Failing Trust Has Led to Failing Markets

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Trust has taken a leap to the foreground given the implosion of financial markets. And rightly so.

Irish economist and market researcher Gerard O’Neill writes:

"…the essence of the present financial crisis is a collapse in trust: including trust between banks and other banks; between banks and their customers; and indeed between banks and governments."

O’Neill cites a BBC program that asks the question, “Is trust evaporating in contemporary society? Does more monitoring of people and politicians increase trust, or encourage paranoia?”

Robert Reich, former US Labor Secretary turned academic, has also been waxing eloquent on the subject, on TV Talk Shows and on the radio:

…why are the free marketeers in the Bush Administration rushing to Wall Street’s aid? The answer goes deeper than the subprime mess. The Street has suffered a serious decline in trust…Yet trust is its most important asset. Financial markets trade in promises — that assets have a certain value, that numbers on a balance sheet are accurate, that a loan carries a limited risk. If investors stop trusting those promises, Wall Street can’t function.

…It worked great as long as everyone kept trusting and the market kept roaring. But all it took was a few broken promises for the whole system to break down.

There are two debates going on now. One is political, built on pent up resentment and schadenfreude—the Main Street vs. Wall Street argument. The other is ideological—free markets vs. regulation. Both are somewhat bogus, but I’ll stick to the second.

Pure free markets exist only in economists’ imaginations—thank god. Competition is inherently instable. The goal of every competitor is not to maintain a state of competiton, but to obliterate that state—often by colluding, sometimes by winning. Imagine a football game without referees. Every functioning market needs some regulation to avoid imploding into a black hole of monopoly.

But neither is “more” regulation the right answer. Regulation by bureaucrats, cronies, incompetents or the venal is not much better than anarchy.

“Who” and “how” are critical regulatory questions. And there are some basic principles. You’d think they’d be obvious, but they are frighteningly easy to lose track of.

One is transparency. Nothing cuts out envy, suspicion, and temptation better than sunlight. Yet the SEC and Congress allowed an entire set of financial products and markets to be invented—out of sight. Opponents of mark-to-market accounting—please explain to me how politicians can make valuations more transparent than accountants plus a market can do?

Another is time. The more fragmented and transactional the business model, the more is needed some timeframe over which society can see relationships and consequences between those transactions. If the industry manages itself solely through zero-sum one-off deals, then regulators must provide that longer-than-a-nanosecond view.

A third is the connection of the parts to the whole. The mortgage industry is a perfect example: it used to be that mortgage agents, lenders, home-owners and mortgage-holders interests’ were all aligned. A year ago I wrote about a 1995 economists’ view of the industry as it looked then, vs. the disaster-in-the-making it had become. The difference was all disconnected parts with no one minding the holistic store—no one in industry, no one in regulation.

I usually write about personal trust; that’s the “pure” version of the stuff. But make no mistake, trust is critical socially. Some industries can self-regulate, based on the three principles above. Though just now, offhand, I can’t think of any examples.

 

Carnival of Trust for October 2008

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 Welcome to the October, 2008 edition of the Carnival of Trust. As usual, we’ve combed the farthest reaches of the blogosphere to find the Top Ten posts of the past month related to trust across the broad categories of Sales and Marketing, Strategy, Economics and Politics, Advising and Influencing, and Leadership and Management.

Congratulations to all the selected posts, which were excellent. If your submission didn’t get picked this time, please don’t despair; submit again next month. And enjoy the reading.

 

Social, Schmocial Media

Ford Harding writes about the dialogue between himself and Alan Weiss about social media. Weiss had written that based on his experience with 140 LinkedIn names, “This is a mild diversion with limited utility for serious entrepreneurs and consultants in a world where time is a non-renewable resource. Worse, it has created a cultish behavior among many of its adherents who see the leaf and not the tree or the forest.”

Ford, as he puts it, is still inclined to believe there must be a pony here somewhere.

For my part, I’m the guest host this month at the Sales Sandbox for the Customer Collective, and I’m learning a lot. Which makes me the least curmudgeonly of this trio for once.

 Common Sense is Uncommon

In Overcoming the trust barrier of your prospective customers, Richard Parkes Cordock lays some uncommonly good common sense on us, courtesy of David Ogilvy’s classic “Ogilvy on Advertising” (1983, and still ranking number 7,000 on Amazon).

What wisdom does Ogilvy impart? According to Cordock, it’s the core idea that you sell better by doing than by telling (a concept near and dear to me), and that therefore your best salespeople are other employees.

A refreshing tonic of solid, sober thinking about the right way to sell.


Whom Do You Trust?

Have you heard of Hungry Girl? AKA Lisa Lillien, she is not a nutritional expert, but an average woman trying to eat what she likes and still fit into her jeans. Right there she has a huge market. A former production executive, she now employs 13 and her endorsement is sought.

In Would You Trust a Hungry Girl, author Drea Knufken hints that it’s the combination of girl-next-door with enough earnestness at her attempts to get food recommendations right that make us trust her.

 There’s Something Happening Here and You Don’t Know What it Is…

Notwithstanding Alan Weiss’s bad experience with LinkedIn, and for all the Mr. Joneses amongst us, Chris Wright appears in the Bob Dylan role to tell us about Influence & Authority in a Web 2.0 World.

He cites several studies, most particularly a heavily researched piece by Universal McCann called When Did We Start Trusting Strangers?

As I read this, I started realizing how much indeed I have come to be influenced by strangers online. I resemble that remark. And I bet you do too.


Two Parts Regulation, One Part Trust: Shake, then Stir

Simon Djankov writes in Regulation and Trust: Substitutes that trust and regulation may be not only inversely related, but bi-directionally causal.

Which means, if you’ve got a low-trust society, that will cause demand for regulation. Fair enough. But it also means that if you have a highly regulated society, it’s likely to be low-trust. Ouch.

If right, this means two vicious circles: one starts with low trust, which leads to regulation, which leads to lower trust. The other starts with regulation, which lowers trust, which leads to more regulation.

Is he right? The times would certainly seem to suggest so.


Lying Politicians

Is it actually impossible for a politician to be trusted? You could make a case that the nature of politics—successive needs to find a consensus opinion—means that someone with consistent principles simply cannot achieve enough consensus to be effective.

But even if that’s the case, how far do we tolerate truth-stretching, I mean lying? In The Politics of Lying, by PR Watch, the author makes the case that the lies are more omnipresent lately. The role of the press is supposedly to be even-handed; but what do you do if one side lies qualitatively more than the other? Do you serve even-handedness, or the truth?

This is partisan stuff, but a discerning reader can parse the trust issues from the particulars. And provocative issues they are.

 What To Do When You’re Losing Trust in Someone

Suppose someone disses you. Or gossips in front of you. Or otherwise causes your trust in them to begin to erode.

What should you do?

Pete Wilson, in Is Your Trust-Meter Broken, has the answer. And in my humble opinion, his answer is as right as it is counter-intuitive. A lot on both counts.

But don’t let me ruin it for you; click here to find out his answer. And let us know if you agree!


Beware of Greeks Bearing Gifts

You’ve probably heard of the Grameen Bank and microfinance. Basically, tiny loans given to poor people in countries like India have resulted in great economic development and—interestingly—very low default rates. People tend to perform to what is expected of them.

But it’s not working in Argentina. Natasa Kovacevic at Harvard International Review explains why in Risky Business: Microcredit in Argentina.

Why?

“Besides raising awareness, building trust appears to be the single most important task for microcredit institutions in Argentina. And trust is difficult to secure in a country disillusioned by false promises and bombastic but fruitless speeches from pompous bureaucrats.”

If you’re used to being conned, you won’t trust. A simple concept, played out on a global stage, with such high stakes.

The Meaning of Leadership, Leading with Meaning, Meaning Leaders…

I tend to glaze over and get sleepy on hearing certain words. “Meaning” and “leadership” are two such words. About the only two writers I look forward to hearing from on those topics are Viktor Frankl and R. Crumb.

Well, make it three, now that I’ve read Brad Kolar’s piece Leadership and Meaning .

Kolar makes a simple and clear case for the idea that the provision of meaning ought to be a central role of leaders. He then goes on to say:

“I’ve found four obstacles to creating a culture that strives to achieve meaning: time, risk, understanding, and trust.”

Not only that, but he’s got five very unusual, practical and do-able steps to create a culture of meaning, e.g. “get beyond facts,” “make a five line drawing of yourself,” and read Viktor Frankl.

(I wonder if he’d consider adding R. Crumb to the list.)


Human Capital? Or Humanoid Capital?

Jon Strande tells of a friend whose employer requires them to punch in phone codes to time-track when they go for bathroom breaks (among other things). In Work is Personal… Trust Matters , Jon teases the logic out of the situation:

When companies start looking at ways to micro-manage the activities of their employees my guess is that there is a bigger problem here that is not being addressed: Put simply..

1) you don’t care about them as people…

2) you’ve not given them a reason to care about the company or the consumer

Sounds like he’s got it dead right. Micro-measurement for micro-management turns into a trust issue: it uses human beings for corporate ends, rather than the reverse.

 Thanks for reading, and thanks to all our contributors and authors. I hope you enjoyed this edition of the Carnival.

Please nominate a post for next month.

Why Testimonials Are Over – Rated in Sales

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How would you like to have Stephen R. Covey write a glowing book-jacket quote about you and your business?

What a great testimonial, right? Covey’s book The 7 Habits of Highly Successful People has sold 5 million copies since it’s copyright date of 1989. It is still—still—ranked number #85 on Amazon’s total rankings (including Harry Potter, etc.), and #1 in several sub-categories.

So a referral from Covey ought to be worth a ton. And by extension, references in general ought to be valuable, right?

Well, yes and no. And as usual, the no is more instructive than the yes.

Take the case of a new sales book: Sales Blazers, by Mark Cook. Right there on the cover, it says, “Sales Blazers is one of the most important books you will ever read.” –from the foreword by Stephen R. Covey.

"One of the most important books you’ll ever read. " That’s what Covey says, to you and to me, right there on the cover.

Now I don’t know about you—your reactions could be different than mine, to be sure—but for me, when someone tells me, flat-out, in a mass media outlet, that he knows what I will believe to be the “most important” anything in the world—watch out. That’s a red flag. I am already suspicious.

Now I’m thinking, ‘how dare you claim to know what’s important to me—much less “most important?”’ This is like TV ads that address me in the second-person singular as “America.” (“America, we know you love sports. That’s why we created pocket couch potato…”)

Lesson one about testimonials: all the testifier’s fame is put at risk if the testifier claims knowledge he doesn’t have—in this case, knowledge about me.

So now I’m predisposed to be suspicious when I check out the book. I note in the foreword that the author used to work for Covey’s son, at Covey’s company in Salt Lake City. Self-interest rears its ugly head like Putin flying over Alaska. Is this going to be an objective review? Cui bono?

I check out the (three) online reviews on Amazon. The first two are by people living in Salt Lake City. What a coincidence. (And, surprise, they’re positive).

Now I’m ticked off before I open the cover.

When I finally look at the book, it’s all about how leadership can improve revenue for a sales team.

OK, fair enough. I believe that. And I see the link between leadership and team performance. I also believe Covey knows something about that, so now he’s regaining a little credibility with me.

But as I read on, I notice the book is all about selling and revenue and achieving sales goals. Nothing about customers.

I mean nothing! I go to the index. There are 2 entries on “competitor,” and about 13 on "rewards". But “customer?” Not a one.

Now, there’s nothing wrong with leadership, revenue goals, or sales success. They’re all very relevant to sales, obviously. A book about it is perfectly valid.

But in my case—me, personally—I happen to believe very strongly that sales should be ultimately all about the customer. I mean by that—the end goal, purpose, meaning and intent of sales—is to improve life for the customer; and that if you do that, you too will succeed wildly in selling.

You don’t have to agree with my view on that, nor do Covey and Cook (and evidently they don’t).

But—if you’re going to tell me, in a mass medium, what I, me, personally, am going to consider one of the most important books I’ll ever read—then you’d better be right.

And in my case, he was wrong.

This looks like a decent book on leadership and sales force management. Is it "one of the most important books I’ll ever read?" No way, no how, not even in the ballpark with a ten-mile pole, not a chance, you-gotta-be-koidding me.

And that’s the trouble with testimonials.

If you’re asked to give a testimonial, restrict yourself to statements in the first person. If you solicit one, don’t over-estimate the impact.

But—the heck with you Charlie, you might say—’Is it working?’

See for yourself at Amazon’s ranking: At this writing, it was ranked #298,332.

For comparison, see the Top 100 sales books on Amazon, where the #100 sales book is currently ranked #27,000. Not even close.

Don’t over-estimate the power of testimonials.

And don’t squander your own precious credibility by claiming to know the customer when you don’t. A reputation is a terrible thing to waste.

 

 

Meeting Price Objections from Trust

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When the customer says, “I don’t know, that sounds kind of high to me…” what do you do? How does Trust-based Selling™ handle customers’ concerns regarding price?

First, note the sales jargon for this situation—it gets called “objection handling.” The wording is revealing. It suggests we have a conflict with our customer, an oppositional situation—their side is objecting to our side. And our job is to “handle” it. Kind of like a counter-move in wrestling.

But what if you’re trying to create a trust-based relationship with a customer? In that case, this isn’t about “objections,” much less “handling” them. Instead, it’s about a mutual inquiry as to whether joint value can be created—or not. Price is—at bare minimum—a simple and necessary part of the discussion.

But much more importantly, when we hear price comments as “objections,” we immediately jump to a place of high self-orientation—the trust-destroying denominator in the trust equation. Omigosh, they’re pushing back against me—I’ve got to counter-attack.

Thought one in responding from trust—it’s not about you. In fact, it’s never about you. It’s always about the customer. What looks like a threatening price objection is actually a great opportunity to learn something important about a customer, and a chance to add value right in the sales process itself. Here’s why.

Most price “objections” are simply expressions of dismay or concern—feelings—on the part of the customer. Most fall into five categories. Helping the customer identify these feelings and these categories is a positive help in and of itself. The actual words spoken can be identical: “— that sounds kind of high to me.” But they mask very different meanings:

The categories are:

1. Naïve. Uh oh, that’s way bigger than I thought. Subtext: "I feel ashamed; I didn’t understand what was involved in buying this product/service before talking to this person."

2. Out of Date. That’s more than we can afford. Subtext: "I feel embarrassed—I invited this person in thinking we could do it in this year’s budget. Now I see that won’t work."

3. Engineer. Wait a minute, I don’t see why it should be that much. Subtext: "That doesn’t make sense—they must be quoting me the fully-loaded version, let’s reverse engineer it."

4. Comparison Shopper. Hey wait—how do I know you’re not screwing me? Subtext: "I want to get a good deal, maybe not the best, but in the top half, so I need to know the real prices."

5. Bazaar Lover. Aha, the game is on! Subtext: "I don’t care what you quote me, I’m going to get 20% off! I love this part of the buying process!"

Each of these subtexts requires a very different response. The good news is—the responses are obvious. All we have to do as the seller is to ask! Ask the buyer what’s behind their words; what kind of concern are they expressing when they say, “I don’t know, sounds a little high to me.” What are they feeling?

Our job is simply to explain that all reasons are valid, and that we simply need to know which is operative here. Simply by stating them for what they are, buyers one and two feel relieved of their shame and embarrassment. And while this transaction won’t happen, you just vastly increased the odds of them buying from you in the future.

Number three becomes a simple job of itemizing features and costs—as long as we are not attached to the margin on every little feature. An easy sale.

Number four is solved by the willingness to be transparent, within the bounds of what’s legal. Another easy sale—as long as your price is fair.

Number five just wants to have fun. So build in a little upside, and be prepared to give a little more up; and enjoy yourself along with the buyer.

This is not about “handling objections.” It is about using curiosity and customer focus to build relationships. The profits follow—as long as we remember we’re supposed to be on the same side of the table as our customer, and in a relationship that is the sum of multiple transactions.

Call for Submissions: October Carnival of Trust

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Carnival of Trust

 

 

 

The October Carnival of Trust will appear Monday, October 6. The deadline to contribute is tomorrow, October 2, at the stroke of midnight—not a moment later.

To those of you reading this blog from the Sales Sandbox on The Customer Collective, let me explain.

The Carnival of Trust is a selection of the month’s Top Ten blog posts from across the blogosphere in several broad categories related to trust—and one of those is Sales. (The others are Advising and Influencing; Strategy, Economics and Politics; and Leadership and Management).

Selections are made by the host, together with highly trenchant and insightful commentary. Have a look at some past juicy carnival selections.

So if you’ve written a blog post generally relating to trust in the last year and haven’t submitted it, please dust it off and send it in to us.

You could be a Big Winnah. Hey, you never know.

Looking forward to reading your fine material in the Carnival Of Trust.

 

 

What Happens in the Global Financial Crisis Stays in the Globe

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What’s the global financial crisis got to do with a fluff Hollywood summer date movie? A lot, it turns out.

In “What Happens in Vegas”  Cameron Diaz and Ashton Kutcher separately go to Vegas on a whim, party hearty, and wake up together—to their mutual chagrin—married. Then they hit a slots jackpot.

Problem: how to split the money. They rapidly end up in court, where the judge sentences them to several months of—marriage. Cue the fights, which get nasty. But once they’ve had to get along together, they fall in love. Cue the violins.

Hold that thought. Flip the metaphor to Wall Street. From the Financial Times:

David Gergen, who heads the Center for Public Leadership at the Harvard Kennedy School, said Monday’s vote marked a high-water mark of public distrust in US leadership.

His centre shows that, of the five least trusted institutions in the US, four were involved in the financial crisis – Congress, business, the presidency and the media. In 2005, 65 per cent of the US public said there was a crisis in the leadership, a figure that has now risen to 77 per cent.

“Over the last few years the trust between the public and the elites has completely collapsed,” said Mr Gergen. “The failure of the bail-out package is a direct result of this leadership vacuum – the failure of any of the players, not just President Bush, to explain to the public why this package was necessary.”

Trust is a multi-faceted thing (see Trust in Business, the Core Concepts). One of those things is the simple fact that trust can only exist in a relationship. Robinson Crusoe had no need of trust; and a competitive “relationship” is an oxymoron.

The business world—particularly the US, and particularly finance—has increasingly been defined by short time frames, expressed in transactions, with an absence of long term relationships, holistic perspectives, and commonality of interests, buoyed up by an increasingly tortured interpretation of Adam Smiths’ Invisible Hand.

Nobody was vested in the big picture. Nobody had an interest in the long term. Everybody was valuable to everyone else only insofar as they could be hustled and turned over to the next sucker before the music stopped.

Kind of like Ashton and Cameron in Vegas, whose lives also became petty, selfish and fear-based.

The dominant fact of today’s world is that we cannot afford any longer to pretend we live separately. The financial world is far more intertwined than the masters of the universe want to pretend. Worse, finance links to economics. We can still run, but we can no longer hide—from each other. Butterfly wings may not drive hurricanes, but the metaphor is actually understated in the business world.

Trust isn’t an outdated idea; it’s ever-more timely and critical. We cannot afford the childish self-infatuation that comes with ideologies of “competitive advantage,” wars-on-the-enemy-du jour metaphors, and the "courage of his conviction" of dumb-asses. While Southern California Republicans channel Ayn Rand and Democratic unionists re-fight the battles of the 60s in the US Congress, banks are failing in Europe.

And so on.

We all need to learn to play nicely in the sandbox, or we will all foul it together. Which of course is just what the judge (played by the deliciously-cast Dennis Miller) ordered Ashton and Cameron to do.

In the movies, it worked.

Where’s our real-world Dennis Miller? (Barney Frank’s trying hard to audition, but…).

We will not regain trust in our institutions, our selling, or our business relationships until we come to grips with the fact that we are flat-out stuck with each other. We all just need to get along. Because what happens on planet Earth stays on planet Earth.

What Con Men Can Teach Us About Trust

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Regular Trust Matters readers know I speak positively about trust. But there is no trust without risk. Trust can be misplaced, or abused. Bad consequences ensue.

Thanks to prodding from regular reader Martin Dalgleish, I think it’s time to explore the dark side of trust. Trust can be violated at a personal level; at an institutional and societal level; and, of particular interest to this blog, in the realms of advice-giving and sales.

Let’s start with the personal level in this post.

“Clark Rockefeller” was in the news this summer for kidnapping his own daughter. Turns out his real name wasn’t Rockefeller. In fact, very little that people thought about him turned out to be real.

Rockefeller is one version of a con man. The Boston Globe’s Boston.com does a nice job of explaining how it is that he fooled so many people—two wives, the social elites of Greenwich and San Marino, California, brokerage firms—into believing that he was a wealthy heir of the Rockefeller fortune.

But how?

From the article:

We size up someone’s trustworthiness within milliseconds of meeting them…it’s the first thing we decide about a person, and once decided, we do all kind of elaborate gymnastics to believe in people….As in other cognitive shorthands, we make these judgments quickly and unconsciously.

Yet human society would not exist without trust…The art of the con is based on a variation of this idea: that trust is more reflexive than skepticism. Once people form an initial impression of someone or something, they seem to have a hard time convincing themselves that what they once believed is actually untrue.

More bad news: research suggests our “trust" is based on things like cheekbone shape and eyebrow arc.

You can fake trust. It’s not easy, but it can be done. There are plenty of slicksters slinging get-rich-quick schemes—the same names appear in boiler-room stock sales, then in death annuities, then in condos, then in no-doc loans. These con men are talented cynics.

Hollywood romanticizes the con man in movies like The Sting and Paper Moon; like the whore with a heart of gold (Pretty Woman), it’s a Hollywood fairytale feel-good staple.

The feel-good myth here is that once we uncover everyone’s true motives, the con will be revealed. It was either a real con by a black-hat Evil One; or a pseudo-con by the true white hat who is simply avenging a deeper wrong (Batman, Zorro). Motives determine all in this fairy-tale view of trust.

But here it gets tricky. In truth, the best con cons the con artist as well as the mark.

Most actors try to find a part of themselves that can relate to their character—then act from that deeply-felt affinity. Most salespeople are good at believing in what they’re selling. Most demagogues are true believers.

What we learn from the movies—and from politics, and religion—is that revealing true motives will reveal the con. Ah, so sorry, not true. The best con incorporates sincerity.

A fool who believes he can trust a sincere con is simply a misguided fool. Sincerity may be a necessary condition for trusting someone; it surely is not a sufficient condition. Worse yet, it’s not even a high hurdle to overcome. It ain’t that hard to believe.

The best way to be trusted is still to be trustworthy. And if you’re looking to trust, be careful of using sincerity as a shortcut. As George Burns once said, “The most important thing in life is sincerity; if you can fake that, you’ve got it made.” And the easiest way to fake sincerity is to simply believe your own con.

(Any political parallels the reader chooses to draw are entirely the reader’s own responsibility).

Evaluating Paulson and the Biggest Trust Me Since Iraq

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Economist Paul Krugman , in his NY Times blog, wrote yesterday about The Trust Problem raised by the bailout proposed by US Treasury Secretary Paulson, Fed Chairman Bernanke, and President Bush. Never mind the merits of the case. The point Krugman is raising is about trust:

"The whole premise of the bailout push has been “We’re the grownups, we know what we’re doing, just trust us.” Sorry, but that’s how Colin Powell sold the Iraq war. Fool me once, shame on you, fool me twice … you shouldn’t get fooled. " [revised last line courtesy of GW Bush]

I try not to write about US politics in this blog: but this issue is non-partisan, arguably international—and undeniably huge. It’s an 800 pound gorilla for trust—it can’t be ignored. If trust as a social issue isn’t relevant here, I don’t know where it would be.

So—for someone focusing on trust, these are interesting times. And Krugman’s observation is valid. Let’s evaluate it.

The Trust Equation suggests Trustworthiness is a function of (credibility + reliability + intimacy), all divided by the self-orientation of the one who would be trusted. How does Paulson fare?

As Krugman points out, Paulson’s got a ton of Wall Street cred—less so as a Treasury Secretary. Only months ago he was calling the economy firm, and one gets the strong sense he’s making this up as he goes along—like the rest of us. As evidence, Krugman contrasts Paulson’s plan—which famously and clearly called for no oversight—with his testimony of yesterday, which welcomed oversight. For credibility—maybe a B-minus.

On reliabilty, it’s tough for anyone. Reliability takes repeat experiences. But no one has this issue on their resume. One has to stretch to find comparable experiences, and unfortunately, the line stretches to another Bush cabinet member—Colin Powell and Iraq. Another good man who, it turns out, blew smoke at us. Given that track record, anyone in Paulson’s chair rates a C-minus at best.

The third factor, intimacy, is mainly determined by a willingness to be open and transparent about oneself. Paulson has done nothing to explain the theory behind his plan, which of course leads people to wonder if he has one—or if so, why he’s hiding it. Worse yet, given his mixed credibility and his (and anyone’s) inability to have a track record on this issue, that opacity makes him look even worse. In particular, it calls into question the demand by Paulson (and Bush) for immediate action, and the dire consequences if the demand is not met. Got to give him a D.

Self-orientation, the lone factor in the denominator, is the most powerful of the four. I don’t think anyone doubts Paulson’s commitment, nor his good intentions. Then again, most people this side of psychopaths have good intentions.

It’s not a good sign that he acquiesced to a political demand to reduce high compensation for masters of the universe who would be rescued. It suggests not only that Paulson is politically tone-deaf, but that his plan was not free of moral hazard. It’s not that Paulson is in it for himself, but it suggests there’s a lot in it for his old buddies. And absent a "theory of the case," or data, this looks pretty self-oriented. Another D, I’d say.

Remember the National Lampoon Magazine cover of the cute dog with a guy pointing a pistol its head? "Buy this magazine or we’ll kill this dog," the tag line said.

It sold a lot of magazines. Will it sell a mega “trust me” for a mega-bailout?

Wall Street and Broken Social Trust

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I’m hardly the first to cast the financial meltdown in terms of broken trust. But usually that means something like "we can’t trust they’ll still give us credit." There is a much deeper, distinctive pattern that leads to broken trust, and it works the same personally as it does socially and economically.

That pattern is the fragmentation of relationships. When relationships are turned into transactions separated by time or space—the predictable result is a lowering of trustworthy behavior, resulting in a lowering of trust.

Here are a few examples:

• Marriage researcher John Gottman says that couples who argue can be quite successful—they remain engaged, in relationship. It’s when the parties disengage, withdraw, refuse to interact, that the marriage is doomed. The relationship is fragmented—trust disappears.

• The airline industry in the 60s (if I recall my corporate finance cases) was funded largely by insurance companies, which lent money to the industry at large, thereby restricting competitive binges of excess capacity. When banks took over the lending, they championed specific carriers. This quickly led to over-capacity, with airlines returning to their customary unprofitable ways. A relationship of industry to industry, fragmented into competitive bank-airline duos, resulted in systemically bad results.

• If you let your teenager stay out at all hours of the night, your teenager will probably get in trouble. A family system fragmented, results in untrustworthy behavior.

• The US regulates banks and stocks. The CDOs which lay at the heart of the mortgage-driven meltdown were not regulated. No one had purview or a common interest across the entire range of financial products. A fragmented relationship, and resultant low trust.

• 30 years ago, the mortgage industry was a system of brokers, banks, and homeowners. All had a common long-term interest in that system, and all had long-term relationships with each other. With the fragmenting advent of specialized brokers, securitized loan packages and the like, no one had to relate to the whole picture, nor to each other for any length of time. Result—abuse and breakdowns of trust.

• The game theory classic Prisoner’s Dilemma pits our fears and aggressions against another player. If you both give in to fear, you both lose. But if you give, and the other person takes, you suffer the worst of all outcomes. The “trick” to successfully playing the game is to increase the number of times it is played—to create a relationship over time.  Which creates trust.

• Another prisoner’s dilemma winning strategy is to make each play more personal—face to face, looking each other in the eye, handshakes. A relationship as opposed to an impersonal connection. Resulting in more trust.

• Pure economic competition is unstable, because all competitors strive for their competitors’ elimination—the absence of relationship. Some form of social interference—rules, regulations, time-outs, referees—is necessary to keep the game going at all.

• Jonathan Knee’s book The Accidental Investment Banker tells of the cynical investment banker acronym IBGYBG—I’ll be gone, you’ll be gone, let’s do the deal. Fragmented transactions, no long-term relationships. And no trust.

• When Marie Antoinette said “let them eat cake,” she articulated a deeply riven society. Which turned out to be untenable, especially for her. No relationship, no trust.

Fragmenting relationships can lead to growth and to scale economies. Teen-agers grow up and learn to handle freedom. Outsourcing business processes can result in larger scale and lower costs. Fragmenting the mortgage industry did result in lower costs and more liquidity. The flip side, of course, is untrustworthy behavior.

Wall Street is just one example of a broader dilemma we face in an increasingly inter-related, interconnected world. How do we balance the scale economies of fragmented business relationships, industries, and business processes, with the trust-creating power of some kind of integrative force?

Regulation is one obvious integrating force. There are also industry associations, and a sense of honor (personal, professional or societal).

We’re running a little low on self-regulation just now (see for example How to Get Your Industry Regulated and Great Moments in Self-Regulation—Financial Planners). And how’s the world doing these days on ethics, public service, and collaboration?

Personally and institutionally, the more we are linked, the more trust flourishes. The more we are disconnected—structurally or personally—the more we distrust.

Turning systems into fragmented markets can increase scale, power and performance—and raise the risk of untrustworthiness. Linking relationships is the countervailing force—the more we view ourselves and our institutions as in relationship, the more we create trust.

As the world gets smaller and more linked, we need to shift more toward the latter.

 

The Guts of Trust

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I’ve written before about trust in business relationships and selling, and I’ve written about models of trust (see Trust: the Core Concepts.

But what about the guts of trust—of trusting, and of being trusted?

I mean what does it feel like in your gut? What is the gut-level stuff that makes it work—or not work? How do you know it in your gut when you’re being trusted—or trusting?

I don’t mean models, and abstractions, and data. I mean being real.

Here’s the guts of what I’ve learned about trust—from the gut.

1. I can’t tell you what works for you; I can only tell you what works for me.

2. You can tell me what you think I should do; but I won’t do it. Unless I feel like it anyway, or unless I really trust you.

3. I can learn this stuff. It helps to be born with it, but I can learn.

4. Rarely, I learn trust by observing someone who does it well. I once saw a newspaper publisher run a 15-person all-day meeting just by listening, by nodding at someone and saying, “I can tell you’ve got something to add to that, Joe, right?” That time, I got it.

5. Generally, though, I learn trust lessons better through failure than through success. Those are “learning opportunities”—though I rarely see them as such at the moment.

6. Whenever I fail to trust, or to be trusted, it is nearly always my fault, and nearly always due to fear. Fear is the mother lode. I am learning to remember to ask myself, “what am I afraid of?” I hate the answers—they are always the same—shame and guilt. What a waste of time!

7. I don’t trust you until I think you understand me. Why should I expect the reverse to be different?

8. I’d rather you go first. But then things rarely happen. So I guess I have to.

9. You can’t hurt me without my permission. Which I don’t have to give. You’re not annoying—I’m annoyed. And I can stop being annoyed anytime I choose to.

10. You’ll trust me most if I don’t ask, beg, or try to force you to trust me. You’ll trust me the most if I’m of service to you—no strings attached.

11. I’m OK, You’re OK. True enough, but a hard place to get trust started. I’m an Idiot, You’re an Idiot—now there’s a place that offers traction.

12. Trust never comes without risk. Having the courage to be vulnerable, and to take small emotional risks now is what creates trust—and mitigates larger business risk later.

13. If I’m transacting, I’m alone. If I’m relating, transactions come along like ripe fruit.

14. After some point, I realized I could trust my gut more than my brain. Later, I realized that had always been true.

15. I get what I want when I stop wanting it. People trust me when I stop demanding trust.

16. Alone on a desert island, I don’t have to trust or be trusted. And I can always create my own trust-free island. It’s safe, but it’s awfully solitary.