Trust and Corporate Change

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Close your eyes and make a mental list of models for corporate change.

There are models of “what is needed.” One such model posits three needs: pressure, vision and first steps.

There are models of “types of change.”  For example, linking participative management to incremental change, and directive leadership to transformative change.

There are models of tools to leverage for change: a favorite of mine is People, Structure, Systems, Culture.

There are "how to" models.  One  emphasizes leadership; another, vision or intent; a third, alignment.

Then there are descriptive models—they use OD frameworks, or industrial economic models, to classify and distinguish types, levels and genres of corporate change.

But you don’t hear much about linking trust to corporate change. Nor is corporate change the first thing most of us think of when we think of trust in business.

Which is curious, because the presence or absence of trust within an organization can greatly affect a company’s ability to change.

Let’s say you need to make an acquisition; or enter a new business; or up your growth rate by four percentage points. How would a low-trust organization go about it?  How would a high-trust organization go about it?

Low-trust organizations are typically run on the basis of either consensus, fear, or contracts. All three have their problems.

—Consensus-based organizations can be very thorough, but slow to adapt—since trust doesn’t exist between parties, it has to get re-created by consensus each time.   If fast change is required, that’s a drawback.

—Fear-based organizations can be efficient at implementing change, but there is a big burden on the few fear-drivers to be right—they are deprived of the value of direct input from others, who fear them. The more complex and fast the change, the greater the risk of the leader getting it wrong.

—Contract-based organizations substitute a market in place of consensus. For any given transaction it may be more efficient than consensus.  But there get to be an awful lot of contracts and transactions made, all of which require time and people to track them.  It’s an expensive model to maintain, and even more expensive to tweak.

Then there are trust-based organizations. In such an organization, if your partner says he’ll do something, that’s it.  You don’t need a consensus session. You just trust he’ll do it. And your partner  will do what he said, because that’s how you get to be trusted.

You also tend to trust your partners’ judgment—because you trust they will tell you if they don’t know something. You take their word at face value.

Unlike a fear-based organization, you trust that you partners will raise issues that need raising; and they won’t raise issues not worth it.

Best of all—unlike a market-based organization, you trust that everything your partners think and do will have your interests at heart for the long run; they will not be distracted by the short-term transactional commissions, bonus points or other "incentive" schemes based on the improvement of an individual’s own short-term self-interest.

In such organizations, you don’t need nearly as many contracts to make sure your partner will do what he says. You don’t need so many measurement systems to track and distribute agreed-upon incentives and outcomes.  And the whole organization is not hostage to the judgment of a few people.

Which kind of organization will most easily change on a dime, and get it right? The answer is pretty clear.

Trust pays off when it’s time to change.

 

Client Service vs. Client Servility

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Most client-serving organizations I know make a pretty big deal about client service. Consulting, law, HR, IT, accounting, and salespeople in complex businesses—client service is right at the top of their list of virtues. And rightly so.

But—sometimes, things can get a little twisted.

What do you make of:

o The administrative assistant who delivers the Officer’s laundered shirts to him at the airport at 9PM. Regularly.

o The project manager who hauls the whole team in on Sunday to re-work the slide deck. Regularly.

o The senior officer who drops in on the staff meeting to “show the flag” but leaves early because “when the client calls, you know…” Regularly.

o The salesperson who cuts price at the drop of the hat when the client demands.  Regularly.

o The VP who cancels the cleanup position on the third round interview because “I had no choice, the client changed the date.” Regularly.

o The manager who joins the training session late and slips out to take calls between blackberry-checking time, because “we’re in the middle of a really tough time for the client—they need me.”  Regularly.

o (The presidential candidate who, in mid-speech, stops to take a phone call from his wife on his cellphone from the podium. More than once.)

The key word is, of course, regularly.  Any one of those examples can be held up as a case of client heroism.  If, that is, it’s an isolated event. IF it’s endemic—then that’s not client service, that’s client servitude.

Client service is not client servitude. Great client service is doing things above and beyond the norm; being willing and able to behave in unusual ways when faced with unusual situations; and doing them selflessly, for the sake of the client.

Being servile is quite another thing. It means seeking out options to give faux service.  Terms related to servile include sycophant, brown-noser, suck-up, boot-licker, ass kisser, obsequious, and toady.

We suspect those who are servile of dishonesty—of speaking falsely in an attempt at self-aggrandizement. Their motives are suspect; which means their credibility is at risk as well.

Ironically, their servility costs them in terms of respect from the very people they are most trying to impress.  Above all, we don’t trust such people.

If we’re honest—no, I’ll just speak for me here—if I’m honest about it, there’s always a tiny touch of servility lurking around the edges of most client service I perform.  It’s hard to be unaware of the value of being perceived as client-serving.

The trick is to not be overcome by a need for recognition. To do the next right thing, yet to be detached from the outcome; particularly whatever benefit clearly might accrue to me from doing the right thing.

This is the heart of it, I think.  Client service is doing good for the client.  Period.  We are not surprised when we get credit for doing it.  But expecting good from doing it is Station 1 on the slippery slope; the End-Station is doing client service  in order to get credit for doing it.

That way lies client servility.

Most clients don’t want servants at their beck and call—they want equal partners at the table who can make a plan and stick to it; who have enough respect for themselves and their own firm that they will, on occasion, push back; who take the partnership seriously enough that they will keep their own team healthy enough to deliver in the long run, rather than burn it out in a never-ending series of  faux client crises. 

And if you really think you have one of those rare clients who wants servants—then put your money where your mouth is.  Give that client to a competitor.

Digital and Analogue Social Networks and Pharma

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Here are two big trends in marketing:

Trend 1. Companies organize programs around the customer. This is often called customer-centricity.

Trend 2. Customers are in charge of interactions. This also gets called customer-centricity.

When two phenomena get called by the same name—opportunities for merriment—and suffering—ensue.

Case 1—the occasionally obtuse but always interesting Harvard Business School Working Knowledge series.  In Authenticity over Exaggeration: The New Rule in Advertising,  Julia Hannah explores HBS professor John Deighton and Leora Kornfeld’s "Digital Interactivity: Unanticipated Consequences for Markets, Marketing, and Consumers."  An extract:

5 new rules of digital interactivity:

• Thought tracing. Firms infer states of mind from the content of a Web search and serve up relevant advertising; a market born of search terms develops.

• Ubiquitous connectivity. As people become increasingly "plugged in" through cell phones and other devices, marketing opportunities become more frequent as well—and technology develops to protect users from unwanted intrusions. A market in access and identity results.

• Property exchanges. As with Napster, Craigslist, and eBay, people participate in the anonymous exchange of goods and services. Firms compete with these exchanges, and a market in service, reputation, and reliability develops.

• Social exchanges. People build identities in virtual communities like Korea’s Cyworld (90 percent of Koreans in their 20s are members). Firms may then sponsor or co-opt communities. A market in community develops that competes on functionality and status.

• Cultural exchanges. While advertising has always been part of popular culture, technology has increased the rate of exchange and competition for buzz. In addition to Dove’s campaign, Deighton cites BMW’s initiative to hire Hollywood directors and actors to create short, Web-only films featuring BMWs. In the summer of 2001, the company recorded 9 million downloads.

These 5 aspects show increasing levels of effective engagement in creating social meaning and identity, Deighton suggests, noting that the first 2 (thought tracing and ubiquitous connectivity) change the rules of marketing but don’t alter the traditional paradigm of predator and prey.

In the last 3 (property, social, and cultural exchanges), the marketer has to become someone who is invited into the exchange or is even pursued (as in the case of the BMW films) as an entity possessing cultural capital.

Exactly.

This is Trend 2 type customer-centricity–-recognizing that the consumer is actually in charge.  It means moving away from a “predator and prey” model of control and one-way monologue, to a genuinely interactive two-way model of dialogue.  In this model, the role of centralized control drops drastically, because the marketer and customer collaborate—even blend.

Hmmm.  D’ya think that model might work in the analogue world too?

Case 2. Pharma Voice Magazine, The Forum for the Industry Executive: The Salesforce of the Future  quoting Bill Pollock, CEO of Pharmagistics:  An excerpt:

In the future [of pharma], salesforces will be much more focused, and they will have the ability to look at each touch point, determine what’s the most effective way of communicating with a practitioner, and do so in a personalized way.

As a result, marketers will have to integrate their sales and marketing efforts into everything they do, treating each and every touch point as part of their total sales and marketing mix. This includes their e-portals, inside telesales efforts, Internet-based virtual sales reps, literature, and direct-mail programs—all of these tactics will be considered a part of the entire salesforce effort and must be integrated via the entire marketing program.

Such a trend would mean that pharma companies will need the ability to track everything that is done and monitor the impact of their efforts on their prescribing customers.

This is Trend 1 type customer-centricity.  It retains the predator-prey model and focuses on making sure all the guns are pointed in the right direction—at the customer.  The problem is perceived as one of alignment and control.  The new world isn’t qualitatively different, this model says, just quantitatively more complex.  It retains the focus on centralized control because it’s still an us-vs.-them view of the world.   It is restricted to the first two levels in the HBS piece—there is no conception of becoming "someone who is invited into the exchange or is even pursued…" much less of becoming "an entity possessing cultural capital."   This kind of  "customer-centricity" is not collaborative.  It is customer-centric  in the way a vulture is customer-centric—laser-focused on its prey.

The confusion around the term “customer-centric” isn’t just a matter of definition or market power.  Marketing is only one  battlefield in a much larger contest between a network-driven commerce-based view of the world and a command-and-control-driven competition-based view of the world.

Life imitates art.  Sometimes we learn more about the analogue world by observing pale avatars in the digital realm.
 

The Single Fastest Thing You Can Do to Increase Trust

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That’s quite a claim. But I think I can back it up. (This thing also requires little time or money, meaning it’s also high ROI).

First, let’s define terms.

• By “increase trust,” I mean something Person A can do that increases their probability of being trusted by Person B;
• By “fastest,” I don’t mean easiest, nor most powerful. I mean least elapsed time between interaction and resultant trust.
• By “trust,” I mean legitimate trust, trustworthiness on the part of Person A. No fakery.

It’s simple, though not easy. Let me tell you what it is; then give you 11 reasons why it is indeed the single fastest way to increase trust.

It is simply this:

Return calls and emails really fast.

That’s it. Doesn’t sound like much, does it? But let’s explore further.

First, here’s the basic template for doing it:

Joe, I want to let you know I got your message. I may not get to it until Thursday, but I want to let you know I’m on it. I’ll be working it between now and then. It’s on my to-do list, it’s in my mind first thing in the morning and last at night. You can take it off your worry list, I’m on the case.

Now let’s explore what this does for you and your client.

1. It immediately removes FUD (fear, uncertainty and doubt) from your client’s mind. All those concerns (did he get it? why hasn’t he answered me yet? was it something I said? Is he avoiding me? is he fighting me?) are gone. Cut off. Stopped cold. You have committed to engage.

2. It allows you to proactively schedule things out to Thursday. (Don’t worry—if they actually do need it Tuesday, they’ll be back to you about it).

3. By making a commitment to engage, you create a chance to improve your perceived reliability and integrity—by proceeding to do just what you said you’d do.

4. It demonstrates your attentiveness to the client’s issue.

5. It demonstrates your sensitivity to the client’s time needs.

6. It forces you to address an issue. The tougher and more difficult the issue, the more important this is. How many people have not returned your call in the last three days? The more uncomfortable an issue is, the more likely we are to delay, or avoid, facing it. Unfortunately, the other person knows it. They in turn silently accuse us of passive-aggressive avoidance. And they’re right.

7. By dealing with tough issues—putting them squarely on the table—we show that we are not afraid to constructively engage. The work of John Gottman in marriages shows the enemy of relationships is not confrontation, but disengagement. Returning that difficult phone call forthrightly builds relationships.

8. By scheduling it for Thursday, you show that you’re in charge of your schedule, therefore an efficient server of clients.

9. By scheduling it forthrightly, you show confidence that you can deal with the issue, and confidence itself is confidence-inspiring (I’m assuming here you can back it up).

10. By responding quickly and directly, you validate the client’s sense of the issue as being accurate and timely.

11. You’re going to have to deal with this thing anyway. You can do it efficiently, effectively and confidently and gain all the above benefits; or you can put it off hoping either the issue will die, the muse will descend from the heavens, or the client will forget about it.

Do the right thing. Return that call or email really fast.

How To Get Your Industry Regulated, in 6 Easy Lessons

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On November 15, the US House of Representatives passed HR 3915, known as the Mortgage Reform and Anti-predatory Lending Act of 2007, mainly along party lines.

Led by Barney Frank, the impetus for this legislation was the disastrous subprime lending meltdown, whose implications are looking worse every day—right up to today, December 6, 2007.

To hear the mortgage industry tell it, this legislation is a classic big-government socialist disaster in the making. The Heritage Foundation says it will “put individuals of moderate incomes, imperfect credit histories, and limited wealth at an even greater disadvantage, leading to a decline in the home ownership rate,” and if they say that’s a bad thing, then of course it must be so.

A typical letter in the Originator Times, a mortgage broker publication, predicts “this [legislation] will cripple the economy and the livelihoods of thousands of people in this industry.” Brokers, that is; never mind the homebuyers.

Aubrey Clark, of Lendfast.com, says, “Lawmakers attempting to pass the Anti-predatory Lending Act of 2007 right now are effectively trying to tell lenders whom they can and can’t loan money. HR 3915 is vaguely written and enables borrowers to sue their lenders for giving them a loan should they decide not to pay.”

Well, Aubrey’s reports of impending communism are slightly exaggerated. This legislation has already been watered down, and may get still more diluted in the Senate.

But more importantly—the mortgage industry, and the two main industry associations (the Mortgage Bankers Assocation, and especially the National Association of Mortgage Brokers) have no one but themselves to blame. Anyone running a services industry association has just been handed a “teachable moment” in how to shoot themselves in the foot.

It’s classic—an industry association that sees its role as pursuing the short-term interests of its constituents at the cost of the customers’ interests—and therefore at the long term cost to everyone. The (predictable) end result is government regulation—about which they then bitterly complain.

Wanna get regulated? Follow these Six Simple tips.
 

1. Wrap Your Business in the Flag

Testifying in the house in 2003, Mr. A. W. Pickel, President of the National Association of Mortgage Brokers (NAMB), talked about “the dream of home ownership…the joy of home ownership…We believe the record levels of home ownership in the US can be attributed to the vibrant and competitive mortgage market.”

Therefore, “addressing abusive lending requires a balanced response…Any efforts to address abusive lending practices cannot cut off access to consumer credit.”

[Try substituting another industry here. “Addressing abuse of alcohol requires a balanced response…Any effort to get bartenders to address excessive drinking cannot cut off patrons’ access to more booze.”]

The Mortgage Bankers Association (MBA) in 2006 says: “More Americans own homes than ever before…Americans are building tremendous wealth.”

Throw in some free market talk stuff too: “If consumers did not feel mortgage brokers were delivering on what was promised, they would not reward them in the market.” Of course not. Who could think otherwise?

When threatened, repeat: "We cannot allow the American Consumer to be separated from the dream of home ownership."
 

2. Say You’re the Hero of the Underdog

NAMB: “Subprime lending often serves the market of borrowers whose credit history would not permit them to qualify for the conventional “prime” loan market.

MBA: “The subprime market has evolved dramatically in recent years, providing significant benefits to consumers. Non-prime borrowers commonly have low-to-moderate income, less cash for a downpayment and credit histories that range from less than perfect to none at all. Before the advent of this new market, these borrowers were either simply denied homeownership or…served exclusively by FHA or other government subsidized financing.
 

[Inconvenient truth: “In 2005, the peak year of the subprime boom, the study says that borrowers with [credit scores high enough to qualify for conventional loans with far better terms] got more than half—55%—of all subprime mortgages].

 

3. Deny Bad News

In August, 2006, the MBA said, “Default and foreclosure rates are low. Some argue that [they] are at crisis levels and that a greater percentage of borrowers are losing their homes. MBA’s data does not support this—instead, it tells a different story.”

[A scant 8 months later, this headline: US mortgage default rates hit an all-time high in the first quarter of 2007.

Mr. Pickel, of NAMB: “the incidence of abuse is very small relative to the whole industry…NAMB strongly advocates that our members never originate a loan to an uninformed consumer…”

[Counterpoint, Wall Street Journal: “A study done in 2004 and 2005 by the Federal Trade Commission found that many borrowers were confused by current mortgage cost disclosures and ‘did not understand important costs and terms of their own recently obtained mortgages,’” ]

 

4. Blame the Consumer and the Government

“Education is key…NAMB supports federal legislation that includes provisions to address financial literacy…NAMB urges increased enforcement of existing abusive lending prevention laws.”

“MBA believes that borrower education to help consumers navigate the home buying and mortgage finance process is extremely important…MBA and its members have developed a number of strategies to educate consumers about their options in the mortgage marketplace.”

“Some of the barriers to fair lending include…insufficient enforcement of existing laws…NAMB believes existing laws should be better enforced by state and federal regulators as a means to eliminate abusive lending practices.”

[In other words: the problem is consumers are too stupid to follow our fast-talk—and that’s not our fault. Feel free to use taxpayer money to educate millions of consumers—and boil the ocean while you’re at it. And we don’t need no more stinkin’ laws; get some FBI agents to bust criminals, and leave us good guys alone.]

 

5. Say Bad Things Are Not Your Fault

HR 3915 makes lenders more responsible for assessing borrowers’ ability to pay. Listening to the industry, you’d think this is the death of civilization. (“What!? I lend a guy money and he doesn’t pay—then sues me because I lent him the money!!”).

Sounds reasonable, until you substitute:

“Those kids don’t have to watch our (cereal/game) ads on TV on Saturday morning, they could be studying.”
“Those people didn’t have to move next to a chemical dump, no one forced them.”
“We’re not in charge of the nation’s diet, we just offer the high calorie high fat part of it; they can buy salads anytime they want.”
"Why should I have to drive slow just because some other folks are bad drivers, and can’t afford gas?"

 

6. Whatever You Do—Don’t Share Data

One of the biggest worries of the industry was that legislation might eliminate the YSP—yield spread premium. It’s money paid by the lending institution to the broker for higher interest loans.

The mortgage brokers howl at the idea of disclosing these numbers; the WSJ article shows a broker’s rate sheet with the footnote: “for wholesale use only. Not for distribution to the general public.”

In industries where the wholesaler’s payment to the retailer is disclosed, it goes by names like "advertising allowance." In industries where it’s secret, it’s called a kickback.

The brokerage association says it gives the broker flexibility to help the consumer. The Wall Street Journal calls it “a compensation structrue that rewarded brokers for persuading borrowers to take a loan with an interest rate higher than the borrower might have qualified for."

Mr. Pickel—now a CEO of a mortgage brokerage firm, and no longer head of the NAMB, says there is “a lot of play in the system. You have to operate with an ethical basis.”

He’s wrong. You don’t "have to." And not enough did.

Now they’re getting the results they in effect asked for—the prospect of regulation.

But don’t cry too hard for them: they’ve already succeeded in watering down the YSP restrictions. They have a few friends in congress—(curiously, all of them Republican—the House vote was 100% of the Democrats.)

So there’s your recipe. Are you listening, financial planners? Credit card operators? Insurance specialists? Stock brokers? Follow these easy rules, and you too can enjoy the benefits of greater federal regulation in your industry.

Of course, you could clean it up yourself.

Nah…

Carnival of Trust for December

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The December 2007 Carnival of Trust is now online, hosted by John Crickett and his UK-based blog Business Opportunities and Ideas.

Each month, the (rotating) host selects the Top Ten trust-related blog postings from across the web during the prior month. The Carnival always makes for good reading, and the hosts provide a valuable service through their editing and commentary.

Many thanks to John for hosting; pop over to the carnival and have a look.

Ben Stein vs. Goldman Sachs: Market-Makers, Brokers, and Trusted Advisors

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Yes, that Ben Stein. Bane of Ferris Bueller. Droll protagonist of Comedy Central’s Win Ben Stein’s Money. Pitchman for beachball eyeball medication. And—lest you forget—economist.

In this Sunday’s NY Times, Ben Stein let fly with an article—The Long and Short of it at Goldman Sachs —that must have raised a few hackles even at that above-it-all Wall Street institution.

Stein’s breezy style is to write—as he would put it—all ‘round Robin Hood’s barn, until he ends at a very sharp point. So he does here; but he pulls his punch.

Background. Alone among Wall Street players, Goldman Sachs not only didn’t lose money in the subprime debacle—they made a great deal of money, by going short, or betting against, the very packaged subprime mortgage-backed securities they were selling to customers. (See Allan Sloan’s excellent Fortune article on a sample Goldman offering .)

Stein reminds us of Merrill Lynch analyst Henry Blodget in the last overdone market; Merrill hyped tech stocks to investors, while Blodget privately called them “junk” to his friends. In 2003, he was permanently disbarred from the securities industry.

Then he pulls the trigger.

“How different would [the Blodget situation] be from selling short the junky stock that your firm is underwriting? And if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgages into the market? …

It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets…

Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster…

Bracing stuff, that—simultaneously calling Goldman Sachs a bunch of salesmen, questioning the moral rectitude of the Secretary of the Treasury, and calling for an investigation of the investment banking industry.

If you like that sort of thing, you’re probably woo-wooing and high-fiving Ben Stein. But the truth is, by demonizing Goldman Sachs, Stein lets everyone off too easily.

Here’s what I mean: What’s the difference between a market-maker, a broker, and a trusted advisor?

A market-maker is socially and legally authorized, even required, to take the other side in a transaction in order to maintain liquidity in trading.

A trusted advisor has your best interests at heart—gives you advice based on what is best for you, not necessarily best for the advisor.

A broker is usually found somewhere in the middle—making markets, giving advice, and trying to avoid the perception that his own self-interest is driving the position. Which, all too often, it is.

Which was Goldman Sachs?

Some might say market-maker. You can’t be a viable institution if you don’t systematically manage risks. If you’re going to sell $100 billion in CMOs, you might also want to hedge your exposure. Goldman just hedged well.

Some will say Goldman is a trusted advisor. Some customers, perhaps. I suspect Goldman will, anyway. They point out that they were not the only ones to sell CMOs. True. Not much of a proof for trusted advisorhood, but true.

But broker sounds more likely to me. The question is only partly one of transparency. Were Goldman’s short positions really hedges, or separate bets for their own accounts? Did Goldman tell buyers of CMOs that Goldman was net short?

But transparency alone can get reduced to “letter of the law” stuff. Motives matter too. No one would accuse a pure market-maker of claiming that one side of the deal was “better” than the other—the market-maker’s job is devoid of advice.

And no one would accuse a trusted advisor of having shaded advice to suit his own ends—because his trusted advisorhood would be instantly shot.

Life in those cases is clear; there are the black hats and the white hats. And Ben Stein is pretty clear about the black hats.

The question comes when those motives are unclear. When you just can’t tell what role Goldman was playing—when Goldman itself isn’t clear, or sends out weak messages (others sold CMO’s too; we are not a crook)—or we ourselves don’t know what role we want from Goldman—that’s when we’ve got a social, institutional, broad-based trust problem.

Now that’s a real problem, Mr. Stein.

Would You Buy a Used Car From This Scientist? Not If You’re a Scientist!

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Peter Calamai is Science Writer for the Toronto Star. He recently wrote about the demise of society’s trust in its scientists. He’s got a lot of statistics that ought to cause scientists great concern about the level of trust in scientists.

And, as he says:

After two days of provocative ideas and spirited exchanges at an international gathering recently in Toronto, British museum curator Robert Bud neatly summed up the collective wisdom.

"The scientists are terrified."

Calamai’s most cogent point may be this:

Scientists might ask themselves about the erosion of the traditional trust relationships among researchers, who once readily exchanged things like specialized strains of mice or reagents, custom chemicals used in experiments.

Increasingly such exchanges are now circumscribed by material transfer agreements, complex legal documents that spell out details like liability and indemnification, due diligence and standards for care. Some even feature "reach-through" clauses, guaranteeing the supplier of the materials a share in any subsequent commercialization because of subsequent research done elsewhere.

Use of these agreements is exploding. In 1998, the University of Toronto handled about 30. This year, +*officials have reviewed 170.  Similar growth at U.S. universities prompted this wry workshop comment from Notre Dame’s Mirowski: "Why should the public trust science when it is becoming apparent that scientists less and less trust each other?"

Why indeed.

Let’s break this down. There’s a bigger trend going on here—two, actually.

One trend is the fragmentation of big things into little modules. The other is the re-connection of modules into big things again.

Take business processes. Companies used to have HR departments. Now they have many specific HR sub-processes, which can be outsourced, which in turn requires standardization. Big things broken into little; little things reconfigured into big. Now companies can configure their own HR departments.

Take music. The record business used to record artists on vinyl and sell the product through physical stores. Now artists, recording, and marketing are going off in dozens of directions. A big business broken into little parts; little parts reconfiguring into dozens of designs.

Take software, movies, travel, training, banking. All used to be made of monolithic structures. All can now be configured in myriad ways.

But here’s the catch. The main way we reconfigure modules in the world is by contract, in some kind of market.

That means transactions. That means costs, complexity, and lawyers. It means every little module has to be priced, defined, tracked, and contracted.

The trend has hit absurd levels in many places by now.

• How many levels of automated phone answering software can you stand before exploding?
• Sampling of a half-second of music is subject to copyright law so we can write royalty checks to dozens of people from thousands of users;
• And now scientists don’t share because we need to prospectively track the rights to thinks that might be invented in the future.

This is what happens when a new technical/organizational reality meets an outmoded ideology.

The new reality is the ability to connect everything and everyone to everything and everyone else.

The outmoded ideology is the idea that everything is property—and is therefore definable, trackable, assignable and salable.

Put those two together, and something’s got to give. Eventually, it will be the outmoded ideology that gives. The question is, how long will the forces of resistance hold it back?

How long can we live with outmoded laws governing intellectual property, water rights and patents?

How long can we put up with outmoded business models that define relationships by boundaries rather than by bonds?

How long can we live with corporate and social governance models that can’t figure out how to make individuals accountable to the public good, and present generations accountable to their heirs?

Chief Seattle, in 1854, supposedly said, “The earth does not belong to us; we belong to the earth.”

With a little updating, that’s exactly the thinking we need. The more complicated and topheavy the contract/ownership model gets, the more economically superior becomes a model based on trust and mutual interests.

Flaky? Not at all. Read, for example, a Nobel Prize economist’s lecture here, or read a Harvard Business Review article here.

Trust is not flaky, it is commonsense. It’s just not common. Yet.

Faking It Doesn’t Make It

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Remember Leave it to Beaver’s Eddie Haskell? Always nice to Mrs. Cleaver—but always working an angle. The unctuous, silver-tongued slickster—devious, always in it for himself.

Haskell played the role of evil in a morality tale—the black-hat guy of the adolescent crowd. When he got his come-uppance, Good triumphed (though of course we were titillated by his escapades on the way).

What Eddie Haskell did best was to fake sincerity. He couldn’t fool us, of course; though poor Mrs. Cleaver was a reliable sucker.

Haskell was TV’s tame version of Hollywood’s innocent; the rural rube with a pure heart, dazzled by the sophisticated city slicker/ hustler—until (s)he finds, as everyone had warned, that he’s a cad, a con, a hustler.

He was faking sincerity.

An Eddie Haskell phenomenon has been coalescing in business. Business is becoming adept at mouthing sincerities about relationships—but in service to itself, not to the nominal objects of those relationships—customers, suppliers, employees.

Have we succeeded in faking sincerity so well that we have fooled ourselves?

Some examples:

1. From an article by UC Berkely Business School professor Lynn Upshaw:

Marketers need to consider a new calculus: "return on marketing integrity"—that is, a new type of "ROMI"—which can lead to stronger business performance.

Traditional return on marketing investment is calculated using gross margin generated by marketing efforts (GM), minus the marketing investment (I), divided by that investment: ROMI = (GM – I) ÷ I. The calculation for return on marketing integrity is identical, except that investment is replaced with marketing integrity.

This language comes awfully close to suggesting that integrity is a virtue insofar as and to the extent it pays off on the bottom line.

 

2. From a Wall Street client seated next to me before my after-dinner talk on being a Trusted Advisor:

“Trusted Advisor? If it gets me greater share of customer wallet, I’m all for it.”

The implication: trust is a virtue—if you can make money on it.

3. From a posting by Steve Yastrow on Tom Peters’ weblog:

In an age of interchangeable products and easily duplicated services, customer relationships have become one of the most powerful competitive advantages available to a business—one of the best ways to keep the competition away from your customers.

I doubt Yastrow intends it—but the language can be read as suggesting that relationships are justified by their ability to competitively advantage a company. (Consider a parallel: "darling, the main reason I want to marry you is you’ll give me a competitive advantage in the business world").

 

4. Steven Covey, Jr., in an interview on branding, says

trust is a hard-edged, economic driver—a learnable and measurable skill that can give your business a competitive edge.

Covey doesn’t say the sole goal of trust is to provide a competitive edge; still, why does that phraseology come so easily to us? (And not just to Covey—I’ve said much the same myself on occasion).

 

5. From a Harvard Business School Publishing email advertising a seminar titled “Authenticity: Are you Delivering what Consumers Want?”

…your company must grasp, manage, and excel at rendering authenticity. Learn how to manage customers’ perception of authenticity by…

• Recognizing how businesses "fake it”
• Appealing to the five different genres of authenticity
• Charting how to be "true to self" and what you say you are
• Crafting and implementing business strategies for rendering authenticity

What does “manage customers’ perception of authenticity” mean? Is it the same as “be authentic?” And if not—isn’t it then inauthentic?

Is authenticity best “rendered” by “crafting and implementing business strategies?” Is authenticity-as-strategy the same as authenticity-as-values?

This is not just about a clash of values—the greedy vs. the needy. It’s deeper. It’s about two world-views of business.

One—the dominant ideology of the 19th and 20th centuries—says business is a Hobbesian place. The dominant relationship is competition—everyone against everyone, including you vs. your suppliers and your customers. The goal is to win, defined as sustainable competitive advantage, and measured by shareholder return on equity.

In this worldview, the role of relationships is as means to an end—winning.

In the other worldview, business is about interdependencies, linkages, networks. The dominant relationship is commercial collaboration. Those who prosper are those who play well with others.

By this worldview, relationships aren’t means to an end—relationships are the end. Successful businesses are the consequences, outcomes, byproducts of successful relationships.

The world is dragging us toward collaboration; but our belief systems are still rooted in competition.

The result shows in our language. We know the right words to say, but we can’t help sounding like Eddie Haskell, trying to fake sincerity.

After all, if your sole goal is to win, how can “relationships” possibly be sincere?

Saudi Prince Alwaleed: Tough on Trust

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Many people think of trust as “soft,” and inconsistent with “hard” approaches to making money. But have a look at Saudi Prince Alwaleed.

Alwaleed has long been a big investor in major US companies—Apple, for example, and Citigroup. He is Citigroup’s biggest individual shareholder, at 3.6% of the company (or he was until two days ago, on the 26th, when a group in Abu Dhabi took a position in Citigroup even larger than his). He did not get where he is by being “soft.”

In a fascinating interview, Fortune magazine spoke with Alwaleed about the demise of Chuck Prince, former CEO of Citigroup, after he announced a second write-off (of $11B) just three weeks after the first write-off of $6B .

Turns out Alwaleed believes in trust—strongly. See these excerpts:

Fortune has learned that Prince Alwaleed and other major shareholders agreed last week that, if Chuck Prince didn’t offer his resignation after the news of the additional $8 billion to $11 billion writedowns, they would publicly call for his ouster.

Q: Did you like Chuck Prince?

A: Yes, Chuck Prince was a good man. Honest man. Decent man.

Okay—a good, honest, decent man. Does Alwaleed trust him?

A…when Citigroup pre-announced the $6.4 billion writeoff, Chuck Prince called me within five minutes of the announcement and informed me of that loss and I told him bluntly and openly, "Is this the end of the story? Did you think of everything?"

His answer was "yes" and he expected normalization in the fourth quarter…So obviously, this gave me comfort that this was a onetime event and only an aberration and I backed off.

..But what happened two or three weeks later, another $8 to $11 billion additional write-off, the situation changed completely.

You cannot come to the public and say that this normalization is expected in the fourth quarter and then three weeks later, not three months later, you come and say there is an $11 billion writeoff. This is unacceptable. That’s when the events changed completely. My backing was withdrawn dramatically.

You should never commit to something that you can’t deliver. Never.

Q: Are you disappointed in Chuck Prince?

A: I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely. Citibank did not conduct itself in the right way. The risk-management situation was very wrong at Citibank.

So—is Alwaleed sour on trust?
 

Q: Do you have anybody in mind [going forward?]

A: Frankly speaking, I don’t have anybody in mind. I trust Mr. [Robert] Rubin. I trust Mr. Bischoff (interim CEO). I trust Mr. Parsons (CEO TimeWarner and head of the search committee for a new CEO).

Alwaleed gets it exactly right. He views attributes like honesty and decency as important for trust. But he put one element of trust ahead of all others in the case of Mr. Prince.

Alwaleed would not trust someone who did not know himself.

Prince’s sin was not the admission of a write-off—even a gigantic one. And Alwaleed concedes Prince is an honest man.

It’s not competence or poor moral character that Alwaleed is faulting Prince for, but Prince’s flawed belief that he knew what he was doing. He gave assurances—his word—that he was in control.  He wasn’t—and he didn’t know it.

It was not Prince’s incompetence that cost Alwaleed’s support, but his unconsciousness of his incompetence.  He didn’t know that he didn’t know.

And if you can’t trust that someone knows what he says he knows—well, it calls everything else into question. This is what Alwaleed saw, and he didn’t hesitate to pull the trigger having seen it.

Has Alwaleed’s view of trust been shaken? Not at all. He speaks openly of trusting others, even after having been burned.

He has gotten where he is by trusting the right people, and he’s not about to stop playing the trust game because his trust was misplaced in one case.

Alwaleed believes in trust—hard, serious trust.

If you think the dictum “know thyself” is only about touchy-feely introspection, then don’t work for Prince Alwaleed.