A Matter of Trust

• Posted by John Friedman
• On October 06, 2008


• Interests: Corporate Social Responsibility

I have been thinking about trust lately because I recently faced a situation where someone I trusted was revealed to be unworthy - and when something that I had done (unintentionally) had caused someone else to question whether they could trust me. I realize how fragile a commodity trust is … and how easily it can be lost.

 Obviously we all realize that engaging in deliberate deceptions or lies are quick and easy ways that both individuals and companies lose the trust of colleagues, stakeholders and the public. But there are other, more subtle ways that people and companies can and do lose the trust of their stakeholders, often without realizing that what they’re doing puts it at risk. And in light of the current loss of faith in global financial markets, this seems an appropriate time to shed some light on the subject.

Inconsistency - In the fields of science and medicine things that are known and accepted as fact are often revised as additional information is discovered. We live in an age when science is advancing in ‘real time’ and so information sometimes contradicts or supplants established ‘truths.’ It may seem laughable that people would feel betrayed when understanding and knowledge evolve. At the very least, people are confused when this happens (quick – are eggs part of a low cholesterol diet?) and often cling to previously held knowledge.

Challenging the status quo - Sometimes, such as when knowledge is seen as a threat to the world order, the consequences have been swift and severe. Galileo was excommunicated when he continued to believe – and state – that the Earth was not the physical center of the Universe and was confined to house arrest for the rest of his life. It was only in 1992, some 350 years after his death, that the Pope reversed this. This can have a ‘ricochet’ effect, causing the status quo to lose credibility. In this case, the Catholic Church’s credibility ended up being hurt more (in the long run) as the evidence for the heliocentric model of the solar system became incontrovertible.

Failure to communicate – this one is a bit tricky. Communication hates a vacuum. When people are hungry for information withholding it can be seen as disingenuous or deceitful. This most often comes in the form of the question ‘why didn’t you tell me?’ which causes people to wonder why the person with the information may feel that they cannot be trusted.

Betraying a confidence – when you tell someone something private and they repeat it to others, you lose trust in them. The same thing happens when confidential information is stolen or lost by a company, despite the lack that the company may be a victim in the circumstance as well.

Assumption of intent – Fundamental to all of these reason why people lose trust is that despite the fact that when things change, it is reasonable for opinions to change and shift along with the added information. Yet people often suspect that the other person or company must have privy to the information in advance. Because intentionality is assumed, credibility is sacrificed. This is the case with President Bush’s assertion that Saddam Hussein had weapons of mass destruction (WMDs). Short of those in the inner circle of the White House, it is impossible to say with certainty that President Bush deliberately lied to the nation in order to justify going to war under false pretenses. It is possible that he – and his advisors – honestly believed that WMDs would be found and that the threat was real.

And this is exactly what we face with today’s financial markets. People are assuming that the leaders of the companies that wrote unrealistic loans and found themselves carrying unsustainable mountains of debt did so deliberately and with intention. The fact is, they may have simply been – as many people were – reluctant to believe that the party would ever end. There is some evidence that people were overzealous, overly optimistic and, in some cases, unscrupulous.

Therefore reform and regulatory oversight are necessary. And, because it is a fundamental truth that rewards must align with desired behaviors and outcomes – the exorbitant salaries and golden parachutes must be eliminated from those who drove company after company into financial ruin. What about the old standby – incentives based on performance, as measured by actual results? Otherwise, the whole system is a lie.

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