Trust, Scale, and the Corporation
I always have trouble answering a question I’m often asked: What company does a great job on trust? Because the answer is some combination of, “it depends on the definition of trust,” and “hardly any.” Let me unpack that.
Trustworthiness and the Corporation
Mitt Romney’s metaphysics notwithstanding, corporations are not people, apart from a few legal rights. Corporations don’t smile, feel guilty, bleed, or feel emotions. That means: it makes some sense to say “company X is trustworthy,” but it makes little sense to say “company X trusts.”
Trustworthiness attributes that a company can exhibit include reliability and transparency. But to say that a company trusts is simply to make statements about company policies put in place by people. So from one perspective, the connection between corporations and trust is largely a subset of trustworthiness.
Of course, from another perspective it’s meaningful nonetheless to talk about corporations in terms of trust. That perspective is best articulated by Trust Across America, which uses the acronym FACTS to identify five metrics associated with trustworthiness. Those are: Financial stability and strength , Accounting conservatism, Corporate integrity, Transparency, and Sustainability. Most people would generally agree that those attributes are associated with what we call trust, and I think TAA have done a sensible job of defining and weighting those components.
And yet, that still leaves all that human-y stuff – the bleeding, feeling, risk-taking, emotional parts of trust. The parts that corporations can’t do.
Personal Trust in the Corporation
Corporations cannot trust, but they have enormous effects on whether or not its people trust, and are trustworthy. The biggest influence on trustworthiness and the propensity to trust is not metrics, or compensation systems, or even policies. It is values and culture. Do the values and culture celebrate honesty, integrity, long-term perspectives, and other-orientation? Or do they stress short-term performance, micro-metrics, “being tough,” and meeting the numbers?
The question of values and culture brings me back to that opening question: What company does a great job on trust?
When I answer “hardly any,” what I’m saying is I don’t see any large corporations that are driven by trust-related values, or support trust-friendly cultures. I have seen some good examples of smaller-scale organizations that are highly trust-based – a unit at Microsoft, Bangor Savings Bank, and Pediatric Services of America, for example But these are relatively small organizations. Where are the Citibanks, General Motors and Oracles in the pantheon of trust-friendly organizations? Is the problem that trust can’t scale?
Can Trust Scale?
Trust very much can scale. In fact, values-driven organizations scale very well, especially in fast-moving and complex industries, where standardized processes are too complex to keep up with reality. The issue is not being values-driven – the issue is which values will drive. Goldman Sachs is a values-driven organization; so is Apple. It’s just that the values being valued don’t include trust in the top list.
Now here I’ll get speculative. I think this is because the dominant values in Western business in the last 50 years have been largely anti-trust. The values we have espoused have included competition, the Darwinian-revised version of Adam Smith’s Invisible Hand, caveat emptor, management-by-metrics, management-by-process, and the reduction of all issues to an NPV calculation.
These are serious values, and they are all either anti-trust or trust-neutral (even though, as Trust Across America is demonstrating, trust is associated with higher profitability). And they are extremely dominant values. You don’t get to be a Big Corporation without drinking deeply of these belief systems, taught as they are in MBA programs and the popular business press.
A significant part of building trust in business is going to come not by revising policies and governance, and not by better regulation, but by re-orienting a corporation around core trust values. I see no reason to believe that trust values can’t scale as well as the other values; we’re just awaiting leaders with the vision and courage to lead the way.
I agree with what you say Charlie, but there are some additional factors to consider. I think the legal system has evolved into a gotcha system. Therefore corporations have legal impetus both from law and litigation to act in ways that reduce trust. Sarbanes Oxley and Dodd Frank are laws based on distrust for corporations and require bureaucracy and internal administration as if this would solve the problem. Lawyers have made very successful careers from harassing companies over legal compliance, often over trivial issues, and sometimes without foundation. These drive corporations into self protective stances at odds with trust, both with customers an employees. Eula’s are examples of self protective, trust diminishing behavior towards customers. Internally, speech codes and conduct codes are often enforced in trust diminishing ways, and the kin of inappropriate measurement you often decry is almost inevitable.
There is also simply a scale issue. The larger the company, the more departments, and managers and systems, the less opportunities for intimacy. In a big company almost anyone outside your department is a stranger, with different and often conflicting responsibilities. The larger the company the more opportunity, indeed necessity for political decision making by managers, and the less familiarity between senior and middle managers. This increases the likelihood of career success by the self interested, and therefore less trustworthy. Untrustworthy managers force other managers to be more self protecting. Vicious circles are more easily created than ended. So even in organizations whose founders have the right values, and who have promoted them well in the early history of the company will have an increasingly harder job maintaining them as the company grows. Once the founders are gone it gets progressively harder.
Franklin, great commentary, thanks.
I couldn’t have put better your commentary on the role played in all this by the legal system. Well seen and well said.
Your comments about scale make sense on the surface, but let me offer some counter-examples.
1. At the level of whole societies, we find higher levels of trustworthiness and propensity to trust than we do within some corporations. I mean things like civility, generosity, voluntary service toward others. If these things can be practiced at the level of a whole country (e.g. Denmark, Japan), then the “no-scale” argument must have flaws.
2. While in the short term it’s absolutely true that at larger scale we get “increased likelihood of career success by the self-interested,” a longer time perspective turns the tables. Just as in Prisoner’s Dilemma games, where the solution is to play indefinitely, time horizon is a powerful factor. Ditto for the power of norms; if one norm has to do with how you treat strangers, then having more strangers in the mix strengthens, not weakens, that value.
The scaling of trust is a large and complex issue, I think the jury is still out. Please come back and add to the discussion.
Charlie
The counterexamples of trust within countries is well taken, and prove that trust in society is an achievable goal. However I don’t think we understand how it was created or is maintained, or how we can restore trust within American society to 1950s levels. And I would agree that if a society can be trust based, then it ought to be achievable within the smaller society of a corporation, but it is easier to point to companies that have lost trust than companies that have built it. Hewlett Packard was once the gold standard for corporate integrity, both internally and externally and now it lurches from one scandal to another.
But one thing I am sure you will agree with. Intimacy does not scale. I cannot be intimate with people I have never met, and it is difficult being intimate with people you meet infrequently. The larger the organization the smaller the proportion of intimate relationships can be. Which is one reason that employee evaluations grow more bureaucratic and more gameable, and career development more political. Perhaps these can be held in check with diligent management, but there are two other trends that work against it.
Whenever a corporation goes outside to bring in a new CEO, or even a lesser C level officer, it weakens the culture. And mergers and acquisitions, which are now considered the core of too many corporations strategies, are the enemies of trust. Any significantly large merger inherently generates internal rivalry, competition and tribal wagon circling. Even when there are no layoffs, and that is rare, there is systems integration issues, conflicting corporate cultures, and intense competition for the highest profile positions. Where there were two CEOs there is one. Where there were two CFOs there is one. When person gets to run IT, one person is head of PR. And even if you keep your job, if you have a new boss you are anxious or even afraid for quite some time.
Franklin, very thoughtful thoughts, thank you.
I am in agreement with you about a lot here – the downfall of HP, easier to point to companies that have lost trust than that do it well, and the fact that intimacy does not scale well – at the individual level. In other words, the more people i must connect to, the lower the percentage with whom I can have an intimate relationship. Which does indeed drive the litany of poor effects, just as you say.
On the other hand, what is scalable is a culture that supports intimacy. It’s a strong set of beliefs that encourage people to have meaningful, high-trust relationship with those around them.
Examples of powerful cultures at a high-scale level include the Catholic Church, Scientology (don’t read religion into it, those are just extreme cases of strong-belief cultures that scale). Also, to a lesser extent, the old HP, probably Apple, McKinsey, Goldman. Note I’m talking about culture as scaling – the particular beliefs that the culture enables vary between those.
I agree with you that M&As, outside recruiting, new CEOs et al reduce the power of the culture, and thus of a trust that is brought about by that culture. But I think the point is not that those moves reduce trust – they reduce the culture, and hence whatever belief system that culture fostered.
By that way of thinking, the key is first to create a culture of trust, and second to keep the culture strong.
Charlie – Nice blog piece on trust in corporations. At the Consortium for Trustworthy Organizations we are actively studying companies that are building or destroying trust and there are clear patterns that define both. I agree with your point about value congruence. All of the high trust companies we have found have strong cultures that include trust inducing norms (do the right thing, treat all stakeholders with respect, speak the truth). In our study of major trust violations over the past decade we found that companies that squander stakeholder trust lack a pervasive and deep embedding of trustworthiness in the organizational system (myopic strategy, opportunistic leaders, diffuse identity and values, flawed supply chain and other processes, incongruent reward systems). We are developing tools to detect these organizational flaws and feedback systems to get this information to the people in the system that cae enough to reform them and build trust. There is a way forward. Perhaps someday you will be able to list more companies that seem to do a great job on trust.
Thanks Bob; nice articulation of the driving forces of as well as the detritus left behind low-trust-value systems. And while I quite agree about the need to develop tools and feedback, I think there is also a need for something that’s hard to describe without using almost spiritual language – a mindset shift, a transformation, a new way of thinking, largely about the way we relate to other human beings in all our affairs.
Charlie,
Thanks for the article, as usual it is thought provoking and I think important. We all want to do business with individuals AND organizations we can trust.
As Franklin says, intimacy (and this is the factor of the trust equation most difficult for me) is difficult as organizations get larger. That does not mean it is impossible or not scalable. As the top dog, I may not know everyone in my organization. But, I can know intimately my direct reports and members of their team. More to the point we can develop and foster a culture where intimacy is a value (as a part of trust).
The longer I study the topic the more convinced I am that Culture is a competitive advantage. And through core values that foster trust organizations can develop the trusting behavior where I trust the company (or any one of its representatives).
Look at Nordstroms and their culture Zappos. As a new hire one either feels comfortable with the culture or very rapidly they self select out. (Zappos offers a pretty strong incentive to ensure you are committed) There is no reason trust and as a part of that intimacy cant be a part of that. (By the way I am defining intimacy as the ability to share information that is personal, being open to my vulnerability as well as those of others)
Have a great Day