Trust as Risk Mitigation Strategy

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Forget how you usually think of the word ‘trust.’ Think instead of ‘risk mitigation.’

“Risk mitigation” means reducing risk to an acceptable level. You’re familiar with it if you work in insurance, investment banking, natural resources, infrastructure, contracting, outsourcing, or deal internationally.

It usually comes packaged as high doses of things hard and practical: legal, financial, statistical. Here’s a typical example, this one from IASTA, a supply and spend management firm, lists seven strategies for risk mitigation. Seven ways, that is, to reduce the riskiness of your supply chain.

No surprise, it includes things like dual-sourcing, price hedging, performance-based contracts, and capacity assurance. Basically, ways to make sure your supplier does what you want them to do.

Risk Mitigation is Usually Based on Control

They are all based on the assumption that unless you control your supplier or the conditions surrounding the deal, you are at risk. And the solutions all involve controlling that risk: mainly controlling that supplier.

What’s surprising about that list—shocking, if you think about it–is the absence of trust. (I’m not picking on IASTA; it’s a good list for what it is—a list of controlling strategies). It generally beats the heck out of all the other seven.

What if you could trust your supplier? What if your supplier behaved toward you in a trustworthy manner? In general, your risk mitigation efforts will then cost a lot less, and will be more successful.

Agreement by legal negotiation, and enforcement by legal, process and accounting argumentation is costly. It causes bad blood. It reduces the felt moral obligation of each party to live up to an agreement. It causes delay. And it sure is expensive.

Risk Mitigation by Trust is Cheaper, and Creates Value

By contrast, trust creation costs less than lawyers and accountants. It can often be created more quickly. And it can be far more dependable.

More importantly: if a trustor-trustee relationship is developed, it doesn’t just cut risk mitigation costs, it positively creates whole new levels of value possibilities. Things you’d never do with an arms-length supplier suddenly become possible.

This is not crazy stuff. The truth is, it happens every day: we just don’t think of it as trust. Trust as risk mitigation happens whenever a customer and a supplier keep an informal rolling ‘tab’ of who owes whom. It happens when a client and a professional honor the spirit, rather than the letter, of an agreement. Warren Buffet did it on a grand scale when he bought McLane Distribution.

Simply put, trust is as hard-nosed a business strategy as any involving the usual suspects. There is no trust without risk: trust truly is at the heart of risk mitigation.

And it’s not that hard to do.

Trust-based Risk Mitigation Requires a Change in Belief

The main thing it requires is a belief in the massively predictable human phenomenon that people do as they are done unto. If one party behaves in a trustworthy manner, the other comes to trust. And if one party behaves in a trusting manner, the other party becomes trustworthy.

The predictability of that behavior is way better than any stock market algorithm. Yet it is astonishing how many businesses have been seduced into inherently untrusting relationships. At great cost to themselves, their supply chain, their customers, and even their shareholders.

It is far more profitable to depend on the rules of trust in human behavior, than to always rely on the rule of ‘do unto others before they do unto you.’ (Which, after all, produces an equally predictable negative counter-reaction). 

The amazing thing is that so many businesses, which claim they are focused on financial returns, continually miss this huge opportunity.  I think it’s because they are also bad at personal risk mitigation: the people who run those ‘hard-nosed’ businesses are personally fearful of constructively confronting other human beings, and of speaking the truth about themselves and others. 

People vastly overrate the risk of doing the wrong thing, while they underrate the risk of not doing the right thing.  In business, as in life.  Fear, to many, seems like the sensible attitude.  In reality, trust pays far higher returns.  In life, as in business.

Trust in the Online Dating World

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The realm of romance is a source of intriguing metaphors for trust. Do people really want reliability in a romantic partner? Or is a little unpredictability a good thing? Other than the obvious, what’s the difference between romantic relationships and business relationships?

And, today’s subject—how about truth-telling in the dating world? Do you want someone who tells it like it is? Or do you want them to pull their punches once in a while?

Truth in dating: is it a good thing?

Cut to the NY Times His 50 First Dates (or in her case, 3).

Looking For a Woman He Could Trust to Tell the Truth

Poor Ron James. He joined JDate the month he was divorced, and spent the next year and a half looking for Ms. Wonderful.  Along the way, he found the relationship of Online Dating and The Truth to be problematic. To begin with, a lot of people on JDate—explicitly aimed at Jewish singles, partly as a counter to intermarriage—weren’t Jewish at all. And of course, that was just the beginning.

Over that year and a half, he said, there were women he met who lied about their age, posted photos that were 10 years old, misrepresented their jobs and pretended to be more successful than they were. “A lot of the photos didn’t look like them,” he said. “I learned to watch out for sunglasses.”

Then he met Sheryl.

At Starbucks, Mr. James was struck by Ms. Daija’s looks. Her JDate photo was taken swimming, with no makeup.
“You look exactly like your picture,” he said.
“Is that a good or bad thing?” she asked.
“That’s a very good thing,” Mr. James said. The hour flew.

Cue the violins. They married this past January.

Is Trust in Romance a Good Thing?

I was once told by a Match.com date that I was the only 5’11” man she’d met who actually turned out to be 5’11”.  That was also a good thing.  But I met many women who lied about their age, and justified it because–"otherwise, they’d screen me out."  (Which I had kinda thought was the point of having screens.  And yes, I know, we men are pigs, etc.  And yes, we lie too.)

Is the truth generally a good thing? Do we want trust in romance? Or not?

As usual, the answer is, it depends. And the real question is—on what?

Think about these trust statements:

  • I trust that my partner will be faithful—and if not, I don’t want to know about it
  • I want my partner to tell me the truth–unless it’s hurtful
  • I want to depend on my partner—but not so much as to be boring
  • I want my partner to care about me—but not to be dependent on me.

Romantic relationships are one area where we demand both truth-telling of the most intimate nature—but also the ability to hold our tongue, keep a bit of a secret, to once in a while play the Jack Nicholson role (channeling “you can’t handle the truth!”).  In the trust quotient, it’s the low self-orientation factor.

That’s what Ron James seems to have concluded:

“Every day when I leave for work, she says, ‘Drive safely,’ ” Mr. James said. “It warms my heart.”
“Does it really?” Ms. Daija asked.
“That anyone cares,” Mr. James said.

It’s generally not a good thing to subordinate the truth to other values. But caring? Well, that may be the exception that proves the rule.
 

Trust Lessons from Independence Day in Small Town USA, 2009

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In Ludington, Michigan, on July 3 at 9:30PM, it was still light outdoors (Ludington is at the far western end of the Eastern Standard Time Zone).  So it was easy to see the ten blocks of Ludington Avenue, ending at Lake Michigan, where the next day’s parade would be held. 

Two things stood out.  One was that the street had been planted with edgings of red, white and blue petunias, especially for the fourth.

The other was that virtually the length of the parade route, at 9:30PM, was already blanketed (literally, with blankets) and personal lawn chairs (some of them rather expensive) by way of reserving those particular spots for the 1PM parade beginning on the 4th.  

No one had any doubt that every one of those chairs would be there the next day.  No locks, police patrols or citizen brigades needed, thank you very much.

Nor would that be surprising to Ludington’s citizens.  By a (very) unscientific poll, well over 50% of Ludington households don’t lock their house doors at night.  Of course, Ludington is only 20% the size of the Big City of Muskegon, 50 miles away.  But I suspect it’s not all that different in Muskegon. 

The July 4th parade in small towns in America’s Midwest is a distinctive event.  Having been to parades in my youth in towns like Seward, Nebraska and Pompey, New York, I can personally relate, despite having been citified for a few decades since.

The Fourth happens at a glorious time in the calendar, when summer is just hitting full stride.  It is unabashedly patriotic, small-d-democratic, self-congratulatory, and wildly upbeat.  Half the town marches in the parade (fire trucks, beauty queens, conservation groups, HVAC companies, mayors, school bands, veterans and—in Ludington’s case—the Scotville Clown Band, since 1903), and the other half applauds enthusiastically.  All generations are represented, all consuming copious quantities of ice cream and pop (‘soda’ to you ‘coasters). OK maybe a few beers too.  And it’s curious that the celebration of independence is such a community, collaborative affair.

You can get all fancy with trust—and I do, the rest of the year—but it bears noting that there is one simple, in your face, no-BS version of trust in towns like this. 

You can leave your car and house doors unlocked.  ‘Nuff said.

You just don’t do that in South Orange, New Jersey; which is a small town, by the way.  Nor do you do it in most cities I know of.  Fuggedaboutit. 

For those (including me) who live in lock-the-door areas, it has a faint whiff of the naïve about it.  But not to those who live in no-lock towns.  It’s real.  I know, because I remember what it was like, and I got reminded of it again this 4th.

To be fair, there are some social reasons for this.  No-lock towns usually rank very low in diversity, which means everyone feels like they understand everyone else, and they pretty much do — people most easily trust those whom they most resemble.  In small towns, the degrees of separation are very small.  And I suspect (though without data) that the population is fairly stable.  This all makes it pretty easy to trust, to preach trustworthiness, and to enforce both.

I personally resent Governor Palin and others attempting to politically hijack small town values for their own divisive purposes.  I equally resent big city people who look down on small town folk as unsophisticated; they are sadly misinformed. 

But all that’s talk for another time.  On the Fourth of July, in a small midwestern town in the US of A, the glory of what it is like to live in a trusting, interconnected community is on full display.

And along with the sunburn and too many hot dogs, it makes you feel real good.   
 
 

The Real Meaning of L’Affaire Madoff

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It is tempting to dwell on the horror of Bernard Madoff. (Thanks to Robert Scheer for teeing up this issue).  How could he have done it?  What kind of a man does that?  Is 150 years in prison enough?  And so on.

Tempting—but largely wrong. If we lay all the blame at the feet of one aberrant individual, then we avoid taking a hard look at broader issues of institutional trust. 

Remember: Madoff was once the Chairman of NASDAQ and served on SEC advisory committees—he was the ultimate insider.  So it’s relevant to ask: if Madoff was such Evil Incarnate, what does that say about the sea he swam in?

Is Madoff a Bad Apple?  Or From a Rotten Barrel?

Recently the former CEO of the National Association of Personal Financial Planners was sued by the SEC for participating in a kickback scheme.   The current president missed a great opportunity to condemn or announce new initiatives; instead, she sadly bemoaned the negative impression this might cause of the character of others in the profession. 

The bad apple argument begs the question: just who elected the Bad Apples head of the barrel?

One single piece of data convinced me that Madoff was not evil incarnate, but a cheap two-bit hustler who hit it big.  It was his taped conversation with Fairfield Greenwich feeder fund starting with, ‘First, this conversation never happened, OK?”

What industry elects a man like that to positions of high influence? 

Some say financial excesses were caused by misaligned incentives.  But an industry doesn’t become trustworthy by un-tweaking incentives.  Remember Chris Rock’s statement of marital fidelity: “A man is as faithful as his options.”  There’s truth to that, but let’s not confuse it with ethics or trust.

The whole point of being trustworthy is that you have just enough moral backbone to resist temptation.  We expect dogs to eat the roast if left on the counter; fixing the Madoff issue by aligning incentives is the equivalent of moving the roast to the back of the counter.  It may save the roast this time, but the dog gets the message—we are now playing a game of “who gets the meat,” no longer a game of “don’t eat the meat.” 

Which is precisely the problem with too much of the financial sector—the proposed options too often suborn more untrustworthy behavior by focusing only on consequences.    

How Not to Fix the Barrel

The real drivers of trust have got to be the personal beliefs about one’s relationship to others.  Are you in it for them, or are you only in it for yourself?  Are you an individual existing in a state of nature with no obligations beyond self-aggrandizement?  Or do you feel some connection and obligation to others, to society?

If you believe others exist mainly for you to make money from them, then you will find ways to exploit them, within (or slightly outside of) the law.  You will devise short-term transactional behaviors to lower the risk of exposure to others, and to help you do unto others before they do unto you.  You will seek to hide, and to prevaricate. 

You will, in short, violate the (four) basic principles of trustworthiness.

But if you believe you and your business and your industry exist to serve customers, and that you too will benefit in the longer run by doing so, then you’ll behave differently.  You’ll understand the word ‘fiduciary’ is critical to trust. You’ll understand the connection between being trusted and being financially rewarded.  You’ll have nothing to hide because you’ll have no reason to hide.  You’ll welcome long-term relationships, because that’s what it’s all about.

And you’ll never begin a sentence saying, ‘First, this conversation never happened.’

How To Fix the Barrel, and Apples as a byproduct.

I have said before that mass, public shaming is a more effective antidote to low trust than most other solutions being bandied about.

Erecting more airport security measures, more Sarboxes, more Chinese walls, and aligning incentives are all ham-handed, expensive ways to reduce exposure to bad people.  They do nothing to exert social leverage to reduce badness itself.

Social virtues are built by societies.  If we limit our social solutions to imprisonment and walled communities, we’re using our social capital to create criminals.

Principled enforcement—surprise audits and large penalties–is one way society teaches virtues: the IRS uses it very effectively.

Public shaming has a great history too: the muckrakers and activists have achieved great things—think Sinclair Lewis, Gandhi, ML King, the kid in front of the tank in Tiananmen Square, and investigative journalism. All have called on our innate sense of goodness to cause change.

Trustworthiness worthy of the name is an internally felt response to an externally-taught relationship. Don’t cheapen it by just moving the cheese.
 
 
 

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

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

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

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

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

Putting Trust into a Workable Context

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

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

Building a Trustworthy Business

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

I suggest they can be boiled down to four.

The Four Trust Principles

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

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

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

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

Executing on the Trust Principles

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

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

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

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

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

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

Trust and Pornography: The Supreme Court’s Lesson for Business

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In 1964, US Supreme Court Justice Potter Stewart famously opined in an obscenity case that it was exceeding difficult to define obscenity, “but I know it when I see it.”

It wasn’t a casual comment, but a carefully reasoned statement, which did and still does make a lot of sense.  Certain things—like obscenity—vary considerably across time, locale, and situation.  And another such thing is trust.

Trust Doesn’t Mean Much Without Context

I can’t think of another concept which carries with it such a wide range of meanings.  In context, we nearly always understand the concept being referred to—but the reference varies situationally.  Just consider:

– I trust my dog with my life—but not with my ham sandwich.
– I trust a stranger to sell me a book on Amazon—but that doesn’t mean I’ll introduce my daughter to him.

But business these days doesn’t like subjectivity.  The business community has come to insist on things like best practices, diagnostics, rankings and ratings, and—above all—behavioral indicators that can be metricized.  Because we all want to know how we’re doing, where we’re going, who’s doing best at it, and just how you know if you’re doing it right.  You can’t manage it, after all, if you can’t measure it. 

The business community has gotten hooked on the corporate equivalent of self-help manuals.  You know what’s next.  Ten Easy Steps to being a Highly Trustworthy Company.  Sign up for your Corporate Trust Ratings.  Become a Certified High Trust Company.  You get the picture.

Who Are the Most Trusted Companies?  It Depends

Beneath this rush is almost always the notion that One Size Fits All when it comes to trustworthiness at the corporate level.  Trustworthiness is a "thing."  Someone has the key to it, and others don’t.  For the philosophers out there, the operant belief is that there are Platonic Forms for things like Trustworthiness, Engagement, and Leadership. 

But in these matters, Potter Stewart was more right than Plato.  The bigger truth is–it depends.  It’s not that the emperor has no clothes–it’s that he has more than one wardrobe.

Who is more trustworthy: Apple Computer or Amazon?  Fidelity Investments or American Express?  Singapore Air or Dell Computer?  These are not sensible questions, I suggest, taken out of context.

It depends–on whether you’re talking to customers or to employees.  On whether you’re talking about reliability or other-orientation.  About transparency or collaboration.  About last year or about this year.  About a major transaction or about a corner-store impulse purchase.  About your car or about your oncologist. 

One attribute commonly associated with trust is transparency—but that’s not Trust Virtue One if you’re the CIA.  Teamwork may be a trust virtue for the US Army—but not for a law firm of litigators. 

At a personal level, you can make some generalizations about trustworthiness: I’ve done so myself in my Trust Quotient self-assessment survey.  But even there, I caution against reading the raw results without the context.

At a corporate level, trying to define the most ‘trusted company’ with a one-size-fits-all set of metrics is a fool’s errand.   That doesn’t mean it isn’t a useful, valid, and meaningful exercise. It just has to be done situationally, in context.

Like obscenity, we regular plain old human beings have no trouble recognizing trust when we see it.  We don’t need a scalable model to understand it.  Attempts to force-fit trust into behavioral indicators that can be rank-ordered, weighted and incentivized are akin to the US movie ratings system.  The ratings tells you more about the rater than the thing being rated.

The Supreme Court already figured this one out and wisely gave up the force-fit approach.  At higher levels, such as trust, life overflows the petty boundaries we try to impose on it in the vain belief we can “manage” it.  Like a giant wave, we’re far better off surfing it than trying to control it.
 

Trustworthiness? Or the Appearance of Trustworthiness?

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I received an email from my friend (and ex-colleague) Martin, who retired to the Caribbean more than ten years ago.  He makes a point I agree with in language more accessible to him than to me (British, that is).  Since he’s brilliant (by which of course I mean he agrees with me), I thought I’d let readers hear another voice.  

Charlie, we’ve emailed a number of times about words like trust (which you pretty much own), trusting (i.e. when a buyer is trusting of the seller), trustworthy (i.e. what a buyer hopes the seller is).  As I read the commentary on Obama’s plan to improve the regulation of the financial services sector I am getting somewhat depressed. Not, I hasten to add, because I do not think Obama’s heart is in the right place.

My concern is that his regulatory approach doesn’t mandate nor does it seek to combat untrustworthiness. Too often this ‘Nation of Laws’ falls back to the common defense that ‘nothing I did was illegal’ even if it broke all sorts of ethical boundaries with the nadir being reached with the apocryphal words ‘it depends on what the meaning of is, is’.

I am reminded (and this was more years ago than I care to remember) of my initial exposure to the English Legal System in the 17th and 18th centuries where, because of the rigidity of the ‘common law’ (i.e. I didn’t do anything illegal), a Court of Chancery grew up where by the Chancellor could grant some type of relief ‘in equity’ which was essentially "a manifestation of the ideas of justice entertained by individual chancellors."

While one could argue that the plaintiffs attorney business is a sort of surrogate for relief against the ‘nothing I did was illegal’ defense, I wonder if the US needs something similar to the Court of Chancery where there is some body where a person aggrieved by financial creativity could ask the question, "OK, I know what they did to me was technically legal, but was it ‘right’?"

I fear that unless the Obama approach to regulation adopts this sort of philosophy I feel sure that the brilliant students coming our of Law Schools and Business Schools will continue to act in an untrustworthy manner by finding ways of disadvantaging the unsuspecting and trusting buyer.

I know many of your clients are in the financial services industry. Is their aim to BE trustworthy or to appear to be trustworthy?

Best,
Martin

Martin, I could not agree with you more.

As a (lawyer) friend of mine points out, there is no concept of “truth” in the law as it exists in the US today – there is only evidence.  For the MBAs’ part, they (OK, we) replaced relationships with outsourced business processes, and management with metrics, effectively removing any sense of “ethics” by depersonalizing the behavior of human beings.  (Maybe it began when we started calling people ‘human capital.’ Note which is the adjective).  

The combination has been devastating, as you point out.   Look at any corporate org chart where you see “ethics,” and the next two words are “and compliance” – as if they were the same thing.  As you point out, they are–or ought to be–very different concepts.   

And while I too think Obama’s heart is in the right place, this effort was all too predictable.  He is doing precisely what America’s “best and brightest” are taught to do as “best practices,” namely create mechanical solutions to issues of human behavior.  Alter the incentives, redesign the institutions, create more Chinese walls, and–especially–more procedures to comply with.

Commonsense suggests that if you treat ethical violations with procedural solutions, you negate the very conscience that made us call it unethical in the first place.  Do that long enough, and the word "ethical" will become listed as "archaic" in the dictionary.

If you prefer the language of academics and empirical proof to commonsense, try this from Roderick Kramer of Stanford:

Gatekeeping measures may actually have contributed to declines in public trust in business.  These studies have found that “innocent employees” who are subjected to additional compulsory oversight measures often “become less committed to internal standards of honesty and integrity in the workplace.”

To flip Ronald Reagan’s words, the act of constantly verifying destroys trust.  Excessive compliance measures ruin ethics.  Big Brother is death on the human conscience.  The trouble with regulatory answers to misconduct is that they foster more cynicism, more degradation of the real issue into mere gotcha contests.  They trivialize issues that are, or should be, ethical at heart.  As you said.

Martin, I honestly believe that the best answer to the decline in trustworthiness lies not primarily in shifting incentives, or in classical regulation.  It lies in mass shaming of the untrustworthy by the consuming public.

The act of mass shaming galvanizes the public’s conscience.  Whether or not any particular Madoff then “gets it” or not is beside the point: a community itself needs to articulate, for itself, that there are standards that lie well above and beyond the common law of “I did nothing wrong.”  The best Chancery court may be the blunt instrument of public opinion.

Your concluding question should be read by every financial services senior exec, and passed out in the form of a quiz to the general employee base of his or her firm, in the following form:

“Your CXO has said that the aim of your company is not just to appear trustworthy, but to be trustworthy.  Do you believe he means it?” 

Now that’s a scary question.
 

Why Trust is Asymmetrical, and What that Means for Trust Strategies

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Much of the talk about trust is just that – talk about “trust.” We forget that trust is a word for a relationship between two parties, each doing different things. Further, it’s an unequal relationship.

What we call “trust” results from one person (or entity) trusting another. One party trusts; the other is trusted. The result is what is properly called trust.

Unlike other relationship words (like ‘love’) the quality of trust is asymmetrical. To trust is very much not the same thing as to be trusted.  Just ask a traveler in a new foreign country.  Or a Madoff client.

The asymmetry is all about risk—the one taking the risk in a trust relationship is the trustor, the one doing the trusting—not the one being trusted. 

When we describe degrees of trusting, we use precisely that word: ‘He is very trusting.’  While an adjective, ‘trusting’ derives from a verb—it tends to describe a behavior, the act of trusting.

When we describe degrees of being trusted, we use a different word: ‘She is trustworthy.’  ‘Trustworthy’ is also an adjective, but it tends to describe character, an attribute one possesses.

If we’re going to be precise in talking about trust in a useful way—whether it’s personal trust, business trust, or social trust—we need to clear about the risk-asymmetry between the two parties to trust. Absent that simple clarity—who’s doing the trusting, who’s being trusted, and in what realm—there’s not much that can be usefully said.

Here are some examples.

Trusting Strategies.

Trusting someone is very useful—if your trust is justified. Things happen faster, better, with higher quality and lower cost.  Life is richer.  Of course, if your trust isn’t justified, you get burned. Reasonable risk assessment, then, is a valuable skill in trusting.

But trusting cannot obliterate risk, and risk management alone has its limits. To trust only those we have vetted as trustworthy is to make a mockery of trust. Ronald Reagan’s statement “trust but verify” was cynically manipulative. If you can verify, you don’t need trust–you just need an auditor.

Trustworthiness Strategies.

Being trusted by others is at least equally useful, and of course the combination is best of all.  How can one become more trusted—by customers, employees, friends? There are two basic strategies: the first is to trust the other party, the second is to become more trustworthy.

Oddly, the most powerful strategy for driving increased trustworthiness in others may be the act of trusting them in the first place.   Marlon Brando’s Godfather character knew this: so do successful networkers.  Like homeopathic medicines, a little trust given can innoculate against large doses of untrustworthy behavior by others. This is due to the deeply embedded human propensity to reciprocate–good for good, bad for bad. 

Being trustworthy toward others drives their propensity to trust you—and it’s a less risky strategy than trusting them, since most risk is borne by the trusting party.  The effect of trustworthiness on trusting doesn’t rely on reciprocity—it is a unilateral action by the trustee that alters the  risk perceived by the trustor.

Remember the asymmetry of trust is all about risk: it comes in many forms, such as asymmetry of information, or of power.  Many trust issues present as issues of the asymmetry of power: think asset managers trusting rating services, or consumers trusting credit card issuers.  It’s what’s behind jokes like, "I’m from the IRS and I’m here to help you." 

There are several ways to manage risk so that the asymmetry is acceptable to both parties. One is simply transparency: the exchange of information.

At a personal level, the decision to reveal information that would put you at a “disadvantage” in a competitive situation is an act of trust. If your client is 58, you are 32, and your client asks your age, do you say, “I’m in my mid-30s?” Or do you say, “I’m 32.” The latter is an act of trusting; it usually makes you seem more trustworthy, and of course it carries some risk.

At a business level, when companies fight greater transparency (presumably to prevent competitive advantage), they are simultaneously destroying the inclination of their stakeholders to trust them, because to withhold information for self-oriented reasons is intrinsically untrustworthy. Too many industries and companies simply do not get this, hence they invite far stronger regulation than need be the case.

I have elsewhere written about the Four Trust Principles: they apply to people and to organizations, and are largely about enhanced trustworthiness.
Personal and business approaches to trustworthiness overlap in the arena of leadership. The general who personally leads his cavalry troops into battle shows that he will take risks on their behalf; the troops’ powerful response is to trust him in return.  Trusting given yields trust returned.

Explored carefully, this simple framework tells us how to better navigate the worlds of romance, business, friendship, business regulation and socio-governmental institutions.

Increasing trust starts with asking: who does the trusting, and who is to be trusted?  Where’s the risk, and how can we manage the asymmetry?

The Trust Week in Review

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Introducing The Week in Trust: a weekly look at the world through trust-related eyes.

Part news-roundup, part mind-stretching and whimsical, part commentary that didn’t have enough zip to make it into the blog, but which needs saying.

Big Story Department.  

Regulation has got to be the story this week.   Regulation, at least to my schizophrenic view of things, represents the failure of capitalism to regulate itself.  I believe that business is a higher calling, and that it ought to be capable of long-term self-interested thinking.  But you couldn’t prove that by recent history.

According to the Wall Street Journal, Wednesday’s announcement represented “the most sweeping reorganization of financial-market supervision since the 1930s.”

Bruce Carton’s most excellent Securities Docket explains in not-that-complicated language why the WSJ is not being hyperbolic.  Credit cards, exotic derivatives, small banks, private equity, hedge funds, insurance—not to mention more energy behind enforcement.  It’s all coming down the pike.

And it’s not just the finance sector.  Let’s not forget (hey it was way back at the beginning of the week) that the US Food and Drug Administration (FDA to those who can read alphabet soup) will be regulating tobacco.  That was a long time in the making, and a milestone of sorts.

Why such a sudden glut of regulation?  On some level sure, it’s the Democrats. But Democrats can’t just regulate for the heck of it, and not all of them want to anyway.

I contend it is, as I stated above, a failure of self-regulation.  Whether it’s mortgage brokers or CFPs or regional airlines or credit card companies, what precedes regulation is a mountain of self-justifying rhetoric, aimed at short-term benefit of market players against consumers: ironically, thus harming the industry long term.

But enough about regulation, it’s Friday.  Let’s raise our sights.

Who Knew Department. 

What do you do if you’re a government with an endemic social dishonesty problem?  If you’re Indonesia, you open up 7500 ‘honesty cafes,’or food stores where the responsibility of paying the right amount is left to the customer.    I don’t know of any larger-scale attempt at testing the old saw that ‘the fastest way to make a man trust you is to trust him.’  Early returns are it’s working great in schools; in government offices, not quite so much.  

Hey, it’s the principle behind vaccines—expose them to a little bit of trusting, and they’re inoculated against being untrustworthy.  Nothing new to readers of this blog.  But way more fun.

Do guns kill people, or – does lack of trust kill them?  One of those academic studies that makes you scratch your head a bit; you know there’s some truth there even if it’s cleverly hidden behind the English language.

Trust Angles Department.

It’s one thing when a bucketshop broker or a used car dealer gets accused of being untrustworthy—right or wrong, that’s the price of being stigmatized as low-trust. Ho hum.

But what if you’re known for high trust and you get accused?  Ouch.  Big Ouch.  For example, the Canadian Conference Board. Ouch, I say.

What’s it mean to trust your babysitter?  Find out.

You may think trust is down, down, down.  After all, that’s the drumbeat du jour.  But how many of you are happily using cloud computing?  What an act of trust that is.  And sometimes, maybe it lets you down.  But–have you stopped using it?  And what does that say about your level of trust.

Your Opinion Department.

PGA pro Vijay Singh is still wearing his sponsor’s golf hat.  His sponsor, interestingly, is mini-Madoff  Stanford Financial.   Hate it when that happens. 

Is he being loyal?  Or stupid?  You be the judge.  

Please give me some feedback: should The Trust Week in Review be a regular Friday feature of TrustMatters?  Enquiring minds (ours) want to know.
 

Everything I Needed to Know About Sales I Learned From my Father

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I grew up in New Jersey, The Garden State. At least that’s what it said on our license plates. My dad was a salesman, selling fertilizer and other products to mom and pop farmers in the 60’s and early 70’s. I went with him on sales calls, spending the day riding around the state with him, and watching him work.

He wasn’t like the other salesmen. He didn’t like pushing people. In fact he truly cared about them. Here was a typical sales visit to a farmer:

Farmer (either spouse): “Morris – come on in.” They liked Dad (still do).

Dad: (After sitting with the first cup of coffee, which he didn’t like but drank anyway because he didn’t want to hurt anyone’s feelings). “How’s your family?”

Farmer: “The kids don’t want to do anything…[complain, complain, brag brag for 10-20 minutes].

Dad: “How’s Rosie” [Names the farmer’s wife if she’s not there, otherwise asks her directly].

Farmer: “The best” [complain, complain, brag, brag for 10-20 minutes]

Dad: “How’s things going on the farm?

Farmer: [Complain only for 20-30 minutes].

Dad: “Do you need anything?”

Farmer: “I need…” [places an order].

The farmers knew why Dad came – he never had to say. Often they told him that they liked buying from him, not because his product was better, but because he took the time to listen to them. They trusted him. He kept his word. When there was a problem, and there always was, he dealt with it.

Yep. I learned a lot about selling watching my Dad with farmers. He was caring, a listener, credible, reliable, and he rarely talked about himself unless asked. Totally trustworthy. Still is.