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A New Cybercrime…Spying On Your Spouse?

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In his introduction to the Trusted Advisor Mastery Program launched in November, 2010, Charlie Green talks about the skills for being a trusted advisor including “doing the right thing, in the moment, as it’s called for.”

What does this have to do with cybercrime and spouses? According to an article posted by the Detroit Free Press, and a follow up article posted a few weeks later, a husband is currently being prosecuted under a state statute designed for trade secret theft. His alleged crime? Reading his wife’s emails; he used her password and found out she was having an affair. Of course, there’s more to the story in the articles. They’re divorced now.

As a former practicing lawyer, I find the legal issues interesting – see Peter Vogel’s technology law column in the e-Commerce Times. More intriguing to me as a business development and executive coach are the boundaries of privacy in relationships and what doing “the right thing” really means. After all, not everything we do in life can, or should be, regulated by law.

In a family, talking about boundaries help clarify expectations and behaviors. Respecting boundaries can engender trust; violating boundaries destroys it. In my home, my wife expects me to open her snail mail relating to financial or family matters, even if they are addressed solely to her. However, I don’t open her personal mail. For emails, Social Media communicating (including texts and Facebook), unless they ask, I don’t look at my wife’s or kids’ computers or cell phones. When I’m in front of their computers or cell phones for a reason, I may glance at the screen, but even that feels intrusive. It’s just the wrong thing to do in my family because of how we’ve chosen to respect each other’s privacy.

So while the criminal court determines in the Detroit case whether a statute has been violated, the rest of us need to pay attention to “doing the right thing in the moment, as it’s called for.” And when that involves boundaries in relationships, as I often ask my coaching clients, “What’s the best way to find out how other people feel, believe, or think?” about these types of issues. There’s only one right answer: ask them.

Is Capitalism 2.0 a Mirage? (Part 2 of 2)

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Yesterday, in Part 1 of 2 of this blogpost, I noted that Capitalism 1.X is under attack for its very legitimacy. One approach to fixing the problem is to change the dogma and the ideology—what I called the approach of Capitalism 2.0. An approach like this is taken in two new writings by major strategic thinkers.

I quoted Umair Haque on his approach to Capitalism 2.0:

The outlines of an updated economic paradigm…include two fundamental axioms:

…first…through the act of exchange, an organization cannot, by action or inaction, allow people, communities, society, the natural world, or future generations to come to economic harm. [italics are Haque’s]

And I quoted Porter/Kramer from Shared Value:

The purpose of the corporation must be redefined as creating shared value, not just profit per se.

These are exciting, heady statements. They are directionally right, and very inspiring to most of us. I believe each work makes a very positive contribution to business thinking.

There’s only one problem. The authors are still using the language of ideology.

Beware of Closed Systems

Haque wants an axiom. Unfortunately for Haque, I don’t know of any organization for whom it is axiomatic that they cannot do any of the things he lists. Calling something “axiomatic” simply doesn’t make it so.

Porter and Kramer, in their treatment of Shared Value, use the word ‘must’ in a similar way (“The purpose of the corporation must be redefined as creating shared value, not just profit per se”). But the result is the same. Nobody ‘must’ do anything, as the human race perversely insists on proving time and again.

Karl Marx, in the Communist Manifesto, declared communism inevitable. Capitalism 1.5 had the same flavor. Haque’s ironic use of “Manifesto” and the language of ‘axioms’ suggest the same pull of logical necessity. But axioms are abstract, not empirical–they don’t drive action, unless someone chooses to act on them. And Porter’s ‘must’ has no causal force; it is exhortation dressed up in the words of logical necessity.

There is a beauty in such simple, powerful idea systems, a beauty well-loved by economists, mathematicians, physicists and strategists. The problem is–they are closed systems. That’s OK for math and physics. But for most other fields, once you get outside a closed system, things eventually degrade.

Inevitability Isn’t

Marx was wrong about communism’s inevitability. Greenspan was wrong about large companies’ inclination to self-regulate based on reputation. Friedman was wrong about the gyroscopic capabilities of the Invisible Hand.

If Porter and Haque believe that they have discovered an ideology as attractive, powerful and self-sustaining as those were, then we’re probably just looking at another shiny-object, perpetual-motion, too-good-to-be-true closed system.

In fact, it was our unquestioned belief in the closed-system aspect of Capitalism 1.X that helped cause Capitalism 1.X to fail. It all sounded so good that we wanted to believe it–until long after the writing was on the wall. Not for the first time, the charm of dogma blinded us to facts on the ground until it became not just overwhelming, but undeniable. We’re left thinking, “What were we thinking?” and the answer is, we weren’t. We were just believing.

The search for another compelling but unrealistic logic is likely to be equally misguided.

Both Porter-Kramer and Haque argue that systemic adoption of Capitalism 2.0 will lead to higher systemic profitability. This is certainly true. But the heart of the matter is not a systemic issue—it is whether individual companies will make decisions that are not profitable to themselves in the short term. And this is where ideology gets in the way:

What should, and will, a company do if an initiative is profitable in Capitalism 2.0 terms–but not profitable in Capitalism 1.X terms? Not every business problem is simply a failure of imagination, even if many–even if most–are. The problem of the commons remains unsolved.

I’m not optimistic that Porter can find a profit that is “imbued with a social purpose…that arises…out of a deeper understanding of competition and economic value creation.” I think that’s a circle that can’t be squared.

But it is also not necessary. The answer lies in sober thinking about how social change happens; not in a new Idea System.

Haque is most productive not when he’s offering ringing phrases, but when he’s offering examples of new business opportunities that are not only holistically profitable, but profitable as well in today’s simple quarterly income statement terms–examples like Threadless and Nike’s Considered Design.

Porter is today more famous for his early Five Forces model than for his value chain model, but the latter has probably had more impact. Similarly, his solid thinking today on clusters and the proper role of regulation may end up having more impact than his heroic effort to cognitively re-conceive competition.

There is richness in both works, worthy of a lot of thoughtful reading.

The Other Solution: Dial Back the Dogma

Ironically, it was Marx who said, “The point is not to understand the world, but to transform it.” Ideologues and dogmatists insist on the primacy of theory. Change agents are more pragmatic.

Parts of our society are addicted to dogma and ideology. Business, under Capitalism 1.X, is one; others are politics, academia and particularly economics. But it’s not the norm.

The legal profession isn’t dogmatic, apart from a general belief in advocacy. Education has many sub-currents but not one unifying theory. The practice of medicine, other than the Hippocratic Oath, is more practical than ideological.

If ideology is ultimately empty calories, then what is to be done? How else can we get to the alternate vision of business that both Porter and Haque so clearly, and rightly, envision?

First, we need to give up our addiction to ideology. What’s needed is not another intellectual home run, but a dogged effort to get better at getting along—on all social dimensions, not just those of business.

What can you do? Here are a few examples:

1. People with visible responsibility can start talking about civic and moral virtues, instead of the virtues of an abstract system which magically does the heavy lifting for us.

2. Porter, Kramer and Haque as writers–and all of us as readers–can use the rich and stimulating examples they have uncovered as a challenge to our imaginations, and a spur to creative thinking. The power of what they’ve written lies more in their examples and simple models than in the attempt at a Unifying Theory.

3. Measurements are powerful in business; many managers believe that management requires it. We can all support global attempts at Integrated Reporting accounting, combining traditional financial accounting with other socially-relevant measures. New vocabularies seriously drive new dialogues.

4. Trade associations can shift emphasis from narrow sectarian lobbying to offering education and perspective on increasing the long-term viability of their industries.

5. Business strategists and economists can look to outside functional arenas; negotiation and bargaining experts know how to integrate zero-sum oppositional positions with shared interests;

6. Politicians can rediscover bi-partisanship and compromise, rather than scorched-earth zero-sum competitive games; citizens can hold them accountable by re-discovering the same.

7. Elections and legislation are heavily controlled by corporate interests in the United States today. This is not long-term healthy even for business. Business organizations can collaborate with other groups to pursue campaign finance reform, thus putting stakeholder collaboration into serious practice.

8. Business education, mainly MBAs, can start emphasizing long-term sustainable collaboration, rather than Capitalism 1.X. Ethics courses are no good if they’re contradicted by 1.X courses in competitive strategy down the hall.

9. News media can try to stay sober, serious, thoughtful and responsible, not giving in to pure entertainment; business can play a role along with consumers in helping media resist the pull in that direction.

There is no unifying ideology; if Santa Claus can’t pull it off, why should we expect strategists and economists to do so?

But there are still guidelines.

  • “Be the change you want in the world.”
  • “The best way to make someone trustworthy is to trust them.”
  • “Ask not what your country can do for you, ask what you can do for your country.”
  • “Don’t argue over who gets the slice of the pie, focus on making the pie bigger.”
  • Maybe even, “Do unto others as you’d have them do unto you.”

When Gerstner took over IBM he said, “The last thing IBM needs is a vision.” The last thing capitalism needs right now is a new ideology. Business needs simply to take its seat among other social and political institutions, and to play nicely in the sandbox alongside them.

Is Capitalism 2.0 a Mirage? (Part 1 of 2)

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PART 1 of 2

When Lou Gerstner took over IBM at a time of corporate crisis, he was asked if he would chart a radically new direction for the firm. His memorable response was, “The last thing IBM needs right now is a vision.”

For the past several decades, business has had a vision; one so dogmatically defined that we might even call it an ideology—the ideology of Capitalism 1.0. Now that vision has turned toxic. Many agree with Michael Porter that business is now facing a crisis of social legitimacy.

The question is–what to do about it? Does capitalism need a fundamental reframing? Or is the issue more one of execution, about getting along in broader society?

In this two-part blogpost, I’ll examine the case for radical reframing–let’s call it the search for Capitalism 2.0. Part 1 provides background and two approaches to Capitalism 2.0. Part 2 evaluates the results.

REFRAMING CAPITALISM

One answer to the problem of business legitimacy is to re-frame Capitalism. Re-thinking capitalism is as tempting to capitalist ideologues as rethinking Marxism was to generations of socialist ideologues. ‘If “shareholder value maximization” isn’t working, then let’s come up with another encompassing business theory that is even broader than the old one, but that works. Let’s call it Capitalism 2.0.’

Two of our leading thinkers—Michael Porter, with Mark Kramer, and new kid on the block Umair Haque—are attempting an intellectual rebooting of the capitalist operating system. Porter’s concept, contained most recently in an HBR article, is Shared Value. Haque’s new book is called The Capitalist Manifesto.

Can capitalism truly be re-visioned from within? Or is it a closed system whose solutions must come from without? If anyone can square the circle, these authors can. Let’s start by understanding what they’re reacting to.

Capitalism 1.0

The full name of Harvard Business School used to be “The Harvard Graduate School of Business Administration.” In the 1950s, that name was apt. Adam Smith was rarely mentioned—Schumpeter and Hayek, even less.

It was pragmatic, non-ideological. Peter Drucker had just begun to conceive of management as distinct from administration; ‘strategy’ was an occasional term, borrowed loosely from military theorists.

In the 70s and 80s strategy went quantitative, bringing us portfolio management theory, the growth/share matrix and log-scale experience curves.

MBA consultants flooded boardrooms with models in lieu of gray hair. Consulting firms seized thought leadership from the business schools. An ideology was being born.

Capitalism 1.0, circa 1980

Around 1980, the core business ideology saw business as a corporate competitive struggle for dominance and survival. All players—producers, their customers, their suppliers, government and regulators—competed. Winning was defined financially, driven by market share, in turn driven by competitive strategy.

Economists and financial theorists joined the mix in the 1980s. One result was greater emphasis on debt, which led to junk bonds, LBOs, private equity and the S&L crisis. Another was the reign of Alan Greenspan and the Chicago School of Economics, whose contribution to dogma was the idea that markets are largely self-correcting.

As tech boomed, the public caught the bug as well. Wall Street created day trading, hedge funds and IPOs, and the public bought it.

Capitalism 1.5

By around 2006 capitalism’s dogma had become more sharply stated—something like:

Business is the value-creating engine of all society. It works best when left alone. Through creative destruction and the Darwinian efficiency of self-correcting markets, it creates value and wealth for all. All business transactions can and should be expressed in present value cash flows terms. The social purpose of a corporation is to earn a profit, and its proper goal is the maximization of shareholder value.

The dogma had held despite Michael Milken, Marc Rich, the S&L and Long-Term Capital crises, Enron and WorldCom. But then came the financial crisis of 2008.

Several items are striking. Alan Greenspan recanted his belief in Capitalism 1.X. Nearly every Chicago economist (notably excepting Eugene Fama) shifted back in the direction of Keynesian economics; Paul Samuelson says Milton Friedman himself would have done so.

The MBA Oath was created at Harvard in 2008. One of the group’s faculty advisors, Nitin Nohria, became the next Dean of HBS. He believes business needs to be more socially attuned–away from shareholder value maximization, toward broader social responsibilities.

In other words, Capitalism 1.X is under attack as a belief system. What will take its place?

The Search for Capitalism 2.0

Business strategists and economists love elegantly simple models. Many past successes have come via idea home runs—redefining paradigms, thinking outside boxes, changing game rules. Porter and Haque have made powerful attempts to do so, as follows:

Shared Value and the Capitalist Manifesto

Both approaches describe Capitalism 1.X’s failures sweepingly. They indict zero-sum thinking, short-termism run amok, and a systemic inability to link corporate benefits to social costs. If anyone needs a comprehensive statement of what’s wrong, look no further than these two works.

Each work also describes a better end-state; longer time horizons, broader collaboration, comprehensive calculations. Yet the solution, both Porter and Haque seem clearly to say, lies in ideology: in re-framing the tenets of capitalism.

Here is Haque’s version:

The industrial age’s dilemma is unsolvable if we’re still confined to thinking in yesterday’s terms…Escaping the capitalists’ dilemma requires a paradigm shift.

The outlines of an updated economic paradigm…include two fundamental axioms:

…first…through the act of exchange, an organization cannot, by action or inaction, allow people, communities, society, the natural world, or future generations to come to economic harm. [Italics are Haque’s]

Porter is equally didactic:

The purpose of the corporation must be redefined as creating shared value, not just profit per se.

The concept of shared value resets the boundaries of capitalism.

Not all profit is equal—an idea that has been lost in the narrow, short-term focus of financial markets and in much management thinking. Profits involving a social purpose represent a higher form of capitalism—one that will enable society to advance more rapidly while allowing companies to grow even more.

We need a more sophisticated form of capitalism, one imbued with a social purpose. But that purpose should arise not out of charity but out of a deeper understanding of competition and economic value creation…It is not philanthropy but self-interested behavior to create economic value by creating social value.

This all begs some pretty big questions: what exactly do we get with a new definition, a new paradigm, an axiom? Do the authors mean that the single biggest, most critical issue is to fix our thinking? Is it really necessary to have a new paradigm in order to get on with matters?

And even if it is necessary to re-think capitalism–is the re-thinking a sufficient condition for getting the job done? For that matter—can it even be done at all? Can we really stretch “capitalism” so far as to equate social good with corporate self-interest? Or is Capitalism 2.0 really a mirage, a distraction from more mundane but critical ways of changing business?

Tomorrow: Part 2 of 2: Capitalism’s Search for the Holy Grail.


Daniel Pink on Getting Employee Engagement All Wrong

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There’s a chasm the size of the Grand Canyon between what science knows – the science around human motivation – and what business does, and the result is disastrous for the economy, for businesses, and for human beings. This, according to Daniel Pink in his book Drive: The Surprising Truth About What Motivates Us.

Motivation 2.0

The author calls the old business understanding of what drives us Motivation 2.0: without extrinsic motivators of rewards and punishments, people at work will be unmotivated, aimless and unproductive. Thus, the science of management: employees and teams need to be motivated and managed externally.

And Motivation 2.1 isn’t much better, despite talk around flexibility and empowerment.

“.. .consider the very notion of ‘empowerment.’ It presumes that the organization has the power and benevolently ladles some of it into the waiting bowls of grateful employees.”

Pink argues that not only does Motivation 2.0 not work in the new economy, it does great harm. Backed by rich research from various fields the author gives examples of how the misuse of extrinsic rewards, so common in business, impedes creativity, stifles personal satisfaction and turns play into work. After basic material needs are met, the quid pro quo of if/then rewards–if you do this, I’ll give you that–saps the juice from the job.

One of the most fascinating examples of this in the book is research done by Teresa Amabile of Harvard Business School. Prof. Amabile and colleagues asked a number of artists to select twenty of their works, ten of which were non-commissioned and ten of which were commissioned. A panel of curators and art experts, knowing nothing of the nature of the research, was then asked to rate each work on creativity and technical skill. And – as you guessed – while the skill ratings were equal, the commissioned works consistently rated lower on creativity. The commission turned the artists’ play into work.

MOTIVATION 3.0

Motivation 3.0 stems from the understanding that we, as human beings, are intrinsically motivated to take on responsibility, to look for creative and intellectual challenges and to solve problems. We are self-directed and work best when we have three things:

– Autonomy: the ability to control aspects of our time, tasks, techniques, and teams

– The Opportunity for Mastery

– Purpose: a connection to something larger than ourselves

These are the factors which create real employee engagement.

Then why is it so hard for business to move to Motivation 3.0 – nourishing employees’ intrinsic motivations instead of “managing” employees through carrots and sticks? After all, the research, while growing, isn’t new. Some of these findings have been around since the 1940s.

I believe it’s a matter of trust – “managers” aren’t ready to trust their teams’ or employees’ intrinsic motivation to do good and creative work. If the motivation is extrinsic – rewards like money and promotions, or punishments like docked pay – they can control it. If the motivation is intrinsic, managers have to trust their employees. It’s that simple, if not that easy, and Drive speaks to the heart of these issues in a rich and readable way.

Can You Trust the Data on Trust?

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It’s late January. That means the business media are full of two events: the Davos World Economic Forum, and the Edelman Trust Barometer (announced at Davos, of course).

This is the 11th year of the Trust Barometer, which means it’s a measurement that increasingly permits study over time. It’s a rich source of information and idea generation, and Edelman deserves a lot of credit for establishing and continuing the series. And yet—the survey is still frustratingly unclear about the very definition of the thing it purports to measure—trust.

What is Trust?

Let’s break this down. Let’s get simple. You can trust—and you can be trusted. They are not the same thing.

  1. You can measure people’s general inclination to trust; in fact, it is regularly measured in the General Social Survey, an NSF-funded effort that has been in place for over forty years. It shows a long, slow, steady decline in the US population’s tendency to trust others.
  2. You can measure the objective trustworthiness of institutions by identifying behaviors and marking them with metrics. This is the approach taken by Trust Across America to identify trustworthy companies.
  3. Finally, you can take opinion polls about the level of ‘trust’ that people have in business, media, banking, etc. This is Edelman’s approach; they do phone surveys of over 5,000 people asking them how much they trust an entity or institution.

The problem with approach 3 is that it combines approaches 1 and 2, to the point where you can’t identify the cause of a shift in answers.

A concrete example: Edelman’s comments on a chart titled Trust Index: Brazil Rises, US Declines:

“[From 2008 to 2011] we took an average of trust in NGOs, business, media and government… The US moved from fourth from the top to third from the bottom [ahead only of the UK and Russia]…that’s a major change. The other major change is Brazil went from eighth place to first place.”

What in the world does this mean?

  • Does it mean that, in the last three years, Brazilian government, business and media have become more trustworthy, while US government, business and media have become less trustworthy?
  • Or does it mean that Brazilians as a people have become more trusting in the last three years, while Americans have become less trusting?
  • Or does it mean a blend of those two forces? If so, what’s the mix? Are trustworthiness and trusting-ness moving in the same direction, or in different directions? Whatever does this all mean?

Here’s a hint. It may not mean any of those things. Look at the 3-year growth in GDP in the United States—pretty flat, with that horrible negative number set around 2008-09. Now look at the 3-year growth in GDP in Brazil—7 of 11 quarters show growth above 4%, and 6 of them growth above 6%.

What would the US survey numbers look like if US GDP had matched Brazil’s? I suggest—about the same as they did in Brazil.

The thing is, short-term surveys about specific objects of trust are more like popularity contests—they are heavily driven by economics and current events. When the economy turns up, so will trust in business, and in government. This kind of ‘trust’ changes quickly.

The ‘trust’ that Edelman is measuring has a lot in common with consumer sentiment surveys, brand recognition surveys, or even popularity contests. Nothing wrong there. Nobody has a patent on any one definition of trust. But what are the implications of using this particular definition?

Just what is it we’re talking about here?

Trust, Reputation and Communication

Here’s Reuters’ opening paragraph in a story on the Trust Barometer titled Trust in Business Tumbled in 2010: Survey:

Americans’ trust in institutions of all kinds dropped last year as persistently high unemployment sapped people’s confidence in business and government, a newly released study found.

So—is trust the same as confidence? Or is confidence a driver of trust?

The Financial Times offers yet another synonym, in its headline, “US Public Loses Faith in Business.” Is trust the same as faith? And, by the way, faith in what? Faith to do what?

The story gets more muddled. Reuters again:

People in the United States…said they trusted the auto sector, following the successful initial public offering of General Motors Co…That change, [Edelman] said, reflected a belief among the public that automakers were starting to tackle their problems.

What is it that people are trusting the auto sector to do? I may trust GM to get financing, but not to sell me a better car. Which question am I answering when I say, “I trust GM?” (To put it technically: the meaning of ‘trust’ is highly contextual–trust to do what? Without context, the meaning is unclear).

The Financial Times reports, “Mr. Edelman said he was “shocked” by the global rebound in trust in carmakers.” I’m less shocked, because it’s clear that only the people who answered the question knew what they meant by their answers.

Edelman itself says “trust is critical as a driver of corporate reputation.” Which says something about Edelman’s view of what is really important about trust—not trust itself, but its effect on corporate reputation.

As Edelman EVP Ben Boyd points out, these days one voice won’t do—the CEO must be coupled with a technical person for product crises, for example. He also says, it’s critically important that communications be multi-channel and frequent because, in the US, 85% of respondents “needed to hear data about a company 3-5 times before they would believe it.”

And now we’re getting to the heart of the matter. Edelman is a PR firm, and their perfectly natural tendency is to view the world through the lenses of communications and reputation. And if the survey says people won’t believe you until they hear it 3-5 times, then by golly you’d better tell them 3-5 times! Problem is: the overload of spam, tv ads, junk faxes, robo-calls spin interviews arguably caused the need for multiple information hits. This sounds like concluding that the solution to message overload is more message overload. Ask the pharmaceutical industry how that’s worked out.

From that perspective, the Trust Barometer is a longitudinal study of consumer sentiment, intended to improve corporate messaging and communications so as to ultimately improve corporate reputations.

There’s nothing wrong with that. But I don’t think it particularly helps to make companies more trustworthy; nor do I think it helps people become more trusting. Which, I guess, means it doesn’t all add up to a net increase in trust.

I myself would prefer to see corporations more focused on doing the right thing, instead of focusing on trying to convince their consumers, through multiple iterations and multiple spokespersons, that they are doing the right thing.

The Trust Barometer cannot tell us the difference between trustworthy behavior and people’s moods. It is built to help those whose job it is to craft the images that people hold about companies, and not to help those who would take dead center aim at those companies’ behaviors.

That’s fine. There’s a valid role for communications, and it looks like this:

  1. If my company is doing a better job than the public thinks I am doing, then I need PR. No one is better off if people think worse of me than I deserve.
  2. But if I know my company is doing a worse job than the public thinks I am doing–then I had better hire consultants, shake up management, and tell the PR firm to shove off, until such time as I’ve fixed some basic issues in my business.

We have more than enough Type 2 situations to afford the luxury of over-indulging in Type 1.

Trust the Trust Barometer—but be careful about what you trust it to do.

Sex, Lies and Sales

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Most salespeople have a complicated relationship with the truth. It’s not hard to understand why, but most of us shy away from truth-telling. Too bad for us. It’s not only misguided—it actually doesn’t work. (And don’t worry, we’ll get to the sex part later).

Take James—a smart, personable man in his 40s. He approached me after a talk I gave and said:

I like all your stuff about how truth-telling increases trust and how that helps sales. But I just can’t do that. I changed industries just over a year ago and I’m competing against guys who have several decades in the business. If that gets out there, I’m dead meat. I just can’t afford to be that truthful.

I’m sympathetic to James. First of all, he’s far from wrong; many buyers place a premium on experience and he’ll lose at least some of those customers. Second, it’s very real. Salespeople operate in the ultimate meritocracy—you can run but you can’t hide from performance.

And yet: James is a liar.

Don’t get me wrong: he feels bad about it. He’s not proud of it. He wishes there were another way and he’ll wiggle quite a bit to avoid having to tell an overt lie.

But see, that wiggling is the lie itself. You’re kidding yourself if you think letting others mislead themselves is materially different from lying.

Lying Destroys Customer Centricity

Think about why James would lie. Think about why you lie. Almost always it’s to get something you don’t have, or to keep something you’ve got. Both of which, let’s face it, are entirely about you. It’s usually fear that leads us to lie—fear that we won’t get what we want if we don’t step in and give the scales a little help.

Companies and their salespeople love to say they are “customer-centric.” But you cannot claim to be customer-centric, and at the same time tell lies to enhance your own interests. And that’s not a question of logic, it’s a question of human behavior—people profoundly distrust those who mislead them.

Why Truth Is More Practical Than Lying

There’s one version of the truth and an infinite number of non-true versions of the same facts. Life is a lot simpler if you only have to remember one version of truth. No more keeping track of various stories, managing selective access to information, and keeping track of white lie cover stories. It all gets very simple when you make friends with the truth.

More importantly, people—including customers—are drawn to those who value truth-telling over snagging the sale. You can trust those people. You do not have to evaluate every statement they make. The natural human response, when we meet people like this, is to trust them. And trust is a powerful driver of buying behavior.

Forget ethics and morals—look at your own numbers. Do you make more sales, gain longer-term customers and more repeat business by:

a. Tweaking the facts to improve the odds in every sale, or by

b. Always telling the truth, believing that honesty will be more persuasive and will attract more future business.

There’s no question in my mind. The paradox of Trust-based Selling is that you best achieve your ends by helping others achieve theirs. Success is not a goal; it’s a byproduct.

To those who say:

“But Charlie, you don’t understand, the vast majority of salespeople out there don’t do that; they bend the truth and work for every transaction and would never give up an edge.”

I say:

You are right. I suspect the majority of salespeople have made themselves into fear-driven liars and have compromised their own success. But the majority is tragically mistaken. You have a chance to benefit comparatively by being a truth-teller. Have faith that customers vastly prefer honest salespeople and will vote with their wallets.

The really great salespeople—the minority—already know this. It’s the average and under-performing majority who don’t.

If you’re still wondering what this has to do with sex, think one-night stands vs. relationships. Lies work better with the first but they’re unsatisfying, more expensive and require endless new lead streams. You choose.

The Best Business Blog You Probably Haven’t Read

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My nominee for one of the best business blogs ever is The Cynical Girl, previously known as Punk Rock HR. It may also be the funniest business blog going.

In a recent posting, Laurie Ruettimann explained what employers think makes a great employee: a super hardworking slob who labors for love of the company and its brand, who has no discernible self-respect, and cares nothing about money.

However, like all Laurie’s posts, this one featured a respectful and sensible alternative point of view, her definition of great employees:

1. They have skills. They can do something important and in demand.

2. They have integrity. Principles matter.

3. They can commit to the job and its responsibilities. They live up to those commitments every single day.

4. They enjoy working hard and challenging their brains. Great employees don’t shovel corporate dog poop.

5. When they make a mistake, they own it and apologize. They also expect a second chance to make things right.

I was especially struck by points two, three and five, all about people who have integrity, demonstrate responsibility and consistency, and own their mistakes. This is a pretty good definition of someone you can trust:

1. Integrity – someone who is whole, who acts the same way around everyone and in all circumstances, who doesn’t do expedient things for their own gain at the expense of others.

2. Responsibility – someone who takes work seriously, and is reliable in making commitments and following through.

3. Owning their Mistakes – someone you can trust, because they are honest about their mistakes and missteps and willing to bring them into the open and make them right.

Laurie could really call her blog The Common Sense Girl, or The No BS Girl, and she would still get my vote for best business blog. Check her out. WARNING: strong language and frank opinions!

Integrated Reporting: Interview with Harvard Business School’s Robert Eccles

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Robert Eccles is a Professor of Management Practice at the Harvard Business School. For over three decades he’s been active in management accountability—linked to, but not limited to, more traditional concepts of financial-only reporting. He’s written several books before, perhaps most notably Building Public Trust: The Future of Corporate Reporting with Sam DiPiazza, former Global CEO of PricewaterhouseCoopers (PwC), but he may have finally hit a new level of interest with the arrival of his book One Report: Integrated Reporting for a Sustainable Strategy.

Bob speaks to us here a few months following a 100-person “Workshop on Integrated Reporting: Frameworks and Action Plan” sponsored by the school’s Business and Environment Initiative. You can download a free ebook from the event, The Landscape of Integrated Reporting: Reflections and Next Steps, with papers by about half the participants—it’s excellent.

Trust Quotes

Trust Quotes Series

Charlie Green: First, thanks very much for speaking with us. I first became aware of you from your work with Sam DiPiazza, but you’ve been working in performance measurement and reporting since long before that.

Might we say your expertise is the measurement and management of diverse indicators of corporate performance? How shall we call what it is that you do?

Robert Eccles: I’d say that I’m deeply interested in corporate performance measurement and reporting, with an emphasis on external reporting—a powerful lever for changing behavior and decision making by executives.

CHG: How did you get into this field?

RE: It goes back to my undergraduate thesis at MIT, but we needn’t go back that far! I was an Assistant Professor at HBS when I wrote a book on transfer pricing. After I became tenured in 1989, I started writing cases for a new first year course called “Information, Organization and Control.” I found companies getting interested in performance measures beyond the traditional financial ones.

Based on this I wrote a 1991 HBR article, with Sarah Mavrinac, called “The Performance Measurement Manifesto.” One year later Bob Kaplan published his famous article on the Balanced Scorecard, another indicator of interest in this topic. We both were focused on internal measurement. Bob remains so to this day, but I got interested in what companies were reporting and what information sell-side analysts and investors wanted from them.

This led to a 1995 Sloan Management Review article called “Improving the Corporate Disclosure Process.”

I left HBS to work in the private sector and this included researching and improving corporate reporting. I wrote The ValueReporting Revolution: Moving Beyond the Earnings Game with three PwC partners, including Bob Herz, recently retired as Chairman of the Financial Accounting Standards Board. I returned to HBS in 2007 and wrote One Report which was published in early 2010.

CHG: I’ve been aware for some time of movements like the Balanced Scorecard to integrate non-purely-financial metrics into the rubric of reporting. But I hadn’t heard of Integrated Reporting until just recently. How old is that term?

RE: Good question—I’m not really sure. Allen White used the term in 2005 in a piece for Business for Social Responsibility. That same year Solstice Sustainability Works wrote a white paper called “Integrated Reporting: Issues and implications for Reporters.” But even though Novo Nordisk has been publishing an integrated report since 2004, and Novozymes two years before that, those articles went unnoticed. The times just weren’t ready.

In March, 2010, about the same time my book was published, Southwest Airlines came out with their “Southwest Airlines One Report™.” Neither of us knew about each other’s initiatives until the summer of that year. I think the times are catching up.

CHG: What is Integrated Reporting? How do you define it?

RE: First of all, the term is still gaining acceptance so there is no general agreement on its meaning. Here’s my most basic answer. It is the publication in a single document of the material measures of financial and non-financial performance and the relationships between them.

It also involves leveraging the Internet and the company’s website to provide more detailed financial and non-financial information of interest to particular stakeholders, including shareholders, along with tools for analyzing this information. Finally, it’s about increasing dialogue and engagement with all stakeholders. It’s as much about listening as it is talking.

CHG: That begins to explain the connection with trust.

RE: Right—among other things, it’s about building trust between a company and its stakeholders. This trust comes from being transparent about all dimensions of performance—successes and shortcomings—and from active dialogue and engagement. For stakeholders to have trust, they need to know their expectations and concerns are being heard and that the company is honestly and forthrightly reporting on the meeting of expectations.

Of course, trust is a two-way street. Companies can’t optimize on every performance dimension, especially over short periods of time. Trade-offs are involved and must be accepted. Shareholders need to recognize the legitimate interests of other stakeholders; ditto for stakeholders and the need for companies to make financial returns.

Risk is relevant to trust too. Creating shareholder value requires risk taking. What’s required are candor about risk levels, systems and processes for risk management, and communication about the approach to risk management. Ultimately, risk management is about good corporate governance.

The “G” part of “ESG” (Environment, Social, Governance) typically gets less attention that the “E” and “S” part, because it’s harder to measure. But that doesn’t make it less important. What happens when they’re all missing? Consider big financial institutions in the meltdown of late 2008. Or BP in the Gulf of Mexico.

CHG: If the world had a robust system of Integrated Reporting—what would we have? What are the benefits, what’s the business case (or socio-business case?) for Integrated Reporting?

Trust QuotesRE: The greatest benefit would be a sustainable society—able to meet the needs of a growing number of citizens all over the world, mostly from developing countries, while still being able to meet the needs of future generations. Neither developing nor developed countries can continue consuming natural resources at today’s rate, creating negative environmental and social externalities, and practicing poor risk management and corporate governance.

CHG: But certainly reporting can’t fix that by itself?

RE: No, certainly not. Management practices, technologies, intelligent regulation and individual decisions play an important role as well. But Integrated Reporting is central, because reporting is a major determinant of behavior. It establishes discipline for the integrated management of financial, natural and human resources. It meets stakeholders’ information needs, along with processes of engagement, to help them help the company build a sustainable strategy. A sustainable society requires that all of its companies have a sustainable strategy. Integrated Reporting is central to this.

CHG: I get the sense that recently, things have changed a bit. Is this perhaps an idea whose time has finally come? Are you still feeling quixotic, or are there some genuine causes for optimism?

RE: “Quixotic” is a good choice of words. I have been working at this for over 20 years now and I can relate to Don Quixote tilting at those windmills. But today I feel extremely optimistic. First, companies have started to do it. They came to this largely on their own, and for pretty much the same reasons. No one had written a book and the topic was still fairly obscure.

Prince Charles started his UK-based “Accounting for Sustainability Project (A4S)” a few years ago. Starting June 1 of 2010 all Johannesburg Stock Exchange listees must file an integrated report as their annual report. France and others have passed similar laws, and it’s being considered by the entire European Union.

In August of 2010 the International Integrated Reporting Committee (IIRC) was formed. The Secretariat of this group is A4S and the Global Reporting Initiative. On its Steering Committee (of which I am a member and we had our most recent meeting in Beijing on January 17) and Working Group are prominent experts on corporate reporting from many different disciplines, and from all over the world. We hope to get Integrated Reporting on the agenda of the G20 meeting being hosted by France in November 2011.

Momentum for Integrated Reporting—driven by both market and regulatory forces—is growing and growing rapidly.

CHG: Dean Nohria at Harvard Business School recently opened up your conference with some very clear and strong language about the critical nature of trust to business. You know Nohria personally, but let me ask you institutionally as well: what does it mean for the Dean of Harvard Business School to be talking trust?

RE: I can’t tell you how significant I think it is that our new Dean is talking about trust. Though he’s a close personal friend of mine, I think I can objectively say that he is a man of the highest integrity and with a strong belief of the good business can do in society. The fact that his opening remarks at the HBS workshop on Integrated Reporting you mentioned at the beginning of this interview were focused on the need for business to rebuild trust in society pretty much says it all. His opening remarks are the basis of the introduction he wrote for the EBook and I would encourage all the readers of your blog to read what he had to say.

CHG: I’ve noticed a continued effort on the part of most people in arena of ESG (environmental, social and government issues) to try and justify their work in financial terms. At least one says that’s because business will never listen unless they can clearly see the profit value tightly demonstrated. But the tighter the justification in corporate profits, the less powerful the argument for a non-profit-based accounting, much less ethos, don’t you think? What’s the right way to think about Integrated Reporting and corporate profitability?

RE: I would frame this a little differently. I don’t think the issue is profits per se. Every corporation with shareholders needs to make a profit if it is going to stay in business. Rather, the issue is how those profits are earned, what social and environmental costs are created in earning them, how much risk is being taken and how well it is being managed, and the time frame management is using in making its decisions. The latter is a key issue. A focus on short-term profit maximization and ignoring all negative externalities and excessive risk as long as the letter of the law is being followed does not lead to a sustainable strategy for a company. If most companies have a short-term orientation, and the capital markets are as much at fault as the companies are, we will not have a sustainable society.

The fundamental issue—raised but not answered by integrated reporting itself—is “What is the role of the corporation in society?” There were some very thoughtful pieces on this topic written by some of the HBS workshop participants. Society as a whole needs a big rethink about what it expects out of its corporations, especially the largest global ones that control so much and have such impact on resources.

We need to develop a collective understanding about how companies identify the needs of all stakeholders, the processes they should use to make decisions regarding performance targets and performance trade-offs, and the time frame involved.

What I’m talking about is a massive societal undertaking. But until it happens, trust in business will remain fragile, and easily lost every time we go through a crisis, even when the fault is not business’s alone.

CHG: What role can education play in helping improve trust in business? Is this mainly a role for MBA programs? Or can other programs play a useful role as well?

RE: Business schools can play a role in helping students understand society’s expectations about them as stewards of social assets. This goes beyond “ethics” (I will ignore the age-old question of whether ethics can be taught to 20-somethings if they haven’t already learned them from parents, churches and communities) and gets at the fundamental issue of the role of the corporation in society.

This topic should be part of every business school curriculum, undergraduate or MBA. It will require directly challenging the prevailing view based on financial economic theory in the western world. One hundred years ago “shareholder primacy” was not the prevailing ideology; there is no reason to think that it will or should be in 100, or even 10 years from now, particular since the concept of “shareholder” has become so loose in an age of hedge funds, technical trading programs and relatively short-term holdings by mutual funds and even pension funds.

But remember, trust is a two-way street. Citizens need a basic understanding of the social role of business, how companies work, and the trade-offs they have to make. They must commit themselves to engage as employees, customers, shareholders, and members of civil society. Too often other programs (such as in the liberal arts, engineering, science, architecture, law, and medicine) include nothing about business in their curriculum even though all of these groups are dependent on and must work with business organizations. It’s no surprise they are often hostile to business.

Hostility is not a good foundation for trust. It’s good to be skeptical, but in a constructive spirit with a desire to build trust, not to destroy it.

CHG: What’s the biggest implementation challenge facing Integrated Reporting? And what do you think is the biggest challenge to trust creation in the business world? Do those two overlap?

RE: Challenges exist at the level of individual companies, and of society. I see four major corporate challenges.

1. A company must truly have a sustainable strategy, not just say it has, which is more often the case.

2. The process for producing an Integrated Report must itself be collaborative and multifunctional.

3. Internal control and measurement systems for non-financial information are typically not as sophisticated and robust as those for financial information.

4. Internal skeptics need to be persuaded. Executives need to accept that greater responsibility will entail greater accountability and, when they fail, they will pay the consequences—just as they do with financial performance. Users, both shareholders and other stakeholders, will require a lot of education.

At the level of society as a whole, Integrated Reporting is a necessary but not sufficient condition for creating a sustainable society; that’s a giant collective action problem. Companies are the entities doing the reporting and so they clearly can and should take the lead. After all, no country has any laws preventing Integrated Reporting.

But for Integrated Reporting to be as effective as possible, other groups need to get involved too. Measurement and reporting standards for non-financial information need to be developed so that analysts and investors have confidence in them and can compare the performance of companies, at least within a sector, and over time. These analysts and investors must then incorporate those measures into their financial models, turning them into business models.

Accounting firms need to develop the methodologies and capabilities for doing integrated audits. This may require some liability protection from legislatures and regulators, who also have a codification and specification role to play. NGOs need to collaboratively engage with companies to make the processes work. They also need to take a more holistic view themselves. Educators also have a role, as I’ve already discussed.

Finally, every member of civil society—and that is each and every one of us—needs to commit to a sustainable society and to do whatever he or she can to support the Integrated Reporting social movement. We only have one planet and we’re all in this together. If we don’t work together for the long term, we’ll have no long term.

CHG: This sort of brings us full circle, does it not?

RE: Yes; both Integrated Reporting and trust are about transparency, accountability and engagement. As companies practice it, they will gain trust from stakeholders. Society-level efforts will also help build trust from the shared vision, commitment and understanding that emerges between all groups.

And, as I’ve said, ultimately effective Integrated Reporting and trust in business by society requires a new view and consensus of the role of the corporation in society.

CHG: Bob, thanks again very much for taking this time with us, it’s been fascinating.

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Robert Eccles on Integrated Reporting is number 18 in the Trust Quotes: Interviews with Experts in Trust series.

Not the Grammys or the Emmys–the Trusties: New Most Trusted in Business Lists

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Trust Across America & the FACTSFirst of all, stifle that snarky laugh about awards for trust in business. Yes, trust in business is at an all-time low. All the more reason to identify best practices, celebrate them and help us to learn from them. And while most efforts at measuring trust fall short, there’s a new award ceremony in town and it’s looking extremely, well, trustworthy.

Why Most Trust Metrics Are Limited

Most efforts at measuring trust in business suffer from one of two difficulties.

1. Since trust is notoriously hard to define, one solution is to use survey data as a proxy. Trouble is, you can’t separate people’s propensity to trust from changes in companies’ trustworthiness. Bernie Madoff and the SEC didn’t change their trustworthiness overnight—but people’s opinions did.

Furthermore, survey data are extremely short-term. Opinions about institutions and companies are highly focused by the economy and by recent events.

2. The other solution is to get hard, objective data. But then, you’re stuck with the trust definition problem. You may be able to quantify accounting transparency—but is that all there is to trust? You may be able to quantify trusted twitterers—but what if the ‘most trusted’ twitterer turns out not to be the NY Times or Fox News or the President, but Justin Bieber?

Turns out data is cheap, but data that conforms with our common sense definition of trust? Priceless.

Introducing Trust Across America

Jordan and Barbara Kimmel of Trust Across America came up with an elegantly simple solution to the problem. They asked a variety of trust experts (disclosure: I was one) how to define corporate trustworthiness and then built a composite set of metrics to broadly reflect what they heard.

You can see the results here.

In brief, the model they developed is called FACTS: an acronym which stands for Financial stability and strength, Accounting conservativeness, Corporate integrity, Transparency, and Sustainability, with each factor evenly weighted.

The power of this model is that it is objective and quantitative, yet also definitionally rich. Don’t understand a result? You can dig in and find out how it came about. Don’t like the result? Then formulate a better definition yourself that you feel works better for your organization. It is a metric that is useful well beyond simply ranking.

I won’t spoil the fun, you can read the top ten list and top companies in sector. But I will give you a teaser—the top ranked US company, out of a field of 3,000, is from the oil industry.

Trust, Violence and Congresswoman Giffords

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The attempted assassination of Congresswoman Giffords in Tucson this weekend is related to trust.

I’m not talking here about interpersonal trustworthiness. Nor am I talking about polls and surveys about which institutions or professions are up or down in the public’s sentiments.

I am talking about what the academics call “generalized trust.” (See interview with Dr. Eric Uslaner for more on this). In a nutshell, generalized trust means our inclination to trust strangers, or to believe that people by and large have good intentions toward us.

That kind of trust is suffering a long, slow, secular decline (again, see Uslaner). And the Tucson tragedy throws it into relief.

Politics, Psychology and Violence

Some people debate whether the killer was politically motivated or merely psychotic, or some combination of both. From a trust viewpoint, I think it’s irrelevant.

Similarly, it’s also not always useful to debate cause and effect: did the shooter react to socio-political dialogues, or are those dialogues caused by events like Tucson? Does the media merely report polarizing events, or does its reporting contribute to the polarization? The answer is yes.

We have seen in the US in recent years an increase in the willingness to trust “someone like me.” This is not a good thing; it mainly means a decline in the willingness to trust other sources—media, advertising, business, government. We are a society that seeks trust in self-defined groups (think inbound marketing), while seeking protection from ‘strangers.’

High trust people feel in control of their lives and expect well of others. Low trust people feel that others control their lives and that “they” have bad intentions.

Add it up and what have you got? A society increasingly polarized with declining social trust, increasing micro-tribal trust (and its cousin, demonization of other tribes), and declining civility. My tummy tells me the odds of a Jared Loughner are increased, not decreased, with this cultural soup.

Drivers of Social Trust Issues

I find myself linking to Professor Uslaner several times in this post. “Congress,” he says, “is much like the rest of us—the incivility in Congress reflects the declining trust among the public.” Congresspersons clearly have a responsibility to role model more trustworthy behavior. The business literature is replete with examples of followers emulating leaders’ behaviors; Congress should read it.

The media are another key constituency. The old media is under economic attack from other media—blogs, tweets, YouTube—which offer far greater immediacy. We all lose when mainstream media start playing SEO games with headlines.

Business leadership is a critical part of the puzzle. Steeped in a 40-year ideology of competition, and seasoned with neo-Randian economics, business has come to believe far too much that all business is about doing battle with regulators and customers, confusing ‘ethical’ with ‘legal.’ The belief that everyone’s out to get you is not conducive to social trust.

What Pogo said is also true: we have met the enemy and he is us. I saw a blogpost today that was critical of Francis Fukuyama’s book Trust. Except that the blogger hadn’t read the book. He was suspicious of it because he didn’t like the title of another Fukuyama book—which, again, amazingly, the blogger had not read.

We accept far too readily emotional outbursts as substitutes for dialogue. The online comment columns on daily newspaper stories are full of graffiti—a (usually venomous) opinion with a name attached.

How to Restore Social Trust

Uslaner is very clear in his prescription. What destroys trust is corruption, economic inequality, suspicion, and lack of education. You may not like it, but the data show greater economic inequality and lower levels of education lead to lower social trust.

Leaders have to step up to the challenge of acting like leaders. The US Congress and politicians in general have done a conspicuously poor job of this. That Congresswoman Giffords appears to have been an exception to that rule simply draws the irony more sharply.

The media have to figure out another economic model besides emulating the tabloids and creating blogysteria. The Shirley Sherrod case was a lesson for anyone listening. Thus far, it seems like it’s been relegated to the archives.

Business has simply got to drop the selfish ideology it has embraced. Institutions like the Chamber of Commerce need to stop fighting government and begin working with it. Business schools have got to stop teaching ethics in one classroom and contradicting it in strategy classes down the hall.

And the rest of us: we all need, in our little daily behaviors, to adopt better manners. Civility. Respect. Empathy. Listening to the other person.

The link between an uncivil society and a society terrorized by psychotics is hard to prove, but not hard to feel. Aristotle suggested that actions arose from character and from thoughts. Combative people talking hard-talk are suborning bad behavior from those around them.

There are no quick fixes to trust. Seeing this as mainly an issue of better police protection would be a profound mistake.