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Value of Trust

Page Contents:


"trust is the big issue of the 21st century"
According to Kieron O'Hara, Trust From Socrates to Spin

"every business type and category has trust issues.”
According to Rich Jernstedt, CEO, Golin/Harris International.

AMERICAN BUSINESS FACES A CRISIS OF TRUST

Golin Harris Trust in American Business Survey

"The erosion of trust indicated in the research is a call to action. And it must be heard loud and clear.”

Nearly 70 percent of survey respondents said, “I don’t know whom to trust anymore,” and said they will “hold businesses to a higher standard in their behavior and communications.” Cached

 

Crisis of Trust (Top)

With the current crisis of trust organizations need to rethink their confidence-building strategy. The current piecemeal approach to trust places organizations in real danger of financial and other losses. What is required is a holistic mindset and continuous assessment of stakeholder uncertainties. However, a comprehensive and unified approach continues to be elusive. Hence initiatives to address trust issues continue to be reactive, tactical responses aimed at suppressing highly visible incidents.

Trust Enablement™ is our approach to explicitly and strategically addressing stakeholders' trust requirements. It has the potential to alter an industry's competitive landscape and put Trust Enabled™ organizations at the forefront of management innovation.

Trust Enablement™ is an exercise in managing uncertainty. Organizations must match their stakeholders' acceptance of uncertainty with the right balance of processes that establish required levels of trust and protect from any deficiency or loss of trust.

The challenge is to find the optimal middle ground between the costs of increased trust versus control. On the one hand organizations can spend too much time and resources and bump up against diminishing returns - since achieving 100-per-cent trust is not possible. Yet on the other hand, lax policies and processes and too little investment in trust and confidence augmentation initiatives lead to losses, both realized and in foregone opportunities.

Trust Enablement™, our code of practice, defines a systematized approach to bridging confidence gaps between organizations and their stakeholders by easing reliance on the information needed to engage in business activities. Trust Enabled™ processes help to accelerate and intensify stakeholder engagement. (Top)


Studies

State of Trust in Leaders

O'Hara, K., (2004) "Trust From Socrates to Spin", Icon Books.

("Polls record levels of trust in politicians, businessmen, scientists and others that are at all time lows: a crisis in trust is currently gripping Western culture... trust is the big issue of the 21st century")

(“Our trust in our leaders is low and declining.  Only leaders of NGOs were trusted by more than 50 per cent of the respondents (and even then not with a massive vote of confidence”, quoting results of the Davos World Economic Forum survey.)

Accenture (2004) “The business of trust”, white paper referencing the World Economic Forum.

(“This is a truly global phenomenon. Just 17 per cent of Americans now rate the honesty and ethics of business executives highly, for example, while nearly three quarters of people in Tokyo, Hong Kong, Taipei and Singapore think ‘recent events have caused a crisis of confidence and trust in the way we do business.”)

World Economic Forum, “Survey on Trust”, November 2002, for the TRUST theme of the 2003 Annual Meeting in the Davos, World Economic Forum.  Research was conducted by Gallup International’s Voice of the People survey, designed in collaboration with Environics International.

(“With few exceptions leaders across the spheres of endeavour and countries … are given lower trust ratings than the institutions they lead.”)

(“Significant minorities [about 40%] of citizens self-report that their trust in all three categories of leaders has fallen over the past year”, with similar numbers reporting their trust has stayed the same.  Only about 10% reported their trust has increased.”)

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 7.

(According to a The Atlanta Consulting Group study, “48% of the people surveyed trusted their bosses and just over half (52%) trusted upper management.  While 66% of the respondents admitted that their companies had clearly stated values, only 33% believed they were evident in the actions of the organization.”)

Ezekiel, Z. (2005) “Rebuilding Trust in Canadian Institutions”, The Conference Board of Canada.

(“Canadians rank Chief Executive Officers (traditionally, highly respected in western societies) and politicians among the least trusted profession.” Politicians are believed likely to lie by 91% of Canadians, and corporate executives 83%.”)

(“For example, in a 2002 Ipsos-Reid survey, 83 per cent of Canadians thought corporate executives were somewhat or very likely to lie when making statements to the news media. A still higher proportion, 91 per cent, believed the same of politicians. In early 2003, only 21 per cent of Canadians thought chief executive officers (CEOs) were trustworthy or extremely trustworthy.”)

(“In a 2005 survey of Canadians, only 16 per cent of respondents thought CEOs and chief financial officers (CFOs) were credible sources of information about their companies.”)

Edelman (2005) “Sixth Annual Edelman Trust Barometer:  A Global Study of Opinion Leaders”, Edelman.

(“Academics and doctors are the most credible spokespeople when forming an opinion of a company in Canada and the U.S., whereas the CEO of a company is least trusted.”)

Armour, S. (February 5, 2002) "Employees' new motto: Trust no one", USA Today, published by Council of Public Relations Firms.

(“Nearly 50% say corporations can be trusted only a little or not at all to look out for the interests of their employees, according to the USA TODAY/ CNN/Gallup survey….  more than 40% say executives are only interested in looking out for themselves -- even if it harms the corporation they work for.”)

Accenture (2004) “The business of trust”, white paper referencing the World Economic Forum.

(“There are also declining levels of trust within organizations, with employees questioning whether their employers are being honest with them. The vast majority (84 per cent) of Americans think that the people who run their companies are trying to do what is best for themselves rather than the company. Worryingly, attitudes tend to be worse amongst longer-serving employees. The 2002 ‘Britain at Work’ survey found that management communication is trusted by about half (52 per cent) of employees with less than two years’ service, but only 32 per cent of employees with 15 years’ or more service.”)

(“Survey of senior executives around the world found that only 69 per cent were confident that their CEO has strong moral values. In Europe, just 56 per cent shared such confidence, compared with 72 per cent in north America and 73 per cent in Asia Pacific.”)

 

State of Trust in Business

Jernstedt, R. (2002) "Golin/Harris Trust Survey, 2002", Golin/Harris International.

("Every business type and category has trust issues.")

("Nearly 70 percent of survey respondents said, ‘I don't know whom to trust anymore.’”)

Accenture (2004) “The business of trust”, white paper referencing the World Economic Forum.

(“Large companies in particular are now viewed by many people as interested only in their own self-serving objectives.  Recent corporate scandals have led people to apply the same analysis to individual business leaders.”)

World Economic Forum (update 2004) “Survey on Trust”, following up on the TRUST theme of the 2003 Annual Meeting in the Davos, World Economic Forum.  Research was conducted by GlobeScan Incorporated (formerly Environics International).

(“Trust levels for global companies, while still very low, are now at or above where they were in December 2000 (prior to the Enron scandal), in 13 of the 18 countries for which comparable data is available.  Significant improvements in corporate trust have occurred since August 2002 in ten of the 18 tracking countries.”)

World Economic Forum, “Survey on Trust”, November 2002, for the TRUST theme of the 2003 Annual Meeting in the Davos, World Economic Forum.  Research was conducted by Gallup International’s Voice of the People survey, designed in collaboration with Environics International.

(“Global companies and large domestic companies are equally distrusted to operate in the best interests of society, ranking next to national legislative bodies at the bottom of the trust ratings.”)

PollingReport.com; The Gallup Poll May 21-23, 2004 and June 9-10, 2003, and 1973 - 2002; The Harris Poll, February 9-16, 2004; FOX News/Opinion Dynamic Poll, May 20-21, 2003; and Bloomberg News Poll, June 11-16, 2002, PollingReport.com.

(“Confidence in big business is consistently among the lowest (lowest or second lowest) of all institutions in the U.S. consistently across studies and over time.” See [Figure 1])

Luaszewski, J. E. (2002) “American Business Faces a Crisis of Trust”, Golin/Harris International.

(“The survey found that every business type and category have trust issues.”)

(“Nearly 70 percent of survey respondents said, ‘I don’t know whom to trust anymore,’ and said they will “hold businesses to a higher standard in their behavior and communications”)

Wall Street Journal (September 16, 2002) “Taking It on Faith”, Wall Street Journal

(“Small businesses are the most trusted by consumers, while large corporations are least trusted, other than e-tailers.”)

 

State of Trust in Institutions

Yankelovich (2004) “State of Consumer Trust: Rebuilding the bonds of trust”, Yankelovich.

(“The data suggest that anywhere from two-thirds to four-fifths of Americans display a profound distrust of institutions.”)

World Economic Forum (update 2004) “Survey on Trust”, following up on the TRUST theme of the 2003 Annual Meeting in the Davos, World Economic Forum.  Research was conducted by GlobeScan Incorporated (formerly Environics International).

(“Consistent with previous research, the current poll shows that non-governmental organizations (NGOs) are the most trusted and global companies are least trusted of the seven institutions tested. The United Nations comes second to NGOs across the countries surveyed, followed by national governments in the middle range of trust.”)

Cook, T. E., and Gronke, P. (April 2001) “The dimensions of Institutional Trust:  How Distinct is Public Confidence in the Media?”, paper prepared for delivery a the annual meeting of the Midwest Political Science Association, Chicago.

(“A general decline in public confidence in institutions is observed in the United States, with the exception of the military, from 1973 to 1998.  Major companies experienced a relatively small decline during the same period, with the second highest volatility.”)

Edelman (January 9, 2004), “Study of Opinion Leaders”, 2004 Edelman Fifth Annual Trust Barometer.

(“Trust in institutions is stronger in the U.S., than Europe: government (U.S. = 48% vs Europe = 31%), business (U.S. = 51% vs Europe = 40%) and NGOs (U.S. = 47% vs Europe 41%) … Trust in business is trending higher with the U.S. at 51% (vs 48% in Jan. 03 and 41% in Jan. 02) …Trust in NGOs, which had been growing steadily in previous years, is down slightly (U.S. = 47% vs 49% in Jan. 03, and Europe = 41% vs 45% in Jan 03)”.)

Edelman (2005) “Sixth Annual Edelman Trust Barometer:  A Global Study of Opinion Leaders”, Edelman.

(“Trust in nongovernmental organizations has steadily increased in the US (’01 = 36% to ’05 = 55%), joining Europe and Canada, where they are already regarded as the most trusted institution.”)

Yankelovich (2004) “State of Consumer Trust: Rebuilding the bonds of trust”, Yankelovich..

(“It comes as no surprise that consumers today report having very little trust in institutions generally, and corporations in particular…. Anywhere from two-thirds to four-fifths of Americans display a profound distrust of institutions…. 80% are ‘sceptical about the accuracy of new stories and information presented in the media’; 80% believe American business is too concerned about its profit and not concerned enough about its responsibilities to workers, customers, and the environment’; 69% believe that ‘if the opportunity arises, most businesses will take advantage of the public if they feel they are not likely to be found out.’”)

 

State of Trust in Intermediaries

Cook, T. E., and Gronke, P. (April 2001) “The dimensions of Institutional Trust:  How Distinct is Public Confidence in the Media?”,  paper prepared for delivery a the annual meeting of the Midwest Political Science Association, Chicago.

(Confidence in the media among Americans has declined consistently and more rapidly than any other institution from 1973 to 2000.}

The Conference Board of Canada (August 19, 2005) “News release 6-12”, The Conference Board of Canada.

(“One quarter of Canadians don’t trust information from third parties [with only about one in two trusting the information they receive from journalists, financial analysts, or auditors on corporations and government].”)


Stakeholder Influence(Top)

There is growing recognition by organizations that some stakeholders possess significant influence over them:

  1. More information is publicly available on the activity of organizations and the impact of these activities on employees, shareholders, society, the environment and the economy;
  2. Stakeholders demand higher standards of behaviour from organizations;
  3. The legitimacy of these demands is more widely recognized by government, regulators and civil society. At the same time, organizations recognize the conflicts of interest they have with stakeholders, and the lack of consensus between and within stakeholder groups; and
  4. Stakeholders exert their relative power advantages for self-interest.

This is a dilemma that Trust Enablement™ seeks to address. It does not provide a prescriptive framework for the resolution of conflicts, but it does provide a process for organizations to begin to address them through engaging with stakeholders to find common ground and build trust.

This process of engagement with stakeholders is at the heart of Trust Enablement™. Engagement is not about organizations abdicating responsibilities for their activities, but rather using leadership to build relationships with stakeholders, and hence improving their overall performance.

Stakeholder engagement can be at the heart of a virtuous circle of performance improvement. Meaningful engagement with stakeholders can:

  1. Anticipate and manage conflicts.
  2. Improve decision-making from management, employees, investors and other external stakeholders.
  3. Build consensus amongst diverse views.
  4. Create stakeholder identification with the outcomes of the organization's activities.
  5. Build trust in the organization.

These five factors are key to improving financial performance, for example, through the improved recruitment and retention of employees, or the increased sophistication of risk management systems. They are also key to improving the organization's performance on other measures in a manner that satisfies the aspirations of the organization's stakeholders. If the engagement improves stakeholder satisfaction, this will also play a role in supporting the long-term financial performance of the organization. (Top)


Value of Trust

Trust is the basis for all business engagement and stakeholder collaboration. Since no organization is an island and few organizations have absolute control over their business environment, their prosperity and very existence hinges on their ability to win the support of key stakeholders. It is therefore critical for organizations to engender confidence in the information they provide to stakeholders with explicitly designed business processes and mechanisms that help to reduce and mitigate uncertainties that inhibit stakeholder engagement. Regardless of whether an organization suffers from a crisis of trust or already enjoys high levels of trust, in an increasingly commoditized world stakeholder trust and confidence are defining the winners and losers.

Alan Greenspan was quoted by the Wall Street Journal as saying that breakdowns in corporate governance could undermine the trust necessary for efficient markets, which threatens to "significantly erode" the economy's impressive gains in productivity.

In a New York Times article, R. L. Butler, a retired clergyman in Denver was quoted as saying "The worst thing now, is you can't even trust the earnings reports. When you find the auditors in bed with the managers, there is nobody to believe."

"Never before in the history of our country has there been a lower level of trust in public institutions and corporations," According to Howard Schultz, Starbucks' CEO and founder, whose venture capital company, Maveron invested in eBay (Nasdaq: EBAY) and Drugstore.com -- now two of the biggest names in e-commerce. Given consumers' disenchantment, he thinks that brands that inspire trust are more valuable than ever.

 

Studies

General Business Benefits of Trust

Todd A., http://trustenablement.com/.

(Trust is integral to every transaction and the foundation for business success. It drives the volume, velocity and value of every business transaction.)

Todd A., http://trustenablement.com/value_of_trust.htm.

(Trust is the basis for all business engagement and stakeholder collaboration. Since no organization is an island and few organizations have absolute control over their business environment, their prosperity and very existence hinges on their ability to win the support of key stakeholders. It is therefore critical for organizations to engender confidence in the information they provide to stakeholders with explicitly designed business processes and mechanisms that help to reduce and mitigate uncertainties that inhibit stakeholder engagement. Regardless of whether an organization suffers from a crisis of trust or already enjoys high levels of trust, in an increasingly commoditized world stakeholder trust and confidence are defining the winners and losers.)

(There is a magic that certain companies have (eBay, Google, Harley Davidson, HP, Coca Cola earlier and maybe also GE and Microsoft) where companies transcend the normal bounds of management. Investors consistently value their shares at epic price/earnings ratios, employees evidence unusual loyalty and performance, customers use their products and gush about them, and the press finds ways to give them the benefit of the doubt (how would the market have responded to any other bank in Canada had it encountered the same IT failure that Royal Bank did earlier last year). Perhaps, "trust" is one of the underlying currencies that make this happen, where trust isn't an accident or an afterthought, but the carefully designed objective of a pattern of actions.)

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 1.

(“Trust is not an option in the success formula; it is an imperative.”

Ward, A., and Smith, J. (2003) “Trust and Mistrust”, John Wiley & Sons Ltd., pp. 23-25.

(“Business is about money.  We make the case that it is also about trust – about managing the risk of consciously behaving in ways that benefit others….  We do not directly claim that more trust equals more money (although that is clearly the case, as we will show later)…  moneymaking opportunities are severely constrained without trust…  trust ultimately underpins everything that business depends upon.  The limiting factor in business development is no longer the availability of resources but imagination about way to collaborate.” )

Bader, G. E., and Liljenstrand, A. (May 2003) “The Value of Building Trust in the Workplace”, WorkIndex.com,.

(A “study of 4,000 employees in eight countries concludes that building trust and emphasizing business ethics in the workplace pays off in tangible and intangible ways, helping the company's bottom line. Sponsored by United Technologies and conducted by Pamela Shockley-Zalabak, Ph.D., Kathleen Ellis, Ph.D., and Ruggero Cesaria, the study showed "trust is more than a social virtue and it serves as an economic imperative for business resilience in a global marketplace." Its findings show that organizations with high levels of trust continually benefit from:

* Adaptive organizational structures

* Strategic alliances

* Responsive virtual teams

* Effective crisis management

* Reduced transaction and litigation costs”)

 

Share Value

Ezekiel, Z. (2005) “Rebuilding Trust in Canadian Institutions”, The Conference Board of Canada.

(“Public distrust can have an impact on share prices. In testimony before Congress, U.S. Federal Reserve Board Chairman Alan Greenspan noted that damaged investor confidence in audited financial statements had led to lower valuations for equity securities.”)

Note:  eBay still traded at a 143 P/E, as of June 20, 2002, or 420% of the industry average, this is after the dot com crash.

 

The McKinsey Quarterly, “Article at a Glance:  Better boards in Thailand”, The McKinsey Quarterly http://www.mckinseyquarterly.com.

(“Companies [listed on the stock exchange in Thailand] with strong corporate governance practices have higher market valuations.”)

Thompson, M. (June 4, 2001) “Better Corporate Governance Pays Off for Large Companies in Emerging Markets”, http://www.socialfunds.com.

(“In examining the 100 largest companies in emerging markets, researchers found a strong correlation between corporate governance and financial performance ratios.”).

The Financial Express (May 5, 2003) “Corporate Governance and Performance – Expectations and Realities”, Corporate Governance Press Coverage, http://www.mckinsey.com.

(“Institutional investors are willing to pay a premium for well-governed companies.”).

Bauer, B., and Guenser, N. (April 2003) “Good Corporate Governance pays off!”, ABP Investments, http://www.deminor.org/.

(“Portfolios of companies with high corporate governance standards perform better than companies with worse standards.  Investors value well-governed companies significantly higher.”)

PeopleSoft Presentation materials (2001, 2003) “Striking a New Balance” and “Institutional Investor Preferences: 2003 Second Quarter Results”, Working Council for CFOs.

(“While investors penalize poor transparency … they reward good corporate governance efforts. [measured by “Opacity Discount” and “Corporate Governance e Premium”]).

 

Brand and Reputation Value

Red Herring, (July 1, 1999) “Starbucks CEO Howard Schultz brings a powerful brand to his new venture firm”, Red Herring.

(“Never before in the history of our country has there been a lower level of trust in public institutions and corporations," he [Howard Schultz, CEO, Starbuck's] says. Given consumers' disenchantment, he thinks that brands that inspire trust are more valuable than ever.”)

Moore, C., and de Bruin, A.(June 2004) “A Transaction Cost Approach to Understanding Ethical Behaviour”, World Congress of Social Economics, Albertville, France

(“In recent years, intangible asset growth has been the major driver of corporate market value, with some estimates suggesting that it accounts for more than 80 per cent of market value.”)

World Economic Forum (January 2004) 2004 Annual Meeting Survey, “Voice for the Leaders Survey.

(“A majority of members believe 40% or more of their company’s market capitalization is represented by brand/reputation.”)

("Corporate reputation is a more important measure of success than stock market performance, profitability and return on investment, according to a survey of some the world’s leading CEOs and organization leaders. Only the quality of products and services edged out reputation as the leading measure of corporate success.")

 

Market Share

Anders, G. (November 2001) “Business Fights Back:  eBay Learns to Trust Again”, Fast Company.

(“Today, eBay commands more than 80% of the online consumer and small-business auction market.”)

 

Investment and Growth

Zak, P. J., and Knack, S. (1997, September 10, 1998 version). “Trust and Growth”, unpublished, Claremont Graduate University.

(“The amount invested decreases as trust diminishes in principal-agent relationships, adversely impacting income growth.  “Investment and growth improve with trust.”)

 

Revenue

Anders, G. (November 2001) “Business Fights Back:  eBay Learns to Trust Again”, Fast Company.

(“[At eBay] we do $2.25 billion worth of gross sales a quarter entirely on trust”, according to eBay's chief financial officer, Rajiv Dutta.)

(“Some 34 million people now participate in eBay, which consists of buyers and sellers from all over the world. Hardly any of them know one another.  Nonetheless, they ring up commerce at a staggering rate of nearly $10 billion a year, taking it on faith that someone really will send the money or ship the goods on time. In the overwhelming majority of cases, that trust is richly repaid.”)

Yankelovich (2004) “State of Consumer Trust: Rebuilding the bonds of trust”, Yankelovich.

(45% of consumers have lost trust in a business.  As a result 94% spend less; 76% tell family and friends; 58% stop shopping there for some time; and 49% increase business with competitor.)

 

Price

Yankelovich (2004) “State of Consumer Trust: Rebuilding the bonds of trust”, Yankelovich.

(“Most consumers shop at businesses that have earned their trust – even if they charge more.”)

Kalyanam, K., and McIntyre, S. (2001) “Returns on Reputation in Online Auction Markets”, unpublished.

(“From the perspective of the seller, the implications are that good behaviour is rewarded with higher prices (on average 19%) on eBay.”)

 

Price Volatility

Liesman, S. (July 18, 2002) “The strange Disconnect Between The Stock Market and Economy”, Wall Street Journal.

(“Most economists will tell you that the current disconnect between stocks and the economy is – at least in the post-war era – historic….  The Market at the moment is doing its own thing for its own reasons.  And not many – or even any – of those reasons concern the direction of the economy.  Accounting scandals and corporate corruption, the war on terrorism – all provide sound reasons for what many say is a rethink of the multiple that investors will pay for future earnings.  Part of what we’re watching is the painful recalibration of risk.”)

 

Profitability

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 7.

(“A 1999 Watson Wyatt Worldwide survey reported ‘companies with employees who had high trust and confidence in senior management had a three year total return to shareholders of 108 percent versus a 66 percent return for companies with low trust and confidence levels.’”)

(“The Atlanta Consulting Group … provides even more compelling evidence of the connection between trust and profitability.” “The study … found a high correlation between trust and profitability.  In divisions that outperformed others, 84% of survey respondents said they had high levels of trust, as compared to lower-performing divisions in which only 27% believed trust was high.  The findings provide evidence of a relationship between the level of trust in organizations and the success of major improvement initiatives like team, quality, customer services, and engineering.  More importantly, it supports a strong link between trust and overall company results.”)

Hart, C. W., and Johnson, M. D. (1999) “Growing the trust relationship”, Marketing Management.

(“Building customer trust grows ever more profitable.  As a result of their trust bond with HP, customers migrate toward limiting their choices to one company: HP. Such customers often "take themselves out of the market," not even considering competitive options. Why would they do this? Evaluating other offers takes time, which is costly and in short supply, and history has taught these customers that HP would come out on top in a vendor analysis anyway. Furthermore, this customer asset is uniquely capable of talking to others, powering a referral-generation machine. Here lies a wellspring of brand equity.”)

Simons, T. (2002) “The High Cost of Lost Trust”, ForeThought, Harvard Business Review.

(Tony Simons' study, "The high cost of lost trust" (Harvard Business Review, Sept. 2002) focused on pinpointing the real cost associated with low-trust environments.  It demonstrated that the U.S. and Canadian Holiday Inn hotels where managers followed through on promises and had behavioral integrity were more profitable.  “Where employees strongly believed their managers followed through on promises and demonstrated the values they preached were substantially more profitable than those whose managers scored average or lower.  So strong was the link, in fact, that a one-eighth point improvement on the five-point scale could be expected to increase the hotel’s profitability by 2.5% of revenues – in this study, that translates to a profit increase of more than $250,000 per year per hotel.  No other single aspect of manager behavior that was measured had as large an impact on profits.”)

 

Effectiveness

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 2.

(“Jeffery Pfeffer, professor of organizational behaviour at Stanford University, discovered the indispensability of trust.  In the book, Leader to Leader, he outlines the three basic principles leaders use to transform their organizations:  build trust, encourage change, and use appropriate measures of performance.  Warren Bennis, one of the most published authors on leadership, concurs that the underlying issue in aligning people with goals is establishing trust.”)

(A study by Royal Dutch Shell pointed to four characteristics common to companies with life spans of 200-700 years.  Trust is essential to producing the latter three (Hacker claims only the latter two) of the four: 

1.          They are financially conservative (risk management);

2.          They demonstrate sensitivity to the world around them [Note: Trust Enablement™ is predicated on the requirement that organizations be sensitive to the levels of trust required by their stakeholders];

3.          They create a sense of cohesion and identity; and

4.          They limit central control and exhibit tolerance for activities in the margins.

“To ensure effectiveness, then, leaders must instill a climate of trust in order to innovate and transform as the environment dictates.”)

 

Productivity

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 6.

(“In 1994, Federal Express and IDS both increased their productivity by up to 40 percent by creating empowered work teams trusted with many of the responsibilities traditionally held by managers.  Trust is the key pillar that supports empowerment and cooperation within organizations.”)

Hart, C. W., and Johnson, M. D. (1999) “Growing the trust relationship”, Marketing Management.

(“The value of trust was demonstrated in a study reported in HBR and conducted by Jeffrey Dyer of the University of Pennsylvania's Wharton School and Wujin Chu of the Seoul University School of Management….  The U.S. automaker that suppliers scored lowest in trust spent roughly 50% of face-to-face time negotiating price or assigning blame for problems, as opposed to the automaker scoring highest in trust, where only 25% of the time spent was on these relatively unproductive activities. Similarly, the volume of purchases handled by the highest trust automaker was double that of the manufacturer who was least trusted. Trust relationships pay off in tangible ways.”)

Chami, R., and Fullenkamp, C. (October 1999 - July 2001 version) “Trust and Efficiency”, Social Science Research Network Electronic Paper Collection.

(“When employees who work together trust each other, they exert more effort in their jobs and expend less effort monitoring each other.  This leads to increased productivity, lower costs, and greater satisfaction for workers as well as shareholders….  It is in every corporation’s interest to consider developing a culture of trust as a way of improving performance.”)

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 4.

(“La Porta, Lopez-de-Silanes, Shleifer, and Vishny describe a significant positive correlation between trust and performance.  Simply put, trust promotes performance.”)

Ezekiel, Z. (2005) “Rebuilding Trust in Canadian Institutions”, The Conference Board of Canada.

(“Decreased public trust often translates into increased scrutiny and regulation. Some U.S. commentators have expressed concern about the cost of complying with the Sarbanes-Oxley Act of 2002. However, the Act (along with similar initiatives here in Canada) was a response to a perceived need to rebuild public trust in capital markets following scandals such as Enron and WorldCom.”)

 

Change

Shaw, R. B. (1996) “Trust in the Balance”, pp. 3, Jossey-Bass Inc.

(“Trust increases the likelihood of successful change.”)

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 5.

(“Conclusions reached by Horst Kern support the notion that “when employees distrust the commitment of their organizations, they fear that innovation might result in job changes or, worse yet, downsizing.”)

Breen, B., and Dahle, C.  (December 1999) “Trust for Change”, Fast Company.

(A Ford Motor Company study of getting people to work together on change found that the average time to execute a change took 89 weeks.  They calculated that 39 of those weeks were a direct result of distrust, because of people sitting on information or refusing to share ideas.  “Trust equals speed.  Once people have stopped worrying about what the other guy’s agenda is, you can make changes much more quickly.”)

Ezekiel, Z. (2005) “Rebuilding Trust in Canadian Institutions”, The Conference Board of Canada.

(“Distrust can stall the launch of new initiatives, policies and products. Consumer distrust of biotechnology and biotechnology companies, for example, has forced delays in the launch of various products, including bioengineered sugar beets, potatoes and wheat.”)

 

Innovation and Entrepreneurship

Volken, T. (2002) “Elements of Trust: The Cultural Dimension of Internet Diffusion Revisited”, Electronic Journal of Sociology.

(“Trust fulfills various and important societal functions. Most importantly for our concerns here, it facilitates innovative actions…. Trust, one can summarize, is of fundamental importance for the diffusion of a new technological style in the knowledge society…. At the same time, trust substantially reduces transaction, control, monitoring and enforcement costs and therefore makes available more resources for productive use. Innovative networks with a high level of trust tend to reinforce not only the innovate capacity but also trust….  Trust as a cultural resource raises the overall innovative capacity of a social system, since it allows economic and also political agents to take advantage of their extended potential for action”)

Keser, C., Leland, J., Shchat, J., and Juang, H. (2002) “Trust, the Internet, and the Digital Divide”, IBM Research Report.

(“Our results suggest that trust does, in fact, influence Internet adoption.  Since low trust countries tend to be low or middle income countries, this will result in a digital divide between these countries and higher-trust, higher-income ones.”)

 

 

Efficiency

Shaw, R. B. (1996) “Trust in the Balance”, pp. 135, Jossey-Bass Inc.

(“High trust organizations rely on fewer controls of a more strategic and critical nature”)

Fukuyama, F. (1996) “Trust:  The social virtues and the creation of prosperity”, pp. 258-268, Free Press Paperbacks.

(The Lean production system, a system that is cheaper in terms of total capital costs and more productive per unit of capital than mass production “that constituted such a powerful boon to productivity that it was soon analyzed and copied by other countries, is founded on the principle of high-trust being shown in the lowliest assembly line worker.)

Fukuyama, F. (1996) “Trust:  The social virtues and the creation of prosperity”, pp. 342, Free Press Paperbacks.

(“Lean manufacturing is perhaps the clearest example of the efficiency gains that can come from the proliferation of network structures in the context of a high-trust society.”)

 

Cost Savings

Peppers, D., and Rogers, M. (October 2004) “Intel Measures Trust to Grow its Business”.

(“The research showed that Web site improvements drove trust values up, which in turn positively affected the number of downloads and saved Intel millions of dollars in customer-support costs.” When navigation aids and assistance tips were added “successful downloads increased by 6 percent, trust by 3.5 percent and satisfaction by 4.5 percent, according to Bryan Rhoads, Intel Web Strategist.”)

 

Sustainability

Anders, G. (November 2001) “Business Fights Back:  eBay Learns to Trust Again”, Fast Company.

(“So strong is eBay’s hold, say some observers, that the only force capable of stopping eBay is eBay itself.”)

Accenture (2004) “The business of trust”, white paper referencing the World Economic Forum.

(“Such a decline could never be good news, but it is particularly worrying today because new ways of doing business depend on high trust levels. The emergence of what Accenture has termed the ‘Connected Corporation’, with its permeable boundaries and complex web of links to other people and organizations, places great emphasis on the establishment and maintenance of relationships, and of a highly collaborative approach to business.

Without trust, customers and suppliers would be reluctant to do business with people they had never met (a major problem in this Internet-enabled age); employees would be nervous about working collaboratively with people from the other side of the world, some of whom could even be employed by their competitors; shareholders would be nervous about investing in businesses about which they did not have a deep personal knowledge; and leaders would not give employees the necessary freedom to behave in an entrepreneurial way.

Business today also needs the trust and confidence of society to operate successfully. Without this, governments are likely to regulate to limit companies’ freedom of action, which may in turn constrain the entrepreneurial spirit. In these tough times, it is especially important for business to have the support of government and indeed society at large.”)

 


Employee Attraction and Retention

Hacker, S. K., Willard, M. A., and Couturier, L. (2002) “The Trust Imperative”, American Society of Quality, pp. 6.

(A client of Hacker and fellow authors purposely designed a highly engaging and empowering work environment as a strong value proposition for attracting talent, which resulted in the lowest turnover in the Portland metropolitan area, even though they ranked in the middle of the area’s salary range.)

Armour, S. (February 5, 2002) “Employees’ new motto: Trust no one”, USA Today, published by Council of Public Relations Firms.

("Employees are scrutinizing their own firms. Management experts say workers will become less naive about their own company's finances and missions after the harrowing Enron headlines. More will ask questions and cast a critical eye on their own CEOs.

’Executives are looking out for the good of major shareholders, not employees,’ says Kusner, 33, in Denver. ‘It's hurt trust. People who lived through the Depression are frugal. This could have the same kind of lasting attitude change.’

The breakdown is having ramifications. Anxious employees are swamping financial counselors to learn about protecting themselves from worst-case scenarios. They're negotiating severance and outplacement help before they take a job, taking new steps to provide their own golden parachutes. And they're watching CEOs with a wary eye, putting top executives on the hot seat and demanding more communication from their companies.

The distrust is widespread. Only 10% of adults surveyed think corporations can be trusted a great deal to look out for the interests of their employees, according to a USA TODAY/ CNN/Gallup poll.

For companies, this is more than mere inconvenience. This goes to the bottom line. Employers who fail to restore workers' faith risk costly defections: Studies show lack of trust is a top reason employees quit.  That's troubling news to companies now dogged by accusations of impropriety, because the breakdown of trust is making it tough to keep and retain top talent just when it's needed most”)

("Corporate greed has never been seen on a scale that we're seeing now," says Mike Olson, CEO of Washington, D.C.-based American Society of Association Executives, which promotes voluntary associations. "Employees are going to ask more questions and become more involved in learning about their companies' finances.  Companies are going to have to deal with that or find themselves at the end of the line."

Workers are worried about their own finances. Reports of retirees taking hits to their 401(k) plans or losing severance packages have employees trying to determine -- and reduce -- their risks. It's a seismic shift from the dot-com heyday, when the focus was on which company would offer the potential for fast riches. Now it's all about which will guarantee safety.

And job seekers are protecting themselves: More than 60% of job hunters say it's important to negotiate severance agreements upfront, according to online recruiting service TrueCareers. Forty percent already research severance and outplacement assistance before talking to a company about a job. Workers concerned about their own financial security in light of Enron are swamping advisers and counselors with questions. ComPsych, a Chicago-based employee-assistance provider, has seen a 35% jump in calls the past three months from workers citing financial issues as a source of stress.”)

 

Stakeholder Engagement

Ezekiel, Z. (2005) “Rebuilding Trust in Canadian Institutions”, The Conference Board of Canada.

(“Increased trust translates into an increased ability to present the perspective of the organization to important stakeholders. A study by the Institute On Governance found that companies regarded as ‘exemplary’ by senior public officials enjoyed ‘easier access to government and a more relaxed dialogue with public officials; greater willingness on the part of public officials to listen seriously to the company’s views . . . ; advance insights into early stages of government thinking on policies, regulations, etc.; . . . [and] invitations to provide input into policy making that go beyond formal consultative processes.’  Many of the criteria used in the study to define ‘exemplariness’ were related to trustworthiness….”)

(“Distrust by important stakeholders—such as the media—can have dire consequences for organizations. Journalists interviewed for this study noted that, once an organization has lost public trust, the media tend to pay closer attention to it. ‘Sometimes there’s a designated target and everybody piles on,’ said one. ‘Once a scandal gets rolling there is a tendency for everyone to bring their spade and start digging.’”)

 

Values

Van Lee, R.; Fabish, L.; and McGaw, N.(2004) “The Value of Corporate Values”, Strategy + Business, 2004 Booz Alen Hamilton and Aspen Institute global study on values-based leadership.

(Johnson & Johnson, “the pharmaceutical company is famous for its Credo, which was written many years ago and reflected the sincere values of the leaders of the company at that time. The J&J Credo could be considered rather quaint by today’s standards. It contains several old-fashioned phrases, such as “must be good citizens — support good works and charities — and bear our fair share of taxes” and “maintain in good order the property that we are privileged to use.” It lacks the slick PR packaging that I observed at Enron.  Yet, even with its less-powerful language and seemingly dated presentation, the J&J Credo works — primarily because over many years, the company’s management has taken the values that it offers seriously. J&J executives have consistently challenged themselves and employees not just to understand the values, but to live them in day-to-day behavior. When I conducted leadership training for J&J, one of its very top executives spent many hours with every class. The executive’s task was not to talk about compensation or other perks of J&J management; it was to discuss living the company’s values.”  Note:  Employees trust J&J’s commitment to their values.)

 

Privacy and Customer Relationship Management (CRM)

Giardano, C.; and Ponemon, L. (2005) “2005 Permission Management Study Canadian and U.S. Results”, Ponemon Institute.

(“Consumers are willing to share more personal information about themselves with marketers when they have a trusted relationship.”)




 



 


Peppers & Rogers Group Consulting

"Trust is embedded in every customer transaction. The key to success is understanding how to build on that cornerstone to meet customer and company goals alike." According to Christopher Helm in his article entitled "The dollars -- and sense -- of a trusted agent" Cached


Trust From Socrates to Spin"Polls record levels of trust in politicians, businessmen, scientists and others that are at all time lows: a crisis in trust is currently gripping Western culture... trust is the big issue of the 21st century" According to Kieron O'Hara in his book "Trust From Socrates to Spin".


Accenture"public confidence in business is declining across the developed economies." According to Accenture's 2003 report "The Business of Trust" Cached


Golin/HarrisAn America that is cynical or skeptical about business generally is a serious problem – more serious than any specific business scandal,” said Rich Jernstedt, CEO, Golin/Harris International. “Corporate misdeeds – or even perceptions of wrongdoing – cause direct and collateral damage to business as a whole, not only to specific industries. The erosion of trust indicated in the research is a call to action. And it must be heard loud and clear. Cached


World Economic Forum"non-governmental organizations (NGOs) are the most trusted and global companies are least trusted of the seven institutions tested." According to the World Economic Forum's "Global Survey on Trust: Updated 2004". Cached



 

 

 

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