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Can Trust Scale? Interview with Stephanie Ann Olexa

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Getting to The Core of ValuesI recently got to meet Stephanie Olexa, a renaissance woman whose most recent incarnation is as an executive coach, at her company Lead to the Future. She has quite a bit to say about trust, and about two organizations in particular.  Here’s our conversation.

Charlie Green: Stephanie, you’re hard to pigeonhole. You’re an author, teacher, entrepreneur, PhD, patent-holder, scientist, professor, angel investor – and that’s not even half of what you do. How did you come to be so multi-faceted?

Stephanie Olexa: You might say I haven’t figured out what I want to do when I grow up.  But in reality, I followed my curiosity.  I started as a teaching and research scientist in a medical school, then evolved to work in the business of science at two Fortune 100 companies, then jumped into entrepreneurship by forming my own company in a scientific field, followed by a short time applying business principles to nonprofit organizations and now using everything I learned along my journey to work as an executive coach, consultant and teacher.

C. You and I met through Trust Across America, and we got to talking about the issues of increasing trustworthiness in business. You had a fascinating story about how decisions get made in a Pennsylvania company you know; could you tell us about that?

S. I met one of the co-owners of the business at a dinner sponsored by the Delaware Valley Family Business Center.   (I asked, but he prefers not to be mentioned by name or company).

He, his brother and brother in law are equal owners of the company and equally share the title of President.  All major decisions are made by consensus.  Of course this goes against everything I learned in Business school so my curiosity was piqued.  I asked him to describe their decision making process.

They have a conference room in the company with a basket at the door.  The word “ego” is on the basket.  This, he said, is to remind everyone to leave their egos at the door. Also in the room is a sign with the company core values.  For every decision, they ask which alternative best meets their core values.  When he told me that after thirteen years they never had a disagreement there was a calm and peaceful look on his face.  I wanted to hug him!

C. The ability to manage like that – doesn’t that come from a homogeneous culture? Isn’t that virtually impossible to replicate?

S. First, I believe that business leaders are responsible for creating and maintaining the culture and that the culture must be based on shared core values. It’s not impossible to replicate, but it is hard to maintain and takes commitment.

C. This sounds like a small, private company. Can you really scale up this kind of management to bigger companies?

S. It is a private company, but not small.  They have over 370 retail outlets spanning Eastern United States from Florida to Maine, with over 5000 employees.  Layer on top of the size the challenges of leading remote teams and it is even more impressive.

C. Wow. So, how do you see what’s going on here? What makes it work?

S. It works because the leaders have consensus on their core values, the courage to live in accordance with them, and the commitment to demand that the business is managed in  a way that promulgates them.

C. So, why can’t we scale up larger companies in the same way? Or can we?

S. We can.  I believe that we need to have the leaders in those companies to commit to shared values and to be proud of those values.  The values can’t be in a strategic plan on a shelf but have to be demonstrated every day.

C. What are some of the benefits of increased trust in business that you see?

S. The literature has statistics on financial benefits but I have witnessed the human benefits, happiness, peacefulness, generosity, compassion and caring.  Trust in business spills over into trust in families, industries and communities.

C. Are there some other examples that come to mind that illustrate the trust opportunities in business?

S. I ran my company, a network of analytical labs, for twenty years.  It was built on shared core values.  We always told employees that if they made a mistake in a test, the problem could be solved but if they hid the problem there could be long term issues.  Mistakes of the hands can be fixed but mistakes of the heart were not tolerated.

A few years ago we hired a young woman right after her  graduation with a degree in Microbiology.  She was near the end of her six month training in a test for total coliforms in drinking water.  The method has strict quality control requirements but this is a test that is dependent upon the analyst looking at the results and recording them in a lab computer.

One Saturday morning this analyst saw that the QC requirement failed.  The correct thing to do was to invalidate all forty samples and recollect them.   She was alone in the lab and could have easily just checked the box that everything was ok.  She didn’t.   She called her supervisor at home, who then called me.  We had to call all of the customers and send out two collecting teams to get new samples and run them that day.  The expense of redoing the work was really high and the young analyst knew it.   I thanked her for her honesty.  Not one employee complained about the inconvenience or increased work.

But the best part is that the following month the young employee was voted employee of the month by her peers, citing her courage and honesty.  They wanted her on the team. So what was the benefit to me of the trust in the company?  I had no doubt that every employee would do the right thing even if nobody was watching.

C. This is timely; I’m just reading a 10-year old book, McKinsey’s Marvin Bower, wherein author Elizabeth Haas Edersheim describes the same utter devotion to values-based management that he instilled in McKinsey. I suspect Bower would completely agree with you what you’re saying, and I’ll note that while McKinsey was far higher visibility, your friend’s organization is larger than McKinsey was at the time.

S. Values-based management is not just a pretty phrase.

C. Not at all. Stephanie, thanks so much for taking time to speak with us, and best wishes to you. Where can people reach you?

S. My website is Lead to the Future, and my  email is [email protected]

 

 

A Better New Year’s Resolution

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Happy New Year! New Year card with folded colored paperI wrote a good blog post at this time seven years ago, and haven’t improved on it yet. Here it is again.

Happy New Year.

—————–

My unscientific sampling says many people make New Years resolutions, but few follow through. Net result—unhappiness.

It doesn’t have to be that way.

You could, of course, just try harder, stiffen your resolve, etc. But you’ve been there, tried that.

You could also ditch the whole idea and just stop making resolutions. Avoid goal-failure by eliminating goal-setting. Effective, but at the cost of giving up on aspirations.

I heard another idea: replace the New Year’s Resolution List with a New Year’s Gratitude List. Here’s why it makes sense.

First, most resolutions are about self-improvement—this year I resolve to: quit smoking, lose weight, cut the gossip, drink less, exercise more, and so on.

All those resolutions are rooted in a dissatisfaction with the current state of affairs—or with oneself.

In other words: resolutions often have a component of dissatisfaction with self. For many, it isn’t just dissatisfaction—it’s self-hatred. And the stronger the loathing of self, the stronger the resolutions—and the more they hurt when they go unfulfilled. It can be a very vicious circle.

Second, happy people do better. This has some verification in science, and it’s a common point of view in religion and psychology—and in common sense.

People who are slightly optimistic do better in life. People who are happy are more attractive to other people. In a very real sense, you empower what you fear—and attract what you put out.

Ergo, replace resolutions with gratitude. The best way to improve oneself is paradoxical—start by being grateful for what you already have. That turns your aspirations from negative (fixing a bad situation) to positive (making a fine situation even better).

Gratitude forces our attention outwards, to others—a common recommendation of almost all spiritual programs.

Finally, gratitude calms us. We worry less. We don’t obsess. We attract others by our calm, which makes our lives connected and meaningful. And before long, we tend to smoke less, drink less, exercise more, gossip less, and so on. Which of course is what we thought we wanted in the first place.

But the real truth is—it wasn’t the resolutions we wanted in the first place. It was the peace that comes with gratitude. We mistook cause for effect.

Go for an attitude of gratitude. The rest are positive side-effects.

 

Interview with Trust Expert Eric Uslaner

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ericuslanerEric Uslaner is perhaps the world’s leading authority on social trust. He was recently much in the news, as he is every year, with the annual publication of the General Social Survey on trust.  Here are some headlines from our talk this past fall.

Charlie Green: Thanks very much for speaking with me. We last talked back in early 2010. Now, most of my readers are accustomed to talking about trust in the sense of trustworthiness, like can I trust banks, or how can I get people to see me as trustworthy. Your approach is different. Let’s clarify that first.

Eric Uslaner: That’s right, it is different. You’re talking about people’s perceptions of other people’s trustworthiness. There are two parts to that: part one is it’s a specific person or institution about which you’re having the opinion: the other is that we view trustworthiness as the active characteristic.

I focus differently. I focus not on the perceived trustworthiness of specific individuals (or companies), but on the propensity of individuals to trust strangers, or people in general. It’s more about a worldview than about direct experience. And the GSS, which has included these key trust questions since the  late 60s, consistently asks that kind of question: “Do people generally mean well,” that kind of thing.

CG: What are the differences in looking at trust that way, as opposed to trust in banking, or JPMorgan Chase, or international banking?

EU: There are two big differences, and they’re interrelated. First, social trust – what I’m talking – about  changes far more slowly, over a longer period of time. Nowadays a third of Americans say that people generally can be trusted; 20 years ago that number was half. And in many ways it’s not because of a decline in trustworthiness – crime is down, for example.  But what’s changed is people’s propensity to trust strangers.

The second difference is that social trust, as I’m talking about it, is what we need to drive political societies. You’re not going to get problem-solving done in a pluralistic society by sticking with your own kind. Generalized social trust is what drives our institutions – not whether trust in banking is up or down last month.  And on that measure, we’re in deep yogurt.

CG: And how does social trust play out against these other forms of trust?

EU:  Most of the time trust in institutions (except for the military) tends to go up or down somewhat together. Much of it’s driven by the economy; when things are good, we generally trust each other. An example: Trust in government rose under Reagan, because the economy was doing well.  But trust in people declined over that same time, largely because inequality drove people apart.

CG: So, institutional trust has a shorter time-span than generalized trust?

EU: Yes. Institutional trust is the response to Ed Koch’s old question, “How’m I doing?” You look at the economics of the moment; that’s why presidents always try to have the economy’s wind at their backs going into an election, because people’s political trust is short-term.

But social trust, that’s more a matter of long-term questions. Will life be better for my children?  That doesn’t depend on the Fed, or the stock market.

CG: Say more about that? Has social trust got to do with empathy?

EU: Yes, but it’s much more than just empathy.  You have to have a willingness to interact with people, and to see the world from different perspectives. It’s not that you have to change your mind, it’s just that you’ve got to concede that someone else’s reality may have as much validity as your own.  And in the US, the Congress has come to reflect the same sort of denial of legitimacy that has characterized the Arab-Israeli divide for so long – a denial that the other side has any claim to decency.

CG: Let’s get basic. Is social trust valuable? Do we want it? Do we care?

EU:  Absolutely. It’s what allows social cohesion, national identity, a sense of purpose and mission in a society. You only solve social problems if you feel you own them. Once people start thinking more in terms of their narrow group and less about those “others,” it’s an easy flip from “they’re different” to “they’re wrong.”

It’s not hard to trust my wife, the people in my church, or those I meet at my grocery store or my school. The question is, can I trust those who are different from me, and whose values I may not share?  And by the way, the less those people shop at my supermarket or go to my kids’ schools, the less likely I am to trust them.

CG: I was going to ask – what drives this kind of social trust? Or is that too vague a question?

EU: It’s not too vague, but the answer requires two levels.   First, people who have a high propensity toward social trust are a) optimistic about the future, and b) feel they have control over their lives. And people who have a low propensity toward social trust are the reverse – they believe the world is getting worse, and that it’s largely beyond their control (if not controlled by those “others”).

CG: So – optimism and empowerment.

EU: Yes – and now for the punch line, the second order drivers of those two.  A propensity toward social trust is influenced by a) education, and b) economic inequality.  The less educated people are, and the greater the income dispersion in society, the lower will be the social trust.

CG: That makes some sense.

EU: It makes more than sense. Denmark is one of the highest-trust countries in the world, and also has extremely high education rates, and very low rates of economic inequality. Equally important, economic mobility is far greater in Scandinavia (and even in the UK, these days), than it is in the States.

CG: Why do education and income disparity drive social trust?

EU: Education teaches people that their worldview is not the only worldview. It’s the touchstone of tolerance and appreciation. And economic disparity – at least past some tipping point, indicated by the ability of groups to migrate upward economically – is an indicator of hope, or of hopelessness. Also, the further apart we are economically, the less it appears to all that our fates are linked.

CG: So where do we stand these days in the US, and in other countries?

EU: We have increasingly solidified patterns of racial and economic segregation of housing. Social mobility is now behind that of dozens of other countries.

In the US, the flight of the black middle class has left the double-whammy of economic and racial segregation, with no powerful social institutions to get people out. Segregated communities are dysfunctional across a plethora of indicators – both groups tend to identify more with in-groups, and less with the society at large.

CG: What can business do?

EU: Get involved in the larger society. It’s unfortunate that most business rhetoric has tended to work against any sustained effort to fight inequality. Historically, go look at what Coca Cola did in Atlanta, and what Henry Ford did in Detroit. Coke knew that good people wouldn’t want to move to a segregated city, so they became active in integration of schools. Henry Ford famously paid his people enough to be able to buy cars. If Ford had not been such a rabid anti-Semite, he might have had more influence on public policy on inequality.

The more companies pursue their own interest, the more difficult it is for them to pursue bonds with their own community, which drives inequality even further. The prevailing ideology of business these days is at odds with the creation of a society that nurtures business; it’s very short-sighted thinking.

In the US, I’m reminded of an old CBC comedy skit, The Royal Air Farce, who said, “Things are going to get a whole lot worse before they get bad.”

CG: And on that light note, we’ll have to leave it.  Please come back and chat some more, Ric, this has been extremely enlightening.

Integrity: What’s Up With That?

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Can You Roll The Dice On IntegrityLike trust, integrity is something we all talk about, meaning many different things, but always assuming that everyone else means just what we do.  That leads to some vagueness and confusion. But a careful examination of how we use the words in common language is useful.

Integrity and the Dictionary

Merriam Webster says it’s “the quality of being honest and fair,” and/or “the state of being complete or whole.”

If you’re into derivations of words (as I am), then it’s the second of these definitions that rings true. The root of “integrity” is Latin, integer.  That suggests the heart of the matter (integral), and an entirety. “Integer” also has the sense of a non-fractional number, i.e. whole, not fragmented, complete.

In manufacturing, we have the idea of “surface integrity,” the effect that a machined surface has on the performance of the product in question: integrity here means keeping a package of specified performance levels intact. Similarly, a high-integrity steel beam is one that will not break or otherwise become compromised within certain parameters of stress.

Related also to this theme of wholeness is the idea of transparency, of things being whole, complete, not hidden – in this sense, we have high integrity to the extent we appear the same way to all people. Think of the phrase “two-faced” as an example of someone without integrity. (For a somewhat different and nuanced take on this issue in cyberspace, see @danahboyd on Mark Zuckerberg and multiple online identities).

Sometimes when we say someone has integrity, we mean they act consistently, in accord with principles. We say someone has high integrity when they stick to their guns, even in the face of resistance or difficulty.

Which raises an interesting question: where’s the line between integrity and obstinacy? For that matter, can a politician who believes passionately in the art of compromise ever be considered to have high integrity?

Then there’s that other common use of integrity that has a moral overtone – honorable, honest, upright, virtuous, and decent. Some of it has to do with truth-telling; but some of it has to do with pursuing a moral code.

Yet that raises another interesting question: can a gang member or a mafioso be considered to have integrity? Can an Occupy person ever consider a Wall Streeter to have integrity? Or vice versa? There may be honor among thieves, but can there be integrity?

Integrity – Your Choice?

So which is it?  Does integrity mean you tell the truth? Does it mean you operate from values? Does it mean you always keep your word? Does it mean you live a moral life? Does it mean your life is an open book?

Let’s be clear: there is no “right” answer. Words like “integrity” mean whatever we choose to make them mean; there is no objective “meaning” that exists in a way that can be arbitrated.

But that makes it even more important that we be clear about what we do mean. It just helps in communication.

For my part, I’m going to use “integrity” mainly to mean whole, complete, transparent, evident-to-all, untainted, what-you-see-is-what-you-get.

For other common meanings of “integrity,” I’m going to stick with synonyms like credible or honest; or moral and upright; or consistent.

What do you mean when you think of integrity?

The NFL, Ed Reed, and Trust

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photo via jumpingpolarbear.comEd Reed is an NFL veteran defensive safety with an outstanding record of performance. But it’s not just physical prowess that gives him his edge – it’s mental too.

And I’m not talking about toughness, or attitude, or no-pain-no-gain hype. I’m talking about insight, knowledge, and learning. Those of us in advisory or sales capacities have a lot to learn from him.

Analysis or Instinct?

Which is better: to trust your gut, or to study a situation carefully? We have heard both answers, proverbially speaking: both “don’t jump to conclusions,” and, “he who hesitates is lost.

A better answer is – it depends. On the one hand – in a crazy stock market, it’s the cool-headed trader who can recognize fundamental dynamics and make the smart move. On the other hand – in a difficult meeting, it’s the person who can sense subtle mood shifts and instinctively respond who adds the most value.

But the best answer is – both. And this is what Ed Reed embodies.

Reed is legendary for his ability to read offenses. Increasingly, it’s noted that he spends a lot of time watching opposing teams’ video tapes, something that only coaches used to do. In a recent NYTimes article, Reed is quoted as saying, “When you see something on film, just believe it. Believe that something’s going to happen, and just go.”

This is trusting your instincts. It is also putting in time in careful study. “Before you come to work, come to work,” says Reed.

What’s the relationship? It’s one of sequence. The same as what Tiger Woods’ father told him when young: Practice, practice, practice – and then, trust your swing.

Study – then react. Think – then feel. Be intelligent – then sentient.

Being Ed Reed in Your Practice

We can’t all replicate anyone else we choose to. But we can pretty much all move in that direction, if we choose strongly enough.

If you’re in sales, get a process – but don’t treat it like the end-tool, use it to inform your relationships. By all means, get Salesforce – but don’t think great CRM alone will tell you how to read the body language on your client when you’re pitching the sale.  By all means do analytics on your past performance – just don’t forget to internalize the results.

(By the way, if you’ll forgive the obvious pitch: get the best of both by buying my Trust-based Selling Salesforce App, just released with Soliant Consulting).

If you’re in an advisory or consultative or coaching/mentoring role, get a model – but don’t treat it like a one-size fits all blunt instrument, use it to inform your judgment. Read Freud, and Covey, and Schein – but don’t treat your client like a final exam.

Above all, do your research in advance. The final thing you should do before going in to interact with clients and customers is to clear your mind, relax, turn on your senses. Stop rehearsing, stop repeating mantras, stop trying to motivate yourself.  Step aside, and trust your swing.

Being Ed Reed in Life

As I read up on Ed Reed for this blogpost, I couldn’t help but notice what people say about his personality. A particularly good piece is Ed Reed: Hiding in Plain Sight, by veteran ESPN sportswriter Kevin Van Valkenburg.

What emerges is the portrait of someone who has native intelligence, but who is also deeply empathetic. Comfortable in his own skin, not seeking the limelight. Someone who leads by attraction, not promotion. Someone who has the personal comfort level to feel the equal of his coaches, as well as humbly one of the team of players.

And while this post is just about the link between cognition and instinct, I can’t help but believe that link is greatly strengthened by his overall emotional make-up.

In so many ways, Descartes had it wrong when he said cogito, ergo sum. So often, it’s como sum, como cogito. (In case my Latin is faulty, that’s meant to say, “As I am, so do I think”).

Discomfort with Selling: Interview with Author Jeff Shore

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Jeff Shore talks about being bold in the face of discomfort – a subject that quicklyBe Bold and Win got my attention.

Jeff is a sales expert, speaker, author and executive coach. He focuses far more than the usual person in this field on mindset issues, perhaps due to his combination of sales and cognitive behavioral therapy approach. Maybe that’s why I was so intrigued. His first book, Deal With It, was for salespeople coping with rejection.  His latest book, Be Bold and Win the Sale: Get Out of Your Comfort Zone and Boost Your Performance, is forthcoming from McGraw-Hill in January 2014.

Here’s our conversation:

Charles Green. The title of your new book, Be Bold and Win the Sale, sounds very upbeat and motivational. Yet the book is built very much around the idea of embracing discomfort. That sounds like a very negative approach. How do you get from discomfort to being positive in relation to sales?

Jeff Shore. Discomfort is an inevitable part of the sales process. The most successful sales people have learned to embrace discomfort as an opportunity for growth, vs. avoiding it. From the perspective of potential change and growth, discomfort is inherently positive.

We all know people who have found a way of enjoying discomfort in order to achieve a goal or to maintain their daily life. We may not think about it in those exact terms, but when we do, it isn’t hard to come up with a list of people who experience joy in the discomfort of their pursuits. (Professional athletes, humanitarian aid workers, the list can go on and on).

We tend to think that people who enjoy discomfort are simply made of different stuff than the rest of us. That’s a handy explanation, but completely untrue. People who enjoy discomfort have trained themselves to do so. They have learned, on a deeper level, how and why the gain is worth the pain and they have reprogrammed their knee-jerk reaction to discomfort in order to recognize it for what it is: the means to a greater good.

CG: You also write and speak extensively about being bold. What does being bold mean to you and how is it related to discomfort in sales?

JS: It’s different from what we sometimes think of as “bold,” in that it’s not about aggressive selling or plowing over people to reach our individual goals. It is a humble, servant-oriented mindset. But it’s also the strategy we use to dismantle what I call “comfort addictions.” Being bold is about focusing on strengthening oneself in order to be equipped to better focus on and serve one’s clients.

Every time we have a moment of discomfort we also have a moment of decision. It takes boldness and a willingness to embrace discomfort to peel back the layers of our habitual actions that are based on decisions we make so quickly that we don’t even realize we are making them.

CG: This is very similar to what I mean by lowering our self-orientation. If we can stop feeling personally attacked, or fearful, in high-stress situations, then we can be free to pay attention to and be of service to our clients.

JS: Yes, and when we take the time to be honest and examine what we are thinking (fearing) and then analyze how those thoughts are defining our actions, we can gain a new understanding for ways in which we can improve in not only sales, but all of life. It’s not at all comfortable to face one’s own well-worn rationalizations or to choose to take action that is not our norm.

CG: Interesting. This reminds me a bit of Julien Smith’s excellent eBook, Flinch: he suggests we need to face our “flinch” moments and drive through them. So, how does ‘trust’ come into play in your message of being bold?

JS: First, trust always has to do with complete honesty and that is what I encourage people to embrace as a starting point: total honesty with themselves. Sales professionals are busy people with demanding quotas and deadlines. Over time, out of a sense of survival and/or efficiency, sales people inevitably develop habits that are not based on self-honesty.

By that I mean, there are so many potentially awkward moments in the sales process that sales people learn how to largely avoid these moments by basing their actions on possible outcomes vs. what actually is. The fear of losing a sale or of experiencing an intensely uncomfortable situation is what largely motivates most sales people. I believe that if a person can change their level of honesty with themselves, they will be freed up to change their actions and then, as I always say, they will be able to change someone’s world.

CG: Fear is a great motivator, but ultimately a limiting one. We need to get over it to get to a higher, more client-focused level.

JS: Trust also comes into play in my message of being bold in that it is crucial for people to understand and believe (trust) that boldness is not an inherent personality trait that is possessed by only the “heroes” amongst us. Boldness is a choice and an action. It can be learned. I have learned, and continue to, that this is true for everyone, including myself. If I hadn’t seen evidence of this in countless aspects of my own life, including my work in sales, I wouldn’t be so convinced of it. But, I have…over and over!

CG: I would echo that. Personally, I’ve never learned as well from positive examples or even positive experiences as from negative ones.

JS: I am utterly convinced that there is no growth without discomfort. Period. If you want to accomplish big things you must first accept and then appreciate discomfort. Every time you find yourself in an uncomfortable position you can be assured that an opportunity for success is around the corner. My mantra is: a moment of discomfort ALWAYS leads to a moment of decision.

CG: And what about that “moment of decision?” Say a bit more about how people can best respond to a moment of decision?

JS: In the book, I explore, analyze and dissect all of the how’s and why’s behind the sequence of feeling discomfort and then making a decision. I talk at length about retraining one’s mind and making “pre-decisions.” Again, being bold has everything to do with being bold with oneself: taking the time to recognize those moments in the sales process that are uncomfortable and coming to grips with one’s fears in relation to them.

When we honestly recognize how our actions are based on our perceived fears, it is then that we can make a plan for change and improvement. I encourage people to be very practical and pro-active in this process. In the book, there are spaces for readers to record what their usual responses (actions) to discomforts are and write down exact plans for different actions. This is part of the pre-decision process. When someone takes the time to foresee discomfort and plans for it by pre-deciding a positive response vs. their usual response, life changes for that person!

CG: You mentioned your work in sales. Can you give us a brief description of your career in sales and how you came to be an author?

JS: My sales career spans almost 30 years and in that time I’ve done it all – sales, sales leadership, executive leadership, consulting, training, speaking and writing. I wrote my first book, Deal With It!, to help salespeople overcome objections (a specialty of mine).

Be Bold and Win the Sale is my legacy book, my vocational ambition for many years. So much of a salesperson’s success is mental. I want to help high achievers to break through barriers and find the real prize.

CG: Jeff, thanks so much for taking the time to share with me today; I love your approach.

For more about Jeff Shore:

Learn more at JeffShore.com
follow Jeff on Twitter
pre-order Jeff’s book Be Bold and Win the Sale: Get Out of Your Comfort Zone and Boost Your Performance

Trust Inc.: Strategies for Building the Trust Asset – Chapter 1

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Trust Inc coverThis is an abridged version of the opening chapter – “The Business Case for Trust” – of the just-published  Trust, Inc.: Strategies for Building Your Company’s Most Value Asset. 

The book is a collection of 30-plus articles by diverse authors on trust in business. Edited by Barbara Kimmel of Trust Across America, the book covers issues ranging from measuring trust, diagnosing its presence or absence, managing trust and increasing trustworthiness, to improving people, companies, industries and societies.

Barbara and I co-authored the opening chapter. Other authors in the book include names like Steven M.R. Covey Jr., Ken Blanchard, James Kouzes and Barry Posner, Peter Firestein (investor relations), Laura Rittenhouse (financial candor), Jim Gregory (branding), and Linda Locke (reputation). And more.

Have a taste of the book, below. And click through here to see a complete table of contents and authors list. Whatever your interest in business in trust, you’ll find something here the addresses it.

The Business Case for Trust

by Barbara Brooks Kimmel and Charles H. Green: from Chapter 1 of Trust, Inc.,publisher Next Decade, November 2013.

Trustworthiness — once exemplified by a simple firm handshake — is a business value that has suffered erosion. We see this in how the public has grown increasingly cynical about corporate behavior—with good reason.

The PR firm Edelman found in a recent “Trust Barometer” survey that trust, transparency, and honest business practices influence corporate reputation more than the quality of products and services or financial performance. And yet, scandals and bad behavior continue to pile up.

Our view is that a company seriously interested in its reputation must increasingly focus not just on “business performance” as it is traditionally understood, but on being seen as trustworthy too.

We believe there is an important, material business case for trust. This doesn’t mean that trust isn’t or shouldn’t be justified on moral or societal grounds. Of course it should. But trust makes for good business as well. This essay will put forth the business case for trust by exploring the gap between low- and high-trust organizations’ performance. We will also offer a framework for assessing corporate trustworthiness, and point the way toward strategies for creating a trust-enhancing business model.

First, let’s look at the costs of low trust.

How low trust affects stakeholder outcomes

Low Trust in Society

Business operates in a social context; because of that, low trust in society-at-large costs business. Indirect examples include the TSA airport security program ($5.3 billion, not to mention the impact on tens of millions of business travelers), and the criminal justice system ($167 billion in 2004). Both of these examples are funded by taxes on individuals and business.

Businesses also shoulder direct tangible losses from crime ($105 billion), where they are often the victims.

A more obvious social cost for business is the cost of regulation. Economist Clyde Wayne Crews releases an annual report entitled “The Ten Thousand Commandments” that tallies federal regulations and their costs. In 2010, the federal government spent $55.4 billion dollars funding federal agencies and enforcing existing regulation. In 2013, The Washington Post reported that “the federal government imposed an estimated $216 billion in regulatory costs on the economy (in 2012), nearly double its previous record.”

Doing business in a low-trust environment is costly. Whether or not you believe that companies can, or should directly impact social conditions, one thing is clear. In aggregate, business bears a lot of weight for the cost of low-trust in our society.

Low Trust in Business Practices

Social costs on business, however, are just the tip of the iceberg. Far bigger costs are exacted by simple business practices. Consider the
need for detailed financial audits. The Big 4 accounting firms’ aggregate global revenue is $110 billion5, of which about one quarter is made up of audits in the U.S.

Consider lawyers: there are over 1.2 million licensed attorneys in the United States, more per capita than in 28 of 29 countries (Greece being the 29th). The cost of the tort litigation system alone in the United States is over $250 billion—or 2% of GDP. It’s estimated that tort reform in health care alone could trim medical costs by 27 percent.

All these are examples of transaction costs: costs we incur to protect or gain (we hope) larger economies of scale, markets, or hierarchies. Transaction costs add no value to the economy per se; they just foster favorable market conditions so that other economic factors (e.g. markets, scale economies) can add value.

But there comes a point at which the addition of more non-value-adding transaction costs ceases to be positive and becomes burdensome. It’s clear to us today that we are well past this point. A Harvard Business Review article from 8 years ago (Collaboration Rules by Philip Evans and Bob Wolf, July 2005) suggests that nearly 50% of the U.S. non-governmental GDP was, as of 2005, comprised of transaction costs. Imagine the impact of redirecting even a small proportion of these monies to value-adding actions.

Their research goes on to say that, in such an economy, the most productive investments are often not those that increase scale or volume, but those that reduce transaction costs. And the most viable strategy for reducing massive transaction costs? Trust.

Low Trust and Employee Disengagement

Disengagement occurs when people put in just enough effort to avoid getting fired but don’t contribute their talent, creativity, energy or passion. In economic terms, they under-perform. Gallup’s research places 71 percent of U.S. workers as either not engaged or actively disengaged. The price tag of disengagement is $350 billion a year. That roughly approximates the annual combined revenue of Apple, General Motors and General Electric.

According to The Economist, 84 percent of senior leaders say disengaged employees are considered one of the biggest threats facing their business. However, only 12 percent of them reported doing anything about this problem.

What does disengagement have to do with trust? Everything. In a Deloitte LLP ethics and workplace survey, the top three reasons given for employees planning to seek a new job were:

  • A loss of trust in their employer based on decisions made during the Great Recession (48 percent);
  • A lack of transparency in leadership communication (46 percent); and
  • Being treated unfairly or unethically by employers over the last 18 to 24 months (40 percent).

A lack of trust in the employer is at the heart of each of these reasons. To the extent that plans to find a new job are a proxy for disengagement, the case is clear. Lack of trust drives away employees.

In discussing the survey, Deloitte LLP Board Chairman Sharon Allen notes:

Regardless of the economic environment, business leaders should be mindful of the significant impact that trust in the workplace and transparent communication can have on talent management and retention strategies. By establishing a values-based culture, organizations can cultivate the trust necessary to reduce turnover and mitigate unethical behavior.

The survey also provides some interesting data on the business case for organizational trust. When asked to rate the top two items most positively affected when an employee trusts his or her employer, employed U.S. adults made the following top rankings:

  • Morale (55%);
  • Team building and collaboration (39%);
  • Productivity and profitability (36%);
  • Ethical decision making (35%); and
  • Willingness to stay with the company (32%).

As Mary Gentile eloquently states later in this book, “Very often the most visible, most costly challenges to the public trust in business are fairly predictable: deceptive marketing practices; falsified earnings reporting; failure in safety compliance; lack of consistency in employee relations; and so on.”

In other words, the ability to manage the costs of low trust –whether arising from society, from business practices, or from management practices—is to a great extent within the control of the corporation. And yet, it is largely not being done—with sadly predictable results.

Continue reading:
How high trust improves stakeholder outcomes
A framework for assessing trustworthiness
Trustworthiness in Action

Six Reasons We Don’t Trust Wall Street

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In 2013, finance is the least trusted industry globally.

It hasn’t always been this way. Within the industry, it’s tempting to think that trust can be regained by reputation management. Reputation is seen largely as a function  of communications or PR departments in 50% of companies in one survey.

But it goes deeper than that – deeper even than enlightened views of reputation management. There are serious structural issues that have driven down trust in the sector, and it’s hard to see how trust can be restored without directly addressing some of them.

But let’s let you be the judge of that. Here are Six Reasons we’ve lost trust in Wall Street.

1. “Wall Street” Ain’t What It Used to Be.  In 1950, a discussion of “Wall Street” unambiguously meant the NYSE, the Big Board, and brokerage firms like E.F. Hutton. Today, Wikipedia says:

The term has become a metonym for the financial markets of the United States as a whole, the American financial sector (even if financial firms are not physically located there), or signifying New York-based financial interests.

That means “Wall Street” came to include commercial banking (think Chase and Bank of America), mutual funds, hedge funds, investment and trading operations like Goldman Sachs, private equity, and insurance companies like AIG.  I think it’s fair to say the “new” financial businesses have had more than their share of the negative press that financial services has gotten over the years.

Many years ago, the president of GM could say – in good conscience – “What’s good for General Motors is good for America.”  Can you picture Lloyd Blankfein saying, “What’s good for Goldman Sachs is good for America” with a straight face?

2. Finance Has Shifted to Zero-sum Uses. In traditional banking, borrowers create increased value with the money they borrow from lenders and put to good economic use. By contrast, in pure trading, no value is created. It is a zero-sum proposition. And the proportion of the financial sector represented by essentially pure trading has increased dramatically.

At the same time, Paul Volcker says the financial services’ share of “value-add “in the US economy grew from 2% to 6.5%.  That’s not “value added” in the economic sense – it’s just an increase in price over cost. And, Volcker added, it was due not to innovation, but to increased compensation. As he famously put it, “The biggest innovation in the industry over the past 20 years was the ATM machine.”

Wall Street has increasingly focused on the “point spread,” not the fundamentals. In the NFL, they don’t let players bet on point spreads. But on Wall Street, that’s the name of the game.

The industry’s counter to such data is that they have increased liquidity, thereby lowering risk and volatility.  Yet volatility in the stock market has steadily increased for decades, while the industry has gotten less efficient. And “black swans” have become part of our lexicon – we have massively underestimated risk.  The value of the added liquidity is far outweighed by the risks it has entailed.

3. Finance Is a Larger Part of the Economy. In 1950, the US financial sector accounted for 2.8% of GDP. By 2011, that number had grown to 8.4%.  In 2011, the financial industry generated 29% of all US profits.  That proportion had never exceeded 20% in all of the 20th Century.  From 1980 to 2010, the profit per employee in the financial sector of the US economy grew by over a thousand percent – far more than all the rest.

And as finance became less efficient, more profitable, and more zero-sum oriented, it also came to dominate business more. In 1937, 1 percent of the graduates of Harvard Business School went into finance. In 2008, that number hit 45%.

4. The Shift to the Short Term. 
As of 2011, 60% of the daily turnover in US stock markets was accounted for by high-frequency trading something that didn’t exist a decade before.  In 1960, the average holding period for stocks on the NYSE was 8 years. By 2010, it was down to 3-4 months.

In 1950, the marginal tax rate was 85%, putting a brake on short-term trading, since capital gains taxation of 25% kicked in only after 6 months.

A short-term mentality has always plagued the US in comparison to Europe and especially Asia. The shorter the timeframe, the more focused we become on transactions, and the less value we place on relationships. And that kills trust.

5. The Transactionalization of Finance.  J.P. Morgan once said, “A man I do not trust could not get money from me on all the bonds in Christendom.”  For several years now, we’ve had the IBGYBG problem on Wall Street: “I’ll be gone, you’ll be gone – do the deal, who cares.”

Can you say “moral hazard?”

In the Christmas movie It’s a Wonderful Life, local employees of a local bank lend mortgage funds to local borrowers, with the bank then holding the mortgage itself. By 2007, the lending was done by non-local employees of non-local mortgage companies who then resold the mortgage to non-local banks, who then securitized and sold to global investors. A relationship business had become thoroughly transactionalized.  This drives down trust.

6. The Attack on Regulation. The LIBOR rate-rigging scandal shocked everyone last year. But rate-rigging turned out to be not a bug, but a feature.  The chairman of the CFTC said LIBOR rates “are basically more akin to fiction than fact.” The truth is more like the Wizard of Oz saying, “Pay no attention to that man behind the curtain.”

It’s a market that turned out to be mythical – can you say “Bernie Madoff?”

The Glass-Steagall Act was repealed in the late 90s, arguably giving free reign to bankers to misbehave. The industry has fought consumer legislation governing things like credit card costs, not to mention the mix of Dodd-Frank rules.

It’s hard to trust an industry which visibly and without much embarrassment argues for more and more, after the rather remarkable feast of the last two decades.

The solutions to trust issues that I hear about most coming from the financial services industry tend to be reputation management and personal trustworthiness. I do believe that both these tools – especially personal trustworthiness – could be applied to great effect in certain financial sectors – notably financial planning, wealth management, traditional investment banking, and commercial lending.

But that’s not where the money is, nor where the biggest problems lie. And it’s going to take a whole lot more than the usual approach to reputation management to deal with them.

Until the sector can address those six areas of structural disconnect, the issues of trustworthiness will continue to dog the industry.

Trust But Verify? Ask Angela Merkel About That

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Trust is a subject full of wise-sounding sayings that often just reflect muddled thinking. “Trust takes time” is one such case. Another is that trust can be destroyed in an instant.

But the all time winner for trust obfuscation has to be Ronald Reagan’s “Trust – but verify.”  A deceptively simple statement (taken from a Russian proverb), Reagan used it to good effect for his own political positioning – and Gorbachev appreciated it as well.

Trust and Verification in Politics– Part 1 

But let’s put Reagan’s statement in context. The most famous utterance of it came in 1987, at the signing of the INF treaty.  Mikhail Gorbachev was present at the signing in the White House’s East Room:

At the signing, Reagan said, “We have listened to the wisdom

of an old Russian maxim, doveryai, no proveryai – trust, but verify.”  “You repeat that at every meeting,” Gorbachev replied.  “I like it,” Reagan said, smiling.

The statement was the acknowledgement that major agreements between major powers are never undertaken lightly. The negotiations leading up to the treaty took years, and were filled with many ministers and bureaucrats addressing many complex issues.

In such an environment, Reagan’s quote was for public consumption. Gorbachev was very much in on the joke, which wryly – and publicly –acknowledged the need for global powers to proceed with enormous caution.

Trust and Verification in Politics– Part 2

Yesterday, German Chancellor Angela Merkel lashed out at the US for revelations that the NSA had tapped her phone. Merkel felt so strongly about the matter that she personally called President Obama.

Calling it a “breach of trust,” Merkel said:

We are allies. But such an alliance can only be built on trust. That’s why I repeat again: spying among friends, that cannot be.

What happened to “trust but verify?” Is Merkel being naive? Does she not get the game of international intrigue? Is she shrewdly playing domestic politics, getting on the popular side of an Ugly American scandal?

I don’t think so. I think she was genuinely outraged – and properly so. 

Trust Means You Forego Verification 

A parent might say to a teenager about curfew, “Sure I trust you – up to a point. But I’m going to check up on you, you can be sure of that.” The teen may be upset, but not legitimately offended.

But if that parent says, “Absolutely I trust you,” and then plants a microphone in the teen’s car without telling him – that is cause for outrage.

“Trust but verify” is an oxymoron. It means there’s no trust. It may be right, necessary and understood that you’ll have verification; but let’s not call it “trust.” Trust is about risk-taking – verification is about risk mitigation.

This is true even at heads of state level. Every nation knows that intelligence gathering is going on all the time. It’s not only tolerated, it’s understood as necessary to prevent incidents based on ignorance.

But not when it’s a baldfaced lie – even if the lie is implicit. I have little doubt that Merkel didn’t believe the US would tap her phone. And the US, I’m sure, did nothing to persuade her otherwise. So when she found out, she was outraged. As any person would be.

Heads of state are, among other things, people. The human proscription against being lied to extends even to them.

Reagan and Gorbachev had a personal relationship, one which was important to them, and to history. Relationships matter. And, as Merkel apparently said to Obama, friends don’t spy on each other and lie about it.

If you’re tempted to trust but verify – make sure the other party understands, wink-wink nod-nod, what you’re doing. If you’re not prepared to tell them you’re verifying, including implicitly denying it – then either don’t do it at all, or just don’t call it trust.

Trust Quotes: Interview with Barbara Kimmel, of Trust Across America

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Trust Inc bookI got to know Barbara and Jordan Kimmel some years ago when they were forming the initial idea for what became Trust Across America, an organization devoted to improving corporate trustworthiness.

Barbara edited a book which is about to be published (November 1), called Trust Inc.: Strategies for Building Your Company’s Most Valuable Asset. This seems like a good time to interview her on Trust Matters. Enjoy.

Q. Barbara, congratulations on the new book, which is most impressive: I got my advance copy a few days ago. Before we get into that, however, tell us about Trust Across America – Trust Around the World.  What is it, how did you come to found it, and what is its purpose?

A. Very simply, TAA – TAW is an umbrella organization and clearinghouse whose mission is enhancing trustworthy behavior in organizations. We got the program rolling in 2009 in the wake of the financial crisis, realizing that no group was addressing organizational trust from a holistic and collaborative perspective.

Today we sponsor four main initiatives:

  1. The FACTS® Framework measures the trustworthiness of 2500 public companies using 5 quantitative indicators of organizational trust;
  2. Communications efforts, featuring programs like our Trust Talks YouTube Channel, Trust Across America Radio, Blog roll, Trust Breakfast Roundtables, Trust Workshops and a Reading Room, to name just a few.
  3. The Alliance of Trustworthy Business Experts (ATBE) formed in January 2013, is a growing group of global experts working collaboratively, through a number of initiatives, to tackle trust head on.
  4. Most Trustworthy Programs. Every year we name our Top Thought Leaders in Trustworthy Business and our Most Trustworthy Public Companies.

Q. The new book is a collection of 30-plus author-experts on trust. It’s got an introduction by Ken Blanchard and book cover quote from Steven M.R. Covey –

A. – not to mention the opening article by you and me writing together!

Q. – thank you, thank you. Now, where did the idea for the book come from?

A. Well, here are some headlines from 2012 to the present. They serve as a good starting point to answer your question.

The Washington Post reported that “the federal government imposed an estimated $216 billion in regulatory costs on the economy (in 2012), nearly double its previous record.”

The cost of the tort litigation system alone in the United States is over $250 billion. – or 2% of GDP  (Forbes, January 2012)

“Americans are fed up with politics, not government, study says” (trust in government at 50 year low for five years running)- September 2012, Government Executive

The Big 4 accounting firms’ aggregate global revenue is $110 billion, of which between 40-50% is made up of audits. (Going Concern, January 2013)

The six biggest U.S. banks, led by JPMorgan Chase & Co. (JPM) and Bank of America Corp., have piled up $103 billion in legal costs since the financial crisis, more than all dividends paid to shareholders in the past five years.  (Bloomberg, August 2013)

I’ve had the honor of meeting dozens of global experts, each with his or her unique perspective on organizational trust. It occurred to me that if I could bring them together to write a series of  essays, perhaps we could collectively begin to provide a new roadmap for organizational trust.

Q. OK. Now, with that as background – tell us a bit about the book itself?

A. There’s a well-documented business case for trust ranging from deepening employee commitment to higher profitability. This book contains a lesson for everyone, from CEOs to Boards, senior management, and small business owners. Trust is a core quality of all great leaders and organizations.

We have 34 experts in all joining forces to tackle organizational trust. In addition to Covey and Blanchard, we’ve got Kouzes & Posner, Patricia Aburdene, and Linda Locke, to name just a few.

Through dozens of case studies, real world situations, models and examples, the book talks about:

  • Why trust matters
  • How trust works in practice
  • What it takes to be a trustworthy leader
  • How trustworthy teams impact business
  • How to restore trust
  • What the future holds in store

The book also has 3 appendices:

  • Definitions of organizational trust from a global perspective
  • Examples of vision and values statements
  • A call to action

Q. We see boatloads of survey data about how trust is down these days, in almost every institution. What should we make of all that?

A. Charlie, you and I have spoken about painting trust with broad brush strokes. Industry is not destiny. There are many organizations that are exhibiting high levels of trust. It all boils down to culture and leadership. We see companies that rise to the top of our FACTS Framework, year after year. Those companies outperform  their peers and benchmarks like the S&P – in terms of stock market performance. This proves that trustworthy companies are not sacrificing profitability.

Q. I have seen some of that data and it is really impressive. In fact, the whole broad basis of the initiative is impressive. Anything you want to add from the bully pulpit here?

A. Thank you for the opportunity to talk about our new book and our goals for TAA –TAW. We are chipping away at the organizational trust issue and plan to continue to create new tools and programs. I urge your readers to drop me a note if they have something to add to the conversation or would like to roll up their sleeves and get involved. [email protected]

 

Barbara Kimmel, Executive Director, Trust Across America – Trust Around the World