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Managing Trust : Lessons & Operational Implications

Business Context:
Trust is very much a global issue, of worry to regulators and activists in virtually all jurisdictions, and preoccupying managers across all sectors of global industry and trade.

Why Suspicion Is Growing:
Many presume that this priority for trust is in response to the high profile scandals that have come to light in both public and private sectors. Such shocks have certainly amplified public and investor concerns, but the growth in suspicion has more sophisticated and systemic causes that defy traditional strategies for reassurance. These include:

  1. The maturing of economic globalization, which has developed a much more robust infrastructure for commerce than for governance, disclosure and accountability.
  2. The rapid spread of information technology, which has “democratized” even confidential data, enabling more public access and more intense scrutiny of all institutions and organizations.
  3. The growing multi-cultural diversity of communities and companies, which creates rich differences in competence but has also widened the gaps in values that have historically been the resource for social capital and moral cohesion.
  4. The dual pressures for competitiveness and consumption have contributed to much more individualistic social ethos, so that the connections and obligations to community are increasingly frayed.
  5. And while there have been scandals before, what is unique at this moment in history is that the very institutions that have been the custodians of public trust are themselves stained by impropriety. (For example: the accounting profession with Enron; the Catholic Church with child sex abuse; the United Nations with corruption in the Oil for Food program; The U.S. Food and Drug Administration with faulty science; banks, mutual funds and stock exchanges with insider abuses.)

The Remedies Are Lagging The Problem:
  • Like “integrity” and “values,” trust has become a focus for renewal. Despite this substantial commitment, most such efforts have remained generic, rarely addressing the systemic dimensions of widespread suspicion, and therefore realizing only marginal impact.
  • Political and business leaders are aware of the trust deficit, and organizations like the Davos World Forum are exploring the vulnerabilities and needs of social capital. However, various studies suggest that this concern is being exercised at the edge of a gap, with the managerial class underestimating the depth of public suspicion, and the public underestimating the commitment politicians and companies are bringing to the task of repairing and renewing social capital.
Corporate Implications:
  1. Define the terms - Organizations, societies, economies and communities need a common expectation of integrity to create the conditions for exchange and prosperity. With all their cultural and economic differences, citizens around the world generally desire a more open, transparent and trusting society. However, this requires fashioning a new basis for trust rather than reverting to past terms of professionalism, or past deference towards paternalistic institutions.
  1. Invest in Integrity - As an asset, social capital deserves and requires deliberate investment. The economist Herman Daly has explained that companies have been primarily “consumers of social capital,” using the moral and legal infrastructure of society to transact business. In this new reality in which the institutions that have traditionally created this capital are suspect, companies must become “contributors” to trust rather than just its consumers.
  1. Get Strategic - Executives tend to become concerned about trust when it has been lost. As a result, the solutions are regarded as short-term and tactical rather than long-term and strategic. Research shows that over two-thirds of the companies that adopt ethics programs after a scandal revert to “business as usual” within two years. For both employees and customers, this tactical focus only depletes trust and exacerbates suspicion.
  1. Invite Participation - Given the systemic factors that are stressing social capital, companies cannot in and of themselves solve concerns, and nor can they remain apart from them. Rather, companies must support – perhaps sometimes initiate – the wider dialogue to co-create the new terms of reference. Importantly, the process for this engagement is an analogue for the outcome.
  1. Do Not Default to PR - As trust exists in the public sphere, many companies place the onus for credibility on marketing, public relations or public affairs. This risks further alienating employees, and further agitating public distrust. The challenge of integrity is very much that of integration: strengthening Board governance; infusing business strategy; informing day-to-day management decisions; animating values and culture; and consistently engaging customers, investors and stakeholders.
  1. Treat Trust as a Balance Sheet Item - Social capital has worth that deserves investment, measurement and reporting. The full scope of this possibility may be more apparent by imagining trust as a balance sheet:
    1. Liabilities are real, including the hard costs from fraud and lost customers, the higher costs for regulatory compliance and business development, and the soft costs from lost efficiency and innovation.
    2. Although often forgotten by managers, assets from trustworthiness are also real and significant, including the reputation to attract capital and recruit the best employees, the credibility to leverage new opportunities and recover from mistakes, and the cultural strength to support innovations and risks.

Operational Implications:

  1. Trust is like electricity. It is ubiquitous and yet has only generic value until it used to power a specific benefit to users, like lights, motors or computers. Companies attending to trust are treating it as an objective, whereas its proper role and worth is as an outcome. This means finding the real and dramatic enhancement to products, services and experiences that give concrete expression to the organization’s values and integrity.
  2. Most managers acknowledge that trust must be earned, and most realize that it takes longer to build than lose yet few appreciate the diligence this entails. Consumer research (from the U.S.) shows that it requires six-to-eight satisfying experiences to undo the damage to brand trust from one negative impression. Quick fixes to trust are impossible, yet small things must be fixed quickly to achieve the consistency and constancy that merit credibility.
  3. As a complex human construct, trust operates on numerous levels that require sensitive diagnostics to uncover. For example, working with UNICEF we found that the reputation or “brand” for the organization was both highly “trusted” and increasingly “irrelevant.” This juxtaposition led to an understanding that such “passive trust” was mostly worthless, and falsely assuring to managers. While people respect UNICEF as the world’s face for children, they invest their donations and volunteer their efforts with other children’s relief groups that they believe are more productive, less bureaucratic and more accountable. The task for UNICEF was not to generically grow trust – which it already had - but to offer the specific programs that highlight their unique resources, contributions and impacts.  It was these highly particular initiatives that became a rallying cry for employees, and an inducement to donors. In this case, trust has been made more relevant as an outcome of courage, clarity and efficacy.
  4. Customers and the public are increasingly cynical because of scandals, but this is not so much the source of growing suspicion as a confirmation that distrust is justified. Research shows that the most significant impetus for suspicion comes from the day-to-day experiences customers have with companies. These include depersonalized auto-phone systems; complexity in contracts or warranties; slow or bureaucratic access; loss of voice; loss of accountability for broken promises; and encounter with systems and process so designed for efficiency that they have become inflexible to deal with human problems or emergencies. It is at this level of experience that trust must be earned: a “thousand courtesies” to address the “thousand-cuts” from reengineering, mergers, and cost cutting.
  1. For trust especially companies need skills of perseverance. The usual expectation is for some direct correspondence between effort and effectiveness, however research tracking organizational change shows that the process is disproportionate. To overcome inertia, undo assumptions and create the learning for change means that companies must usually expend 80% of the effort to realize 50% progress. Few have such long-term perspective, yet success and momentum belongs to those who persist and realize the final 50% benefit for the last 20% commitment.

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