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Call for Submissions for the August Carnival of Trust

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Carnival of Trust Logo

The third Carnival of Trust is fast approaching and will go live on Monday August 6th. The deadline for entries is this coming Thursday, August 2nd. This edition will be hosted by the Editor of the Blawg Review. The mysterious Ed, as he’s known, was someone I asked for advice on how to set up a carnival, and I’m looking forward greatly to seeing his edition of the Carnival of Trust.

As I wrote when announcing the first Carnival of Trust my hope and ambition for the carnival is to begin establishing a home base, a center of gravity, for people who are interested in fostering greater trusted relationships in various realms of the world.

While my own material is primarily business-oriented, the Carnival of Trust will be explicitly more broad than business alone. Trust is heavily personal in nature, and I hope the submissions will reflect that—postings that deal with personal trust, business trust, and political trust are welcome, as well as pieces on the nature of trust.

I’ll be setting a hard limit of 10 postings per Carnival. The host will personally make the decisions about inclusion, in an inevitably subjective manner intended to push the thinking ahead in those broad areas of trust.

I invite, encourage and urge you to submit pieces for the Carnival. Send them to http://blogcarnival.com/bc/cprof_1693.html

The first and second carnivals of trust had some great articles I urge you to read if you haven’t already.

And I look forward to reading your articles in the August Carnival!

Deer in the Headlights Decison-Making

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I’m reading A Demon of Our Own Design, by Richard Bookstaber. He did not cause the major market meltdowns of the last two decades, but—as he puts it—“let’s just say I was in the neighborhood.”

More on that book another time. There is one fascinating passage about human behavior. Bookstaber noticed major league top Wall Street traders caught like a deer in the headlights on the wrong side of a bet about the outcome of a potential MCI/BT merger.

As the bet soured from a $100 million loss to worse, the team gathered to re-assess the situation. A half-dozen variables had moved against them since the last discussion a few weeks earlier. Yet, amazingly, the outcome of the meeting was to ratify the existing position. Bookstaber puts it:

Stavis and I joked after the meeting how miraculous it was that with all the dislocations in the market, with all the surprise events and changes in the fortunes of the trade, it turned out that the position we had on at the time of our meeting still just happened to be exactly the right amount.

He expands:

It was a phenomenon that I found again and again and that seems to be an innate part of trader behavior: inertia against changing a losing position, and more specifically, inertia when faced with losses coming from unexpected corners. In experimental biology there is a term for this: experimental neurosis. An animal in the laboratory, beset by a strange environment and events that are outside of its past experience, will sometimes simply curl up in a ball and ignore all of the stimuli. Its reaction to the alien environment is to freeze in its tracks…this is not limited to the behavior of animals in the lab; it is a phenomenon that arises from the core of how we approach the world.

Damn right.

Now—contrast that with one of the great business stories of our time—Andy Grove and Intel’s exit from memory technology, as told by Richard Tedlow:

NB: How did Intel make that transition?

RT: They knew they had to get out of memories. Freud talks about a cognitive state he calls “knowing but not knowing,” which he defines as a state of rational apprehension that does not result in effective action. Intel was being clobbered by Japanese manufacturers. They knew something was happening, but they didn’t know how important it was. They were feverishly debating various ideas of how to respond.

Andy proposed a thought experiment to his then boss, Intel CEO Gordon Moore. “What would happen,” he asked, “if the board kicked us out and brought in new management?” Moore immediately replied, “They’d get us out of memories.” Andy looked at him and said, “Why don’t we walk through the door, come back, and do it ourselves?”

By creating a fantasized new management, he was able to escape from the legacy of Intel as the memory company. At least in part because of that moment, the United States today is the world’s leading manufacturer of microprocessors.

Grove probably would have gotten out of the MCI trade too. He had figured out how to beat the deer in the headlight phenomenon, the boiling frog problem, the sunk costs problem.

More broadly: he figured out how to change.

And it’s actually not complicated to understand. Here it is in conventional folk wisdom terms:

You can start your day over anytime you want
It’s never too late to have a happy childhood
This is the first day of the rest of your life.

The truly great decision-makers aren’t those schooled in hyper-quant theory.

They are those secure enough with themselves to remember what they learned in kindergarten.

Update: "Deer in the Headlights Decision Making" is a featured post at the Huffington Post.  Trust Matters readers may want to check out the discussion there as well.

When Business is Incontinent

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No, not that kind of incontinence.

The term is also used in philosophy to describe a certain situation (I’m reaching back a few decades on this one, so someone check me) roughly like this:

He knows what the good is; he knows that he ought to do the good; there is nothing standing in the way of his doing the good; and he wants to do the good. Yet he does that which is wrong.

As I recall, Aristotle’s explanation was, roughly:

That’s silly. If he didn’t do it, then it’s just because either he didn’t really want to do it or something prevented him from doing it.

Plato’s—which I greatly prefer—was:

That’s life. That’s the beauty and the idiocy and the pain of being human.

David Maister’s recent post What Gets Fat Smokers on the Diet? reminded me of this issue. David’s topic had to do with what prevents organizational change.

My take on the subject is that both personal and corporate change are similar to dealing with addictions: it takes repeated attempts, which in aggregate show improvement, but which in particular instances are weak. And there are no guarantees.

Best practices, in personal as well as organizational life, probably include:

> envisioning—constantly keeping in mind goals, outcomes, tangible pictures of the desired to-be state of affairs

> specific next steps—tactics, mantras, tips and tricks that move the ball in the generally right direction

> no-no’s—things that are warning signs of "bad" behavior, a la if you don’t want to get hit by trains, don’t play on the tracks

> values—a clear set of guiding principles, enunciated frequently by people who understand them and practice them

> a medium-to-long-term view of the world that infects all behaviors—negotiating, pricing, relationship management, compensation, investment evaluations

> a strong preference for intrinsic motivational approaches over extrinsic approaches. Getting people to behave in ways that support others by giving them money (in effect, paying them to be unselfish) is as close to oxymoronic as you can get.

> at the suggestion of Stuart Cross I’d add one more: A sudden shock – for an organization this may be a decline in profits, the loss of a customer, the entrance of a serious new competitor, a price war, or a rise in costs. In addiction, it’s a divorce, a disinheritance, a DWI, a death in the family (ever notice how many disasters being with the letter D?).

For change in corporate life, the challenge is to generate the powerful motivational effects of, say, a tragic car accident—but through genteel, socially acceptable means like corporate training programs.

The mother of the new boy in kindergarten says to the teacher, "Johnny is very sensitive. If he does something wrong, just slap the child next to him—he’ll get the message."

But Johnny Adult isn’t quite so sensitive. And the Adult Next to Him tends to hit back. It’s hard to change habits; it’s hard to change thinking; it’s hard to change incontinence.

It’s almost enough to believe Aristotle.

 

But not quite.

Transparency, News Media and the NBA

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What do news media and the NBA have in common?

If you guessed a trust problem, go to the head of the class.

So it’s interesting to see two pieces within a day of each other, suggesting the same solution to the respective industries’ woes.

Henry Abbott, in What the NBA Needs: Transparency offers a radical suggestion:

the crisis is if all those people who love watching the NBA find themselves in the position of not trusting the referees. That’s an indictment of the game itself…

The NBA keeps telling us how many ways they assess their referees. They insinuate that if we knew what they know, we’d trust those referees, too. Maybe that’s true. But telling us so isn’t going to convince anyone.

NBA, you’re going to have to show us.

… Let us go online after every single game and see video of every single call, all neatly sliced and diced by player, by time of game, by type of call, by referee, and by a bunch of other things I haven’t thought of yet.

Henry makes an important point about transparency—it’s hard to be partly transparent, because being partly transparent immediately suggests you’re hiding something. Call that a negative feedback loop. Don’t tell us—show us.

Alicia Shepard at the Chicago Tribune writes For News Media, Transparency Is a Matter of Trust, saying:

Poll after poll, year after year, the message is the same: Journalists are ranked down with used-car salesmen and snake-oil peddlers when it comes to credibility.

Is it because reporters lie? Is it because reporters make so many mistakes? Or because reporters are biased?

No. It’s because the public does not understand what journalists do or how the news gets put together, whether it’s for TV, print, radio or the Internet.

… The news industry should work harder at exhibiting the same transparency about how it operates that it demands from public corporations and all levels of government.

…. "Transparency is essential because it’s inextricably tied to credibility," said Susan Moeller, director of the International Center for Media and the Public Agenda. "Transparency doesn’t ensure accuracy. But it does ensure that when a news outlet makes a mistake … its audience can be assured that the news outlet is going to admit to it and correct it and will have policies in place for following it up."

Several other industries look at the same diagnosis—“the public does not understand us”—and conclude they have a PR problem, solvable by “getting the word out.”

NBA fans and media hounds know that won’t cut it. Transparency is not great spin—it’s a spin-free zone.

In our personal lives, the solution to mistrust is to “come clean,” “let it all hang out,” “just put it out there,” “tell the whole truth.” Be transparent.

At an industry level, the same dynamics are at play.

IQ, EQ and the Next Billion Banking Consumers

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The Boston Consulting Group might house the world’s highest concentrations of brainpower per square foot.  BCG is to consulting what Goldman Sachs and Cravath are to banking and law.

When it comes to intelligence, they are tops.

In terms of IQ, that is.

EQ?  Well, that’s not so much what they’re aiming for.

Case in point—the most recent article from BCG’s Industry Insight series, The Next Billion Banking Consumers. (The piece shares two authors and whole paragraphs verbatim with a more general piece from BCG’s Perspectives article series, titled The Next Billion).

BCG’s article series—particularly Perspectives—have been the source of breakthrough thinking for several decades now, including the experience curve and the barnyard portfolio theory, and the general concept of strategy as the pursuit of sustainable competitive advantatage.

The article opens big:

The problem of financial exclusion—individuals’ limited access to or use of formal banking services—looms large around the world. It both reflects and contributes to the stark socioeconomic divide that pervades many emerging markets…

By embracing innovative business models, however, banks can upend the economics of reaching consumers long considered impossible or unattractive to serve.

Great—energizing the banking sector to help accomplish what microfinance suggested might be possible. Cutting-edge capitalism, bringing the next billion—“just above the poorest of the poor and just below those who are currently targeted by most banks”—into the mainstream of the global economy.

Indeed, much of the article addresses the need for changes in product development, distribution, marketing and organization structure, listing some exciting innovative practices.

Then there appears this paragraph:

Unfortunately, regulations sometimes make it difficult—if not impossible—to offer products that suit the financial means of the next billion consumers. Our analysis shows, for example, that Indian banks would need to charge a 32 percent interest rate just to break even on the kind of small, short-term personal loan that the next billion consumers would want.  Yet national regulations prohibit banks from charging interest rates to priority sectors that exceed the prime lending rate, which currently stands at about 12 percent.  This problem underscores the need for regulatory reform that complements initiatives to reach the next billion consumers.  (italics mine)

The need for regulatory reform?  Let me get this straight.  A banking industry in a country with 5% inflation and 6% one-year t-bill rates needs 32% interest rates to break even in a new market, and the problem is—the presence of usury laws?

How about—oh, I don’t know—a banking industry that can make money on less-than-32% interest rates?

Unless I am seriously missing something—always a possibility—the inclusion of this paragraph, alongside discussion of radical product and distribution redesign, is socially and politically tone-deaf.  Narrow.  Myopic.

It feels like a hammer seeing an all-nail world.  If your constant goal is the pursuit of corporate competitive strategic advantage, then of course regulatory “reform” is inconsequentially different from product innovation—it all adds to competitive advantage, right?  (Except of course for the poor schmoe trying to make a buck with his feet in plus-32% debt cement shoes). 

In an increasingly connected world, the view of competition as the be-all and end-all of business—even just of strategy—is antiquated.  Out of sync. Competition without commerce just doesn’t add up to much.

The world is connecting more.  And it isn’t about just the connections, or the connected.  It’s about the synergy in the combination.

Kind of like IQ and EQ.

 

Negotiation and the Short Term Performance Trap

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Economists and psychologists love intellectual puzzles like The Prisoner’s Dilemma, a game that posits a 2-person bargaining or competition situation.

In The Prisoner’s Dilemma, one person goes free if he “rats out” the other prisoner and the other prisoner stays mum. Unfortunately, if both rat out each other, they each get life in prison.  If both stay mum, they each get off with just a year.

When the game is played with strangers—one time only—the most common result is the double-rat-out.  Oops.

The challenge to economists is to explain why people so frequently do not act “rationally.”

The answer shows up when you play it ten times in a row. With a friend. With eye contact.

But—especially—from playing it ten times in a row.

Then the players quickly learn to cooperate.  (Though sometimes they’ll turn vicious again the last round.  Or maybe not. Think reality TV shows.)

The point is: it’s smart to think collaboration, cooperation, medium to long term focus.  Not a one-time, zero-sum, confrontational me-vs.-you outcome.

The learning for managers, sales managers, brokers, etc. is clear: if you think you’ll never see this customer again, nor have to deal with this customer’s spouse, friend, or cousin, and you think no one will ever hear what you’re about to do, and you’ll gladly trade a good reputation for money—then go ahead, squeeze the customer, try to win the negotiation—treat it like a transaction.

All others: operate on the assumption of multiple transactions—which, for lack of a better term, let’s call relationships.

Assume you will have repeat customers; that your reputation matters, even in terms of simple self-interest; that what goes around comes around; that six degrees of separation in today’s world is a vast overstatement, and it’ll bite you if you don’t believe it.

It’s a simple enough answer. People in social situations routinely act as if they’re a member of an ongoing social group, even if they’re not. (See for example similar results regarding The Ultimatum Game).

That, however, is in social situations.  At the business level, particularly with customers, another belief system often gets in the way.  I hear it frequently.  It sounds like this:

You don’t understand, Charlie; around here, you get measured on short-term results. So there’s a lot of pressure. You have to be a lot tougher on customers—terms, pricing. Trust is nice and all that; but I’ve got a job and a bonus structure and I’ve got to make a living. Go tell it to my boss.

OK, let’s tell it to”your boss.”

Every time you treat a customer from a transactional point of view, you are hurting your long-term profitability. And the short term has a way of turning long-term very quickly. You run out of new customers to squeeze to get all you can in one deal.  And if you rat-out your customer, and your customer rats you out in return, you just bought yourself long-term low profit prison terms.

Put another way:

The best short-term performance does not come from short-term management—it comes from medium- and long-term management done well.

Management, that is, based on the presumption of a relationship, not a series of oppositional transactions. Management based on principles, not self-interest.  If you want to be in charge of your own long-term career, don’t let “your boss” ruin it with short-term management.  Your customers will remember your behavior, not your boss’s words.

Trust makes money.  Prisoners who rat each other out lose money.

Please tell “your boss.”

Trust, Conflicts of Interest and Death Bonds

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You trust your brother- in-law, and tell him you want to buy a used car. He says his cousin knows cars. You talk to his cousin, who recommends you buy a Saab. He finds you one; you buy it. All is good.

Then you learn the cousin is a used car dealer, and the car came from his inventory. Next, you learn your brother-in-law received a referral payment from his cousin for your business.

Now there are at least two people you trust a lot less. And the phrase “conflict of interest” becomes personal. But how, exactly, are the two related?

When I wrote (with Maister and Galford) The Trusted Advisor, we introduced the Trust Equation:

T = (C+R+I) / S, where
C=credibility, R=reliabilty, I=Intimacy, and S=self-orientation.

(To be precise, it’s a formula not for trust, but for trustworthiness of the one who would be trusted.)

The numerator factors are pretty clear. It’s the denominator that gets most readers’ interest, and rightly so—it’s the most powerful.
On a personal level, we trust someone if their focus and interest is about us: we do not trust them if their focus and interest is about themselves.

It’s why we’re sceptical of used-car dealers, telemarketers, and other stereotypes of sellers—people who clearly want our money, but less clearly have our interests at heart.

Conflicts of interest are fuel for the fire of self-orientation. How we choose as a society to deal with them says a lot about our view of government, and of humanity.

Arrayed in increasing order of social involvement:

Seven Responses to Conflicts of Interest: 

    by Level of Social Involvement

  1. Level one is caveat emptor. Society doesn’t have an interest compelling enough to create a solution beyond “deal with it.”
  2. Level two is ethical. Rely on collective shame heaped on used-car dealers to enforce behavior.
  3. A third is professional. The Association of Used Car Dealers should develop and enforce guidelines. (The Association for Brothers-in-Law is a less likely candidate for this approach).
  4. A fourth is enforcement. Vote for whatever district attorney will prosecute the hell out of the guilty parties using whatever laws are on the books.
  5. A fifth is required disclosure. As long as your brother in law and his cousin tell you their interests, the problem reverts to level 1.
  6. A sixth is regulatory. The National Used Car and Brother-in-Law Exchange Commission will do what the industry failed to do.
  7. Finally, there is structural reform. Separate the evil-doers so that they are not only free from temptation, but can never conspire to develop their nefarious schemes.

Society evolves. Big Tobacco went from level 1 to level 7 in mere decades. Sarbanes-Oxley was a level seven solution after many years at level three. Elliot Spitzer got elected governor of New York because of his activity at level four. Glass-Steagall’s repeal went from level seven back to levels five and lower.

Senator Herb Kohl of Wisconsin has been holding hearings about the pharmaceutical industry’s role in medical research; many researchers are funded by pharmaceutical industry money. The question is: what to do about it?

Kohl is inclined to recommend level five—disclosure. The Pharmaceutical Manufacturers Association says leave it at level three. Doubtless there are other views covering the others.

The July 30 2007 cover story in BusinessWeek is about Death Bonds—securitized life insurance policies, the same thing we’ve seen with mortgage-backed securities. The idea is individuals can cash in their life insurance policies to investors, and benefit. Along with the investors. The sooner the insured dies, the faster the investor makes money.

Right now, 26 states require professional licensing for "life settlement brokers"—level six.  Several investment banks have founded the Institutional Life Markets Association to lobby for appropriate regulation—level three. New York is prosecuting Coventry First—level four.  (Data from the BW article.)

What is the right role of society in mitigating conflicts of interest to foster greater trust?

Top Ten Things Not to Say in a Sales Call

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Props to Brad Trnavsky, who posts Ten Things a Good Salesperson Should Never Say, and Why.  They are short, sweet, and on the money.  Click through to check it out.

Have you ever found yourself saying, "I was in the neighborhood, thought I’d drop by?"  My chimney sweep company does that.  It’s rarely true, and probably doesn’t fit your business. 

Of course, the grand-daddy of them all—trust me.  I won’t do that rant again just now—Trust Matters readers know that one.

The one that caught my eye and prompted this quickie blog, however, made me wince. "What would it take to have you get started today?" 

Ouch.  Only about a year ago, I got a call from a woulda-been perfect client—a business I know well, a speaking engagement right up my alley.  We had a great conversation.  I quoted my full regular rate.  The client said gee, I dunno, limited budget for this event, etc.  And I—with all good intent, really wanting to help him out, and willing in fact to take a hit on this one if I had to, said, "Look, what would it take…"

He, quite rightly, said, "Wait a minute.  Your book talks about the need to maintain transparent and consistent pricing, and never to offer discounts except in clear specific cases.  And here you are discounting.  You have just destroyed my trust in all you’ve said."

Damn.  That’s one between the eyes.  And I had to admit that my good intentions couldn’t save me here, he was exactly right.  I told him so, we parted, never heard from him again.  100% my fault.

That’s my read on one of  Brad’s points anyway. Good comments on his posting too.  Go check them all out, see if any make you wince.

Trusted Professions

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Consultants’ News and the Institute of Management Consultants USA report on a survey about how much clients trust consultants.

Say CN and IMC:

Survey results…reveal that the consulting profession is viewed as trustworthy. When respondents were asked to rank a list of 10 representative professions from most trustworthy to least trustworthy, they ranked consulting as the 5th most trustworthy profession, behind nurses, doctors, teachers and accountants. Rounding out the list of professions were sales representatives, corporate executives, attorneys, journalists and politicians.

Hmmm. If you’re ranked fifth out of ten, you’re “viewed as trustworthy.” Presumably, sixth place gets you “untrustworthy.” There but for grace of sales representatives and journalists…

Want to know why nurses consistently rank #1 on these kinds of lists? Meet the President of the American Nursing Association. She could sell me a used car. Why? Because she virtually bleeds low self-orientation. You’d have a hard time finding less than six degrees of separation between her and anyone with a selfish bone in their body.

Similar results come from an Australian survey of trusted professions done annually since 1970. Tops are nurses, pharmacists and doctors; the bottom four—numbers 26 – 29—are various salespersons. Just above them, at 24 and 25 (out of 29) are TV reporters and newspaper journalists.

In Australia, unlike the CN poll, politicians barely outrank journalists. Pretty scary, for both countries, if you ask me.

In neighboring New Zealand, the top three trusted professions are fire fighters, ambulance officers, and—you guessed it—nurses. The bottom three (of 30) are psychics, car salesmen, and politicians. Wow—below psychics.

Edelman’s Trust Barometer , in 2006, reported:

Global opinion leaders say their most credible source of information about a company is now “a person like me,” which has risen dramatically to surpass doctors and academic experts for the first time, according to the seventh annual Edelman Trust Barometer, a survey of nearly 2,000 opinion leaders in 11 countries. In the U.S., trust in “a person like me” increased from 20% in 2003 to 68% today. Opinion leaders also consider rank-and-file employees more credible spokespersons than corporate CEOs (42% vs. 28% in the U.S.).

In 2004, the Public Broadcasting System was “the most trusted institution on a list of nationally known organizations in the country…” Hey, I’m a fan too. But shouldn’t the most trusted institution tell us who was second, how many there were, and who was in last place? Come on PBS, dish a little—you’ve got your credibility to defend here!

In India, media is the most trusted institution. In the Ukraine—at least in 2004—it’s the church.

While polling about trust in Serbia, there were problems:

"Concerning trust in Milosevic", Bogosavljevic continues, "it is notable that many people simply didn’t want to answer questions about him. For years ordinary people were taught that Milosevic was the greatest, and now they are told that they are supposed to be against him. Many of them simply can’t do this, so their response is simply to say ‘I don’t know’ or refuse to answer."

What’s it all mean?

Sometimes trust stays the same for a long time—part of our trust for nurses is that we’ve always trusted nurses. When trust changes rapidly, it can be disorienting to us.

There are few surprises in surveys—they almost always “make sense” when we hear results.

Most of all, trust touches our lives broadly—people, professions, and institutions are only a handful of arenas in which trust plays out in our lives. It’s neither simple, nor one-dimensional. And it’s all very human.

Apologies, Forgiving and Forgiveness

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For some reason, I just ran across a September, 2004, article by Martha Beck titled “Always Apologize, Always Explain,” in Oprah Magazine.

It’s still a good read.  Part of what makes it powerful is a list of what is contained in a good apology (itself from Aaron Lazare, the man who—literally—wrote the book on Apology)

1. Full acknowledgement of the offense
2. An explanation
3. Genuine expresssion of remorse
4. Reparations for damage

It’s a fine list (and has prompted me to finally buy Lazare’s book). 

But what I want to focus on is Beck’s own additional thought:

The final gallant act of apology is to release your former victim from any expectation of forgiveness. No matter how noble you have been, he will forgive—or refuse to forgive—on his own terms. That is his right.

Quite right.

It’s instructive that the ninth step of the Twelve Step program literature (you know, the one that pops up in Seinfeld and other sitcoms—the one about making amends), also doesn’t allude to forgiveness. In fact, none of the 12 steps do.

I think this is because Beck, and the 12-Step program, recognize that life is a messy business. To forgive, one has to have a very clean heart in the first place.  And we—I’ll be clean here and just say I—rarely do.

If I’m in a rush to forgive people, I most likely am still judging them for some harm they did to me.  If I’m consternated about being forgiven, well, that’s all about me; and apologies don’t come from a good place if they’re all about me.

Apologies should not be tainted by forgiving, or by seeking forgiveness.  Those have their place, but it’s elsewhere. 

A good apology tries to set aright something that you set awry by impinging on another’s will.  It’s only appropriate that the apology itself refrain from further imposition of will. Hence the separation from forgiving or forgiveness.

Apologizing is fundamentally about taking full responsibility for your own role—no more, no less—in what goes on.  Fully owning your words, your actions, your life helps everything fall into place.  Blame is gone.  Wishing is gone.  Whining and tweaking and sliming and spinning are all gone when you take responsibility for your own role—no more, no less—in what goes on.  As Phil McGee says, blame is captivity, and responsibility is freedom.

In that vein, I want to apologize to (he knows who he is) for what happened back in (he knows when it was).  It was my doing—he knows that, and I want to say to him he was right.   And I’m sorry.