Rebuilding Trust

Worth Reading: Harvard Business Review, June, 2009, special section: Rebuilding Trust

I’ve been teaching ethics in graduate business and communication programs at New York University for more than 20 years, and every semester we lament the decline of trust.

But this year seems to be worse than most.  Trust in US corporations is at an all-time low, 38 percent, according to the 2009 Edelman Trust Barometer.  And most other measures of trust in institutions also point to continuing declines.

The June issue of Harvard Business Review takes on the issue of trust with a 25-page special report, Rebuilding Trust.  It’s worth reading.  The package includes a forceful critique of business school curricula, a 100-year timeline of highlights and lowlights in the public’s trust of business, and a counter-intuitive piece on how despite recent events people may still be trusting too much.

But the real payoff is the first piece in the package, by James O’Toole and Warren Bennis.   O’Toole is the Daniels Distinguished Professor of Business Ethics at the University of Denver’s Daniels College of Business, and Bennis is University Professor at the University of Southern California.  The two are co-authors (with Daniel Goleman and Patricia Ward Biederman) of Transparency: How Leaders Create a Culture of Candor (Jossey-Bass, 2008).

The special report opens with O’Toole’s and Bennis’ conclusion:

“We won’t be able to rebuild trust in institutions until leaders learn how to communicate honestly — and create organizations where that’s the norm.”

I think they’re exactly right.

But as simple and forthright as their assessment may be, honest communication is in remarkably short supply. One reason is that honest interpersonal communication in the workplace is hard.  It often causes discomfort, offense, or confusion.  It exposes vulnerabilities, fears, and ineptitude — our own and others’.  And it also forces people and organizations to challenge assumptions.  Most people in the workplace have spent a lifetime being socialized to avoid giving offense at work, to mask vulnerabilities, and to get along by going along.

But the main reason honest communication in organizations is hard is that it requires more than individuals being scrupulously honest; it requires cultures that foster and reward such honesty, and that discourage or punish dishonesty.  Even at the expense of short-term incremental profit erosion.

O’Toole and Bennis note that current incentives are wrong:

“Until recently, the yardstick used to evaluate the performance of corporate leaders was relatively simple: the extent to which they created wealth for investors

“Moving forward, it appears that a new metric of corporate leadership will be closer to this: the extent to which executives create organizations that are economically, ethically, and socially sustainable.”

The key word is here is sustainable.  Trust is one of the elements that provides long-term sustainable competitive advantage.  Building a trustworthy organization is sometimes painful.  But the rewards can be significant.

Trust and Reputation

Indeed, the Edelman Trust Barometer says that trustworthiness is tied for fourth (with value for money) as the most significant contributor to corporate reputation.  (The top three are quality of products and services, treatment of employees, and frequency and honesty of communication — which is itself an element of trustworthiness).  And companies with good reputations tend to enjoy many benefits, including more loyal customers and employees, higher demand for their products and shares of their stock, and greater strategic flexibility.

So how can business enterprises develop cultures that contribute to sustainable trustworthiness and enhanced reputation?

O’Toole and Bennis note that before an organization can be truly honest with its external stakeholders, it needs to foster honesty inside.  But that requires breaking old habits and changing cultures.  The solution, they say, is for leaders to “make a conscious decision to support transparency and create a culture of candor.”  But candor can be painful.  It starts with telling the truth up and across the chain of command, not merely down the chain.

O’Tool and Bennis recommend an eight-step approach to creating a culture of candor:

  1. Tell the truth.  Avoid the impulse to tell people what you think they want to hear, but use straight talk.  In all directions.
  2. Encourage people to speak truth to power.  Leaders need to create conditions for people to be courageous.
  3. Reward contrarians.  Challenging assumptions is a key to innovation.  Promote the best contrarians, but thank them all.
  4. Practice having unpleasant conversations.  Straight talk doesn’t have to hurt.  But it isn’t easy to deliver bad news kindly so that people don’t get unnecessarily hurt.  Practice helps.
  5. Diversify your sources of information.  Understanding and overcoming one’s own biases requires having input from many perspectives.
  6. Admit your mistakes.  If a leader admits mistakes, others will have permission to do the same.
  7. Build organizations that support transparency.  This includes protecting whistleblowers, but also hiring people who have created cultures of transparency elsewhere.
  8. Set information free.  Rather than defaulting to the private, default to sharing information unless there’s a clear reason not to.

What is Trust?

What is trust, anyway?  Of all the ways to describe trust, the best I’ve encountered is from ethics consultant Frank Navran, published in 1996 by the Ethics Resource Center in Washington, DC:  Trust is the natural consequence of promises fulfilled.

In my ethics courses I take Navran’s description and expand it a bit: Trust is the natural consequence of promises fulfilled, of predictions that come true, and of values lived.  Promises, predictions, and stated values all establish an expectation.  According to Navran, “trust results from having one’s expectations met, of having no unrealized expectations (what we refer to as disappointments).”

By that standard, trust is lost when promises are unfulfilled; when predictions fail to come true; and when one’s behavior is contrary to one’s stated values.  But trust can be maintained or restored by making (and keeping) promises — and by pointing out that one has made and fulfilled those promises; by making predictions that come true; and by living according to one’s stated values.

Restoring Trust When It Has Been Lost

Trust restoration was the subject of a 2006 study by three professors at the Wharton School of Business, University of Pennsylvania.  Maurice E. Schweitzer, professor of operations and information management, John C. Hershey, professor of operations and information management, and Eric T. Bradlow, professor of marketing, explored how to regain trust when it has been violated.

Professor Schewitzer told the newsletter Knowledge@Wharton why trust matters:

“Trust is the social glue that holds things together. It allows us to engage in social and commercial ventures. You can’t contract everything. We develop relationships that are based on trusting that things will work out.”

But what happens when trust is broken?  The three professors conducted an experiment to test the hypothesis that once trust is lost it is gone forever.   Schweitzer told Knowledge@Wharton that he and his colleagues thought trust was like glass — easy to break and impossible to repair.  But they concluded that this isn’t true.

What they found is completely consistent with the Ethics Resource Center’s framework: that you can restore trust, but to do so you need to fulfill promises.  Knowledge@Wharton reports:

“Trust harmed by untrustworthy behavior can be effectively restored when individuals observe a consistent series of trustworthy actions,” the researchers conclude. Also, making a promise to change behavior can help speed up the trust recovery process.”

But the experiment found that when a person’s trust is violated through deception it is harder to restore.

“‘It’s okay to screw me over, but don’t deceive me as well,” says Bradlow. “If you screw me over and lie about it, it’s going to take even longer to recover from it.'”

One reason it takes longer to recover from deception-based loss of trust is because of the emotional element of trust.  Yale School of Management professor Robert J. Schiller notes that

“Trust is a primordial form of human social cognition. We instinctively seek to surround ourselves with others we trust, and desire a stable situation where we know who we can rely on. Trust has emotional correlates. We do not ‘sleep easily’ if we feel a lack of a basic sense of trust in those who relate to us.” (The Wall Street Journal, Thursday, September 25, 2003, Page A18.  Free version no longer available online.)

And when we’re afraid, we look for protection.

The 2009 Edelman Trust Barometer notes that one of the consequences of the decline in trust in business is the call for increased government intervention.  The Trust Barometer report notes:

“The old order, in which business had the freedom to operate autonomously and without government restraint, is over.”

One of the risks of government intervention is that companies lose their “license to operate”: the ability of management to exercise business judgment unencumbered by government micromanagement.  We saw just this loss of business autonomy after the US government bailed out AIG and banks in the fall, and the automotive sector in the spring.  When the President of the United States can fire the CEO of General Motors; when the largest banks are forced to accept government money and partial government ownership; when the US Treasury decides who may sit on corporate boards, the license to operate is seriously compromised.  And all other companies are at risk of similarly losing their autonomy.

Among the Edelman Trust Barometer’s prescriptions for restoring trust are shared sacrifice — in which pain is evenly spread, and continuous conversations.  These are both elements of transparency — very similar to what the authors of the Harvard Business Review article on trust call for.  Says the Trust Barometer report:

“If businesses are to regain trust, they will need to adopt a strategy of Public Engagement, by means of a shift in policy and communications. The essence of Public Engagement is the commitment of companies to say—and do as they say.  Organizations must be forthright and honest in their actions and communications. In a time of utter distrust, business leaders must make the case for actions and then demonstrate their progress against those goals. When problems arise within companies, stakeholders need to see senior executives take a visible lead in acknowledging errors, correcting mistakes, and working with employees to avoid similar problems going forward.”

Lessons for Leaders

These four unrelated and independent looks at trust — by the Harvard Business Review, the Ethics Resource Center, the Wharton professors, and the Edelman Trust Barometer — point to a number of common approaches and suggest lessons for leaders:

1. Trust is a public phenomenon:

  • For companies and other complex organizations, trust is lost and restored at the wholesale level.  Although individual experiences are meaningful, trust in companies is a reputational challenge, not just an interpersonal one.  So any approach to restore trust must be a public approach.
  • Because trust is tied directly to corporate reputation, trust isn’t just an internal attribute, but can be part of a core competitive advantage.

2. Transparency, direct communication, and accountability are key:

  • The HBR authors speak of creating a culture of transparency, and note: “We won’t be able to rebuild trust in institutions until leaders learn how to communicate honestly — and create organizations where that’s the norm.”
  • Ethics Resource Center notes that trust is the result of making and fulfilling promises; the Wharton professors talk about restoring trust by making promises and then engaging in a consistent series of trustworthy actions.
  • The Edelman Trust Barometer speaks of the need for continuous conversations; a commitment by companies to speak, and then to do do what they say they will do; to make the case for actions and then demonstrate their progress against those goals.

3. Although trust can be restored, it’s more productive to not lose it in the first place.  But maintaining trust requires intentionality:

  • We must be as attentive to meeting expectations before trust is lost as we ultimately would be in attempting to restore trust.
  • HBR speaks of creating cultures; Edelman Trust Barometer of shifts in policy and communication.
  • Neither of these is easy.  But the payoff can be high.  And the downside of not doing these is quite severe.

I welcome your thoughts.

Fred

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Posted on: May 26, 2009
Posted by: Fred

One thought on “Rebuilding Trust”

  1. Peter Moran says:

    Hi Professor Garcia,

    I enjoyed this post. I really like the part about the need for continuous conversations and demonstrating progress.

    It seems that consumer and investor trust is so often spuriously linked to financial performance. While financial performance is of course important, stakeholders tend to get lulled into a blind trust when things are going well. After all, why question what a corporation is doing as long as the stock is up? When pocketbooks are full, people just trust that companies must be doing right things (both business related and ethically).

    As former Citigroup CEO Chuck Prince, a typical banker, so pointedly put it:
    “As long as the music is playing, you’ve got to get up and dance.” But when the music stops, and nobody wants to be the one holding the bag, the tower of trust collapses and the finger pointing begins.

    We can only hope this time once trust is restored, corporations and financial institutions will engage in–and stakeholders will demand continuous conversation and demonstrated progress. That way trust, as you noted, won’t be lost in the first place.

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