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Wall Street and Broken Social Trust

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I’m hardly the first to cast the financial meltdown in terms of broken trust. But usually that means something like "we can’t trust they’ll still give us credit." There is a much deeper, distinctive pattern that leads to broken trust, and it works the same personally as it does socially and economically.

That pattern is the fragmentation of relationships. When relationships are turned into transactions separated by time or space—the predictable result is a lowering of trustworthy behavior, resulting in a lowering of trust.

Here are a few examples:

• Marriage researcher John Gottman says that couples who argue can be quite successful—they remain engaged, in relationship. It’s when the parties disengage, withdraw, refuse to interact, that the marriage is doomed. The relationship is fragmented—trust disappears.

• The airline industry in the 60s (if I recall my corporate finance cases) was funded largely by insurance companies, which lent money to the industry at large, thereby restricting competitive binges of excess capacity. When banks took over the lending, they championed specific carriers. This quickly led to over-capacity, with airlines returning to their customary unprofitable ways. A relationship of industry to industry, fragmented into competitive bank-airline duos, resulted in systemically bad results.

• If you let your teenager stay out at all hours of the night, your teenager will probably get in trouble. A family system fragmented, results in untrustworthy behavior.

• The US regulates banks and stocks. The CDOs which lay at the heart of the mortgage-driven meltdown were not regulated. No one had purview or a common interest across the entire range of financial products. A fragmented relationship, and resultant low trust.

• 30 years ago, the mortgage industry was a system of brokers, banks, and homeowners. All had a common long-term interest in that system, and all had long-term relationships with each other. With the fragmenting advent of specialized brokers, securitized loan packages and the like, no one had to relate to the whole picture, nor to each other for any length of time. Result—abuse and breakdowns of trust.

• The game theory classic Prisoner’s Dilemma pits our fears and aggressions against another player. If you both give in to fear, you both lose. But if you give, and the other person takes, you suffer the worst of all outcomes. The “trick” to successfully playing the game is to increase the number of times it is played—to create a relationship over time.  Which creates trust.

• Another prisoner’s dilemma winning strategy is to make each play more personal—face to face, looking each other in the eye, handshakes. A relationship as opposed to an impersonal connection. Resulting in more trust.

• Pure economic competition is unstable, because all competitors strive for their competitors’ elimination—the absence of relationship. Some form of social interference—rules, regulations, time-outs, referees—is necessary to keep the game going at all.

• Jonathan Knee’s book The Accidental Investment Banker tells of the cynical investment banker acronym IBGYBG—I’ll be gone, you’ll be gone, let’s do the deal. Fragmented transactions, no long-term relationships. And no trust.

• When Marie Antoinette said “let them eat cake,” she articulated a deeply riven society. Which turned out to be untenable, especially for her. No relationship, no trust.

Fragmenting relationships can lead to growth and to scale economies. Teen-agers grow up and learn to handle freedom. Outsourcing business processes can result in larger scale and lower costs. Fragmenting the mortgage industry did result in lower costs and more liquidity. The flip side, of course, is untrustworthy behavior.

Wall Street is just one example of a broader dilemma we face in an increasingly inter-related, interconnected world. How do we balance the scale economies of fragmented business relationships, industries, and business processes, with the trust-creating power of some kind of integrative force?

Regulation is one obvious integrating force. There are also industry associations, and a sense of honor (personal, professional or societal).

We’re running a little low on self-regulation just now (see for example How to Get Your Industry Regulated and Great Moments in Self-Regulation—Financial Planners). And how’s the world doing these days on ethics, public service, and collaboration?

Personally and institutionally, the more we are linked, the more trust flourishes. The more we are disconnected—structurally or personally—the more we distrust.

Turning systems into fragmented markets can increase scale, power and performance—and raise the risk of untrustworthiness. Linking relationships is the countervailing force—the more we view ourselves and our institutions as in relationship, the more we create trust.

As the world gets smaller and more linked, we need to shift more toward the latter.

 

The Guts of Trust

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I’ve written before about trust in business relationships and selling, and I’ve written about models of trust (see Trust: the Core Concepts.

But what about the guts of trust—of trusting, and of being trusted?

I mean what does it feel like in your gut? What is the gut-level stuff that makes it work—or not work? How do you know it in your gut when you’re being trusted—or trusting?

I don’t mean models, and abstractions, and data. I mean being real.

Here’s the guts of what I’ve learned about trust—from the gut.

1. I can’t tell you what works for you; I can only tell you what works for me.

2. You can tell me what you think I should do; but I won’t do it. Unless I feel like it anyway, or unless I really trust you.

3. I can learn this stuff. It helps to be born with it, but I can learn.

4. Rarely, I learn trust by observing someone who does it well. I once saw a newspaper publisher run a 15-person all-day meeting just by listening, by nodding at someone and saying, “I can tell you’ve got something to add to that, Joe, right?” That time, I got it.

5. Generally, though, I learn trust lessons better through failure than through success. Those are “learning opportunities”—though I rarely see them as such at the moment.

6. Whenever I fail to trust, or to be trusted, it is nearly always my fault, and nearly always due to fear. Fear is the mother lode. I am learning to remember to ask myself, “what am I afraid of?” I hate the answers—they are always the same—shame and guilt. What a waste of time!

7. I don’t trust you until I think you understand me. Why should I expect the reverse to be different?

8. I’d rather you go first. But then things rarely happen. So I guess I have to.

9. You can’t hurt me without my permission. Which I don’t have to give. You’re not annoying—I’m annoyed. And I can stop being annoyed anytime I choose to.

10. You’ll trust me most if I don’t ask, beg, or try to force you to trust me. You’ll trust me the most if I’m of service to you—no strings attached.

11. I’m OK, You’re OK. True enough, but a hard place to get trust started. I’m an Idiot, You’re an Idiot—now there’s a place that offers traction.

12. Trust never comes without risk. Having the courage to be vulnerable, and to take small emotional risks now is what creates trust—and mitigates larger business risk later.

13. If I’m transacting, I’m alone. If I’m relating, transactions come along like ripe fruit.

14. After some point, I realized I could trust my gut more than my brain. Later, I realized that had always been true.

15. I get what I want when I stop wanting it. People trust me when I stop demanding trust.

16. Alone on a desert island, I don’t have to trust or be trusted. And I can always create my own trust-free island. It’s safe, but it’s awfully solitary.

Balancing Logic and Emotion in Trust and Politics

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Readers of this blog know that a common theme is the over-valuation of the rational in business. Deductive logic, process definition, behavioral psychology and rational persuasion are often over-emphasized in sales and in the professions, while the power of emotions and intuition are under-appreciated.

But lately in politics, we’ve got the opposite problem.

The trust equation (see the book  The Trusted Advisor) defines trustworthiness as:

Trust Equation

 

In that equation, credibility and reliability are the largely “rational” elements, while intimacy and self-orientation are more emotional or intuitive. 

US Presidential politics are now characterized not by a diminution of discussion about credibility and reliability, but by their near absence.

Maybe it began with Clinton blowing the sax on the Arsenio Hall show. But was that as much of a stretch as McCain on the Rachael Ray show?

The idea behind representative government, as opposed to a pure democracy, is that in a complicated world, you need to entrust decisions to others as a full time job. Issues like qualifications and experience, one would think, are relevant.

Yet in this election, the very concept of “experience” is either not defined, badly defined, or defined only to be reversed a day later.

Only four years ago, “flip-flopping” was an epithet. Now it’s barely worth yawning over. The concept of logic has been demoted to a mere nice-to-have, subordinated to the need to match the demographic-du jour.

The idea of someone you could have a beer with is an important aspect of trust. Necessary? I suppose arguably so.  But sufficient?  No way.

Does mankind advance through history? Read the Lincoln-Douglas debates, and then think of Obama on SNL, and McCain on The View. There’s your case for societal regression.

Fear and smear work because they appeal to the more primal, base level needs to the exclusion of higher-order issues. Hunger crowds out freedom of expression. And fear trumps hunger. Focus on fear limits the upside of political dialogue.

As in business, a reduction of all things to the lowest common denominator certainly works. It also dehumanizes, borrows against the future, and limits what people can become.
Can we talk? When it comes to politics, not very well, it seems.
 

Outsourcing Loyalty, and other Oxymorons

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I am on vacation this week, and will be going back to the vault for some ‘oldies but goodies’ posts.  I hope you enjoy them: I’ll be back in a week or so with new material.

Outsourcing loyalty. Think about the absurdity in that phrase.

Oh, we know what it means, all right. There are businesses whose specialty is executing frequent-customer programs. They handle strategy, research, program design, even fulfillment. It’s no different from any other outsourced business process.

But still. Think about the contortion of language implicit in combining those two words. Loyalty—that emotional quality that binds one person to another, to a clan, a country, or a set of ideals—can be mechanically crafted by a third party for hire. And we still call it loyalty.

Googling “outsource loyalty” turns up a few entries, like Ernex, which offers "a complete real-time points management solution for loyalty program or member-based loyalty databases." Cap Gemini, a major global IT firm, has a website that advertises its “loyalty factory.”

Hey, why not? You can outsource confidants (they’re called shrinks). You can outsource sex (the oldest profession). You can outsource phone calls (“your call means a lot to us…please hang on the line”). Why not loyalty?

But in our rush to turn business functions into business processes, then modularize and outsource them, we occasionally overdo it. A major casualty is the faux language of relationships. “Loyalty” programs are but one example.

Another oxymoron is “human capital.” Note which word became the adjective, and which stayed the noun.

“Relationship capital,” its close cousin, goes it one better. It isn’t just people that are financially fungible. Ditto for the relationships between people. Long live love. If it pays, that is.

“Customer focus,” as a practical matter, is often oxymoronic. It amounts to “inspect, dissect and reject” so that you maximize customer profitability per unit of financial investment. Customer profitabilty to the seller, that is; not the customer’s own profitability. Vultures are focused in that sort of way. If you’re a customer, "customer focus" can feel like you’re in the crosshairs of somebody else’s scope.

How about you? Can you add to the list? Got any oxymorons about the human dimension in business? Share them here; enquiring minds want to know!

 

 

Lawyers Overdrawn at the Trust Bank

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To watch TV, you’d think cops and prosecutors are pretty much sworn mortal enemies of criminal defense lawyers. And, according to Scott Greenfield, a distinguished lawyer and author of the blog Simple Justice, you might not be wrong.

But it didn’t used to be that way. In Greenfield’s When the First National Bank of Criminal Law Closed Its Doors, he describes how it used to work, in the Bronx court system of just a few decades ago (described by Tom Wolfe in Bonfire of the Vanities).

…one of the first things you learned was the sanctity of a “contract.” When you sought a favor, you owed it back. If you didn’t pay on demand, your name was mud and no one would ever do you a favor again. In fact, people would go out of their way to burn you. It was a matter of internal honor.

[talking to young lawyers recently]…not one of them knew what a contract was, or how you banked one or how you made a withdrawal…They couldn’t believe…those of us who worked in criminal law were actually able to cooperate with each other. They couldn’t fathom the existence of an unwritten honor code where we trusted each other to return the favor, or conceive of a virtual bank where our contracts were held, awaiting the day we needed a favor in return.

 

“Competition” used to mean the healthy thing you learned to do on the ballfield that carried through somehow into business. It made for an efficient systemic approach to commerce. Then, sometime, the approach became the goal.

The adversarial legal system presumably used to serve the higher goal of justice. Now, apparently, the legal equivalent of the invisible hand needs no help from its mortal agents to arrive at justice. Or—more likely—justice is not quite the goal it used to be.

The day Tiger Woods denies a competitor a gimme putt in a casual game we’ll know it’s all over.

Until then, make a few deposits in others’ trust banks. And honor the deposits made in your own.

Re-Engineering Michael Hammer’s Legacy

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Michael Hammer died last week, at the sadly young age of 60. He made Time Magazine’s Top 25 Most Influential people in the mid-90s.

His name will (rightly) always be associated with the concept of business re-engineering. For me, it was one of those brilliant insights that you instantly “got” when you heard it, along with the spreadsheet, competitive strategy and the Byrds’ Mr. Tambourine Man.

There will be many articles written eulogizing Hammer, and he deserves every one. I’d like to touch on one small point: how a great idea can be misused by those who come later.

His insight was simple, yet profound. The Industrial Revolution worked by specialized division of labor. But at scale, specialization creates massive vertical bureaucracies. Re-engineering looked at processes, not tasks. Shift focus from marketing and production to order fulfillment and supply chain management. Hammer took a vertically organized world and saw a need for the horizontal. The impact of that simple insight has been enormous.

Then came the perversions.

Stage 1. Re-engineering became associated with downsizing. Redesign the company to get rid of workers and enhance shareholder value. Hammer’s work was used to justify the Gordon Gekko era of excesses. As the Wall Street Journal put it:

“It is astonishing to me the extent to which the term re-engineering has been hijacked, misappropriated and misunderstood,” Hammer told Time, saying that ideally, re-engineering should promote greater production and create more jobs.

Hammer may have originally been a bit naïve about the difficulty of getting people to change, though not for long; he became quite articulate about it.

Re-engineering survived the era far better than some dot-coms and i-bankers. But today, it faces another misuse—and again, it’s a misuse that dehumanizes business. It’s the belief that viewing the world through process lenses is an end, not a means.

The process revolution has been massively successful. Originally applied to manufacturing, we now see it in HR, in non-profits, and in education. I would argue we saw it at scale in the recent financial markets’ breakdown (see my post on the view 12 years before the subprime mortgage meltdown )

The process view has been used to maximize efficiency by expanding scale. The more you can break things out into modules by redefining out-sourceable processes, the more you can achieve scale by specializing modular components and outsourcing them at larger scale. That lowers costs, makes markets bigger and more fluid, and in theory makes for less risk.

But it seems to come at one big cost—the cost of integration. Ironically, this is similar to the flaw Hammer saw in the vertical organization—the left vertical silo didn’t know what the right vertical silo was doing. And didn’t much care.

In the mortgage debacle, the mortgage sales origination process didn’t know what the asset securitization process was doing with the mortgages. And didn’t much care.

There is risk in fragmentation. When no one has a stake in the entirety of a system—no owner, no customer, no regulator—things can go a little crazy, whether you’ve organized vertically or by processes. One answer is, “the market’s invisible hand takes care of that.” But we’re not buying that answer anymore. Markets don’t look omnipotent when Fannie Mae and Freddie Mac are getting taxpayer bailouts.

I didn’t know Hammer, so I welcome comments from those who did. Me, I like to think he was perfectly aware of this issue, and was in his own way working back to rescue the humanistic intent of his original insight—to make organizations work better for the sake of all constituencies, thereby transforming human relations.

Not just more efficient businesses. Not just means, but ends.

I hope that ends up being Hammer’s legacy.

September Carnival of Trust is Up

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The September Carnival of Trust is up, and it’s a great read. 

Our hard-working host this month is Ann Bares, of Altura Consulting Group, who writes at Compensation Force.  For those of you new to "carnivals," the concept is this: each month, a guest host combs the internet for the best blog posts relating to trust: trust in sales and marketing, leadership and management, strategy/economics/politics, and advising/influencing.  Each host adds their own particular perspective and commentary n teh Top 10 choices they made.

Ann has done a terrific job surveying the field–her selections convey the range of situations within which trust is relevant.  She introduces and shares with us posts on trust relations between citizens and local government; the role of trust in social networking; how saying "No" can create trust; and my personal favorite, the use of trust as a substitute for controls in the business world.  Congratulations to all the posts selected by Ann to make the Top Ten List–it’s an honor!

It’s a great read–I recommend the September Carnival of Trust to you.

Past Carnivals can be found here.  If you’d like to enter a blog posting for the next Carnival, click here.  The next Carnival of Trust will be held at the beginning of October.

 

Trust and Noah’s Bar Mitzvah

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I’m asked frequently what organizations can do to increase their perceived trustworthiness in the market. Part of the answer is to increase trust within the organization itself; after all, why should a customer or supplier trust an organization whose employees don’t even trust each other?

Which is why it’s interesting to look at practices of high-trust organizations.

Which brings us to Noah G.

I was privileged to be a guest at Noah’s bar mitzvah this past weekend in San Francisco. It was a moving event for many reasons. And that’s part of the lesson.

Being “moved” is a bonding event, creating a shared experience. Shared significant experiences are a basis for understanding each other—if it’s significant for you, and I’ve been there too, then to that extent I “get” you.

The bar mitzvah—like other bonding experiences–enhances that sense of unity, cohesion and collaboration among a group.

The service refers to the group’s shared values—in this case, embodied in the Torah. Which is written and read in the identical language used about 3,500 years ago. The values are literally—physically—walked around the room for all to touch—again, literally and physically.

As an observer, for me the heart of the bar mitzvah service involved Noah being asked to describe the meaning of an ancient piece of text for today’s world. Think values-driven management. Think demanding that even 13-year-olds learn and share how time-tested values are applicable to today’s world.

The dimension of time, I think, is critical for trusting experiences. Without something common that bridges time, we have nothing but a sequence of transactions (a great number of “best practices” these days in business are focused on transactions without reference to a time-based relationship). Relationships by definition presume constancy over time.

In Noah’s case, the after- party featured a slide show of Noah in relationship over time—Noah with his brother, his parents, his cousins. And, strikingly, photos of Noah’s father at his own bar mitzvah—and Noah’s grandfather at his.

The service, being held on the Sabbath, contains the Kaddish—recognition of those who have passed on but are still part of the Relationship—specifically including those for whom no one any longer exists who can speak for them directly. (Does your company actively cultivate “alumni”—or do you force them to sign non-competes and “leave the building?”)

Did I mention the ceremony was moving? My own tradition is that of ‘God’s frozen people,’ as Garrison Keillor puts it. To hear parents speak openly in public of their love for their child feels shockingly, achingly personal to me—both as a child and as a parent.

I felt the same ages ago sitting in the choir loft next to my Irish Catholic girlfriend at her father’s funeral, as she played Danny Boy on the flute and the congregation wept openly with every note. Personal.  Real.  It has to be personally moving, because relationships are personal.

And paradoxically, that’s one of the most important parts of building trust in an organization. Trust may be encouraged institutionally, but it has to be built personally. If you’re not moved yourself, how can you expect others to be moved by you–to trust you?

Trust minus passion leaves only statistical probabilities; not the road to building a trusted organization.  We don’t trust organizations very much; we trust the people in them—or not. Organizations who would be trusted had better not fear to get real, to get personal.  Like the bar mitzvah.

 

Misconceptions about Trust-based Selling: It Doesn’t Work

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This is the third in a series of three about misconceptions regarding Trust-based Selling™. The first was about naievete; the second, about time.

The third misconception is that it doesn’t make sense, it just doesn’t work.

Not unreasonable, since trust-based selling rests on some apparent paradoxes. For example:

a. managing your sales with short term metrics will drive your short term metrics down;
b. the best way to be credible is to admit where you’re not;
c. you have the most influence over customers when you stop trying to influence them;
d. the best way to improve your closure rate is to stop trying to improve your closure rate;
e. to gain control, give up control.

This shouldn’t be surprising. For an elegant statement of how this paradox plays out—nominally in golf—see Phil McGee’s post The Putt.

The thing is, buying is still a very human phenomenon—and we humans are obstinately perverse. We do not like being hustled. We do not like being told what to do by those who we don’t think understand us. And we do not buy from people we think are using us for their own ends.

That’s the heart of the paradox. A salesperson who puts his sale ahead of his customer will lose both. A salesperson who puts his customer ahead of his sale will win both. You have to care about the customer—for the sake of the customer, not for what the customer can do for you.

The language of paradox is alien to modern sales. Big corporate sales is all about linear process management: break it down into ever-finer pieces, and micro-manage each one. Fine-tune the sales pitch; tweak the yield rates by tighter lead qualification; get the close in this quarter; and measure everything by the effect it has on sale and the cost to get there.

That’s all about the sale—not the customer. The term “customer focus” itself is turned inside out when we evaluate “focus” by whether or not it produces the sale.
Trust-based Selling is not a process—it’s a set of principles consistently applied. They are:

1. customer focus—for the sake of the customer
2. an instinct for collaboration
3. a default toward transparency except where injurious or illegal
4. a medium-to-long term focus on the relationship, not a short-term focus on the transaction.

If you had to put it into one word, it would be “care.” The more complex, long, and specialized the sale, the more we buy from those who care about us more than they care about getting the sale.

Doesn’t make sense? On the contrary, it makes all the sense in the world.

——

If you’d like to learn more about Trust-based Selling™, why not join me for a Webinar tomorrow, Thursday, August 21, titled How to Build Trust in Sales Conversations. It is from 2PM to 3:30PM, Eastern time. See you there.

 

Misconceptions about Trust-based Selling II: The Time Thing

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Last week I wrote about the first of three misconceptions people have regarding trust-based selling—the idea that it’s naïve.

This post tackles the second misconception: that trust takes too much time, both elapsed time and in aggregate. You’ve heard this one as either:

  • “trust takes time and we can’t afford to wait that long,” or
  • “trust takes such a big time commitment I’m not sure it’s worth it.”
  •  

It takes too long; it takes too much. Neither is true.

Let’s start with “trust takes time.” How long does it take for you to read the degree on the doctor’s wall? To notice the doctor’s white coat? To share feelings with a surprisingly interesting seatmate on a transcontinental flight?

More pointedly: in a sales conversation, how long does it take to demonstrate interest, curiosity, caring, and enough self-confidence to shift the agenda on a dime in response to client interests? All these take less time than a conventional process-driven, presentation-oriented sales meeting—and create more trust.

Now let’s consider “trust takes such a big time commitment.” Behind this statement is the belief is the first belief—that people only come to trust slowly, in incremental parts, repeated frequently over time.

But trust has many dimensions: the “trust takes time” belief is mainly focused on reliability, which by definition does take elapsed time. It misses other senses of trust—credibility, integrity, intimacy, other-focus, for example. Those can be established in an event, in a moment, with a handshake, a word, a question asked at the right time in the right tone. These take very little time. And hence they don’t take a huge investment.

Let’s move away from B2B sales: consider online dating services. Do they take time? Do they require large investments of time?

Not if you consider the dating scene pre-Match.com. Think of the ability to read people’s self-descriptions, to hear about them in their own words, perhaps with video or audio, perhaps with some advance “metrics” on compatibility.

Now consider how long it took, and much invested time it took, to get to a comparable level of trust one date at a time, over days and weeks. Or consider the odds of a first date ending well in the online dating world, vs. the blind date world of not that long ago.

Rapid trust creation is not an oxymoron; if anything, it taps into something more powerful. Rather than waiting to develop trust by reputation, we can create trust by being bold, other-oriented, curious and courageous—quickly. And benefiting all.

 ———- 

Note: I will be giving a webinar this Thursday, on How to Build Trust in Sales Conversations.   It’s hosted by the good people at RainToday.com.  It’s from 2 to 3:30PM US Eastern time.  Again, that sign-up address is here.