so let’s dive right in. You started work post-MBA at New York Life in 1970. What are the biggest changes in business you’ve seen since then?

RS: Almost all the changes in business can be related to technology and the resultant increase in what I’ll call the velocity of business. Perspectives are shorter. What is often seen as “quarter to quarter” management, I would describe as management of metrics, rather than of the business. Whether it’s stock price, market cap, EBITDA or cash flow, the focus on metrics that are market-visible has monopolized management attention. We have moved from management that is passionate about products to management that is passionate about the numbers they report.

The focus on acquisitions, divestitures, etc., that can increase price multiples has created a loss of shared understanding between employees and management as to the source of value for the organization. This has also created a generation of management that is focused on management of their careers rather than their companies.

There is also a loss of organizational connectedness. Fellows in their 50’s and 60’s who would take the time to coach a young newcomer. They told stories about the past and made people who were long gone part of that newcomer’s memory bank and connection to the organization. I see very little of that today.

That newcomer is planning career moves through moving around rather than moving up. The few old-timers left have lost interest in mentoring young’uns who will be moving on to more fertile fields.

CHG: Let’s take that first one, management by career, not company. Say a little more about that?

RS:Those who have made it to the C Suite often have spent their energies making sure their resume gets them there. It becomes hard to change perspective to become passionate about a business you didn’t grow up in, have limited long-term relationships within and compensation highly leveraged to stock performance that has the potential of creating generational wealth.

CHG: Let me be devil’s advocate a bit here; isn’t it also a good thing that we’ve developed an ethos of mobile, project-oriented work, that fits very well with a fluid, collaborative kind of organization of work for the future?

RS: A mobile workforce is absolutely essential in an economy as technology driven as ours is. At the same time, company cultures have become fragile. But the bond that existed between management and the workforce doesn’t have the strength of shared experiences over long periods of time.

My favorite set of questions on employee engagement surveys has to do with leadership. There are always questions like, “Does leadership care about the associates?” “Does company leadership act in the long-term best interest of the organization?” Inevitably, scores on these questions come in significantly lower than questions that relate to the individual employee’s location or sphere of responsibility.

Managements fret about these results a great deal but then take comfort in the normative data that says that other companies score equally poorly. Almost inevitably a corporate communications campaign begins with messages from leadership about how much they really care.

I think these campaigns are self-defeating. Employees want to know that the management they see has “signed on” and take ownership of the messages. The direct communication from senior leadership has allowed middle management to abdicate their role in communication. When middle managers snicker at senior management messages the result is worse than if no communication had been made at all.

CHG: Many Trust Matters readers have little perspective on another major shift you’ve seen—the decline of the defined benefit plan. It can sound awfully arcane, but I’ve heard you say it was one of the tragedies of our time. Explain?

RS: The defined benefit plan was a bet by the workforce and a commitment by the company to the long-term health of the business. It was an obligation taken on by company ownership in return for the loyalty of the workforce. It provided a degree of security to employees at all levels that allowed them to think about the long term.

While our culture places a high value on individual responsibility we are asking employees to make decisions on matters for which they are woefully unprepared. The 401k has been sold as a replacement for pensions while it is clear that the numbers simply don’t work that way. In my early days as a pension consultant we talked about defined benefit plans as a company tool that enabled employees to be retired from a company with the security that they wouldn’t embarrass the company they worked for by being out on the street.

Companies no longer feel that embarrassment, and employees have been led to believe that somehow the DC plan will provide for their retirement. It can’t provide the same level of income replacement. Management looks to stock options to fund their retirement…employees don’t have the same opportunity.

Employees don’t trust the security of their job, their health insurance or even social security. In the absence of tools to manage for the long-term they act for the short term. It has become all about self-preservation.

CHG: Given those perspectives, what do you have to say about trust as it has evolved in business? Let’s start with headlines: what do the Goldman and BP headlines have to tell us about trust?

RS: Trust in business has many different components, all of which link to each other. There is trust between co-workers, trust between employee and supervisors, trust between salesman and customer, trust between salesman and production. BP is a great example of the disconnect that can grow.

Let’s start from the premise that for a business to survive and thrive it must create value for customers, and a return for its investors. It also must function within the framework of legitimacy established by societal norms. To the extent it enhances the communities within which it operates, goodwill is created which can be turned to competitive advantage.

On the other hand, damage to the community results in a destruction of the trust essential to maintaining not only a customer base, but the relationship with all the constituencies on which a business depends. This isn’t just a business case issue, justified internally by the needs of the business–it is about the underlying linkage of communities in a free market society.

Trust is fundamental to the achievement of all business objectives and its absence is the greatest threat to our business community as well as our broader society. Unfortunately, there are strong forces at work that have the effect of weakening our society’s trust in our business community and its leaders.

The village blacksmith was well aware that each implement he fashioned was critical to future orders. The quality and timeliness of his product determined his position in the community. To the extent he failed to meet his customers’ expectations, he created the opportunity for competition. To the extent he failed to manage his costs, his family starved. He didn’t manage his business for quarterly results, but for the well-being of his family, i.e., "long term selfish". The community he served also knew that their well-being depended on his success.

Common approaches to this problem are often mistaken. Accountants tend to quantify risk, giving equal weighting to probability and severity providing a reasonable estimate of quarter to quarter financial impact. Actuaries, on the other hand, give significantly greater weight to severity, recognizing the long term economic impact of the high-severity risk. Not surprisingly, the accounting perspective has gained precedence in recent years.

The re-establishment of trust among all stakeholders at every level is central to rebuilding business legitimacy. The risk of breaking trust, whether through cutting costs on deep water drilling platforms or breaking faith with customers, needs to be seen as a fundamental attack on business legitimacy, not just a cost-benefit analytic.

It’s been said that for an organization to claim a value, it must be non-negotiable….without exceptions. What does this look like? Examples include:

· A firmwide commitment to operate on principles rather than incentives

· A commitment to honor values over strategies, even successful ones

· An instinct to forgive the mistake….but to terminate for the cover-up

· A culture that commitments are sacred, whether to a colleague or a client

· A shared understanding that the long-term success of the organization must override the short-term benefit to an individual or unit

Building a trust-based organization from the bottom up and the top down is a serious commitment, but well worth the investment.

CHG: How about trust between employer and employee?

RS: John Bogle, the founder of Vanguard, has spoken often about the shift from ownership capitalism to management capitalism. My sense is that an employee’s understanding of the interest of a business owner was intuitive. The employee may not have liked the owner but intuitively he/she knew that they had an interest in the preservation of the business.

This is not true about the employee’s relationship to management, particularly when they see a revolving door in the C Suite of people from other businesses and industries who do not share the same long-term interest in the organization’s well-being. The increasing gap in pay between senior management and the average employee has exacerbated that gap in trust.

CHG: You’ve told me before you take a somewhat dark, pessimistic view of people, but it often comes out pretty optimistic. What is it that you think motivates people in business, and what does that mean for management?

RS:I truly believe most people want to find fulfillment in their work. In today’s world, concern about security—job, health, wealth–is an enormous distraction to engagement. It is an enormous challenge for management to overcome and often creates an internal conflict for the employee. Should I take the risk of doing “the right thing” or should I “keep my head down”? The more clearly management articulates “the employment deal”, the greater the opportunity for increased engagement and the creation of long-term value. I have seen values based management at work and have little doubt that there are organizations out there making it work today.

CHG: What does that suggest for management-by-numbers?

RS: The numbers are critical. Management won’t stay in place very long if they can’t deliver results. But management only by the numbers isn’t enough. Values will trump strategy over time.

The real challenge is the friction cost that loss of trust has on a business, our economy and our society. Loss of trust means an increase in a myriad of costs through due diligence requirements, procurement processes, government regulation and litigation. Sales take longer to close. Contracts take longer to negotiate. The legal aspects of operating a business have exploded.

None of these areas have anything to do with increased value of the product or service a business produces but the costs imposed are a direct result of decreased trust. Thus we have an ever-increasing number of workers who don’t contribute to creating value, but are essential elements in today’s business environment.

CHG: What can an individual TrustMatters reader do to enhance his or her ability to trust, their personal trustworthiness, or the level of trust in the business world of today?

RS: The need and desire for trust is universal. The challenge comes when we believe that it is important to act in a trustworthy manner in some situations and not in others. Understanding our interdependence with vendors, customers, employees and other stakeholders is essential. To the extent we employ situational ethics and call a violation of trust a business judgment we weaken the trust framework of an organization. Each individual has the capacity to ask themselves the critical question in every business judgment they make as to whether they are acting in a principled manner.

CHG: What do you think of the MBA Oath movement that began last year?

RS: It is certainly a worthy aspiration…much like any approach to ethical behavior. It is discouraging that such an oath would be perceived as necessary. The implication of the MBA Oath movement is that there is some degree of career sacrifice entailed with living up to the oath. That in itself is demeaning to business people.

CHG: What’s the best business book you ever read? The best advice you ever got? And what’s the one thing you’d recommend to a new MBA today?

RS: I can’t give you just one Charlie, but I’d put your book Trusted Advisor up with the best. It is the first book I recommend to anyone entering sales, consulting or professional services. My daughter is a doctor and my son an attorney. I have made sure that both of them have copies and have read it.

Another is by your co-author, David Maister. David’s writing has been formative in my thinking as a consultant and manager for almost 30 years. I’d pick True Professionalism as my favorite. A recent read has been General Eisenhower’s Report on Operation Torch. I only wish I had read it 30 years ago. Anyone who has to manage a merger or a large project with a multidisciplinary team should be required to read it.

Finally, a new book by a professor at Columbia, Sheena Iyengar, The Art of Choosing. The Art of Choosing is a fascinating book from a pure marketing perspective, but even more interesting as probably the most helpful thing I’ve ever read in understanding cultural differences.

For the new MBA I would say that business is an honorable profession as long as you practice it honorably. Every decision is a choice and knowing that the choices you make have earned you the trust of your colleagues and your clients is the greatest reward you can hope to receive.

CHG: I’m blushing, but I know you’re serious, so I’ll leave it in. And many thanks to you for spending time and sharing wisdom with us, we greatly appreciate it.

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This is number 13 in the Trust Quotes series.

The entire series can be found in our Trust Quotes section on TrustedAdvisor.com

Recent posts in this series include:

Trust Quotes #12: Martha Rogers and Don Peppers Interview
Trust Quotes #11: Jim Peterson
Trust Quotes #10: David Gebler

Don Peppers and Martha Rogers: Customer Trust is the Next Big Thing (Trust Quotes #12)

We are delighted to have with us Martha Rogers and Don Peppers, the dynamic duo of the business guru business. Business 2.0 ranked them as two of top business gurus of all time. They’ve written one of the most influential business books in several decades, The One to One Future, and several others, including Return on Customer.

They’ve always had a healthy respect for the role of trust in marketing, but it’s their latest book that particularly makes them timely for the Trust Quotes series: Rules to Break & Laws to Follow: How Your Business Can Beat the Crisis of Short-Termism.

As they put it, “We believe customer trust is probably the ‘next big thing’ in business competition.” Let’s find out why they believe that.

CHG: Martha and Don, thanks so much for joining the dialogue. We’ve known each other for some years now, and you’ve always had a good sense of the power of trust—but it sounds like you’re increasing the focus more lately. What’s up with trust?

DP/MR: The basic ethos governing all human social interaction contains a very strong requirement for trustability. The simple trustworthiness of your statements and actions, as an individual (or as a company or governmental organization), is a key attribute – probably the key attribute – in how your interactions will be interpreted, understood, and acted on by others.   The social bond that connects us with others – the fuel that generates our collective intelligence and powers all our cultural and technological development – is based on trustability.  As a result, probably the biggest single driver of the increased demand for trustability is today’s rapid increase in the capability of interactive technology, leading to a more and more connected and interactive human race.

CHG: One of the four Trust Principles that I developed in my work (medium-to-long term perspective, relationships not transactions)  is built right into your title: “the crisis of short-termism.”  First of all, what’s wrong with short-termism?

DP/MR: When we talk about short-termism as a crisis issue, what we are talking about is the business world’s self-destructive, almost maniacal focus on short-term financial results. Obviously, a profit-making business should be cognizant of the short-term results of its actions, but this should not come at the expense of completely ignoring the long-term results. The long term counts, also – the interests of shareholders and other stakeholders are clearly harmed by obsessively short-term thinking. 

CHG: Is short-termism on the increase these days? And what does that say about trust?

DP/MR: Unfortunately yes, our verdict would be that short-termism is on the rise. It definitely undermines trust, because one of the central essences of trustability, as you’ve stated so well in your own work on the subject, is self-orientation. That is, the more selfish you think I am, the less willing you will be to trust me. And short-termism is a big flag for most people of self-orientation. 

CHG: What is driving all that toxic short-termism? What can be done about it, and who in particular can do it?

DP/MR: Do you know what “IBGYBG” means? 

CHG: The Wall Street euphemism?

DP/MR: Yes. It perfectly illustrates what we’re talking about here. Interestingly, during the financial frenzy that constituted the run-up to the mortgage meltdown and panic of 2008, traders and investment bankers were being paid bigger and bigger commissions and bonuses for doing bigger and bigger deals. Cash commissions and bonuses were the short-term compensation banks were paying their people for doing these deals – deals that had significant long-term implications. Many of the bankers and traders themselves knew that some of these deals posed significant long-term risks. But they had immense short-term motivations for doing them anyway. 

IBGYBG is a text message, a kind of short-hand like LOL or OMG. If a trader expressed doubt about the long-term consequences of a deal, he might get a message back from one of his colleagues to the effect that he shouldn’t worry about the long term, because in the long term IBGYBG – I’ll be gone you’ll be gone.

CHG: And what’s to be done?

Two things: First, tie compensation more closely to long-term consequences. We have no problem with paying people a piece of the action to do a deal – a business transaction can be immensely complex, and creativity and innovation should definitely be rewarded. But make it a true “piece of the action” rather than an upfront bonus in cash. 

And second, with respect to compensation in general, recognize that people work much more enthusiastically for the intrinsic benefits involved – recognition, credibility, self-reliance, accomplishment. No business should treat its people as if they are solely interested in money – unless they want them to be.

CHG: I’ve always felt that short-termism is inherently less profitable than taking a longer-run strategic vision. You’d think it would be obvious to CEOs; you’d also think it’d be obvious to Wall Street analysts. Someone said the real problem is in the compensation structure for mutual fund managers. Where do you think the key lies for fixing it?

DP/MR:  That’s why the opening chapter of our 2005 book Return on Customer: Creating Maximum Value From Your Scarcest Resource, was titled “An Open Letter to Wall Street.” Investors are in fact very interested in understanding a company’s long-term value, but at present there is no better or more reliable indicator of long-term value creation than, well, short-term financial performance. 

The discounted-cash-flow (DCF) method for valuing a business is based on forecasting the firm’s future cash flows, but in the end even the most sophisticated predictions rely mostly on aggregate business trends, projections of market growth, and competitor activity, and in any case all such projections begin with today’s numbers. So, like the butterfly whose wings cause a tornado a continent away, small fluctuations in current earnings or revenues wreak massive changes in projected company valuations and share prices, as their effects are extrapolated and magnified years into a company’s financial future. 

Ironically, the key to fixing this short-term-only perspective probably lies in applying better customer analytics. That’s why we coined the term “return on customer” and created the financial metric itself. Every value-creating activity of a business involves a customer at some point, but customers create value in two ways: they buy things immediately, in the current period, but they also have memories, which means how they are treated today will effect how much they are likely to buy in the future. A business that understands its customers lifetime values, and makes an effort to track how those lifetime values are impacted by current-period activities will be less likely to make self-destructive, short-term decisions.

CHG: What do you think about new social media and trust? Is it making trust harder to create? Or easier?

DP/MR: Trustability will become even more important as a social and economic norm in coming years, largely because of social media technologies, and the increasingly interactive world they are creating for everyone. This will have effects that reverberate throughout not just our business and economic system, but our society and culture as well. 

For one thing, better and more efficient interactive technologies will increase the demand for trustability on the part of people and organizations, including businesses and governments. Organizations, particularly, will need to respond to this demand by implementing policies and taking actions that are more worthy of trust from the beginning – that is, more transparently honest, less self-interested, less controlling, and more responsive to others’ inputs. It won’t be easy because it might be difficult for a business even to understand what kinds of policies improve trustability – from marketing and customer service, to production, distribution and financial reporting. Moreover, the clash between trustability and a company’s own short-term financial interest is real, and will represent a serious and continuing obstacle.

But second, the increase in demand for trustability will inevitably generate an increase in its supply. As a result, we believe that society will benefit from a “virtuous cycle” of increasing trustability, over time, leading to more rapid economic progress, which will lead to even more trustability, and so forth. This will have the effect of “raising the bar” for trustability, meaning that some previously acceptable business and government activities will become less acceptable, as consumer and citizen expectations rise. We can already see this happening with the influence that highly trustable, online businesses are having on the business practices of more traditional, offline businesses. 

And third, the dominant role of trustability in human interaction cannot be explained by applying straightforward economic thinking.   There are many subtle motivations for human behavior other than rational economic self-interest, and as technology reduces the barriers to interacting, these other, non-economic motivations will become more and more important. Rather than the kind of neoclassical economics still taught in business schools, the relatively new field of behavioral economics is more likely to play a dominant role in explaining how the trustability ethos actually works. 

CHG: What are some of the implications for marketing, broadly, of an increasing role of trust in the world?

DP/MR: We don’t trust advertising and marketing messages coming from companies because they epitomize “self interest.” We know these communications are designed with a particular, self-oriented purpose in mind: to improve the bottom line of the companies doing the communicating. Companies are always transmitting their self-interested messages to customers and potential customers, and these messages have bounced off each of us enough by now that we know what to expect. 

One survey showed that a scant 12% of people trust “big companies.” Even within companies themselves, just a third of employees believe “their leaders act with honesty and integrity.” Nor do investors trust the companies whose shares they own. Only 2% of investors believe the CEOs of large companies are “very trustworthy.” And 80% of consumers believe businesses are too concerned about making a profit and don’t care enough about their workers, the environment, or consumers. 

And the news is full of surveys showing that consumers’ mistrust of business is on the rise. But we think what’s really happening is that consumer expectations are increasing, as they experience best practices by some companies, and as they become increasingly interactive among themselves.

CHG: Interesting; declining trust metrics may be masking a rising standard of trustability. So, what must marketers change?

DP/MR: The primary thing marketers need to realize is that they are facing a trustability standard that is constantly on the rise now. The old “command and control” mechanisms don’t apply as easily to a world where customers can talk back, and also talk to other customers. It used to be that the marketing message was in the sole control of the marketer. Today, that’s no longer the case.

CHG: That’s a huge conclusion right there. 

Martha and Don, thank you so much for taking the time to share your thoughts. As always, they are innovative, yet grounded in deep commonsense and an intuitive feel for the customer. 

[If you are looking for earlier installments of the Trust Quotes: Interviews with Experts in Trust series, you can always find them in the dedicated Trust Quotes Index.]

——– 

This is number 12 in the Trust Quotes series.

The entire series can be found in our Trust Quotes section on TrustedAdvisor.com

Recent posts in this series include:

Trust Quotes #11: Jim Peterson
Trust Quotes #10: David Gebler

Trust Quotes #9: Chris Brogan

Jim Peterson on Trust, Ethics and Regulation (Trust Quotes #11)

Jim Peterson is almost uniquely qualified to offer perspective on a host of trust issues. 

  • An American, he has lived in Europe for many years: 
  • A lawyer by training, he was for 19 years in-house counsel for a Big 4 Accountancy:
  • A practicing lawyer, he is also a writer: he had his own column, “Balance Sheet,” in the International Herald Tribune for many years, and now actively blogs at Re:Balance :
  • He has been actively involved in issues of industry structure and regulation in both accounting and law, in several countries:

These days he does all three, plus teaching, and lives in Paris and Chicago. We caught up with him the other day from Paris:

CHG: Jim, thanks for doing this interview. You’ve got gray hair, multi-cultural experience, and multi-professional experience—plus being a student of people. What is it that professional services people, especially accountants and lawyers, are really good at? And how does that vary between Europe and the US?

JP: Professional advisers are used differently in different countries. In Europe, both accountants and lawyers are more likely to function as close and trusted advisers, to facilitate their clients’ strategies. In America, the lawyers have taken control of commerce – through detailed, bright-line rules so complex as to require their constant interpretation (but which also invite being bent or broken).

Where Europeans will do with a five-page agreement, American lawyers will churn out 100 pages (and charge accordingly).

Unfortunately, recent years show a convergence of global markets (and liability) toward the American model.

CHG: What about the accountants? What should we trust accounting firms to do, and are we reasonable in our expectations of them? Are they agents of trust-certification? Or is that just silly? And—can we trust the accounting firms themselves?

JP: The accountants have shown themselves trust-worthy within their own limits – to provide reasonable assurance, within limits of materiality, most of the time. The trouble is, and it is partly their own responsibility for over-selling, the public has come to expect and demand “zero defects” regarding their clients’ performance – which is beyond the accountants’ capability.

As a result, infrequent but highly consequential cases of sub-standard performance are serious enough to threaten their survival and the existence of their franchise as it has been structured since the 1930’s.  

CHG: Let’s get into the meaty stuff of trust at the business level. Assuming you agree there’s been a decline in trust in business and our institutions—why is that? What’s the root cause?

JP: History includes cycles of boom-and-bust, which I believe are inevitable, in part because incentives and inducements get out of line with responsibility and accountability. The disconnections of the last three years resemble the savings-and-loan debacle of the 1980’s. So for better or worse, we’re coming through one of those cycles. The cleansing process of the bust-and-recovery part of a cycle can include renewed attention to virtuous conduct – unfortunately, that tends to become diluted by less noble motives on the other side of the cycle.

CHG: Well, let’s cycle through some of the possible solutions to that pervasive loss of trust. I’ve suggested that the business schools share some responsibility, and are part of a necessary solution. What concerns do you have about the effectiveness of teaching about trust, ethics and governance in the business schools and universities?

JP: It’s my belief that much of the teaching is at best ineffective and at worst a misleading waste of time – although I am sensitive to the way this is received among my colleagues in academia. Jeff Skilling and Andy Fastow were celebrated as executives to be admired, and either one would have scored an A+ on any university-level course in ethics or governance.

My experience with 35 years of exposure to world-class corporate frauds and irregularities is that the mid-level personnel and the gate-keepers who are caught up in serious wrong-doing almost all got there through a steady and fully-rationalized bending of what were initially a perfectly fine set of ethical values.

The kinds of issues that students and newly-minted employees can comprehend, while real (plagiarism, personal over-reaching, etc.), are over-taken in the work-place by subtle but compelling pressures to perform that leave their school experiences far behind.  

CHG: Let me push back on you a bit on that one. I’ll bet you’re right that Skilling could have passed any b-school ethics test—and you’re right that Skilling was vetted not only by Harvard Business School, but by McKinsey. But Tom Peters, who knew Skilling at McKinsey, states flatly that the “smartest guy in the room” almost certainly knew his shades of gray, and consciously did what he did. That doesn’t square with the idea of a gradual erosion of “perfectly fine ethics.” If he’d encountered courses that dealt directly with ethical issues, might they not have surfaced earlier? More generally: shouldn’t MBA programs shoulder part of the blame?

JP: No academic program will affect a personality type that is bent from an early age, and Skilling and Fastow may be the exceptions that test my proposition. But – agreeing that the schools have a role and a responsibility – the issue I have with courses that “deal directly with ethical issues” is that they are labeled and telegraph their messages so transparently that they are easily gamed by those inclined to felonious intent. I would challenge the schools to do a more sophisticated job of embedding their ethical training into their mainstream curricula, where the learning opportunities are more nuanced and subtle – and thus better matched to the challenges that real life will bring.

CHG: I couldn’t agree more. Real ethics training ought to be part of the strategy classroom, not a separate curriculum down the hall, where it’s inevitably going to be demeaned and diminished. Any other advice?

JP: Having been around a lot of world-class white-collar criminals,many of whom showed signs of bad behavior at early ages, I consistently advise my clients to avoid the risk of dealing with a repeat offender. The rate of recidivism in corporate malfeasance is too high to make it worth the exposure of falling for a pitch of post-offense repentance.

CHG: So much for redemption! What is your view of the causal relationship between corporate governance codes and the demonstration of ethical or trustworthy behavior?

JP: The focus of my experience has been with the kinds of large-scale malefactions that can threaten the existence of a company – Enron or Arthur Andersen or Fannie Mae or Satyam. These are gestated and erupt at a level that transcends the effectiveness of risk management structures and codes of governance and behavior. Rather, they either occur – or do not – because of the underlying issues with and commitment of senior management to create and enforce cultures of success and of good practice.

“Doing well by doing good” is a reality, in other words. But the latter does not drive the former – instead it is an observable consequence, flowing from the same source.

CHG: So, both “good” and “well” are byproducts of a cultural devotion to doing business from a certain set of principles? Care to say something about what those principles look like?

JP: One of the finest defense lawyers I ever knew, the late Peter Fleming, had nothing but scorn for elaborate codes of behavior – governance, accounting principles, whatever. His guidance required one page: “Can you credibly defend this decision in front of a jury?”

CHG: That’s not unlike the “are you OK with it on the front page of the NY Times” rule. A willingness to submit to commonsense and common wisdom, rather than to pin one’s hopes on precisely delineated behavioral codes. Let’s switch to government’s role. What can we reasonably expect from government by way of contribution to good corporate behavior?

JP: I’m a deep skeptic on the ability of regulators to either detect or to deter bad behavior. Not that oversight and enforcement are not necessary. But it seems to me pretty clear that the post-Enron imposition of Sarbanes/Oxley did not lead to an outbreak of virtue.

Look at the many examples over the last three years, including the investor frauds (Madoff, Stanford and many others) and the civil and criminal claims arising out of the credit crisis – many of them still working their way through the courts — including New Century, Lehman Brothers, Goldman Sachs’s Abacus product, the recent Wells notice sent by the SEC to Moody’s, etc.

Law enforcement is by nature always going to be reactive, behind the curve of the inevitable misbehavior of those who would burst the limits. So although I have gotten in trouble for saying so around groups of investors, it is neither cynical nor unduly libertarian to say that investors and others in the public need to take their own responsibility to heart, and calibrate the extent of reliance they can reasonably place on their watchdogs.

It goes back in part to why societies evolve their laws and codes of behavior. People don’t become law-abiding because more laws are passed – indeed, more lawmaking often reflects a social perception that behavioral norms have broken down and require the imposition of sanctions on violators.

Rather, a society decides what limits and conventions it will accept, and its tolerance for the thresholds of deviance from those norms.

Examples: There is nothing either substantive or self-enforcing about an eight-sided red sign, but there is common agreement that it obliges drivers and pedestrians to stop. And there is shared confidence that counter-parties will do so. Other examples of socially evolved norms, as to which formal legal codes are essentially irrelevant, include:

  • The “rules” for under-age drinking on college campuses
  • The neighborhood self-enforcement on dog clean-up
  • And (as I remember in the 1970’s), the de facto legalization by the population of New York City of amateur marijuana use in Central Park. 

All of which goes in part to say that the level of achievable behavioral virtue involves a complex set of factors including trade-offs of costs and benefits and an understanding of the culture’s real system of incentives and deterrents.

CHG: You said a mouthful there. And that’s great, in terms of understanding. Then again, where does that leave us vis a vis action? Where would you suggest an informed manager should focus his or her efforts? A journalist?   A lawyer? An investor? A tax-paying, voting, citizen?

JP: Since you ask:

  • Investors – Do your own due diligence, take responsibility for your decisions, and don’t whine about being a victim;
  • Citizens – Don’t ask government to do too much, because it can’t; but insist that what it does be done very well;
  • Managers – Remember your community is far broader than shareholders alone, or your own annual bonus;
  • Journalists – Well, it’s hard to watch the degradation in quality from deepening partisanship and races for ratings. There is still a market for quality reporting and quality commentary, though, and it is exciting to think how these will be delivered through rapidly evolving channels.   

CHG: Jim, this has been a pleasure. Thanks so much for contributing to the dialogue here on the Trust Quotes series. 

——– 

This is number 11 in the Trust Quotes series.

The entire series can be found in our Trust Quotes section on TrustedAdvisor.com

Recent posts in this series include:

Trust Quotes #10: David Gebler
Trust Quotes #9: Chris Brogan

Trust Quotes #8: LJ Rittenhouse

David Gebler on Ethics in Business (Trust Quotes #10)

David Gebler is a thought leader, speaker and seminar leader on the subject of ethics in business. Trained as a lawyer, David is a Senior Lecturer at Suffolk University where he teaches Business Ethics and sits on the International Advisory Board of the Graduate Program in Ethics and Public Policy; he is also a principal at Skout Group, a firm focused on culture change.

With globally significant public and private sector clients on his resume, David brings a broad perspective to questions of ethics in organizations.

CHG: David, thanks for joining us here. Tell me, why is it so hard for companies to get their heads around thinking about ethics?

DG: While ethics issues are of critical importance to organizations today, “ethics” as a business function is perceived as quite amorphous and hard to define. In many organizations ethics is synonymous with “compliance,” narrowing the focus to ensuring adherence to stated standards of conduct. In other organizations “ethics” is treated as a vague platitude without clarity as to how it drives behavior.

CHG: You told me once there were three approaches to business ethics: behavioral, philosophical, and legal. Can you briefly explain what those categories mean?

DG: Philosophical business ethics focuses heavily on the intention of one’s actions. Aristotle wrestles with character and virtue, while Kant is unequivocal in the need to always do the right thing, regardless of the consequences. A theoretical look at intent is often irrelevant to business which is more focused on employees’ actual behavior.

American businesses often look at ethics through the lens of compliance. “Doing the right thing” only means observing the law and the company’s code of conduct. However, there may be conflicting “right things” about which employees need guidance.

Behavioral ethics draws from social psychology and looks at what motivates behavior and what an organization can do to remove roadblocks to employees being honest.

CHG: You have come to view ethics in business as largely a function of corporate culture; you looked at the top 20% and the bottom 20% of companies in an ethical cultural study—what did you find?

DG: Most employees have a good sense of their moral values and actively seek to live those values at work. Ethics risk emerges most often when employees face pressures and external influences that drive them to do things they regret.

If an organization surveys employees only to find out if they know what they should do (i.e. the top 20% knows there is a code of conduct and a helpline), they may be missing key data on whether employees would even raise an issue if it arose.

I worked with a large global company that asked me to conduct focus groups with divisions in the top 20% and bottom 20% based on results of an ethics survey. In meeting with employees at one of the top 20% divisions, it was true that when I asked if they would report misconduct everyone said yes (i.e. top 20%).

However, my very next question was “If you found out early in the quarter that you were not going to meet your plan, would you report that to your boss?” And no one said yes. Doing such a thing would be a “CLM” (Career Limiting Move). Open communications and a willingness to raise difficult issues are more critical ethics determinants than knowing whether there is a helpline.

CHG: What kinds of culture, then, are associated with high ethical behaviors? And what can a serious manager do about it?

DG: There are several common traits of ethical cultures:

1) Open communication and respect – employees at all levels feel that they are spoken to truthfully and are respected as people.

2) Personal responsibility and a sense of control – employees are held accountable for their actions and their commitments to others and are engaged in tasks that matter.

CHG: I was surprised to hear you cite the Federal Sentencing Guidelines as a key source for investigating ethics in business. Can you say more?

DG: While business ethics and ethical companies have been around for many, many years, the focus in the US began in earnest in the 1990’s. As a result of the defense industry scandals in the 1980’s, the US Sentencing Commission developed guidelines for corporations to avoid criminal liability if they put into place an effective compliance program. These guidelines have become best practices for US companies. In 2004, as a result of the Enron legacy of scandals, the Guidelines were revised to add language focusing on ethics and organizational culture.

CHG: You mentioned that you were struck by the lack of remorse in post-financial melt down financial industry executives. Say more?

DG: The bottom line is that today’s financial market is only a numbers game. Concepts such as the fiduciary responsibility of one party to another have been lost. While leaders talk about the need for trust to grease the wheels of capitalism, there is very little of it in the system today.

CHG: What’s the difference between ethics and morals?

DG:  Social psychologists have long told us that behavior is a function of the person and their environment. Morals address one’s character, the person. Ethics addresses the ethos, the environment in which we make decisions.

CHG: I was shocked when you first told me, “In my 15 years of work, only one client once asked, "How do we define the right thing?"  So business ethics is largely about how do you get people to concur with what the agreed upon guidelines are.”

DG:  Many companies use the “newspaper test” as a decision-making model. How would you feel if your actions were reported on the home page of cnn.com? While we have a societal set of standards, there are often tough issues that pit right vs. right. Superficial guidelines of being honest may not be enough. For example, every company takes certain risks, even with quality and safety. What guidance do leaders have to know what is “reasonably” safe enough to go to market with a product?

CHG: What’s the difference between ethics and compliance? And does anyone care about the former?

DG: Compliance is the adherence to prescribed standards of behavior. Compliance training educates people on what behavior is expected of them.

Ethics is the determination of whether people will engage in the desired behavior and what should be done to encourage people to do things they know they should do, but often don’t.

CHG: Here’s a biggie for mid-level people in a number of my clients; what should an individual mid-level manager do in the face of what they perceive as “tough” behavior by their superiors, i.e. the “career-limiting move” of speaking out about things?

DG: When faced with a tough situation, managers often look at the issue as being black or white: “Do I do what’s expected of me or do I do what’s right?” Effective use of ethics would be to see whether the issue can be reframed so that it’s not so drastic a choice. Managers in tough spots need not be heroes, but they do need to be savvy:

  • Who else can I bring into this situation to guide me?
  • Who else in the organization would support me in doing the right thing?
  • How can I have a conversation with the person who is forcing me into this situation? Perhaps there is a “third-way” I haven’t thought of.

CHG: What seems to be the American take on ethics in business?

DG:  Americans are unique. We combine a rules-based culture (ever seen the NFL Rule Book?) with a cowboy heritage of heroes and independence. Americans are very results-oriented and in general, are less focused on how we got the results than are other more social cultures.

Therefore, I find that American business leaders are more interested in ethics when they can see that being ethical helps the bottom line: less time and money spent on investigations and fines, and more time spent by engaged employees doing productive work.

CHG: Doesn’t that create a tension—justification of ethics by subordinating it to the bottom line? Or are you saying it’s not so much about particular actions as it is about a culture—creating an ethical environment, which in turn tends to be more profitable?

DG: Let me give you an example from today’s headlines. Toyota shouldn’t be forced to make a trade off between safety and profit. Both are necessary because each one supports the other. Toyota’s brand is based on safety. It won’t sustain its profitability if its products aren’t safe. Similarly, safety has to be addressed in the context of products consumers can afford. We are willing to accept some degree of risk.

Ethics comes in to guide how Toyota balances these two objectives. In leading up to the recent scandal key questions must be answered: Who had information but didn’t report it up to senior leadership? Why not? Which stakeholders, internal and external, were not included in the decision-making process?

This is number 10 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #9: Chris Brogan
Trust Quotes #8: LJ Rittenhouse
Trust Quotes #7: David Maister

Chris Brogan on Trust and Social Media (Trust Quotes #9)

Chris Brogan needs no introduction to some TrustMatters readers. Some of you caught him at the Trust Summit last fall; Others may never have heard of him. I’m about to do the second group a huge favor.

Chris is co-author (with Julien Smith) of Trust Agents, CEO of New Marketing Labs and an active speaker and blogger. 

But that’s nothing. Chris is a guru in the new social media space; a Twitter deity; and an all-round major influence in the emerging new world of commerce and social interaction.

I find Chris doubly interesting; not only does he have solid things to say about trust, he lives them in a most authentic and high-integrity way. He is a genuinely, really, really nice guy—and I think he’s as famous for that as for anything.

We caught up with him right around his 40th birthday; rather young for the life he’s lived already.

CHG: Chris, how do you define your work these days: is it new social media? Marketing? Trust? Public speaking? Who is Chris Brogan anyway?

CB: My work is divided into a few camps right now. My company, New Marketing Labs, LLC, works as marketing consultants providing strategy and execution for online and social media marketing for Fortune 100/500 types. My media business, currently thought of as ChrisBrogan.com, is where I do public speaking, blogging, book authoring, and the like.

A few months after this interview, I’ll be announcing something that will make it just a bit more streamlined and unified. But my work, if I were to tidy this answer up, would be to educate and equip others for success in doing what I call “human business.”

CHG: You finished writing Trust Agents nearly a year ago. It hit NYTimes best seller territory, and is still ranked #3,000 today. That’s very successful. For the uninitiated, what is Trust Agents about?

CB: Julien and I wrote Trust Agents about how to be human on the web. We wrote about this new type of business application for social tools, which, when used by talented individuals (either in a company, or a church, or a nonprofit, or as a solo entrepreneur) can help people gain awareness, build reputation, and earn trust. We talk from the high concept all the way down to actionable steps about what elements people seek to attain trust via the extended digital world.

CHG: Have you developed some perspective on it yet? Do you see some aspects of it as more important now than when you wrote it? Less?

CB: Great question. I think both Julien and I believe that the most important part of Trust Agents is in building and maintaining your network. We’ve learned since the book came out that the most applicable parts for people to follow were about the way they interacted with others, and how they transferred value back and forth along their network (and we could define “value” as anything that improves the experience of a person in the network – such as helping a friend find a job).

CHG: My impression is you’re synonymous with Inbound Marketing. Is that right? More importantly, my strong impression is that in any case you conduct your life according to those principles. Can you share a little about both the definition of inbound marketing, and how you practice it? I’m thinking of things like 12-other referential tweets for each one of your own, or the way you once responded to a taunt/challenge from Robert Scoble.

CB: The folks at Hubspot coined the term “inbound marketing,” partly because Seth Godin has a copyright on “permission marketing.” In all cases, we all believe that beating people over the head with your needs and desires to sell products or services isn’t a successful strategy any longer. We look to build relationship-based selling models, such that we turn audience into community, and we guard our relationship with our community as an asset, every bit as much as we guard our trade secrets.

My personal definition? Be helpful. The way I built my own personal brand was delivering information that others could use to improve their own lot in life. And I promote others at least 12 times as much as I promote my own stuff on various social networks.

CHG: We hear an awful lot of talk these days about the decline of trust in institutions today. I’m sure you understand that, but do you also notice that and experience it yourself? In fact, do you find significant areas where trust is in fact increasing?

CB: The big revolution that’s brewing is that we, the people, are sick of being numbers. We want to be seen and heard, and treated as individuals. The oft-cited example in the US for trust improvements are places like Comcast, who found their customer service approval scores a bit higher since the efforts of Frank Eliason and his @comcastcares Twitter efforts.

There are lots of anecdotal examples along these lines. Dell Computers has been in the camp of more trustworthy and more human, ever since 2005, when Lionel Menchaca came on the scene to humanize them. Significant areas, though? Not yet. I’m hoping this is the year we start demanding more trustworthy relationships.

CHG: Are you optimistic about prospects for trust in the emerging economy of our time? Can you explain a bit about why? 

CB: Interesting question. I think one way we’ll see more trust bubble up is through the creation of all these Internet businesses and Internet-born brands. No one had heard of Gary Vaynerchuk a few years ago, and now, if Gary says this is a wine you need to try, thousands and thousands of people will buy that bottle.

Trust developed to make up for a younger brand relationship might be the big lever that gets older organizations to have to rush in and follow suit. It’s how I see it potentially shifting. Look at car companies. In this new landscape, they KNOW that trust is one of the only ways to settle up and move forward.

CHG:  Is trust in the new social media world the same as, or different from, trust in the old analogue world? How can they cross over?  

CB: There are some weird differences in trust in the social media world, but in a way they parallel the way (western) society seems to be evolving.

We have no long-term memory any more in this country. Sins of the past wash away a lot faster, it seems, in many situations. We also seem to demand a more gritty, three-dimensional reality from our brands. Further, we want an entertainment factor to our education and information delivery.

All these traits in the analog world translate quite nicely into how social media delivers interactions around relationship-building, media making, and community environments. This new web is a lot more social, a lot more touchy-feely, and a lot more insistent on a more human interaction.

For me? Good times, and I hope that’s how others see this opportunity. We buy from people we know, and these tools allow us to build strong relationships before the sale.

CHG: Chris, many thanks for taking time out of what has to be one of the busiest lives on the planet; it’s always a pleasure, and I really appreciate it.

CB: You’re very welcome.

This is number 9 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #8: LJ Rittenhouse
Trust Quotes #7: David Maister
Trust Quotes #6: Anna Bernasek

L.J. Rittenhouse on Trust and Candor (Trust Quotes #8)

I’m pleased to have with us today on the Trust Quotes series L.J. Rittenhouse, founder of Rittenhouse Rankings in New York. The mission  of her company is to identify and encourage plain, direct and candid communications by companies.

To that end, she produces the annual Rittenhouse CandorTM Rankings Survey, correlating measures of CEO candor with stock price performance.  Her proprietary model allows her to sort, evaluate and quantify content as well as measure degrees of candor. The Rankings feel, to me, gut-level right.

L.J. Rittenhouse is a 14-year shareholder of Warren Buffett’s Berkshire Hathaway, and author of Buffett’s Bites published by McGraw-Hill, due in bookstores by the end of April and available online today at Amazon.com, and BN.com. She not only has Buffett’s ear, but also his trust and confidence.

She has an MBA from Columbia, and was an investment banker at Lehman Brothers until she left to start her own CEO advisory and investor relations firm in the early 1990’s. She consults with blue chip companies such as GE, Procter & Gamble, and Duke Energy as well as small and midcap companies. In 2002, she authored Do Business with People You Can Tru$t: Balancing Profits and Principles

 

CHG: L.J. thank you so much for doing this interview. In 2002, your book Do Business with People you Can Tru$t was published and released at the Berkshire Hathaway meeting. How did you come to write about trust?

LJR: I learned about the importance of trust when I joined the corporate finance department at Lehman Brothers in 1981. At that time, the entire firm (including the bankers) was devoted to serving our clients and maintaining the company’s reputation for reliable, top-quality work. Long-term relationships between clients and bankers were prized and nurtured. The early years at Lehman were fantastic; I worked with brilliant, ethical people. The culture was a true meritocracy. But by the mid-80’s this culture began to erode, due to the loosening of Glass Steagall regulations and increasing competition from foreign and domestic banks.

I left Lehman in 1991 to start a CEO advisory and investor relations firm where I could work with many of my previous CEO clients. Together, we developed many programs and practices that were revolutionary, but are now the staple of IR programs: investor targeting, perceptual survey, and in-depth, informative, extended investor information sessions. 

Early on, I focused on the importance of creating trusting relationships with investors, and all of the company’s stakeholders. This notion that trust is the basis for success was not new, but was growing less important as investor holding periods shrank. Investors were growing increasingly impatient. They wanted to see steadily rising corporate earnings quarter after quarter. The temptation of companies to “manage” earnings became standard practice as investors rewarded companies who could expertly play this game. 

I worked with clients who chose to resist the pressure to play this short-term game. They instinctively hung on to the truth of an African proverb: If you know the beginning well, the end will not trouble you. I egged them on to begin thinking, writing and speaking with candor. My book, Do Business with People You Can Tru$t, is a guide to help clients, employees and investors to develop and to spot leaders who create candid, trustworthy communications.

CHG: Don’t you actually measure degrees of candor in communications?

LJR: That’s right. I developed a multivariate model that defines the seven key systems in a business and shows how these systems are balanced for sustained success. The center of this financial linguistic model is the system of capital stewardship. The model evolved from reading thousands of shareholder letters. Why shareholder letters? Because these communications are signed by the CEOs. The best letters, like Warren Buffett’s, are personal, engaging and educational. They demonstrate how a leader honors his words and word. 

Increasingly, the valuation of companies has turned on perceptions of the quality of CEO leadership. The CEO is the guardian (or destroyer) of the corporate culture and candor is essential to building effective cultures. A great deal about the integrity of the leadership and the corporate culture can be learned from financial linguistic analysis. 

Clear patterns emerged as I read these letters. Some letter topics were frequently repeated, while other topics were less frequently mentioned. These statements and patterns revealed the values, norms, practices and ultimately the degree of integrity in the corporate culture. I assigned values to each topic to create CEO communication scores. I gave positive points to straightforward information, and deductions to statements that were undeveloped, confusing and riddled with jargon and spin (corporate “FOG”) . It was surprising to find that many CEOs I worked for were most interested in seeing their FOG scores.

CEOs were amazed when I showed them how the communications in their shareholder letters compared to other CEO letters. “I had no idea that anyone was doing this!” they’d exclaim. They began to see themselves as others saw them. This was not always pleasant. Sometimes the differences were stark. 

But gaining self-knowledge is essential to maintaining effective leadership. As Buffett reminds us, the CEO who misleads others in public may eventually mislead himself in private. By observing what topics were left out of their communications or were not fully developed, I helped my CEO clients to stretch their perceptual boundaries so they could more effectively engage in their internal and external environments.

CHG: So what is the link between candor and trust as you see it?

LJR: Actually, I consider the differences between candor, transparency and trust. Think back to 2003 when Sarbanes-Oxley legislation was passed to promote disclosure by imposing financial and criminal penalties for communications that were not transparent. It led to the biggest year-over-year jump in FOG scores since we began our surveys. Why? Instead of promoting transparency and candor, the threat of penalties opened the floodgates for jargon, clichés and all kinds of meaningless platitudes to appear in shareholder letters. This is the inevitable result of trying to replace moral standards with legal standards. 

Now consider the derivation of the word candor which goes back to the French word candere, meaning to shine or illuminate. It’s defined in the dictionary as “the ability to make judgments free from discrimination or dishonesty.” It is “the quality of being honest and straightforward in attitude and speech.” In other words, candor is about personal honesty, authenticity and the effort to shine light in dark places.

Real candor starts when we are honest with ourselves. If we are, we are more likely to be honest with others: that’s a firm basis of trust. Trust and integrity result from walking our talk. If our talk is meaningless and confusing then our walk will be meandering and without purpose.

Buffett knows this. He chooses candor as an operating principle at Berkshire Hathaway. It has served him well as Berkshire has become one of the most trusted and highly-valued enterprises in the world.

CHG: You are a corporate finance expert and know how to analyze financials, but you choose to analyze the words in shareholders letters instead.  Why choose shareholder letters, especially since many investors don’t believe they are even worth their time?

LJR: You might say that The Rittenhouse Rankings CandorTM Survey supports that belief–that reading shareholder letters is a waste of time. Over the years, we have found that about one-third of the letters in our 100-company annual survey are reasonably well written and informative; some are even inspiring. 

Unfortunately, two-thirds of the letters are poorly written. In fact, the letters at the bottom quartile of our survey are dreadful. Many have more negative points (or FOG) than they score positive points. Why should investors care?

Think about it: why would investors, customers and employees trust a CEO and a board of directors that publish letters full of obfuscation, confusion and unclear thinking? Won’t that send a signal to anyone wanting to work for, invest in or buy from a company, that it lacks integrity? It is so obvious, but amazingly, no one takes the time to consider this.

CHG: Is there a correlation between candor and financial performance? If so, how strong is it?

LJR: For the past five years we have correlated the stock prices of the top 25 and bottom 25-ranked companies. We have consistently found – in both bear and bull markets – that on average, the top companies outperform the bottom companies. In bear markets the gap is consistently wider than in bull markets. This is good news: It does pay to tell the truth.  

CHG: You seem to know Warren Buffett like few others do. In your new book, “Buffett’s Bites: The Essential Investor’s Guide to Warren Buffett’s Shareholder Letters” I’m curious about something that seems implicit: What’s Buffett’s view on the role of trust?

LJR: When I first wrote to Buffett in 1997 about my work in analyzing CEO candor, he wrote back noting I was doing “the work of the angels.” He has consistently offered encouragement to continue this work.

The memo that Buffett published for the managers and employees of Berkshire Hathaway after 9/11 is a great summary of his view on the importance of trust. Commenting on the company’s insurance-related losses, it ended with this: 

Avoid business involving moral risk: No matter what the rate, you can’t write good contracts with bad people. While most policyholders and clients are honorable and ethical, doing business with the few exceptions is usually expensive.

In other words, for Buffett, trust is all about morality; about personal character. And acting morally can lead to dollars and cents business success, it’s not just about doing what is right. It’s expensive when you rely on people who are immoral. Buffett sizes people up quickly. He wants to see if you trustworthy and deserving of his time. If you gain his time and attention, you have passed his trust test.

In Buffett’s Bites, I extract the morals from Buffett’s 2008 shareholder letter and offer commentary so readers can learn how to spot trustworthy CEOs. Here a few of these morality-based principles:

Find CEOs who treasure cash: trust cash always;

Trust CEOs whose rhetoric matches their record;

Rely on CEOs who nurture healthy corporate cultures;

Trust CEOs who count potential losses and gains when analyzing risks; and 

Seek CEOs who aid investor analysis and explain difficult concepts.

CHG: Buffett is almost unique in the devotion of his shareholders. Can other companies replicate that? 

LJR: Name one other company CEO who believes as Buffett does that “while our form is corporate, our attitude is partnership.” Buffett’s communications are noteworthy for their candor because he practices the Golden Rule of investor partnership: communicate with investors the way you would want them to communicate with you – if they were managers. Because of this unique strategy, Buffett has been able to tap dance to work every day – as he likes to say. Why not? Berkshire shareholders are probably the most loyal investors on the planet.

CHG: There is so much about Buffett that is interesting, but let me ask you to comment on two things. What is his view on private equity? What are his confessions?

LJR: In his 2008 letter, Buffett noted that many of today’s private equity firms are really “leveraged buyout firms” who changed their moniker when it became a bad name. He quickly points out that this is a term that turns facts upside down: 

…A purchase of a business by these [private equity] firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing. A number of these acquirees, purchased only two to three years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of the bank debt is selling below 70¢ on the dollar, and the public debt has taken a far greater beating. The private-equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead, they’re keeping their remaining funds very private. (Emphasis added.)

As for his confessions, he is the only CEO I know who publicly reveals big bloopers. Not only does he confess and take the blame for what went wrong, he typically reveals how much it cost investors. He reports on his biggest blunder in his 2008 shareholder letter:

I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars. (Emphasis added.)

Why is Buffett so candid? First, he enjoys unmatched investor loyalty based on Berkshire’s track record: outperforming the S&P in all but six of the last 45 years and second, because the majority of his net worth is tied to Berkshire stock. He not only feels investor pain, he shares it.

CHG: As someone who works at the highest levels of corporate management, you have the ear of some very prominent CEOs. What do you tell them?

LJR: I tell CEOs what they often don’t want to hear, but need to hear. This is a high stakes strategy, but it can be very successful. Why? Because corporate success depends on tackling, rather than ignoring the elephants in the room. These “elephants” are typically the reasons why companies suffer and cannot achieve greater success. Worse, they will create conditions leading to serious problems.

CEOs who can be open to hearing painful truths are truly great leaders. Typically, they have nurtured cultures, and promoted senior staff, who prize difficult and constructive debate and questioning. 

Generating sustainable, reliable financial results depends on taking actions that expose strategic blindspots. Not only does this lead to more motivated employees, more effective execution, stronger corporate value propositions and better stock price valuations – it mitigates future risks.

I can tell from reading shareholder letters which leaders nurture healthy cultures and which do not. When I work with a CEO, I show them how they score on our candor benchmarks. Regrettably, it has been my experience that companies that could benefit most from confronting their candor deficiencies are those who choose not to listen.

CHG: What do you think is the role of candor and trust in mending our broken world of economics and finance?

LJR: Let me talk about what the media missed in its reporting on the 2009 Berkshire Hathaway shareholder letter. Here is what Buffett wrote:

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

Out of the news stories we tracked right after his letter was released, only six reporters commented on Buffett’s advocacy for imposing personal financial penalties related to reckless, destructive behavior by both boards of directors and CEOs. The other three reporters omitted boards of directors, stating only that CEOs should be personally liable.

Our economic system is broken because boards of directors are not exercising their fiduciary responsibilities to read shareholder letters and insure that the CEOs they oversee are communicating candidly with investors. I have been to many annual meetings over the years and talked with board members. Never once have a met a director who can comment meaningfully about the shareholder letter.

Similarly, boards of directors hire new CEOs. Why not ask all prospective CEO candidates to write a letter to shareholders as if they were now the CEO? These letters could become part a critical part of the selection process. For example, such a letter would reveal a great deal about the candidate – his or her ability to think clearly, and to effectively communicate the breadth and depth of their strategic vision.

These are simple proposals to enact. Investors – the owners – need to demand they be implemented. Our work can show directors how effectively the CEO will fit into the corporate culture and fulfill his or her role as the company’s chief communicator and risk officer.

Last year, I sent my FOG analysis to all the CitiGroup directors. I believed it was important for them to know that Citi had scored at the bottom of my candor survey scoring 666 negative points of FOG compared to 465 points of positive content. Several months later I received a letter from Richard Parsons, the chairman of the board. His reply was succinct: “Thank you for your letter and sharing your views.”

CHG: L.J., thank you so much for sharing your insights with us today. I know I speak for Trust Matters readers in saying it’s been fascinating.

LJR: Thank you, Charles.

This is number 8 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #7: David Maister
Trust Quotes #6: Anna Bernasek
Trust Quotes #5: Neil Rackham

David Maister on Trust and Professional Services (Trust Quotes #7)

David Maister  is well-known to readers of this blog. David was lead author on The Trusted Advisor along with myself and Rob Galford. A former Harvard Business School professor, he originally specialized in logistics and transportation (writing 8 books on those topics.) He became the guru of Professional Services with his 1993 book Managing the Professional Services Firm after which he wrote 6 additional books on professional service firm topics.

CHG: Welcome to the Trust Quotes series, David, I’m glad to get you on the record on the subject of trust some ten years after we co-authored The Trusted Advisor. How has your view of trust changed, if at all, since then?

DM: I’m probably a little more skeptical and less hopeful now than I was ten years ago as to the degree to which earning trust is learnable (or teachable.)

When you and I (and Rob) wrote about trust in 2000, we stressed that earning trust was not just about the knowledge of tactics or the possession of skills, but required some underlying attitudes or character attributes – for example, a real interest in those you were dealing with, and a sincere desire to help (what we called “low self-orientation.”)

As authors, consultants and teachers, we (and others) can help a lot with the knowledge and skill parts of understanding trust, and perhaps even (through role playing and practice) help people improve on the behavioral aspects – getting more skilled in conversations for example.

But what remains as a dilemma is what happens if people are actually not that interested (on a personal level) with those whose trust they are trying to earn, or are not really trying to “focus on helping first, and keep the faith that, by earning the relationship, you’ll get what you want down the road.” 

I am suspicious about whether the underlying attitudes or character traits necessary for trust are as common now as they have been in the past.

This is not a comment on the inherent flaws of individuals. Rather, I think we have seen a generational change (or two) in the institutional context within which people have been raised. Customers and clients, through their increased reliance on purchasing departments, are signaling a lesser interest in buying through relationships. At all levels (so-called “partner” or “non-partner”) professional firms are routinely achieving improved economic results by treating their people as “employees at will” rather than assets or members of an organization which gives and expects loyalty. The data is very clear – in the law for example, the single biggest means by which firms improved their profitability (across the profession) was de-equitizing existing partners and drastically reducing the numbers of people promoted to partner. That’s not just a response to the recession – it’s been going on for decades.

Accordingly, I think we are living in organizations which have low (and declining) trust and individuals are responding in kind. I think our economy and society has been training people to not trust.

 

CHG: For the record, what do you think is the role that trust plays in professional services–or for that matter in business as a whole?

DM: I remain as convinced as ever that a high-trust method of operation is the best high-profit, high growth strategy. In my 2001 book Practice What You Preach, I studied 139 professional operations and was able to show statistically that the key determinants of financial success were when the people throughout the organization (not just those at the top) agreed with the statements “we always put the interests of clients first,” “we have no room for individualists who put their own interests ahead of the clients or the firm,” and “Our managers are men and women of integrity who always act in accordance with what they preach.”

However, it is sad to report that while these attributes (where they existed) could be shown to produce high profits and high growth, they were not common. Alas, in most businesses, neither the employees nor the clients can trust that managers will act in accordance with the principles they advocate. So, cynicism and self-protection results.

CHG: In your career, David, you consulted to or worked with a panorama of industries—law firms, accounting firms, advertising, actuaries, public relations, architects, consulting firms. What did you find to be the most common trust issue across all of them?

DM: Over the past decade or two, there has been a collapse of the “professional service firm model” as a special form of organization. In the past, what made a professional service firm different from a general corporation was that it was built on some generally agreed (if sometimes implicit) assumptions. Assumptions that you could depend upon and trust that they would be observed.

Under the old model, professional firms offered careers, not just jobs. If you were hired at the entry level, it was “assumed” that, in exchange for your hard work, you would be given an apprenticeship, be well-trained and, if you didn’t make it to the higher levels of the firm, you would be helped to find an alternative career. If you did “make partner” there were assumptions that (even if there was no such thing as life tenure) you were treated (and expected to behave as) a long-term member of a cohesive team, and that the firm would be loyal to you if you were loyal to the firm.

None of these “rules’ or assumptions apply today. No-one today knows what it means to “be a partner.” It’s hard to be trusting or trustworthy (between and among partners) if no-one knows whether or not there are sustained “rules of engagement.” Accordingly, even in some incredibly admirable firms, I hear sentences like “I feel like I’m only one bad year away from being terminated.”

Few entry-level hires (according to the survey data I have seen) expect to be with their firms 5 years hence. They don’t believe that their firm has any form of commitment to them. The recent actions during the 2008-2010 recession, wherein junior and admin staff were the first to be tossed overboard in the (successful) attempt to preserve partner incomes proved to everyone where the true priorities of most organizations lie. Together with the fact that, in many professions, professional firms are increasingly publicly held, professional firms are (in my view) much more short-term focused than a decade or two ago. This breeds distrust inside the organization. No-one knows what rules or organizing principles (if any) can be depended upon.

I’m sorry to sound so cynical, but my experience is that juniors don’t trust partners, partners don’t trust each other (especially if the other partner is in a different office, practice specialty, or industry group), no-one trust that management will do what they say they will, and everyone views clients as people to be feared (or seduced) rather than people to trust. Shining counter-examples do exist (the usual names) but they are not the norm.

Yes, researchers, authors and consultants can prove that these are counterproductive and self-defeating attitudes, but that doesn’t make them any the less prevalent.

CHG: As long as we have that list in mind—is there one industry in particular that you found particularly better at—or more challenged, for that matter—at issues of trust?

DM: In general, I find excellence at trust to exist at an individual level (there are many incredibly admirable practitioners in every profession) a very few firms that have firm-wide reputations for it, and no one profession or industry that has a consistently high reputation for being more trusted than other industries. There’s a reason there are consultant jokes, doctor jokes, lawyer jokes, plumber jokes, dentist jokes, accountant jokes, etc. As generalizations across entire professions, we’re all bad at working well with clients.

One profession – the law – does have a particular challenge with trust inside their own organizations. As I pointed out in a recent article, lawyers are professional skeptics: They are selected, trained, and hired to be pessimistic and to spot flaws. To protect their clients, they place the worst possible construction on the outcome of any idea or proposal, and on the motives, intentions, and likely behaviors of those they are dealing with. As Tony Sacker, my kind and gentle brother-in-law and a solicitor in the United Kingdom, says: “I am paid to have a nasty, suspicious mind.”

Recently, I was advising a firm on its compensation system. They didn’t like my recommendations. Finally, one of the partners said, “David, all your recommendations are based on the assumption that we trust each other and trust our executive or compensation committees. We don’t. Give us a system that doesn’t require us to trust each other!”

Much current practice in firm governance, organization, and (not least) compensation comes from the fact that partners vigorously defend their rights to autonomy and individualism, well beyond what is common in other professions. There is nothing inherently wrong with that. However, as major corporations consolidate their work among a smaller number of firms, domestically and internationally, they expect that firms will serve them with effective cross-office and cross-disciplinary teams. Firms are vigorously responding to this with a stampede of lateral hires, mergers, and acquisitions. Their goal is to create big organizations offering many disciplines, locations, and cultures. The unanswered—actually, barely asked—question is whether these firms can shift from a managerial approach, based on partner autonomy, to new approaches that can create a well-coordinated set of team players.

It is hard to unbundle which is the cause and which is the effect, but the combination of a desire for autonomy and high levels of skepticism make most law firms low-trust environments.

CHG: What’s happening with trust in business these days? Your take on it?

DM: I’m not sure I have the “view from the mountaintop” perspective about business as a whole, so perhaps the best way for me to try and answer is as a consumer. Continuing my less-than-hopeful theme, I have to report that as a recipient I do not experience much change or improvement, at least systematically, from those who try to serve me. I’m not saying that I don’t like my doctor, lawyer, plumber, dentist, broker, (and so on.) It’s just that I do not perceive that they are doing anything new that they did not do ten years ago. (Do your readers?)

Nor do I see many game-changing approaches from new entrants in many professions that systematically increase trust between provider and client. Many professions are moving to fixed-fee pricing in part due to the historical lack of trust in the motives of providers who billed by the hour.

One approach that recently caught my attention was the offering of a premium-fee “concierge” primary care physician services where the doctor limits the number of patients to 400 instead of the normal primary care doctor who has a “list” of 2,500 patients or more. This COULD be a systematic way to increase intimacy and accessibility, but (at least in Massachusetts) it has not taken off in a big way.

CHG: Your old industry of professional services; what did you find to be the most common failing—and did it by any chance have any connection with trust?

DM: Most of the weaknesses or failings of professional firms, in my view, derive from the fact that professionals (and their institutions) are made up of highly intelligent people who value and celebrate that which is rational, logical, analytical and based on high intelligence. After all, it is superiority in those things that are screened for in doing well in college and, especially, in obtaining advanced degrees. However, few of us who went that route (unless we had it from childhood) were ever helped in developing our interactive, emotional people skills.

No one ever got their MBA because of superior empathetic skills. Few people, if any, had a successful law school career because of their predilection for being a team-player rather than focusing on their own accomplishments. No-one teaches you (formally) the abilities of being a good conversationalist – having a fresh point of view, but not trying to thrust it upon everyone else, speaking politely and respectfully; telling good stories to illustrate key points; being good at drawing other people’s views out and drawing them into the conversation; not being afraid to admit areas of ignorance; listening with genuine interest. In our educational system (and in our firms’ training and development approaches) these basic human skills are either absent, or treated as secondary.

It sounds trivial and trite to say “It’s all about learning to deal with people,” but what’s often overlooked is that it’s very HARD to develop such people skills if you don’t start until later in life. People and firms underestimate how much effort and time it takes to develop such skills.

CHG: Tactically speaking you’ve heard me talk about trustworthiness vs. trusting, with the combination adding up to trust. On which side do you think business needs more work?

DM: I think you have made an incredibly important distinction, Charlie, and it’s a major contribution to get people thinking about it. I think you and I have always believed that you can’t be seen as being trustworthy unless you are prepared to trust, and being prepared to trust is an incredible leap of faith for many people. So, that’s the hardest part for many people.

When people ask, “How can I be seen as more trustworthy?” there’s more than a little hint of “Let’s get to the stage where I begin to benefit as quickly as possible.” Asking “How can I learn to trust more those with whom I want to have a relationship?” demands that people really are taking a relationship (rather than transaction) approach. Unfortunately, there are people looking at “trust’ as an approach or tactic to “do the deal more quickly.’ They underestimate the mindset change that’s really required to make it work.

CHG: How do people come to learn about trust? How did you learn about it?

DM: Today, “trust” is a hot topic. As you have pointed out, Charlie, claims to being “your trusted advisor” are everywhere. Everyone wants to train their people to earn clients’ trust in order to lower selling costs and avoid fee pressure. What is often misunderstood is that enhanced trust CAN do these things, but it’s not a gradually rising response curve. A little more trust does not get you a little less fee sensitivity or a little more repeat business.

In my experience, it’s a big “step function” – only when you have clearly put a big difference in trustworthiness (and trusting behavior) between you and others in the market can you then reap the rewards of being truly different. I’m not saying it’s “all or nothing” but it’s close to that. “I trust them a little bit more than others” is not much of a commendation, and is not likely to lead to a big change in buying behavior.

My own introduction to trust was by experiencing it – examples that we included in The Trusted Advisor book, and some that have happened since. Every so often, you come across someone – a dentist, an interior decorator, a financial advisor – who earns all your business and long-term loyalty by putting your interests first. And when it happens, as it happened to me, you become an instant convert.

I truly believe there are no secrets here – it’s just the Golden Rule, “Deal with others as you would wish to be dealt with.” The trouble is, too many of us think that our business is different or that our clients are different. We don’t trust them to reciprocate if we do the right thing, so we drop the golden rule and relapse into transactional behavior.

CHG: You didn’t just write about trust only in The Trusted Advisor; in what ways did trust show up in your other books?

DM: All of the lessons of trust in dealing with clients also apply, virtually un-translated, into building trust inside the organization. I wish I had done what our co-author Rob Galford did and written The Trusted Leader, which was a logical follow-up.

Actually, I did try write about effective management and how trust applies. It’s a constant theme thorough all my books. However, it’s still hard to be completely convincing. It’s very sad, but there’s a school of though out there among many managers that accepts Machiavelli’s line about it being better to be feared than to be admired. In the balance between “pragmatists” and “ideologues/idealists”, I still find more people who are self-described pragmatists, rather than managing their businesses according to strictly-adhered to values, standards and principles.

CHG: Unlike Willie Mays, you retired while still on top. Do you miss it?

DM: So far, not at all. I’m not saying I won’t wake up one day with a passionate desire to write another book, it could happen.

But it feels really great not to get on airplanes, and my wife and I, after treating Boston (our home town) as the place where for 25 years we did our laundry, are finding that (surprise, surprise!) it has many wonderful things to offer that keep us busy and engaged.

CHG: David, it’s been a delight talking with you again, thanks so much for taking the time.

This is number 7 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #6: Anna Bernasek
Trust Quotes #5: Neil Rackham
Trust Quotes #4: Peter Firestein on Trust, Character and Reputation

Anna Bernasek on the Economics of Integrity (Trust Quotes #6)

Anna Bernasek is author of the just-published book The Economics of Integrity

No stranger to the subject matter, she’s been a regular contributor to the Economic View column in the New York Times. She has been a staff writer covering finance and the economy at Fortune Magazine, TIME Magazine and Australia’s Sydney Morning Herald newspaper. She has frequently appeared as a guest commentator on broadcast media including CNN, CNBC, public television and NPR.

CHG: Welcome to the Trust Quotes series, Anna. Let’s lead with your book, if you don’t mind. What’s the central thesis of The Economics of Integrity? Or theses, if that’s too limiting?

AB: If there’s one thing I’d like readers to get out of my book, it’s that integrity—or trust if you prefer—is an economic asset. Once you understand that, you can think about the topic without being limited by the conventional idea that integrity is a personal virtue, and that it’s costly. If one approaches it in the right way, integrity isn’t a cost at all. It’s an investment opportunity, a way to build wealth. That’s very exciting because there’s no upper limit to how much trust—wealth—we can create. I think it’s the biggest opportunity we face.

CHG: You use several examples of inter-dependence to make your point about integrity; care to share one?

AB: Well, one of the points I try to make is that integrity—in the sense of trust and interdependence—is an abundant fact that is found literally in every aspect of our economy. For me, a good example is milk. There are about 15 people who are directly involved in making a gallon of milk. Think of the farmer, the vet, the milk hauler, lab technicians at the milk plant and so on.
If you include all the people who are indirectly responsible for making milk the number grows exponentially. When everyone does what they say they are going to do they all benefit. If one cuts corners or does the wrong thing it can hurt everyone in the chain. That’s why integrity is a shared asset. We share in the rewards of integrity but we also share in the risks.

CHG: What do you believe is the most controversial point you’re trying to make? Controversial, that is, compared to current received wisdom?

AB: Not everybody gets my ideas right away. There are two classic responses to my book, usually from people who haven’t read more than a few words of it. The first is what the heck am I talking about, can’t I just pick up the paper on any day and see that nobody has any integrity anymore? And the second is that, well, there’s nothing new here because we always knew that trust is important.

I would say this. To anybody who says we are lacking in integrity, you don’t need to think very hard to see that if we totally lacked trust in our institutions and fellow citizens the economy would be back in the stone age. We are where we are because generations upon generations have through trial and error, with great effort and sacrifice, bequeathed to us an advanced society where our wealth and our economy depends on an enormous stock of integrity.

It’s so ingrained that we take it for granted, and most people can only think of the defects in our collective integrity assets. I’m saying it’s there, it’s enormous, and it’s very important. It’s an opportunity, not a problem. Sure there are places to improve. But that’s the point—let’s do that and we’ll benefit.

To those who say there’s nothing new here, I have to admit that I didn’t exactly invent or discover trust and integrity. But in mainstream economics trust is treated in an offhand way. It’s typically an assumption on which an intellectual superstructure is then constructed. I’m saying something new: integrity is an asset, and therefore has the property of quantity. Not easy to measure, but still a quantitative subject. We can create it, invest in it, and diminish it as we choose. What I’m saying is that integrity is not just related to, but integral to wealth.

CHG: Are you using the terms ‘trust,’ ‘integrity,’ and ‘virtue’ to mean largely the same thing, or do you see particular relationships between them?

AB: I make a distinction between integrity in its colloquial sense and integrity as an economic asset. In ordinary conversation, integrity is a personal quality. That suggests personal ethics and morality, desirable and virtuous qualities in anyone. When I talk about integrity insofar as it relates to the economy, I am talking about relationships of trust.

In economic terms it doesn’t matter how pure your soul is if nobody knows about it. But if somebody respects you and trusts you, then you have something valuable. So I use the word integrity to describe a relationship of trust between persons or institutions. That trust is an economic asset and it’s very valuable. It underlies everything we do.

CHG: You write that the recent financial crisis was first and foremost a crisis of integrity. To what extent do you think we—government, business, the public—have learned this lesson (or not)?

AB: I think a lot of people recognize that what I’m saying makes intuitive sense. The issue for many people, and the reason I wrote the book, is that they don’t have the tools and concepts they need to think deeply about the problems we have experienced with integrity and about the solutions we need to go forward. It’s not going to cut it anymore to say that we need to deregulate financial markets and encourage financial innovation. But what is going to replace the rhetoric of deregulation? I think my book has some pretty good answers.

CHG: You’re a fan of disclosure in financial markets; how far can disclosure along take us? What else has to happen to increase trust in financial markets?

AB: Disclosure is probably the single most crucial step we can take. But it can’t happen in a vacuum. If there are no norms and guidelines, disclosure becomes an exercise in futility as enormous quantities of irrelevant information obscure what’s really going on. We need to get the important and relevant information out there in a fast, organized and convenient way.

But look at the tools we have now. The internet is the greatest tool ever invented to get this job done. And once we have norms and guidelines, we need to have accountability so that they aren’t just ignored. It’s a big job, no doubt, but the payoff is even bigger. We simply can’t go back to where we were before the crisis. It’s a broken system.

CHG: You’ve written recently about our health care situation, and the recently-passed legislation. If legislators had read, and absorbed, your book (it’s a hypothetical, I know), what would they have done differently?

AB: Just about everything, I’m sorry to say. There are a couple of key points that are hidden in plain view.
First, our existing system is grossly inefficient. On the whole we are paying way too much for health care and we’re not getting results. Second, our system is grossly unfair. Everybody is getting care, but not at the right time or place and certainly not at the right cost. That’s actually making people less well than they could otherwise be.

And along the way, a minority of people are being bankrupted or severely burdened financially in a way that literally adds insult to injury, while others–including caregivers, taxpayers and local communities–are bearing inappropriate burdens.

Every other developed nation—every one—has a better system. There are existing, proven, tested, popular solutions that are being ignored. The biggest travesty of the whole legislative process was the calumnious abandonment of single payer.

Only single payer moves us significantly forward. Everything else, no matter what desirable features it has (and there are a few positive things in the legislation) further entrenches a bad system and endangers not only our future health but our economic prosperity. The only thing I like about the recent law is that it is proof that change can happen. But it wasn’t the change we need.

CHG: I’ve often thought of brands as the corporate equivalent of personal trust. What is, in your view, the relationship between personal trust and corporate, or systemic, integrity? Can you have systemic trust without personal integrity?

AB: Personal integrity is a building block for corporate integrity. Of course you can imagine a situation where someone has a defect in personal integrity but it doesn’t affect their institution because it isn’t relevant to the institutional context. However, I don’t tend to think that’s the norm.

CHG: You talk about the DNA of integrity. Is integrity born, or can it be made? Can we develop integrity, or must it come with mother’s milk? How long does it take?

AB: Integrity can be created. And I think that’s what’s so exciting about it. I think a good example is eBay. From scratch eBay created an integrity system where buyers and sellers came together in a relationship of trust to create wealth. The more people heard about the good experience, the more people were encouraged to try eBay and it created a self-reinforcing system of integrity and wealth.
It can take decades to create integrity or it can literally happen overnight. It depends on whether the DNA of integrity is present (disclosure, norms and accountability) These three conditions together create integrity. They are present in eBay and they are present in other integrity systems like the NYSE.

CHG: Anna, it’s been a pleasure to have you share these thoughts with Trust Matters readers; thank you very much.

AB: Thank you!

This is number 6 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #5: Neil Rackham
Trust Quotes #4: Peter Firestein on Trust, Character and Reputation
Trust Quotes #3: Dr. Eric Uslaner on the Nature of Trust

Neil Rackham on Trust in Professional Selling (Trust Quotes #5)

Neil Rackham is a name many of you will recognize: the Professor of Professional Selling. He didn’t just write the book, he wrote three books that made NYTimes Best Sellers. Most famously the author of SPIN Selling — a book that still ranks at 2800 on Amazon twenty-two years after publication—Neil continues to travel the world and consult with Huthwaite, the organization that has the rights to SPIN Selling.

SPIN was a revolution in the approach to sales, and still rings fresh today. Massively researched, it introduced the key notions of consultative selling, and of inquisitive interactions. He’s McGraw-Hill’s all time biggest business book seller; his material is used in about half the Fortune 500 companies today.

What does Neil have to say about trust, you may ask? Let’s ask him.

CHG: Welcome to the Trust Quotes series, Neil. Let’s start with that question: to paraphrase Tina Turner, when it comes to selling—-what’s trust got to do with it?

NR: Trust has always been central to effective selling but, in recent years, two things have made trust even more important. First, an increasing percentage of routine transactional sales have migrated away from face-to-face selling to cheaper channels like the Internet and telesales. That means the average face-to-face sale today is significantly larger and more complex than it was five years ago. And the bigger and the more complex a decision, the more important trust becomes.

The second factor that makes trust a more important issue today is the increasing tendency to build service, implementation and advisory components into the sale. So instead of just buying a tangible stand-alone product, you are also buying advice and support. If I’m selling you a product you can think that Neil Rackham is sleazy and untrustworthy, but you look at the product and if it does what you need at a good price, you might well buy it.

But once there’s an advisory component to the sale you can no longer separate the product from the person selling it. If you don’t trust me, you don’t trust my advice. So trust in selling is more important than ever before.

CHG: You’re in that rare position of being able to look at your own work from a 30,000-foot stand-alone level. What do you think the world made of SPIN? And do you think the world got it right? What do you think was its biggest impact?

NR: The SPIN research was notable because it was the first time that anyone had tried to scientifically measure selling and buying behavior. It was also by far the largest sales study ever carried out: 35,000 sales calls in 23 countries over 12 years. In today’s dollars that would cost upwards of $30 million. It’s not likely anyone will try to do another study on a similar scale to take the ideas further.

That’s a shame because bringing a rigorous research approach had a huge impact. Over half the Fortune 500, for example, use models in their training derived from that original research. So it’s had an enormous impact. But I feel we only scratched the surface. There’s so much more.

For me, the biggest impact of the SPIN research has been that it created a model for large B2B sales where none existed before. And it showed that selling is much more about understanding and creating customer value than about persuasion and pressure.

CHG: I recently heard a lovely quote from a blogger: Nobody buys a value proposition. True?

NR: Value propositions are incredibly useful in selling but are generally misunderstood. They are not elevator messages that the sales force is supposed to give to customers. In fact, in most circumstances, the customer should never explicitly be told the value proposition. A good value proposition shows you whether your offering will be worthwhile and – as a result – shows you what your chances are of winning the business.

If you’ll allow me a quick swipe at bad marketing departments, too often value propositions are not about value. They are statements that fancifully massage minute competitive differences. As the inventor of value propositions, Michael Lanning, puts it, “You can’t judge value unless you know its price – and that’s too often a missing element.”

CHG: In the field of complex sales, including intangible sales—what do you find is the most pervasive problem, and what do you find is the hardest-to-correct-for problem?

The most pervasive and hardest sales problem? Premature solutions… The mistaken belief that that sooner they can begin solving the problem, the more effective they will be.

NR: Perhaps the most pervasive one is also the hardest to correct. I’d call it “premature solutions”. Most salespeople understand that their role in complex sales is to use products and services to solve customer problems. Many of them mistakenly believe that the sooner they can begin solving the problem, the more effective they will be.

Our earliest research showed that top salespeople didn’t focus on solutions until very late in the sale. Less successful salespeople couldn’t wait to begin showing how their products and services could solve a customer problem.

So most salespeople don’t spend enough time listening and questioning. The moment they think they have the answer, they jump straight to talking about their solution. As a result they don’t do a good enough job of understanding issues from the customer point of view. And if customers don’t feel that they are listened to and understood, there’s an inevitable loss of trust.

CHG: What has been the impact of some of the nominally depersonalizing aspects of sales: blinded online auctions, the professionalization of purchasing agents, increasingly detailed buying process designs?

NR: On the whole, I think the impact of these changes has been very positive. The professionalization of purchasing, in particular, has introduced a new generation of smart and thoughtful customers into the buying process. Salespeople often feel that the new purchasing has made life harder. And so it has – at least for the good-old-boy traditionalists who used the golf course and business lunches as their main sales tools.

But, for salespeople who genuinely create customer value, it’s a good thing to see customers who would rather make better decisions than be bought a better lunch. When I hear salespeople complain about the new buying professionals, I wonder whether they are really complaining that they are being forced to be more professional themselves and that it’s hard work.

But there is a downside to the new purchasing. Buying processes, purchasing segmentation, the internet, reverse auctions and the like have been designed to benefit buyers, not sellers. So they make it harder for salespeople to get away with excessive margins or offerings that do a poor job of meeting needs.

And, in the hands of inept or rigid purchasing agents, the new purchasing can become a rigid and unresponsive liability that isn’t in anyone’s interests. But, on the whole, the quality of selling can only benefit in the long run from the new purchasing.

CHG: Some sales writers—Jeff Thule, Sharon Drew Morgan—are focusing on the need for the sales person to be kind of an OD consultant to the buyers. Your take?

NR: I’ve a lot of sympathy with the various writers who are saying that selling isn’t about pitching products any more. Research is on their side. We did a study of what customers valued in salespeople. Out of 1,100 buyers we talked to, nobody, not even one, said that salespeople created most value by talking about their products. In fact, the majority of buyers rated product pitches as actively negative in terms of value.

So I think everybody now agrees that the sales role is diminishingly about products. It’s less clear what the various new value-added roles will be. Some say OD consultant, some say intellectual challenger, some say industry advisor, some even say political consultant. I think that it’s whatever the salesperson can do that creates value for individual customers.

CHG: You were kind enough to offer a testimonial for the cover of Trust-based Selling, my own book. What did you find attractive enough to lend your name to in that book?

NR: I’ve been following your work ever since you and David Maister and Galford wrote The Trusted Advisor. Trust is what makes business happen and it’s certainly at the root of any professional relationship. However, I did have a criticism of your early work. Too much of it was focused exclusively on the professional/client relationship when there was a vastly wider seller/buyer population that needed your message.

So I was delighted to read the manuscript of Trust-based Selling.

My only complaint is that you waited too long to write it. Beyond that, I like the way you eat your own cooking. There’s none of the self-importance and exaggeration that goes along with most sales books. It’s a book people can trust.

CHG: (blush) Thanks very much for that. What’s the single biggest thing you think a salesperson can do to improve trust in the relationship?

NR: We know quite a lot about what creates mistrust. The biggest single factor is lack of concern for the customer. So if a salesperson is a poor listener, or appears to be more interested in making a sale than in helping the customer, then it sends off alarm bells. Only a third of high-level salespeople are rated adequate or better by their customers in terms of the depth of concern they show for the customer’s issues and needs.

It’s a pervasive problem because however honest you are, however much integrity you have, however deep your expertise, unless you show concern you will not be trusted. The solution is to demonstrate customer concern by patient listening, skilled questioning and a deep desire to understand rather than to persuade.

CHG: Can you kill this issue once and for all: what’s the role of price?

NR: Price is a real and difficult issue in selling. I’ve no patience with the sales gurus who pretend that price doesn’t matter. But it’s easy, particularly in tough economic times, to overestimate the role that price plays in decisions. Let me give you a couple of examples.

We did a study in Xerox where we interviewed 50 customers who had turned Xerox down and put in writing that the reason was price. It turned out that in 32 cases – that’s 64% — price was not the primary factor. Buyers didn’t trust the salesperson, didn’t feel they could handle internal opposition or were afraid of becoming too dependent on a sole supplier. Each of these reasons can be awkward to explain, so they chose the easy and unchallengeable excuse – the Xerox price was too high.

And another indicator that price may not be as important as it seems comes from one of the most spectacularly successful marketing campaigns of all time. In the 1980’s recession, computer makers were having a hard time. Most of them, like DEC and Burroughs — both long dead – decided it was a price issue and cut their prices by 30% or more.

IBM decided it was a risk issue. They actually raised prices for equipment that was generally agreed in the industry to be overpriced and under-featured. They did all possible to make the decision safe. People today still remember their marketing slogan, “Nobody ever got fired for choosing IBM.” They had record profits in those years because they understood that price is rarely the most important decision criterion. But – and here’s where your work comes in – you can’t sell safety unless you can build trust.

CHG: Why is sales so often viewed as unethical? Not just historically, but intrinsically? I think that is not necessary; what’s your view?

NR: Sales has been its own worst enemy. And I would point the finger particularly at sales management. When salespeople are under pressure to produce short-term results and are being told to get the business this month by whatever means necessary, they pressure customers and this creates suspicion and mistrust.

The most successful salespeople are almost always the most ethical. So good selling, I believe, is intrinsically ethical.

And compensation doesn’t help. Customers find it hard to treat salespeople as objective when they know they are being paid to influence the decision. However, I’m comforted by the fact that the most successful salespeople are almost always the most ethical. So good selling, I believe, is intrinsically ethical.

CHG: What’s the role of sales in the broader corporate context? What’s the role of sales in the broader business at large context? What does great selling do for the economy, and for people’s souls, if I may?

NR: Wow! How many days do I have for an answer? First, the role of sales is becoming more important to corporations than ever before. We’re in an era of organic growth, where organizations will not succeed by internal efficiencies or by acquisitions. They will succeed by outselling their competition.

Second, success today comes more from how you sell than from what you sell. For every Apple that succeeds through an innovative product strategy, there are a thousand companies succeeding through effective selling of products that are not much different from their competitors. So good selling is more important now than it has ever been.

Finally — something I find exciting and inspiring – the top end of selling is changing so much that I’m not sure whether the word “selling” even applies. The new top-level sale is about redesigning the boundary between the buying and the selling company so that new value is created that neither company could have achieved alone. I don’t know about how others feel, but seeing this new and challenging high level selling, seeing how much selling has grown in stature, is certainly good for my soul.

CHG: Neil, it has been a real pleasure to engage with you in this conversation; thank you for your time and insights.

NR: A pleasure.

This is number 5 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #4: Peter Firestein on Trust, Character and Reputation

Trust Quotes #3: Dr. Eric Uslaner on the Nature of Trust
Trust Quotes #2: Robert Porter Lynch on Trust, Innovation and Performance

Peter Firestein on Trust, Character and Reputation (Trust Quotes #4)

Peter Firestein’s extraordinary career began in Indiana. He soon left for California, taught himself Spanish in a park in Mexico, learned commodities in Latin America, and has a unique resume, having worked for Michael Milken and advised the Brazilian Government on privatization of its national phone company.

Peter ended up counseling mega-global companies on corporate reputation and Investor Relations. His book ranges both wide and deep; you can’t summarize Peter’s insight and wisdom briefly. But I do try to pick out a few themes in this interview.

CHG: Peter, Let me put the onus on you: what strikes me most about the book is perhaps the role of personal character and of relationships in dealing with mega-corporate institutional relationships. It’s tough to summarize such a broad book, but how do you see it?

PF: You’ve actually done a pretty good job with your question, Charlie. I try to suggest in the book that the job of leading a significant company these days requires involvement of the whole person, not just the part of the person trained to analyze, fix, and build businesses.

People who’ve reached the point of development where they’re considered capable of leading companies are attuned to making decisions on the basis of metrics. You don’t get there unless you understand return on investment, for example. That’s always been true, and it’s never been more important than today.

But the world requires something more of you now. Modern information technology makes enormous amounts of intelligence on businesses available to anyone who can use a search engine. For companies, there’s no longer any place to hide. In addition, having information conveys to any citizen a sense of entitlement to register opinions and organize opposition to companies whose actions seem out of line with common values.

The good news: any manager with sufficient maturity to run a company also has enough life experience to understand how people outside the company feel themselves affected by its actions. But too many otherwise competent corporate leaders don’t understand that these two sides of life are not only connected—they’re inseparable.

That’s what I mean when I say that, in the end, it’s all personal. In a post-modern world where everyone seems not only to have an opinion, but the eloquence to express it, being the boss doesn’t make you immune; it makes you vulnerable. The moment you take that to heart, you’ve made your first step toward resolving conflicts with your antagonists. Leading is, first of all, listening.

CHG: One thing that struck me was the insistence on reputation as being built inside out: the only sensible strategy is to be the company you want your stakeholders to see.

PF: One of the book’s early titles was “The Glass House,” meaning, of course, that you can’t fake things for very long any more. Just thinking about the failed obfuscations attempted by some big corporations in recent years can bring actual, physical pain.

When I say you have to “build reputation from the inside out,” I mean that managers have to create reporting and communications structures that not only disseminate values throughout the organization, but absorb the workforce’s on-the-ground experience all the way to the top. Every action the company takes, therefore, represents its core value system. And the workforce’s day-to-day reality informs senior decision-making.

I call this “vertical communication,” and I think it reduces the likelihood that a CEO will wake up some day to find that a regional manager has been found to have bribed a government official, or a sub-contracted factory is discriminating against female employees, or an accidental dump of toxic waste has disappeared from company records somewhere down the line.

There are few small failures in big business. In fact, the depth of failure often presents a mirror image of success that preceded it. True vertical communication that extends throughout the organization helps you spend your life thinking about other things.

The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.

CHG: Since this blog focuses on trust, please tell TrustMatters readers how you see the relationship between trust and reputation?

PF: If there’s a difference between high trust and strong reputation, I’m blind to it. Both trust and reputation—whether high or low—are expectations of future experience based on what is known about the past. That’s how people differ from markets. The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.

CHG: You provide a very real-world example of exactly how a big company should go about recovering from a reputational slip, and what impressed me about it was your recommendation of aggressive, pro-active engagement. Say more about that?

PF: Here’s how pro-active you ought to be. You start preparing for the next crisis five years before it happens. And you don’t need a crystal ball for this. If you’re a multi-national company of scale, it’s impossible to avoid reputational mishaps. Some day, somewhere, someone will—intentionally or by neglect—commit a reputation-compromising act in your name. The inevitability must be an integral part of your thinking. So, you have to have a culture in place well in advance that enables you to respond appropriately to events that never crossed your mind before they happened.

People call it crisis communications, but it’s much more than that. Communications, by itself, never fixed anything. People also call it crisis management. But the crisis has already occurred, so the opportunity to manage it is past. You could call it management of the aftermath, and the only way to manage the aftermath effectively is to participate in it.

Which means, to some degree, participating in the emotions of those you have harmed. Referring to a person in the CEO position, the corporation becomes the person, and vice versa. If, as an individual, you have empathy toward a family who’s lost a father or a mother, you have to show that same empathy as a corporation.

Beyond this, the best piece of advice available on the subject is to resist the temptation to let your lawyers protect you. They can’t. There’s a short list of companies that have come out of disasters with stronger reputations than they’d had before. In all cases, they did so because they were able to identify with those who were angry with them. Enlightened leadership means understanding there’s no Plan B.

CHG: Let me challenge you on one small item: you assert that the most important constituency is investors, though you also advocate systematically managing a wide variety of stakeholders. Isn’t investor turnover increasing radically these days? Does that diminish your point?

PF: The building of reputation can’t be about anything but what motivates management – and that has to do with investors’ willingness to value the shares at higher levels. Turnover? If someone’s selling, someone else is buying.

There’s no altruism in business, nor should there be. But the cold fact these days is that sustainable behavior means supporting legitimate social interests. You don’t have to like it, and you don’t have to take a “nice” pill to do it. It’s just business, but business has changed. Here’s where investors’ interests enter the social sphere: A company facing a social and regulatory headwind is likely to have higher capital costs and less-than-certain chances of strategy execution.

Investors don’t like that. It’s not the job of a corporation to address social interests—except where doing so is the only avenue to making business successful. And that’s already become the normal condition in most industries. I just read a wonderful quote by a Canadian union official named Stephen Hunt who, in a speech about social responsibility in mining, could have been referring to any industry when he said: “A mining company is only as good as its opposition.”

CHG: You’ve dealt with dozens, maybe hundreds, of CEOs. What has been the most common blind spot or weakness you have seen regarding good reputation management?

PF: It may be my sunny disposition, but I can’t remember at the moment meeting a business leader who wasn’t driven by earnest good intentions. Sure, I’ve known my share of indicted folks; but I liked them, too. There’s something about giving yourself over to a goal that’s not that different from love of family. It’s personally attractive.

I had the great good fortune to grow up in the Sovereign State of Indiana, and it wasn’t until I was in my thirties and working in a New York trading company that I came to realize that high intelligence in a person does not necessarily equate to noble intentions.

Because you are using the world to build wealth, the way you treat that world will follow you.

The most common blind spot (since you asked) is a lack of balance, which I guess can be closely associated with laser focus on a goal. Perhaps a better way to describe it is to call it a lack of context. Because you are using the world to build wealth, the way you treat that world will follow you. It wouldn’t hurt us to remember once in a while that American native populations held profound respect for the game they had to kill in order to live.

I once sat down to a dinner meeting between a CEO and equity analysts in an elegant New York hotel. The CEO was among the most prominent European industrial titans of the last half century (a client). His dozen or so guests were invited there to eat and ask him questions. He opened the conversation this way: “My father taught me,” he said, “that to make a living, you have to rub other people.”

He was assuring them of his accessibility. There was no imaginable reason for him to endure their earnest self-importance had he not wished to. He didn’t need them. But hosting them reflected his idea of how the world worked. There was no amount of esteem or money that could free you from the need to engage.

CHG: You have a fine sense of the historical about you. We’ve been through this kind of business reputation downturn before, certainly in the US. What’s different this time? What should we learn from the past?

PF: The past can be a deeply misleading subject because there isn’t much that hasn’t happened in it. If we’re talking about the past experienced by those of us who have come of age since World War II, in which America emerged triumphant in an otherwise devastated world, there’s a strong argument suggesting that’s the most unrepresentative of all the pasts available for our consideration.

One thing we’ve learned from the past is that the notion that things are different this time provides an assured road to ruin—as does a sense of invincibility and the belief that we’re smarter than those who have come before.

The reputation of business—as cyclical as anything else—will continue its descent until a new ideal appears to propel it upward again. Perhaps the last ideal that floated the reputation of business involved the building of the industrial world and the opening of the West. Dust from the explosion of that ideal is still settling around us. Perhaps the next upswing will come from the ideal of restoring the environment—in other words, from respect for the same earth the last ideal wrecked.

It is certain that we don’t get to decide these things for ourselves. In trying to come to terms with the cycles of sentiment, I have taken comfort in a phrase coined by New York Times Columnist David Brooks. The term is “epistemological modesty” and refers to the inescapable fact that, no matter how hard we try, we really don’t know very much. Everyone’s familiar George Santayana’s saying: "Those who cannot remember the past are condemned to repeat it." Not being much of a comedian, Santayana forgot his punch line: “So are those who can remember it.”

CHG: Let’s imagine this blogpost got forwarded to 50 CEOs. On the whole, on the average, what are the top 2-3 things CEOs need to hear?

PF: Sir or Madam CEO: I have nothing but good news for you. It is this: You have more control over the fate of your company, your reputation, and your career than you imagine.

Do you look at your critics—the trigger-happy media, activists with a bone to pick, investors and analysts who just don’t get it—and tell yourself that not one of these people has ever run a company for a day? So, how could any of them understand what you’re trying to accomplish?

In their lack of fairness lies your advantage. During the latter part of the 20th Century, when anti-tobacco activists tried everything they could think of to put cigarette makers out of business, their nearly constant companion was a Philip Morris public affairs executive named Steve Parrish. He spoke at their conferences and kept in close touch with the principals of organizations that opposed him.

While absorbing all their slings and arrows, he offered them a continuous flow of new information about the manufacture of smoking products, including the companies’ efforts to reduce their deadliness. He discussed regulation of the industry, which eventually came to pass. The result was that—whether we like it or not—tobacco companies survive as a highly-profitable business.

Parrish’s strategy was to increase his adversaries’ knowledge of the tobacco industry—a counterintuitive approach if there ever was one. The byproduct of this flow of information was that he continually moved the goal posts on them, preventing closure of the argument despite an extraordinarily hostile environment and an enormous consensus against him.

CEOs have at their disposal one of the modern world’s most powerful weapons: Information. Gifted corporate leaders will use it to engage adversaries, induce them to invest in dialogue to the point that it cannot reasonably be abandoned, and, by that route, achieve a workable consensus. If companies whose products kill you can do this, why can’t anyone?

CHG: How much difference can individuals make?

PF: Excluding natural disasters, change comes from nowhere but individuals. Historical forces, wars, financial trends, market bubbles and collapses, the discovery of penicillin, and the invention of cheap global digital communication as well as post-modernist art can all be summed up in single word: Behavior. Even mass behavior has to start with an individual—a notion that may lead us to one definition of leadership.

CHG: In your book, you carry on an extended discussion about how very good companies, at least for a period of time, seem to lose direction. Merck during its Vioxx episode is one example you explore. You also suggest a concept called “Structural Corruption.” What’s this about, and what insight can you offer about the mechanism by which some companies seem inexplicably to turn south?

PF: I use Merck as an example because it was a fantastic company for over a century and is a truly admirable one today. But Merck’s Vioxx interlude, during which it seemed to want to overturn the last 400 years of the scientific method by subordinating disclosure of pharmacological research to the desires of its marketing department, shows how even great companies can become confused when they allow commercial factors to cloud their judgment.

The scientific method says you base conclusions on observed fact. Merck hid harmful side effects of its drug in order to sell more of it. I maintain that the people inside the company would never have behaved this way in their private lives. Their judgment suffered from an insularity within the company that distorted their frame of reference. There was a kind of “echo effect” at work in which people gradually talked each other into highly inadvisable actions—and many inside and outside the company suffered.

I came up with the term “structural corruption” to describe an impossible situation in which managers sometimes find themselves when their industry’s fundamental business model goes illegal. This describes parts of the insurance industry a few years ago when Marsh & McLennan enrolled its competitors in a scheme to rig bids for big institutional contracts and pay out illegal commissions. You couldn’t compete unless you played the game.

So, imagine a manager who’s invested his or her life in building a career in that sector, and has done so by behaving ethically, and then has to contemplate giving it all up in order to maintain a hard-won reputation. Imagine a similar manager trying to win a contract in a foreign country in which he or she is competing against a company domiciled in a place where the government winks that the payment of bribes to win business.

The concept of “structural corruption” is useful in distinguishing the dynamic in which even managers with the highest standards of conduct can become victimized by secular ethical trends. The questions people face in such circumstances can be life-changing. One secular ethical trend lies behind the Great Recession that began in 2008 and whose end is not yet convincingly in sight. But that’s another story.

+++++

CHG: It’s been a real pleasure meeting and talking with you; anyone interested in buying Peter’s book, which I recommend can find it here: Crisis of Character: Building Corporate Reputation in the Age of Skepticism

This is number 4 in the Trust Quotes series.

The entire series can be found at: http://trustedadvisor.com/trustmatters.trustQuotes

Recent posts in this series include:
Trust Quotes #3: Dr. Eric Uslaner on the Nature of Trust
Trust Quotes #2: Robert Porter Lynch on Trust, Innovation and Performance
Trust Quotes #1: Ross Smith of Microsoft