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January Carnival of Trust is Up

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The January Carnival of Trust is up.

Hosted by Diane Levin at MediationChannel.com, this month’s edition certainly had a feast to choose from, what with all manner of scandals and conflict in the news. Diane’s choice of material for the Carnival chooses to emphasize the basics of trust–something well worth doing in times of off-scale low trust.

Each month, the Carnival of Trust rotates to a new host. Each host selects the Top Ten trust-related blogposts in categories including Sales & Marketing, Management and Leadership, Advising and Influencing, and Strategy, Economics & Politics.

Since the host chooses only the Top Ten, and thoughtfully adds some valuable perspective of his or her own, it ends up being a rich and rewarding reading experience. Diane’s selections include such topics as Ponzi Schemes (no big surprise there), trusting your customers, trust lessons from improv comedy, moral education in the workplace, and reflections from a week in the frosty northwoods–without electricity.

Many thanks to Diane. Hop over to the Mediation Channel and read the January Carnival of Trust.

Want to submit a post? Articles can be submitted through Blog Carnival’s submission form. Please be sure the article is related to trust and be aware that each host will choose only ten articles each month. The deadline for submissions is always the Thursday before the first Monday of each month.

You can also read past Carnivals here.

 

 

How Not to Regulate Untrustworthy Industries

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I haven’t done an analysis on this, but it feels like the financial sector has had more than its share of responsibility for scandal in the most recent economic “troubles.” Which makes it even more tempting to regulate by compartmentalizing and dictating specific behaviors.

In the broadest terms, that would be a mistake.

Say you have a 17-year old son who wants to take the family car out at night. You’re worried about alcohol abuse and aggressive driving—things occasionally associated with teenagers.

Do you say:

a. Absolutely not, and I don’t care what Louie’s parents are doing, you’re not going out at night with the car until you’re 18 / have your own car / etc. Period.

b. OK, but here are the ground rules, and if you violate them, here are the consequences; they will be severe and immediate, and I’ll check randomly.

I think most of us would prefer b. If not, just add a year to the age. Eventually you’re going to have to let the kid out at night.

More broadly, the question is: do you regulate by dictating behaviors, or combining audits with enforcement and sanctions?

You could answer this with ideology, or with a cost-benefit analysis. But there is one factor that I don’t think gets mentioned enough. And that is trust.

Let’s say an accounting firm is considered to have abused its relationship with its consulting branch. You could:

a. force accounting firms to sell their consulting businesses or build strong “Chinese walls (basically what Sarbanes Oxley did), or

b. increase the budget of the GAO, the Justice Departments’ enforcement branches, and the sanctions for violation of rules.

Others know more than I about the costs of Sarbanes; let’s just say it was high. But the real cost was that accountants won’t get to rub noses with consultants. Firms won’t have to develop their own policies. They have had to become compliance-driven, not outcome-driven.

The real trouble with structural regulation is that it removes the ability to evolve relationships, or trust, between business entities. Therefore it removes all possibilities for future economic improvement from trust.

Structural regulation is like putting up a concrete fence with your neighbor; it ain’t coming down anytime soon. The opportunity cost is bigger than the out of pocket cost.

In a really excellent NYTimes piece—The End of the Financial World as We Know It by Michael Lewis and David Einhorn (I find them the best source these days for understanding what just went down)–they nonetheless plop for structural approaches.

They are probably right in part; revolving doors from government to industry lobbying, for example, is a pretty sure source of corruption. But structural solutions ought to come as last options, not first.

There are tons of laws governing the financial industry that simply get buried in process, language, bureaucracy, small print. They simply do not get enforced, and if enforced, they are toothless, and even then do not get publicized.

Before we build concrete walls, invest some money in creative auditing, enforcement, and sanctions that really bite. It at least leaves the door open for good players to do something really good with relationships. To grow up and drive right.

 

From Mistrust to Cynicism to Corruption

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Q. What do Mark Twain, Clint Eastwood and Bernie Madoff have in common?

A. They all tell tales of the path from mistrust to corruption.

In 1879, Harper’s Monthly published Mark Twain’s wry tale The Man that Corrupted Hadleyburg—a dark, cynical sketch of a town whose pride rested on its reputation for incorruptibility. A stranger manipulates that pride into corruption, and makes the town the cause of its own ruin.

The Wikipedia summary makes for eerie reading in these past-Madoff days.

94 years later, Clint Eastwood channeled the same stranger/corruption theme in High Plains Drifter, his second directorial effort. Elizabeth Abele’s review nails it:

…not only is there little difference between the law and the bad guys, but the "good, decent people" [of Lago, Arizona] do not appear deserving to be saved. In their silence and passivity, they are as guilty as anyone. The approaching outlaws are in many ways a McGuffin. The Stranger’s true adversaries are the townspeople–who simplistically reward the Stranger for his opening slaughter of their hired guns by hiring him as their savior.

Cue the Good Townspeople burned by Bernard Madoff, financial crackhead (I mean "crackhead" in the sense of someone consumed by an ever-growing need for more and more money to feed his insatiable, and growing, need. If the shoe fits…).

Stipulated: Madoff’s a bad man, and many innocent people were harmed.

But a great many other people bear the same kind of responsibility as the citizens of Hadleyburg and Lago. Such as “feeder” funds like Fairfield Greenwich Group , which claimed in writing (and charged greatly) to perform high levels of due diligence on its Madoff investments.

And how about its sophisticated partners and customers at institutions like Banco Santander and Union Bancaire Privee? Like the Good Townspeople of Lago, it beggars belief that none among them had suspicion skeletons in their closets.

Here’s the roadmap downhill from broken trust.

In Twain’s and Eastwood’s stories, an organization starts out proud of its reputation for rectitude. Then someone descends into venality. It starts with “borrowing” to tide things over the weekend. But–as with any crackhead–it doesn’t stop there.

There comes a critical point when the bad guy is found out. The organization or society of which he is a part can go one way or the other. It can be horrified and reject the miscreant. (Let’s refer to this as the “right thing to do.”)

Or, it can choose “tolerance.” He’s really a good guy, he hasn’t done it before, haven’t we all cheated on our taxes one time or another? Just let it be.

And the crackhead steals the family silver.

Tolerance then leads to cynicism. Hey everyone does it, it’s nothing new, what are you, naïve, don’t you know how things work? Knock it off. It’ll work out.

And the crackhead knocks over a store.

Finally, you end up with corruption. Hey, Bernie’s making a ton for everyone. Not everyone can get in on it, but I know someone who can get you a piece of the deal. Shhh, everyone knows it’s a little “off,” but look at those returns. Waddya, nuts? Just sell a little to your cousin. Hey if you don’t, someone else will. Might as well be you. I’ll be gone, you’ll be gone, what’s the harm. Wink wink, nod nod, know what I mean, know what I mean?

And the crackhead corrupts everyone.

In the Eastwood version, the Stranger renames the town “Hell” as he rides off into the sunset. Twain’s Hadleyburg too gets a name change.

John Wayne didn’t care for this movie (or for Eastwood in general, I suspect). But while John Wayne was hell on bad guys, I’m not sure he knew how to recognize a helltown of crackheads. And just changing the town name won’t do the trick.

 

 

Who You Gonna Trust–Your Own Eyes, or Your Grandparents?

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Eric Uslaner is a respected academic student of trust. He has just published an article in the Oxford Journals Public Interest Quarterly called Where You Stand Depends Upon Where Your Grandparents Sat: the Inheritability of Generalized Trust.

It’s interesting reading. It shows that “generalized trust” is very much an inherited trait.

Uslaner articulates two theories of trust: one says we learn trust experientially, the other says we inherit it from our parents and grandparents. Which is right?

He suggests a clever analysis: if we learn experientially, then living in trustworthy communities ought to affect trust. But if we learn culturally, then who our grandparents were ought to affect our trust levels more than the communities we live in. Who drives trust: my own eyes, or the culture of my grandparents?

The data suggest—drumroll—it’s your grandparents! The cultural explanation has more power than the experiential explanation. Which means, by the way, that the Nordic, British and Germanic cultures foster people who are more likely to trust. Much lower propensity to trust scores come from those with African and Spanish/Latino heritage.

I don’t doubt the data, nor Mr. Uslaner’s logic. However, interpreting trust data is tricky business.

In particular, the “generalized trust” that Uslaner (and many other researchers) talk about is about trusting, not about being trustworthy. More importantly, it’s about a general, abstract sense of trust primarily as it relates to strangers.

Very specifically, "generalized trust" work is often based on longitudinal data from the General Social Survey (by the National Opinion Research Center), which asks three trust questions—variations on “Generally speaking, do you believe that most people can be trusted, or that you can’t be too careful in dealing with people?”

In analyzing trust, it’s tempting to emulate the drunk looking for his keys under the streetlamp—not because he lost them there, but because it’s easier to see there. Want valid, survey-based, long-term, cross-cultural data on trust? Then you’ll love focusing on “generalized trust"–because that’s where the streetlamp is. The academics are clear enough about that, but just reading about "generalized trust," it’s easy to forget what’s left out.

And “generalized trust” leaves out an awful lot.

It leaves out biological accounts of trust. Think about the implications for trust in this line: “I trust my dog with my life, but not with my lunch.”

It leaves out the notion of specificity. As another researcher quips, “I trust Bill Clinton with the economy, but not with my daughter. And I trust George W. Bush with my daughter—but not with the economy.” I may trust your recommendation to buy a book on Amazon, but not to recommend a restaurant.

Most importantly, it leaves out personal trust. A general propensity to trust does not explain why Bernie Madoff could con hundreds of highly cynical, suspicious investors (including British, French, South American, Catholic, protestant and Jewish people) into trusted him implicitly.  And while a Brazilian or Argentinian may be quite suspicious of strangers and of institutions, in my own experience they have great ability to trust individuals they have come to know.

There is no contradiction with these notions of trust and the “generalized trust” Uslaner talks about—they are simply different things.  And this isn’t just about academic researchers, either. The business world, e.g. Edelman’s annual Trust Survey, is fixated on the definition of trust as it relates to credible sources of information about a company–itself a fairly narrow subset of trust.

There’s no critique of anyone here, no right or wrong. I’m simply reminding us all that “trust” is an extraordinarily rich, complex and non-obvious nexus of notions.

Caveat Reador.

 

 

Trusting and Trustworthiness: The Chicken or the Egg?

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Most talk you hear about trust uses that one word—“trust.”  But on closer reading, the talk turns out to be about one of two very different things: either about trusting, or about trustworthiness.

They are not the same.

Trusting is about the one doing the trusting.  Being trusted is about the one who would be trusted, or trustworthiness.

•    When you read about the poor charities who got ripped off by Bernie Madoff, that’s about trust-as-trusting.
•    When you read about how Bernie Madoff pulled off the con, that’s about trust-as-trustworthiness.
•    Surveys that talk about declining trust are usually about a decline in trust-as-trusting.
•    When we read stories about how there are more securities violations, we’re reading about a decline in trustworthiness.

Which is the chicken, and which is the egg—trusting, or trustworthiness? Which causes the other?  Which should drive policy?

Years ago I consulted to a convenience store chain with a serious store manager turnover problem (150% per year).  They wanted us to profile a successful store manager so they could hire to that spec. 

Sounded like a good plan.

Until we found out that each store manager was routinely given a lie detector test every month to see if they were stealing. 

Let’s say you’re a store manager.   After 6 months of being hooked up to a polygraph and asked if you were a thief, you might figure “hmm, someone must be getting away with something—I wonder how he’s doing it?”  So you start experimenting.

And in a few months, you’ve a turnover statistic.

So which was the chicken, and which the egg?  Trusting, or trustworthiness?

The company management thought the trustworthiness came first, that they were being victimized by untrustworthy employees.  They wanted to find trustworthy people, so they could trust.

In this case, it turned out to be the opposite problem.  Management’s mistrust lowered the trustworthiness of the store manager.  People live up (or down) to our expectations of them.

Sometimes it’s the other way. There are real Madoffs out there, and you’d be a chump not too protect yourself against them.

But here’s the thing.  Think of trust as a risk mitigation strategy. Unlike fight or flight—the usual risk mitigation strategies—trust actually alters the risk in question.

If you take a risk and trust someone—or take a risk to show that you are trustworthy—you can influence the other’s behavior.  People tend to respond in like manner to well intended gestures. 

Madoff is not the norm.  To subject every store manager (or any other job) to the kind of scrutiny that would prevent a Madoff can be a very expensive proposition.  (See Sarbanes-Oxley; airport security).  We need to think very carefully about the right responses to unusual events.  
 

The Curious Case of Curiosity in Selling

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What’s the top, number one, single greatest factor affecting success in sales?

There are often multiple answers to questions like that, because all the prime candidates overlap similar territory. You might argue for a can-do attitude, or customer focus, or a committed team.

Let me make the case for curiosity.

Imagine being in a constant state of heightened curiosity when you are with, doing work for, and thinking about your customers. What would that look like?

The answers fall into two broad categories, I think:

1. If you were curious on your customer’s behalf, you would:

• Notice an awful lot of things about their people, products and customers
• Formulate many hypotheses
• Ask a lot of questions to pursue those hypotheses
• Want to know lots of things on general principle: preferences, history, culture, practices
• Be other-focused

2. And while you were being curious, you would spend less time on:

• Worrying about how to get the sale
• Worrying about how to speed a decision, or close, or qualify a lead
• Trying to portray yourself in ways you assume will influence the customer

Now here’s the punch line. Most approaches to selling tell you to ask a lot of questions—basically like the first category.

But they also tell you to worry about that second category. In fact, they say the sole purpose of all questions is to get the sale. Most sales approaches say you absolutely should worry about getting the sale, speeding a decision, qualifying, etc. Which kills curiosity.

Curiosity says, to hell with that. Curiosity says, the purpose of questions is to find out what could be: what could be better, what the right thing is, what the customer should do.

The paradox, of course, is that curiosity-driven selling just plain works better. It works better because the questions are grounded in the customer’s world, not the sales person’s needs.

The linear, process-driven, metrics-based approach to selling that has become so prevalent has many virtues, but one gigantic, glaring defect: By trying to maximize the sale, it has devalued the customer—thereby reducing sales effectiveness (insert ironic music here).

Curiosity may have killed some cat once upon a time; but it serves salespeople well. Curiosity isn’t a sales tactic. Done right, sales are a natural byproduct of being curious.  There’s something very simple and right about that.

Is it Personal? Or Is it Business?

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In The Godfather, Michael Corleone famously says to Sonny, “It’s not personal, it’s strictly business.”

What about trust? Is it possible to separate them? Can you be trustworthy in your personal life, but not in business? Does one imply the other? And what do we think of someone we trust personally who is turns out to be untrustworthy in business?

Cue Bernie Madoff again. (No, we’re not done with him yet; Madoff is a rich vein of material).

Eric Wiener in the LA Times:

the reason so many Wall Street players couldn’t believe their ears was they couldn’t accept that Bernie Madoff, of all people, would have pulled something like this. "Not Bernie!" was a typical refrain.

And, from the New York Times:

Indeed, in the world of Jewish New York, where Mr. Madoff, 70, was raised and found success, he is largely still considered as a macher: a big-hearted big shot for whom philanthropy and family always intertwined with — and were equally as important as — finance.

It seems increasingly clear that Madoff was greatly aided in this by dozens of willing accomplices—aka banks, funds of funds, hedge funds, “feeder” funds. People who took their own percentage for assuring “due diligence” so that the fraud that took place could never take place. People who claim to be anguished "customers," but who willingly sold the snake oil downstream.

And always, they too are characterized by those who knew them as people of integrity, people you could trust. And, I suspect, they believe it of themselves.

Now, there is a code by which you lie to one group and are trusted by another. It is the code you can hear recited in Huckleberry Finn by the Shepherdsons and the Grangerfords. The Hatfields and McCoys. The Montagues and the Jets, the Capulets and the Sharks. Or as it’s taught in competitive strategy and too many sales programs: the Sellers and the Customers.

I continue to be astonished that the largest Madoff “victim,” Fairfield Greenwich Group, who made hundreds of millions from Madoff, is considering suing PricewaterhouseCoopers—its own auditor. Reportedly because, channeling Willie Sutton, that’s where the money is.

How does Fairfield’s Walter Noel explain that to the partner at PwC’s Stamford office in charge of Fairfield’s audit?

Hint, Mr. Noel: you can buy The Godfather here and start rehearsing the line. "It’s not personal, it’s business. It’s not personal, it’s business." Click your heels three times while you say it. And tell him ‘trust me.’ That way it’ll sound personal, even when of course it’s not.

 

Anatomy of a Con Artist: How Madoff Played the Trust Equation

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The Trust Equation  describes the components of trustworthiness.  The equation is:

T = (Credibility + Reliability + Intimacy) / Self-orientation

Of course, any such recipe worth its salt will also serve as a template for reverse engineering—a “how-to” manual for a con man.  Measuring Bernie Madoff by the trust equation shows just what an effective job he did at mimicking genuine trust. 

So let’s do the numbers:

Credibility: Chairman of the Board of Nasdaq, for starters.  Not to mention a Who’s Who client roster.  But an especially nice touch: not just any old lamb could buy in—you had to be approved by the wolf.  Exclusivity adds cache and credibility. 9 out of 10.  Better than Alan Greenspan (hey, he used to be hot).

Reliability: Arguably Madoff’s greatest contribution to the con: don’t go for the jackpot, the Big Win.  Become known for steadily hitting .335 in a league of .285 hitters.  Always just over the average means always just under the radar.  Another 9 out of 10.

Intimacy: courtesy of spoonfeedin, he was described as a gentleman, gregarious, generous, personable, charming, and so forth.  Like a mass murderer, he appears to have been ‘the last person’ one would have suspected.  Give him an 8 out of 10.

Self-orientation: who would suspect the motives of a philanthropist, a giver to religious causes, a man generous with his own (we thought) money?  Not me, not you, that’s who.  An apparent low score (low self-orientation is good, you see); maybe a 2. 

That’s a Trust Quotient score of (9+9+8)/2, or a spectacular 13 out of a possible 15.  (If you don’t think that’s spectacular, try it yourself: take your own Trust Quotient.

There is no such thing as trust without risk; Madoff was an awfully talented con man.

But he couldn’t have done it without his pigeons. 

–A great many people may have suspected him, but felt glad to be in on the “fix.”  No sympathy for them. 

–I am astonished to hear that Fairfield Partners may sue PricewaterhouseCoopers—not Madoff’s accounting firm, but their own accountancy.  Zero sympathy for that Madoffian level of chutzpah. 

–Then there’s all the relatively innocent folks out there who thought they’d found something almost too good to be true.  They learned the distance between “almost” and “definitely” is dangerously thin.
 

Where Caveat Emptor Still Stalks the Land

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I am not generally the dullest knife in the drawer, but when it comes to the subprime, I-mean-credit, I-mean-whatever financial crisis, I often feel like one. I know a few facts, but can’t put them together in a satisfactory way.

Fortunately, for my ego, I’m not alone. Few people seem to understand it all.

One that comes closest is the recent article The End of Wall Street’s Boom by Michael Lewis, author of, among other books, 1990’s Liar’s Poker. I heartily recommend this for anyone wanting to better understand what went on at the heart of the storm.

If you believe there is something hopelessly twisted at the heart of the financial sector of the global economy, you’ll find some support here. The most telling story Lewis relates, I think, is that of a dinner that Steve Eisman had with a fund manager:

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog shit lower than the original bonds.”

[Eisman] had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.

“No,” the guy said, “I’ve sold everything out.”

In other words—‘no problem, I’ve unloaded the toxic waste onto my customers. I’m doing fine, thanks for asking.’

Let’s be clear. If your grocer sold you toxic milk for your child, would they say ‘no problem, I unloaded it onto my customer?’ How about your local pharmacist? Your auto dealer? Heck, if your local drug dealer sold you bad weed, wouldn’t he at least be embarrassed?

Those other industries at least have the good taste to be ashamed. In this sector–well, not so much.

There is a belief afoot in Finance Land, put well in the Financial Times by George Soros last January in Worst Financial Crisis in 60 Years Marks End of an Era :

Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest.

As Soros points out, it’s simply not true. The current crisis was caused by markets, and (sort of, so far) mitigated by governments. I learned in business school the notion that competition leads to equilibrium is a bad economist’s dream: the real point of competition is to bash the other guy’s head in. Du-uh. The only reason it doesn’t reach end game more often is regulation—agencies, anti-trust laws, etc. which say “tilt” and “restart.”

I’ve met all too many people educated in our “best” schools who have come to believe that selling toxic waste to customers is a legitimate part of a noble, even moral, endeavor called ‘capitalism,’ founded by Adam Smith, tweaked by Ayn Rand, and quasi-guaranteed in the Constitution. The customers? Caveat emptor. It’s good for them. Culls the weak from the herd.

No, it’s not. It is simply selling toxic waste to customers, and it is despicable under any code of behavior within 10 miles of the word “ethical.” It is not even good capitalism.  Poisoning a customer is like selling your mother to pay the rent, or stealing the life preservers from your children on a sinking boat.

Congratulating yourself for doing it is simply beyond the pale.

How many banks and hedge funds who sold Bernie Madoff’s funds to their clients will offer to make good? To simply refund the commissions? Or—a novel thought—just apologize? There’s your caveat emptor at work, still stalking the land.

 

The Silver Lining in the Recession Cloud: a Shift Toward the Customer

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Can you feel it? It’s all around us.

No, I’m not talking about the doom and gloom of the stock market or the latest bank collapse. I’m talking about a the subtle changes where you shop, eat, bank, style your hair and service your car. Despite the dark sky of economic woes, there’s a silver lining – a shift toward the customer.

* Chain restaurant staff are more welcoming.
* Safeway has a sale sign on every item (recognizing that people need to perceive a deal before they’ll buy)
* The local Toyota dealership is offering free Cappuccino’s on Monday, Wednesday and Friday and now leaves you with a bounce-back coupon.
* Staples offered 50% off any copy paper (although tied to their rewards program – not very customer focused)

Last night, while I was at the local Target, the floor manager announced (loud enough for customers to hear) that any employee that helped a customer find a “high ticket” item resulting in the largest sale would get a $5.00 Target gift card.

Think back to not too long ago. Didn’t you feel complacency just prior to the storm clouds moving in? I’m guessing Lehman Brothers, Fannie and Freddie all were perched on their porches in rocking chairs before the tornado came. The energy was about to drift to the buyer.

New found energy?

Genuine customer focus?

Desperation?

Here’s the question that pulls at me – what if this customer focus du jour carries beyond the current storm clouds? What if this recent shift back toward customer satisfaction propagates valuable lessons that translate into better service once the sunny days are here again?

Perhaps this is a divine shake up — requiring us to “love your brother as yourself” in order to get back on track.

Those who are truly customer-focused will soak up what works and what doesn’t through these trials. Those that are thinking about these activities as a tactic to wait out the storm will probably revert back to their old ways.

In the short term, buyers benefit. In the long-term both buyers and seller can.