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Stupid Crazy Trust

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Sometimes I get annoyed. Usually, that means I’m thinking like an idiot. Sometimes, however, it produces useful ideas.

Lately I’m annoyed by the constant repetition of a myth about trust. You know this one: “Trust takes a long time to create, but only a moment to destroy.” There’s no need to name names here, but you can see examples of it here and here and here and here.

This time, my annoyance produced some good: I can now explain why that myth isn’t merely annoying, but positively harmful as well. Here goes.

The Truth.

Let’s start with the truth. Most human relationships, like most emotions, take roughly as long to get over as they took to develop. Marriages or friendships don’t end overnight. There may be a flash point, a straw that breaks the camel’s back. But we cut slack for people we trust. We don’t dump them abruptly.

If trust were lost in a minute, battered women wouldn’t stay with the men who beat them; things are a little more complicated than that.

If trust died quickly, the SEC would have investigated Bernie Madoff when Harry Markopolos first lodged charges against him. If trust died quickly, the steady drip drip drip of evidence at Penn State, Enron, Toyota, and Johnson & Johnson would have ended at the first drip.

Most examples of “trust lost quickly” turn out to be either just the last drip in a long series of drips or a delusion about trust’s existence in the first place. You don’t “violate the trust” of a subscriber to your email list by sending them a worthless referral. The relationship you have with a name on your email list may be many things, but “trust-based” is probably a stretch.

Trust formed quickly can be lost quickly. Trust formed at a shallow level can be lost at the same level; trust formed deeply, or over time, takes deeper violations, or a longer time, to be lost. The pattern looks more like a standard bell curve than a cliff.

But, you might say, so what? Why are you annoyed? Why is that harmful? 

The Harm

If you believe that trust can be lost in a moment, then you likely believe you must be cautious and careful about protecting it. You are likely to think about trust as a precious resource to be guarded against being tarnished. You are inclined to institute rules and procedures to protect it and to give cautionary lectures about the risk of losing trust.

Yet these are precisely the kinds of behavior that result in trust lost.

I don’t trust the man who talks with me while pointing a gun at me‬—partly because he looks threatening to me, but also because he clearly does not trust me.

Trust, at a personal level, is like love and hate: you tend to get back what you put out. You empower what you fear. Those afraid of getting burned are the most likely to get burned.

This totally works at a corporate level too. I remember vividly the convenience store chain that gave monthly lie detector tests to store managers to prevent theft—and then wondered why the theft kept on happening.

Trust is a Muscle

Thinking of trust as something you can lose in a minute makes you cautious and unlikely to take risks. But the absence of risk is what starves trust. There simply is no trust without risk—that’s why they call it trust.

If your people aren’t empowered, if they’re always afraid of being second-guessed, then they will always operate from fear and never take a risk—and as a result, will never be trusted.

Trust is a muscle—it atrophies without use. And the repetition of the mantra “trust can be lost in a moment” just tells people not to use it.

Turns out the stupidest, craziest trust is the trust you never engaged in because you were too afraid of losing it. The smartest trust is the trust you get by taking a risk.

Doing the Right Thing May Be Easier Than You Think

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We all know the hard stories of corporate whistleblowers. Sharon Watkins at Enron, Cynthia Cooper at Worldcom, for example. We view such people—quite rightly—as having not just the courage of their convictions, but courage enough to put their social and economic lives at risk for the sake of what they see as right. We all live in a better world because of the risks taken by such people.

Most of us think that such whistleblowers are rare, and perhaps they are. But we also think the cards are stacked against them—that the reason they are so rare is the likelihood of retaliation against someone going up against ‘the system.’

What if that’s not true? What if the risk of doing the right thing is in fact vastly overstated? That virtue is in fact appreciated more than we think? If that’s true, then what excuse do we all have for not doing the right thing more often?

Examples of Ethical Behavior that Evoke Admiration

Twice in the past two weeks I have heard stories that make me think we underestimate the power of good behavior. Briefly:

Story One. I was brought in to manage a main stream of a major contract we had with the government. To my horror, I quickly realized it was over budget, behind schedule, and we were not in a position to attest otherwise. Yet we had a major meeting upcoming at which I would be asked to do just that.

My boss and my boss’s boss had a lot riding on this. The government client had a lot riding on this. It was clear everyone wanted me to sign off and just deal with it, somehow, later. As I entered the headquarters building that day, I had this horrible feeling I was about to lose my job.

The moment came, and I was asked to publicly attest to our progress against milestones. “I simply cannot do that,” I said. “We are not in compliance on a number of those items, and I can’t claim otherwise.” I went home that night prepared to clear out my desk the next day.

But when I went to work the following day, it was as if little had happened. “Good job,” said one superior, “we had no business signing off.” The client appeared relieved too. I later was promoted; we also got more client work. In both cases, this moment was cited as a positive example of my performance.

Story Two. I was a manager of a large client project, which involved a presentation to the client’s Board of Directors. The CEO suggested that if our work turned out a certain way, we would receive a lot of business. I said I could not in good conscience bend the work the way he wanted it.

The next day, in front of the Board, the CEO put me on the spot, saying I was prepared to comment on my findings in a way that would have favored his request. I gulped. I didn’t confront him head on; but I did say that the data and analysis that we had performed unfortunately did not, in fact, support the CEO’s hoped-for outcome, but rather another.

I thought I would be in serious trouble with my boss. Instead, he told me that’s why they hired me in the first place, to stand up to tough situations. A few weeks later, a board member—a director in half a dozen other, larger companies—came to me with invitations to present at those companies. He said he did so because he could read between the lines and knew what I had done.

We Underestimate the Attraction of Ethical Behavior

I have no idea how common these stories are. They could be the exception rather than the rule (though I rather think there are more than we hear about).

The real point, however, is how easily the two organizations fell in behind these two people to support them in doing the right thing. As it turned out, their fears were unfounded. 

This I suspect is true: that we overstate the threat posed by ‘them.’ We overestimate the likelihood that no one would stand behind us, and that there is no support in our organizations for doing the right thing.

I suspect this too is true: that we understate the ability of people to appreciate the obviousness of the right thing. We under-state their hunger and willingness to follow someone who does the right thing, that there is in fact a reservoir of great good will and support.

Believing this doesn’t take anything away from the true courage it takes to be a whistleblower. On the contrary, it may suggest that the truly unethical and anti-social organizations are fewer than we think.

The bigger problem may lie not in unethical leaders, but in managers and future leaders who are too afraid to try on ethical leadership for size.

Where’s your whistle? What are you waiting for?

Bear Stearns, Enron, and Some Confusion About Trust

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Is there such a thing as an inherently trust-based business? Houston Attorney Tom Kirkendall, who writes a blog called Houston’s Clear Thinkers, seems to think so.

In a provocatively titled post called That Pesky Trust-based Business Model, Kirkendall writes:

"The fact of the matter is that Enron was — and Bear Stearns and AIG are — trust-based businesses that fundamentally depend on the trust of the markets to sustain their value. Once that trust is lost, such companies lose value quickly and dramatically. "

I’m not so sure about that. Presumably he means most financial businesses are leveraged—they lend out, or put to work, considerably more money than their base capital. And as long as people trust them, it works If they lose that trust, well, that’s when you get a run on the bank. That’s what I understand Mr. Kirkendall to mean, anyway.

But try shouting "roaches!" in a restaurant. What happens to Wendy’s stock price if someone finds a finger in a bowl of chili? What happens to a pharmaceutical company if someone finds a tainted pill bottle? What happens to a toy company if it’s found to have imported toys made of hazardous materials? What happens to a securities-rating agency when AAA-rated securities turn to junk in months?

I haven’t thought this through fully yet, but the idea that some businesses may be structurally more "trust-based" may be a distinction without a difference—or at least one of degree only.

What is clear to me is that all businesses can be run in a trustworthy manner—or not.

For example, when the CEO of Bear Stearns, Alan Schwartz, said on CNBC on the morning of March 12 that the firm’s liquidity was fine, a Bear Stearns shareholder might reasonably “trust” that the firm wouldn’t lose billions and implode in about four days.

Oopsie.

Back to Kirkendall, who goes on to say:

Although unfortunate for the owners of such companies, such a dramatic loss of wealth does not necessarily mean that any criminal conduct caused or was even involved in the loss. Rather, such loss is simply one of the risks of investing in a company based on a trust-based business model.

Granted criminality is not the only warranted deduction. There is also venality that hasn’t been outlawed. And, most common of all, garden-variety incompetence with its handmaiden hubris.

Here’s what mega-investor Saudi Prince Alwaleed had to say just a few months ago about former CEO Chuck Prince’s similar situation at Citibank:

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…I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely.

Both CEOs Prince and Schwartz said one thing, clearly and confidently—and were very quickly proven either liars or incompetents. Schwartz just got there a lot faster.

Alwaleed considers this patently unacceptable. Kirkendall considers it “simply one of the risks.”

But where is Kirkendall going with all this?

The sooner we all recognize and understand this risk — and avoid the mainstream media’s promotion of myths about them — the quicker we can put a stop to injustices such as this while advancing the discussion of how best to hedge the risk of such potential losses.

I’ll save you the trouble of clicking through the links. The “myths” he is talking about are that "myth" that Enron was about criminal behavior, rather than prosecutorial misconduct. Enron investors could have and should have shorted Enron (true enough). Kirkendall seems to think this is all part of a conspiracy, that Skilling has been unfairly demonized. He says, “I continue to hope that Jeff Skilling’s unjust conviction and sentence are reversed on appeal, not only for his and his family’s benefit, but also for ours.”

O-kay. That’s one view. Here’s another, from someone with standing:

Jeff was indeed the "smartest guy in the room" and a micro-manager to boot—which certainly made it clear to me that the idea that he was unaware of details of his subordinates’ affairs was utterly absurd. Likewise the idea that he was ignorant of the shades of gray and then black concerning the border between legal and illegal market manipulation insults his intelligence. So I guess I conclude "beyond a shadow of a doubt" that the prosecutors and the jury got it right.

That’s by Tom Peters. Tom knew Skilling because he worked with him. Read Tom Peter’s full post on Skilling, Lay and Enron here. It’s enlightening not just about Enron and ethics, but about what a real trust-based business looks like. Tom believes in Cowboy Capitalism. He also believes that those in charge bear some responsibility to those who entrust them with their money. Tom Peters, in my book, does Clear Thinking.

It strikes me as disingenuous at best to describe some business models as "trust-based," and to then use that as a facade for an argument against the accountability of those who are chosen precisely for their ability to navigate treacherous waters and who are paid handsomely for their doing so. If there is no line to cross, then there is no such thing as ethical behavior. And if there is a line, someone’s likely to try crossing it. C’est la vie.

The key issue isn’t whether a business model is "trust-based." It’s whether we can put our trust in the people running the business.