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What a Trust-based Company Looks Like

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The tone of this blog is frequently critical. That’s probably because I believe we all learn much better from negative examples than from positive.
But if you don’t have any positive examples with which to contrast, we can easily forget why negative is negative. So the occasional positive blogpost is especially important. And this one is a real upper.

PSA: Pediatric Services of America

Last week I had the privilege of working with a very fine small company, PSA Healthcare. They deliver home health care for medically fragile people, mostly children. They have about 3,500 private duty nurses, operating from 50 locations in 17 states. What they do can make an enormous difference to families, allowing them to lead normalized lives under difficult conditions.

But having a great mission alone doesn’t make for a fine company. A lot of what makes PSA fine is that they are intentionally and consciously using trust principles to run the business. They are not only making a lot of people very happy and proud, they are doing very well by classic business measures. A fine case of doing well by doing good.

Let’s start with the metrics, go on to the principles, and end up with the real punch lines.

The Numbers. Jim McCurry started as CEO a little over a year ago, when PSA had been declining in revenue, market share, and profitability. Previous management was a classic top-down, measure-by-the-numbers team that had, simply put, failed.

The old style was that each month the bottom-performing offices were required to ‘justify’ themselves on a conference call to the top management. At the annual meeting, office heads were required to double-up on hotel rooms. Orders were given, decisions had to be approved up the line, and the style was management by FIN—fear, intimidation and numbers.

By the end of McCurry’s first year—at the tail end of a recession—revenue steadily increased, reaching a 20% annual rate of growth by year-end, all of it volume-based. The company increased profitability, more than doubled total profits, and turned the market share decline into market share gain. Staff morale is up enormously. Expenses are down.

Bottom line: really solid business results.

The Principles. How did McCurry do it? It was not the classic MBA turnaround medicine of tightening up, taking control, and cutting expenses. Instead, Jim told the staff the following:

“From now on, this company is run for the customer. The office heads work for the customer, and the rest of leadership works for them. Make your own decisions, and we’ll help you make them. Don’t wait for us to tell you what to do, you figure out what to do and do it—we trust you. No more intimidation, no more review boards.

“Our new mission has three parts: Action-oriented, Care-giving, and Trust-based.” (It spells ACT: coincidence? Of course not).

The annual meeting I was privileged to be part of was full of hokey-yet-fun skits, honesty, mutual helping, and positive energy.

The Punch Lines.  McCurry is an MBA. A Harvard MBA, actually, from a year after Dubya’s vintage.

The company’s owners are two private equity firms; the head of one of these is dedicated to the business in large part because his mother had been born so prematurely that she likely would have died were it not for the in-home nursing care she received in the first weeks of life.

This is a profitable business, not a charity. It is being run like a real business; like a real business ought to be, I should say, because too many businesses are being run the way PSA used to be run.

It’s refreshing to see an example of the much maligned du jour—MBAs and private equity—using modern, “squishy” leadership and management principles to improve life and the bottom line in parallel.

Collaboration, ethics, trust, openness, honesty, integrity—these are not fuzzy phrases, uttered by bureaucrats, wealthy Hollywood stars, or mega-rich Googlish do-gooders. These are utterly workable principles that deliver the best results around. They give capitalism a good name. Collaborative capitalism, I like to call it.

McCurry and PSA Healthcare deserve their success.

 

The Purpose of a Company Is…

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Thinking that the purpose of a company is to make a profit is like believing that the purpose of living is to eat.

Now that we’re clear about where I stand, and that this is going to be a bit of a rant, here we go.

The Purpose of Living is Not to Eat

I’m with whomever it was that said the ‘purpose-of-a-company-is-to-make-a-profit’ thing is back-asswards.

But let’s not start at full rant level. Let’s start by actually parsing the word “purpose.”

May I suggest that the statement “the purpose of [whatever] is…” does not actually mean anything unless given a context. And there are many contexts.

A sociologist (structural-functionalist variety) would look at a company and ask, ‘what social role does that kind of entity fulfill?’ Here are just a few answers.

• From the point of view of a state or local government, one role of companies is to fund a tax base and employ local citizens;
• From the point of view of a federal government, a corporation is a vehicle for implementing tax collections, health care policy, and vaccinations;
• From the point of view of the Supreme Court—at least recently—a company is indistinguishable from a human being when it comes to contributing to electoral campaigns and free speech;
• From the point of view of shareholders, it is to provide a return on shareholder investment;
• From the point of view of customers, the purpose of a company is to create customers (this in fact was the view of Peter Drucker).

A religious person might look at a company and say, “The role of a company is to allow man the means to fulfill God’s mission on earth.”

An anthropological historian might say the role of a corporation is to aggregate capital to fund larger-scale economic activities than could be done by individuals working alone.

I don’t know what Milton Friedman meant when he said it; he could perfectly well have meant, “if a company is making a profit, it’s doing all the other things it’s supposed to be doing, no need to inquire further.”  But it’s clear that Friedman has since been hijacked by those who have a far narrower, and more corporatist, agenda to pursue.

And so on. Without any context, absolute statements about the purpose of anything reveal either intellectual laziness or a political opinion—usually the latter. But let’s continue.

Corporations Are Not Granted Divine Rights

Often what people mean when they equate corporate purpose and profit is to suggest that the concept is primary, fundamental, or very basic, or a core principle; not quite revealed truth, but not far from it.

So it’s worthwhile remembering the source of legitimacy of a corporation. The first were formed in England in the 17th century, e.g. the Hudson’s Bay Company; they were formed by authority of the government.  In the US today, companies are chartered by the States. Again, legitimacy derives from the government. In whatever country we’re talking about, corporations are granted their legitimacy by way of the state.

There is no ‘right’ to profit for a company. There is no Bible that imbues companies with extra-legal status. No tablets were handed down, no assembly of people blessed companies with a ‘purpose’ agreed upon by all.

What about corporate charters that require companies to be responsible to shareholders for earning a return? I’m not a lawyer, but I’m reasonably well-read, and I’m not aware of any shareholder suits that invoke that clause to argue against excessive management compensation. From which I conclude there’s probably a lot of latitude for interpretation.

The Role of Companies

The real role of companies is hardly self-evident; in fact, it’s an excellent subject for public policy debate. The key question is: what do we want the role to be?

A company is a creation of the state, which in turn is beholden to its citizens. The question of the role of a company is on the same footing as the role of any other civic institution; what do we want to be the role of our public schools? Of our prison system? Of our approach to civil rights?

It’s a great question, and very timely. Let’s not shut down the discussion by assuming there’s some pat debate-ending answer.

(For anyone interested in pursuing this line of thinking further, I find the Wikipedia entry on “philosophy of business” to be thorough and thought-provoking.)

 

 

Trust and the Standard Deviation

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Those of you who regularly read Trust Matters have probably heard something about the Trust Equation, a formula for figuring out your own individual trustworthiness.

It looks like this:

Where:

T = Trustworthiness
C = Credibility (words)
R = Reliability (actions)
I = Intimacy (safety)
S = Self-orientation (whose agenda are you working?)

You can read more about it in this article:

From this equation, Charlie Green developed the Trust Quotient assessment–20 questions which yield powerful information on not only a person’s overall TQ, but also her or his areas of strength and – let’s be forthright – weakness when it comes to creating trust.

And the Trust Quotient Assessment Says…

Over the past two years more than 10,000 people have taken the TQ quiz. And what a rich and delicious trove of aggregated data that has given us – the largest study of its kind ever done on personal trustworthiness.

One of the key findings is this: in building trust, consistency matters.

The data show that the more consistent a person is across all four areas of the TQ (credibility, reliability, intimacy and low self-orientation) the higher that person’s overall TQ score will be.

Put another way, the higher the standard deviation among the four components’ scores, the lower will be the overall Trust Quotient number. Science has now shown what intuition has always told us. We trust people more when they display all four key factors evenly, when they act consistently. In some ways, this is what we mean when we say ‘integrity’—a sense that we are seeing a whole, that this person walks the talk, there are no secrets, what we see is what we get.

In less mathematical terms …

Imagine that you scored very well on credibility (you really know your stuff), on intimacy (you relate to others on a human level, and are open with them), and on self-orientation (you really listen to other people and want to understand how you can help, not just how you can make a sale.)

BUT–with all of this going for you, if you miss deadlines, show up late or not at all for meetings, and fail to get your part of the project done, no one is going to trust you.

Will they tolerate you? Maybe, if you are the super-expert they need on the job, or the total charmer who makes even wacky excuses sound plausible. But trust you? No. You’re a brilliant or charming flake. You can’t be relied upon.

Does the TQ Contradict Strengths-based Management?

On the face of it, this may appear to contradict the strengths-based approach to management championed by Marcus Buckingham, who argues you’re generally better off working from your strengths than fixing your weaknesses. Because if a charming flake can improve her or his score on reliability, she or he can improve their TQ trust score.

In fact, we don’t think it contradicts Buckingham’s basic proposition; if your natural strength lies in intimacy, for example, you’d do well to use it.  But what if people can’t see it for the strength it is?  What is your flakiness obscures it?

As is true so often, trust may be a bit of a special case. If the appearance of dis-integrity (flakiness, perhaps) is keeping people from seeing your natural strength in intimacy, then improving reliability is a way of enhancing your strength, rather than just shoring up your weakness.

This is just a peek into the tent of our findings from the survey data. Stay tuned to read more in future blogposts.
 

Ross Smith on Trust and Innovation (Trust Quotes #1)

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 Given Trust Matters’ attempt to be commonsensical and practical, it’s fitting that we lead off the series with Ross Smith, a line manager who uses trust daily. I first met Ross in early 2009, when he was running a team of about 80 programmers working on Windows security for Microsoft—not the first place I would have guessed to be focused on trust.

Let’s pick it up there.

CHG: Ross, you didn’t set out to do work in trust, did you?

RS: Hey Charlie – No, not at all. We started several years ago on the Windows Security team and though we didn’t realize it at the time, we were experiencing the influence of the workplace generational change, the Internet, social networking, and web 2.0 on our work and our team. The experiences, knowledge, hobbies, and expertise of people went far beyond what they did in their daily work – and we wanted to create an environment where they could be creative and apply their outside interests and experience to how they did their jobs.

We ran into a great paper “Well-being and Trust in the Workplace” by Helliwell and Huang – that equated an increase in trust to a pay raise. We thought about creative and innovative organizations we knew of, had worked on, or had read about – and some of the best practices they shared – things like freedom to fail, suggest new ideas, transparency, etc. – and realized that these behaviors are all rooted in trust. So, we kicked off an effort called 42projects, as an experiment in how we manage and engage as a team – in an effort to encourage more freedom, autonomy, play, and creativity in how we work.

CHG: Can you say more about the link between trust and innovation?

RS: Well, the term “innovation” can be a bit tricky and subjective. However, if the goal is to find new, exciting, cool, or different ways of doing things, or to generate ideas for ground-breaking new products, then people need the freedom to experiment. They will want to take risks. And, while no one likes to admit it, there’s a likelihood that that people will fail – and then they will iterate – and fail again – and iterate. We’ve all heard the Edison stories of experimentation and failure.

However, in real life, I won’t be bragging to my manager about my ability to fail, romanticizing the Edison mantra, if I don’t absolutely trust that my manager sees the bigger picture – and also trusts me to be working towards that. If we don’t have a solid relationship built on mutual or reciprocal trust, then we’re both likely to reduce risk-taking and stick to a conservative and accepted formula for execution.

Alternatively, in a climate of high trust – one where freedom of ideas and risk taking is accepted and encouraged, then as an individual, I’m more likely to try creative new approaches – and as I do, I will learn, iterate and improve. In a high trust workplace, therefore, I can be creative and “innovate”, because I have more freedom and autonomy to experiment without the fear of retribution for failure.

CHG: What are some of the ways in which you ended up exploring trust?

RS: Well, while this all looks really good on paper, in practice, trust is really just a “woo-woo” soft skill – and the world of engineering is quite structured. How do we take a right brain aspiration and develop a left brain process? I’m not sure we’ve figured it out yet, even after 4 years. But we started simply – just ask people – what behaviors do you feel influences trust?

We sat down in a room with Post-its and people wrote down behaviors that were important to them. We took that list, and built a little web-based voting game – and asked the team to play. We assumed that we could rank the list, and then go to work on the top three. But we realized quickly that trust is situational – and depends on context – and there was no one-size-fits-all solution. We returned to look at web 2.0 tools and put our ideas and research out on a wiki – and asked people to contribute their suggestions, examples, and stories.

We had a few people contribute, and we were able to compile enough useful information that we could share this as a sort of reference – a “playbook”. The big win for us was simply asking our team members to identify things that influenced trust for them. We made everyone aware of that list – and that awareness really helped individuals self-monitor and be more cognizant of their actions. I think it really helped leaders think more empathetically about their own actions and their influence on individuals via behaviors on that list.

We’ve also explored the application of collaborative play and fun on trust-building. We have used productivity games to help bring fun to the work we do, and we’ve found that as people play together as teammates, they develop deeper trust relationships in the workplace.

CHG: Along the way you also read a lot of trust literature, didn’t you? What did it tell you?

RS: Interestingly, I feel we were fortunate to be naïve when we started – we did not study before we began, we just set out on our own path. As we got going, we realized there were experts in the field of organizational trust whose experience and knowledge FAR exceeded anything we imagined. (readers – you know Charlie’s work, so hopefully he doesn’t edit this out – but he was one of these )
There are a number of great people, books and research that influenced us along the way.

[The list of  which is posted at the end of this interview]

CHG: What have you found out in the "real world" that’s different from what you read from academics and consultants?

RS: For us, it’s almost the other way around – we found a lot of great ideas in our reading that really helped improve/refine what we had been doing. Again, I think we came in to this very naïve – and it was great to be able to learn from experienced people, both in the industry as well as academia. The contextual nature of trust, how it differs across time and relationships, the importance of consistency, authenticity, and integrity, and how easy it is to lose vs. how long it takes to build – were examples of ideas we learned more quickly through reading the work of others.

CHG: How big a role do you think trust can play in business? And how far down the road are we?

RS: Trust plays a much bigger role than we realize.

I think trust is a fundamental component in everything we do – business or otherwise. What has struck me most in our journey is how the role of trust is unrecognized – or under-represented. People don’t acknowledge the existence – or non-existence – of trust as it is happening. Think about your last great manager. What made him or her great? Now think about trust. Do the same for your last bad manager. Organizations don’t really make trust a priority – or even talk about it – because it’s so hard to measure.

For me personally, in the last six months, I moved from the Windows Security team, where this work started and where trust is an obvious influencer – to the Office Communicator and Design group – that focuses on IM, audio and video communications – because I believe that as communication speed and styles continue to evolve, – from the ancient Greek runner in Marathon who delivered the message from noble to noble – all the way to the IM or web chat across the globe that happened while you read this – open and authentic communication is critical to building trust – in an organization and in society.

We are at a time when human communication is changing at an unprecedented pace. 3G cell phones aren’t even 10 years old. Twitter is four. We are at the dawn of a new era where real time global communication is the norm, and there is an exciting opportunity for digital communication tools to create and enhance trust building across organizational and global boundaries. Egyptian hieroglyphics and Guttenberg, Juan Pablo Bonet and ARPANET – all milestones throughout the history of communication – have led us to this time and place where everyone can communicate with everyone else. Language, time, and distance barriers have fallen. How do we carry forth things like voice inflection and body language into the digital realm, so that fabric of trust that’s woven into every relationship evolves in this new age of communication?

CHG: You must think that at least some people can be taught trust; how many? And how do you do it?

RS: I think people can be taught to be AWARE of trust. I cannot teach you how to trust me. I can tell you the things that influence my level of trust in you – and then, by making you aware of those, you can go out and demonstrate them – and it’s likely that, over time, I will trust you more.
It takes time. You hear all the time about “earning” trust – and to me, that means demonstrating consistency – people need to be able to predict your behavior in a given situation – and if they are able to do that successfully, you’ve taken a step towards earning their trust. It’s a bit like a game where you can earn points or a regular bank account deposit.

CHG: What do you think are the biggest barriers to enhancing trust in the business world?

RS: I think that it is the awareness of the impact, Charlie. No matter how technical or binary we get, trust is earthy-crunchy. Insert your mental image of falling backwards exercises here. And do you really want to bet your business on that? Sounds like a bit of a shaky approach because you can’t measure progress, you can’t see it. And I think the lack of solid ROI metrics for the soft skills improvements minimize significant investments – and yet, it’s fundamental to everything we do.

Trust is like that IT person who works all night long to keep the servers running, and is so tired the next day they sleep through the status meeting, and someone else gets the credit for making things work. It’s like the night crew at the burger joint who clean the grills and empty the oil vat so the burgers taste good every day. Trust is fundamental to success, a key component of healthy relationships, yet often it’s very hard to notice until it’s gone.

So, I’d say the biggest barriers to enhancing the level of trust in the business world are the lack of awareness of its importance – and the difficulty of measuring it. I read once that trust is like freedom and air – you know when it runs out, but it’s really hard to know how much you have.
The work you’re doing, for instance, with your Trust Quotient, is a great step towards legitimacy in the business world. We’re looking at some experiments with the ROI Institute to measure the ROI of our trust-related work and its impact on productivity.

CHG: Do you think business can teach the world about trust? Or is it the other way ’round?

RS: Wow! – Great question. One thing that we’ve learned is that no one disputes the value of trust. If someone comes out and suggests that “we need to trust each other more”, there are no dissenting opinions…

The world moves quickly – our world of technology changes daily. But trust-building takes time, persistence, and demonstrated consistency. It’s a luxury we may not always have. But just like you can’t cheat in farming, there are no quick short cuts to building trust. The fast pace of communication can expedite relationship building – 20 instant message exchanges might be similar to 20 post cards mailed by hand.

I think people take for granted the ease in which we can communicate now. I can take an hour on a Saturday morning and send a personal message to everyone I know – perhaps, if I’m organized, everyone I’ve ever met. That’s amazing – and yet, people rarely take that time to communicate voluntarily. It’s the small, unsolicited communication over time that opens the channels to build trust.

CHG: Where do you want to go next in your examination of trust?

RS: Exploring in more detail the impact and influence of communication on trust in an organization – We are experimenting with communication tools that facilitate trust-building and that augment and enable our trust building behaviors. We want to better understand measurement and progress – and how do we build awareness in a group of people of the behaviors that influence their level of trust. What are the economic implications of a high trust vs. a low trust environment, and how does trust influence productivity and morale.

CHG: Anything else people ought to hear from you?

RS: We really appreciate people’s interest in our work. As I mentioned, we started off quite as real novices, and it’s been a real pleasure to be able to learn from so many great people. I think sharing and collective community learning is key to advancing the ideas of trust–building and its importance. There is a large body of knowledge that we hope we can draw from and add to – and we’d love to collaborate.
If you’re interested, join our “Friends” alias – or send me email – our site is www.42projects.org

CHG: Many thanks on behalf of TrustMatters readers for taking the time to talk with us.

RS: Thank you – we’ve learned a lot from your work – and from several others who I know read this – and it’s a privilege to be able to share our experiences.

Further Reading Mentioned in the Interview

Trusted Advisor !!
Well-being and Trust in the Workplace Helliwell and Huang
Leader Perfect Trust Centered Leadership
Mike Meutzel, Gen X / Y
Brock Dubbels
Serious Games Initiative
ROI Institute
Speed of Trust by Steven M.R. Covey,
Gary Hamel
Warren Miller – Freedom
Management Innovation Lab (case study)
Career Innovation A Guide to Trust
Paul Herr, Primal Management
Julian Birkinshaw Reinventing Management
Byron Reeves, Leighton Reed – Total Engagement
Trust: The Social Virtues and The Creation of Prosperity by Francis Fukuyama
Trust: A Sociological Theory (Cambridge Cultural Social Studies) by Piotr Sztompka
The Problem of Trust by Adam B. Seligman (Paperback – Feb 14, 2000)
Trust in Society (Russell Sage Foundation Series on Trust) by Karen S. Cook
Trust and Trustworthiness (The Russell Sage Foundation Series on Trust, Vol. 4) by Russell Hardin
Building trust in business politics, relationships and life – Solomon and Flores
Reina Trust Building

Collaboration: Not Just an Internal Virtue

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We usually think of collaboration as a good thing. But we also usually think of it as something we do internally—in order to compete with the external world. This is a viewpoint which has proven harmful in the past.

The future of collaboration is not just internal, but external as well—with various stakeholders, particularly including customers and suppliers.

Old Collaboration: Us Against Them

As the Deputy Dean of Academic Affairs at Harvard Business School puts it, “Today, more than ever, business is a competitive endeavor. At the same time, management is a more collaborative endeavor.”  That’s the old view–collaboration as a management technique, practiced in service to a competitive-based strategy.

Jack Welch’s term “boundarylessness” captured this introverted form of extroversion perfectly:  it was boundarylessness, right up to the corporate boundary. At that point, it became us vs. them.

The Dangers of Limiting Collaboration to Internal Only

Google recently got slammed for its Buzz product introduction, which seemed blind to concerns about privacy.  The problem was not testing: Google routinely runs massive tests on new product introductions–but it does so internally. Had Google tried to collaborate with some non-Google folks, someone might have clued them in about the suspicious world outside the inner walls at Mountainview.

And that’s not a unique example. Toyota is currently paying the price for low levels of external collaboration—despite excellent levels of internal collaboration.

I remember vividly the first class on my first day of my first year at business school. It was a consumer marketing case, about introducing a new product. I and everyone in the class concluded it was a horrible idea; none of us could envision buying the product.

The joke was on us; the product was a huge success. The lesson? Never do market research on yourself.

Collaborating with your teammates is good for speed and efficiency. But external collaboration connects you with the world outside. Big stakes.

New Collaboration Reduces Risk by Going External

Conventional wisdom declares collaboration to be an internal management tactic. The collaborative capitalist view is that collaboration is no longer a tactic, but a strategy for more successfully engaging the outside world on terms other than solely competitive.
 

Are Book Titles Getting Twitter-ized?

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Have you noticed the plethora of one-word nonfiction book titles lately?

The following titles are taken from the top 60 best sellers on Amazon’s list of business books. That means nearly 1/4 of the top books have one word titles. Yes, they have subtitles, but other than that, I’m being a purist, and didn’t even count titles with ‘the.’ (Like ‘The Secret,’ which has no business being on a business list anyway).

Blink, Think
Stick, Switch
Tribes, Outliers
Nudge, Sway
Linchpin, Rework
Drive, Mojo
Freefall, Aftershock

Most naturally fall into categories of opposites. For every one word title, there is an equal and opposite title, seems to be the rule.

I can’t imagine we had this many one-word titles in recent history, and I suspect it means something.

The Curmudgeonly Interpretation: The Decline of Rome, redux

There is an obvious interpretation which appeals to modern Luddites and curmudgeons: "It’s the Twitter that done it!" You can write the rest of that post yourself.

Variations on that theme include, "Anybody who thinks he has 5000 friends doesn’t have any," and "Kids these days don’t even know their times tables."

There is another view, of course, and that is simply that the meanings of words change over time. In Jorge Luis Borges classic short story “Pierre Menard, autor del Quixote,”  , the author Menard resolves to write the greatest novel of all time. Which, as everyone knows, is Don Quixote. So after great labor, Menard triumphantly succeeds in writing Don Quixote, in its original Spanish.

But of course, the meaning of the words had changed over the centuries, hence it turned out that Menard had not written the greatest novel of all time after all; whereupon he died forlorn of disappointment (as I recall).

An awful lot of wasted energy gets expended on debates over the changing meanings of words like ‘friend.’ Too bad we don’t have the ability to just say ‘friend-like-it-meant-in-1957’ and ‘friend-like-it-meant-when-it-became-a-verb.’

Not Better or Worse, Just Different Books

Let’s just stipulate that there were some good things about the 1957-model Friend that were lost in the transition to the New Model. But the reverse is true too. With 2000 friends, you can find someone up at any hour of the night, for example. That’s non-trivial, as far as I’m concerned.

I just spent 3 hours of a 5-hour flight reading a really good old-style book called Crisis of Character: Building Corporate Reputation in the Age of Skepticism, by Peter Firestein. Not a one-word title. Because, in this case, it’s not a one-word book. (Excellent book, by the way).

Then again, I’m a Malcolm Gladwell fan; I’m not about to join the backlash against him. Blink? Outlier? Yeah, I get it, and I get it quick. Maybe I don’t have to read the whole book to ‘get it,’ but I always do anyway, because I love reading Malcolm.

Yes, I think one-word titles are different, and new, and here to stay.  And I’m sure it is all part of “the twitter,” we all have A.D.D. now, and so on. And some of that’s good, and some of that’s bad.

What it is, it’s just different.

My favorite old Greek philosopher (maybe the only one I remember) Heraclitus said, “you cannot step in the same river twice.” True dat, Heracky!
 

Shaming Bribe Takers with Zero Denomination Currency

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A most curious post showed up on the Worldbank.org site. It tells the story of 5th Pillar, a unique initiative to mobilize citizens to fight corruption in India.

According to Anand, the idea was first conceived by an Indian physics professor at the University of Maryland, who, in his travels around India, realized how widespread bribery was and wanted to do something about it. He came up with the idea of printing zero-denomination notes and handing them out to officials whenever he was asked for kickbacks as a way to show his resistance.

Anand took this idea further: to print them en masse, widely publicize them, and give them out to the Indian people. He thought these notes would be a way to get people to show their disapproval of public service delivery dependent on bribes.

The notes did just that. The first batch of 25,000 notes were met with such demand that 5th Pillar has ended up distributing one million zero-rupee notes to date since it began this initiative. Along the way, the organization has collected many stories from people using them to successfully resist engaging in bribery.

When confronted with a demand for a bribe, the citizen offers up a zero-rupee note. This act turns out to have serious, positive consequences. In one case, “a corrupt official in a district in Tamil Nadu was so frightened on seeing the zero rupee note that he returned all the bribe money he had collected for establishing a new electricity connection back to the no longer compliant citizen.”

The Power of Shame Over Corruption

The article suggests several reasons for the power of the zero-rupee notes. Corrupt officials become frightened of being discovered; they also don’t want to have disciplinary proceedings established.

But the most powerful reason, says the article, is that the fact of the many zero-rupee bills’ existence empowers citizens. They no longer feel alone, and therefore have the courage to stand up against corruption.

What I find interesting are the comments to the blogpost. About a third of them are skeptical, saying it won’t work—this after reading an article about how it does work. Others say it works temporarily, only new laws will work permanently, it’s only a novelty.

Even many who say it does work are prone to focus on the odds of getting caught—suggesting the zero-rupee notes alter the rational risk-taking behavior of the corrupt officials.

I suggest they’re over-thinking it. The power of the zero-rupee note is what the article said it was—the empowering of a disenfranchised group in a very public way.

Call it shaming.

It’s exactly what I wrote about the other day in the confusion over ethics and finance. In a western-driven world which worships rational analytics, ascribing all motives to deductive calculations of self-benefit, we tend to under-rate the impact of the moral disapproval of our peers.

Whether we’re talking about corrupt civil servants in Tamil Nadu, or self-aggrandizing employees in a US company, I think most people are still capable of being ashamed; and that shame comes from a larger group of human beings. In situations where the law seems behind the curve, a deeper sense of community can restore balance.

Shaming is the public expression of a community’s view; we shouldn’t under-estimate its power, for good and for bad.
 

Financially Justifying Ethics: A Faustian Bargain?

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Many readers are familiar with Goethe’s Faust  in which the protagonist sells his soul to the devil in return for having his way here on earth. Those who are not familiar with it will find the same theme echoed in Robert Johnson’s Crossroads song, in which the singer sells his soul to the devil in return for fame as a bluesman. (Still more of you may only know this through its 1986 insipid version with Ralph Macchia, redeemed through a transcendent performance by Steve Vai in the role of the Devil’s hands).

But never mind. What I want to talk about is the justification of ethical corporate behavior by referring to its profitability. It is, I suggest, a slippery slope.

Is Ethical Behavior Profitable?

Many writers and organizations suggest that socially responsible behavior is also profitable. Variations on the theme include the profitability of high transparency, candor, employee engagement, customer loyalty, green-is-good-business, etc. In the jargon, you do well by doing good.

I applaud these kinds of studies, because they highlight imperfections in market pricing: usually short-termism. To the extent they are right, they hold short-term managers’ and investors’ feet to the fire to justify their self-aggrandizing decisions. 

But they are not perfect. Ethical business propositions may get tagged as unprofitable for one of four reasons. One is market imperfection, one is venality, and a third is stupidity.

But the fourth is where I want to focus. Sometimes the “right” thing simply is not profitable. Stretch out the timeframe as far as you can, fix your cost accounting all you want, remove moral hazard to zero—and it may still not be profitable. There are simply times where the “right” thing does not work out to be profitable for the entity in question.

Enter Mephistopheles.

Justifying Ethics Financially

When faced with an ethics-vs.-profit decision, a moral capitalist like CEO Aaron Feuerstein knows the answer. You do the right thing, he said, simply because—it is the right thing. That’s why they call it ‘the right thing.’ It needs no external justification.

But they’re not listening to Feuerstein much these days. And so the CSR movement has become enamored of proving the profitability of doing good.

There’s a real risk, I would argue, when ethicists and corporate social responsibility advocates put nearly all their emphasis on this line of thought. Simply put, it becomes indistinguishable from justifying ethics on the basis of self-interested materialism. Which destroys ethics.

It’s always been an appealing argument. Think Pascal’s wager, for example, in which self-interest justifies theology. Thus cheapening the theology. Chris Maher makes a wonderful parallel case for the pernicious influence of ROI calculations on charitable giving in an unpublished article.

Perhaps nobody does the integrity-is-good-for-you argument better than Jack Zwingli at Audit Integrity. In a brief conversation with him a few months ago, we discussed this point. Jack suggests that do-gooders are howling in the wind if they don’t speak the corporate language. “It just doesn’t work,” he says, “and that’s the simple argument against it. You have to show companies and investors that there are financial consequences for behaving badly.” (my paraphrase).

As a descriptive statement, it’s hard to argue the contrary. But as a moral statement, it’s well down the slippery slope.

Let’s be clear what’s at stake. Saying “those who behave well make more money,” is a mere figleaf away from saying, “you should behave well because you’ll make more money.”

From there, it’s an easy stumble to saying, “if it’s ethical, it’s profitable,” then, “if it’s not profitable it’s not ethical.” And now we are at, “If it’s not profitable, I’m not doing it—because it’s not profitable. Period.” Ethics is completely subsumed by profitability at this point.

(And don’t give me that old ‘the purpose of a company is…’ routine; I’ll deal with that in a later post.)

Talking About Ethics Without Making a Faustian Bargain

It is surely a good thing that the pro-good analysts continue to highlight stupid, inefficient and self-aggrandizing decisions. The results of better decisions are helpful in both moral and economic terms. And in the long run and in the aggregate, the vast majority of “good” decisions also do “well.” The alignment of the economic and the moral benefits society.

But not every decision presents itself so neatly. When faced with doing the moral thing, which may not be the profitable thing, that is when the Devil comes for his due.

If you have given away your moral high ground by consistently monetizing it, then you no longer have a moral leg to stand on. Companies will flatly reject your pleas, because “it doesn’t make money. Surely you don’t expect us to lose money, do you? After all, you’ve always argued…” And they’d be right.

This is not mere theory. Look at the response of health insurance companies this summer at a congressional hearing. Asked to voluntarily give up their anti-human policy of rescissions, they demurred. Their reasoning? We don’t have to; state law doesn’t keep us from doing it, so we won’t. Why should we? We’d lose money.

Where was the moral high ground on that one?  Squandered, out doing the devil’s work by implicitly permitting moral argument from profit.

So where is the high ground? It lies in public shaming. Editorials, demonstrations, op-eds, blogs, YouTube videos, politics. Moral high ground comes from appealing to a larger set of beliefs from a larger group of stakeholders. 

Zwingli tells me, “been there, tried that, it doesn’t work.” He is surely right, at least about working in the trenches.   But public shaming in a Massachusetts election got Obama’s attention. Public shaming got Goldman’s CEO Lloyd Blankfein to drop a zero from his bonus package. Public shaming cost Tiger Woods an image, and Toyota an untarnished brand.

Real change doesn’t come from the top down. As Margaret Mead put it, “Never doubt that a small, group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.”

Ethicists and CSR advocates: don’t stop fighting the good/well fight–but don’t give up the high ground by monetizing everything either.  

Don’t sign that piece of paper out there at the crossroads.

 

The Real Lesson of Toyota: Cultural Insensitivity?

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The obvious story about Toyota—in the US anyway–is their perceived huge loss of trust. Typical is this column yesterday by David Lazarus of the LA Times, titled Toyota: What’s so Hard About Doing the Right Thing? 

Suggests Lazarus:

“Toyota’s actions throughout this mess — the initial denials, the obfuscating, the gradual acknowledgment of safety issues — suggest that its priority first and foremost has been to cover its crankcase, not safeguard its customers.”

Well…not so fast.

Not Every Moral High Ground Looks the Same from All Vantage Points.

Take Laura Silsby, the head of the group accused of kidnapping children in Haiti. Here’s what CBS reports she said in front of the court: 

Silsby told the judge: "We were trying to do what’s best for the children."

When the judge asked, "Didn’t you know you were committing a crime?" Silsby quietly answered, "We are innocent."

Personally, I have very little doubt that Silsby sincerely believed what she said. More importantly, she appears to have believed that her beliefs would shared by the vast majority of the world’s population, including a Haitian court.

As it turns out—the courts in Haiti somehow saw morality differently, believing that when due process of Haitian law regarding separating families is the issue, there’s more at stake than bureaucracy.

Or take Scott Roeder, who pleaded innocent in Wichita Kansas to murdering George Tiller (an abortion doctor), because “Those children were in immediate danger if someone did not stop George Tiller…The babies were going to continue to die.” 

As it turns out, the Wichita jury took 37 minutes to view Roeder’s plea from a different viewpoint; one in which premeditated killing over a disagreement about a legal procedure constituted the crime of murder.

Toyota’s Behavior from the American Perspective

The LA Times article quoted at the outset of this post is quintessentially American. Toyota made mistakes, the narrative goes, then did the classic Watergate move, compounding the error by covering it up.

The American narrative continues.  No forthcoming comments. No transparency. Vague claims of intent to fix. Then, more bad news, dribbling it out. Even Toyota’s American dealers—behaving more like Americans than Toyota employees–bought the American narrative and withdrew advertising from ABC affiliates because they didn’t like the press coverage. 

Why did Toyota do this? According to the American narrative, the same reason as John Edwards, AIG, Merck, Enron, Lehman, and pick-your-scandal everyone else did: to line their pockets, take the money and run, fleece the average American–a quick-buck hustle.

And, in America, they’re generally right.

Except Toyota is a very Japanese company.

Toyota’s Behavior from the Japanese Perspective

I am no expert on Japanese culture. I’ve set foot there only once. I’ll gladly take corrections from those who know the culture better than I.

But here’s what I think.

The story in Japan is not one of greed, but of hubris. And not American hubris, but Japanese. 

From JapanToday we hear: 

“It’s a “terrible blow” for Toyota because its identity is so closely linked to quality and the company seemed slow to recognize the problems, said Kenneth Grossberg, a marketing professor at Waseda University who has lived in Japan for 16 years. 

In other words, they committed a cardinal Japanese sin: the sin of arrogance, by letting down their constant vigilance of quality. Greed? The story here is not greed; it’s something much worse in Japan—loss of face.  About the company image.  And about the national obsession–quality.  The Japanese are upset about Toyota too–just not in exactly the same way we are.

In a culture that not so many years ago considered failures like this a cause for major public self-humiliation, it is not surprising that mea culpas are taken very seriously. For one thing, when Americans don’t apologize quickly, we assume it’s because they’re legally at risk when they confess. The concepts are distinct in Japan–you can apologize without risking legal consequences.

This is not a simple analysis. Brooke Crothers, who knows more than I do, attributes it in part to another Japanese trait—a desire for denial. 

Whatever your view, it’s hard not to ascribe our own unconscious belief systems to others. 

Hard, but pretty important nonetheless.

 

The Bigger the Bank, The Lower the Customer Satisfaction?

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That’s what seems to be the finding in this interesting study:

Customers of the biggest banks in the United States are the least likely to believe their financial institution does what’s best for them as opposed to what’s best for the bottom line, according to a new report from Forrester Research.

To put the rankings in perspective, large banks have generally been at the bottom of the list since the survey was initiated seven years ago, and many of the banks have alternated between the bottom spots year to year, said a Forrester vice president…

Here’s my question: how do you explain this?

And I’d like to pose the question to two classes of people: economists, and the wishful thinkers (me often included) who like to point out that trustworthy behavior is business-successful behavior.

The fact is: it’s not easy to square certain beliefs with certain data. Let’s climb up to 30,000 feet and look at this in broad, simple terms.

Bank Data vs. Economists’ Assumptions

I’ve got to be careful here because I’m not an economist. But I’ll go out on a limb and say that nearly all economists believe a few things. 

All else equal, people in a free market buy the lower-priced good. 

All else equal, satisfied customers in a free market reward the better company with higher profits and growth.

Higher size yields lower costs, thus greater profits and/or lower price and/or better quality.

Roughly right? Then how do we account for a situation where lower customer satisfaction correlates with higher size?

Here are some of the logically possible answers to the conundrum.

  1. It’s not a free market at all; never has been. And if you believe removing regulations to make it more ‘free’ will improve customer satisfaction ratings, I’ve got a bridge to sell you. (I give this explanation the highest probability)
  2. All else is never equal; things like ATM availability, extra-bank fees and aggressive marketing give big banks an advantage;
  3. The survey identified the wrong customers; the ‘real’ customers are institutional with strong ties to the big banks, and they are very, very satisfied.
  4. It’s an aberration due to recent market conditions. Um, no. Not over 7 years. That goes back to 2002. Nope, this is pretty solid.
  5. The biggest firms didn’t grow by organic growth from satisfying customers, but by acquisition of failed banks. Maybe, but that should have resulted in lower costs. And economists think lower costs drive customer satisfaction. The conundrum remains. 

Help an economist today; what are some other explanations that cover this seeming anomaly?

Bank Data vs. “Doing Well by Doing Good” Theorists

There are lots of studies to suggest strongly that trustworthy behaviors like focusing on customer service and data transparency are not only socially valued, but result in higher profitability too. I cite those studies, and so do others.

And then there is data like this, which most of us feel in our guts to be true. It really does raise the question, “Just where is the link between good-citizen behavior and good economic results?”

I hear from almost every trust cynic: they simply do not believe that behaving in a trustworthy manner is profitable. It is too risky, they say; and contrary to wishy washy thinking, behaving nicely results in getting your butt kicked in the market.

For that point of view, here’s Case Exhibit I. How can DWBDG theorists explain their way out of 7 years of uncorrelated satisfaction and market performance?

The logically possible answers to this conundrum, I suggest, are identical to the answers for the economists, 1-5 above.

But what about you? How do you explain the data? And what are the policy implications of your explanation?