June 1993

Trust

by Joel C. Peterson

Few business leaders would be shocked to discover that a salesman had "puffed" a product's capabilities, an employee had padded an expense account, or a clerk had overcharged a customer. But they should be concerned. By failing such simple tests of trust, businesses often find themselves sapped by internal cynicism, turnover, and regulation; embarrassed by the press; or threatened by costly and reputation-damaging litigation.

Having negotiated billions of dollars in transactions over the past 20 years, I have observed firsthand that trust is the lubricant for successful negotiations. High levels of trust between negotiators generally ensure fairer results, reduce the costs of resolving differences, and enhance the durability of any agreement. In an atmosphere of trust, people are much more likely to optimize, compromise, and move quickly to agreement. Equally important, they can deal effectively with unforeseen, but sure-to-arise, events that occur after formal negotiations are over. If trust levels are low— worse, if trust has been broken— invariably degenerate into positioning and hard-bargaining, ensuring suboptimal results for everyone. Only by understanding its dynamics can leaders build trust, maintain it, and restore it when broken.

We trust when we believe others will act in our best interests. To allow others to act for us we count upon their integrity, their respect, and their ability to deliver on promises. When all conditions are present, trust develops effortlessly, reflexively. When any of them is absent, wariness grows naturally.

Trust has two basic forms: reciprocal and representative. Reciprocal trust is found where people advance each other's interests out of duty, love, or enlightened self-interest. Most prevalent between spouses and family members, mutual trust is, however, occasionally found between truly interdependent business partners or professional colleagues. As on a relay team, combined performance generally far exceeds any individual member's best effort. In reciprocal trust relationships, advancement of individual interests is a by-product of devotion to the common good.

Representative trust, on the other hand, is the more common form of reliance on others. When electing officials or hiring a salesman to represent us, we hand over our trust, merely asking that it be honored in return. For example, young children rely on parents to represent them. Parents, in turn, honor the child's simple faith by protecting its interests. Similarly, doctors, lawyers, government representatives, and other professionals honor our trust by protecting our interests, asking only that we provide good information. This uneven economy of stewardship makes possible the specialization needed to achieve complex common goals.

But trust has a common counterfeit. Many people approximate trust by aligning with others who are un-abashedly looking out solely for themselves. This strategy has at its heart coincident interests— common principles. Like Mafia dons living by mutual dependence on fear, greed, and selfishness, those who choose this approach are in reality governed by mutual mistrust. They must expect eventual betrayal when interests diverge. Unfortunately, this rather pessimistic view of human nature all too often forms the basis for contractual economic relationships. As a governor of short-term actions, the pseudo-trust of aligned self-interests has a certain temporary utility. As a basis for long-term and interdependent gain, however, it has little to offer.

Whether consciously or not, we all evaluate the trustworthiness of those who lead us. Our evaluation is vital to our commitment. To better evaluate the people and systems in your organization, consider the ten aspects of trust that follow. Read the questions and assign scores from 0 (where never true) to 10 (where always true). At the end, add up your score to determine whether yours is a high-, medium-, or low-trust environment.

Integrity
A leader's character has more impact on trust than any other single factor. Some leaders try to compartmentalize their lives into private and public areas, filing violations of personal trust under the private label. Leaders who violate commitments to family, friends, or close associates are unlikely to enjoy an enduring trust with suppliers, customers, and employees. Long-term public trust simply cannot be sustained above that warranted by private, personal integrity.

Your answer to this first question will determine many of your other responses. First, only trustworthy leaders are likely to develop trust-building processes. Second, no matter their competence, charisma, or command, leaders inspire trust only to the level of their personal integrity.
Are your leaders above reproach in their professional and personal lives?

Respect
Trust depends more on the value placed on individual human beings than on management techniques or policy statements. Watch how organizations treat those over whom they have dominion (or from whom they have nothing to gain). It is dealings with suppliers, competitors, and even critics that count. If these interactions reflect consistent, genuine interest, employees may trust that their hopes will not be considered trivial. If leaders engage in people-bashing— or outside an organization — those spared the attacks will have reason to mistrust.

Empowerment
Does your organization respect all who deal with it?
Trust-rich organizations expect people to do— to become— best. They encourage people to focus more on fairness than legalities, more on sharing than advantage, more on action than analysis, and more on the future than the past. With these enabling attitudes comes authority to act.

By contrast, mistrustful organizations are preoccupied with keeping people from doing their worst. In trust-poor enterprises, heavy reliance on the paraphernalia of paranoia (policy manuals, compliance committees, rule books, legal departments, and tattler rewards) ensures there will never be a spontaneous outbreak of trust.

Responsibility = Authority = Accountability
Does your organization empower and expect people to do their best?
Environments that trust people to perform require a framework where authority assigns responsibility and actions are measured. For example, baseball players are given responsibility for getting hits. To meet this responsibility they are provided bats and a position in the lineup. Batting averages and RBI totals measure their productivity. In this way, hitters are consistently assigned, empowered, and measured.

It would be silly for a manager to hide the bats and still demand hits (no authority) or refuse to let his players see their batting averages (no accountability). Yet trust-poor organizations often do just that. When responsibility, authority, and accountability are not in sync, finger-pointing invariably supplants accountability and politics replaces measurement.

Vision
Does your organization match responsibility, authority, and accountability?
Where trust flourishes, a dream in which everyone has a stake is the driving force behind the enterprise. A mission statement is not a guarantee of mission. Many trust-poor organizations have mission statements that exclude significant stakeholders or are merely promotional. Other organizations destroy trust by acting before their mission is given texture, color, and animation through the process of building it from the bottom up. Without a mutually developed common good, narrow issues and political maneuvering rush to fill the natural vacuum.

Communications
Are members of your organization inspired by its mission, and are dealings within the organization consistent with it?
Trust-building organizations tell the truth. They tell it simply, persuasively, and competently. Truth-telling requires thought, then communication, action, and communication again. While deeds, of course, communicate most persuasively, trust-building leaders inform often and well. They inform before, during, and after important events. They report unpleasant news as openly as they celebrate success.

Sacrifice
Does your organization communicate frequently, clearly, and broadly?
Trust-rich organizations require sacrifice because it is the only way to use limited resources to achieve the common dream. By contrast, leaders in trust-poor organizations try to keep the peace on their watch by meeting demands of its most powerful constituencies. Compromising the common vision to gain the support of the most vocal or powerful destroys trust.

Budgets
Does your organization ask people to sacrifice to meet common goals?
Because budgets reveal an organization's real values, trust-rich organizations share and explain their budgets. Only by doing this may people understand why important things were sacrificed for necessary things. In trust-poor organizations, budgets are secret documents because leaders either fear conflict or are acting in ways that are inconsistent with the stated mission of the organization. They have failed to recognize that budgets often generate conflict, whether they are kept secret or open. The difference is that where budgets are shared, people may learn to trust. Where budgets are kept secret, there is no opportunity to overcome conflict, mistrust, and cynicism.

Conflict
Are budgets shared and discussed in your organization?
Healthy organizations are frequently the noisiest ones. To the outsider, they may appear conflict-ridden. On the inside, however, working through friction in a spirit of mutual trust, ideas are sparked, wrong-headedness is corrected, differences in values are discovered early, and mutually beneficial solutions are created. Trust-poor enterprises, on the other hand, often enjoy the superficial peace of a hospital or a prison. Just below the surface brews suffering or conflict. Deprived of the information that comes from expressing disagreement along the way, they suppress and punish conflict, resolving differences in destructive ways.

Humility
Can people comfortably disagree in your organization?
Organizations that seek to appear invincible to their members put off their members in the same way that smug, self-righteous people put a trust-defying distance between themselves and others. Just as shared vulnerabilities often bond us as human beings, the realization of shared dependencies on forces beyond the organization generally build trust. Talking about external market forces, interdependence on others, and even about vulnerabilities and weaknesses builds trust. Hiding problems or sugar-coating them isolates the leaders of trust-poor organizations.

Scoring
If you have assigned more than 75 points to your enterprise, yours is a trusting organization, led by profoundly trustworthy and empowered leaders who have reverence for others and who have established trust-building and -restoring processes. Be grateful.

If you have allocated fewer than 25 points, yours is a suspicious and confining organization. It is unlikely to prosper in the long run unless new leaders are found—. Almost certainly its present leaders have already resorted to primitive appeals to fear and greed and to manipulation of information to "manage" people. With this score, it is unlikely that a common vision inspires its members. Leading its separately tracked individuals in a single direction is a lot like herding cats. Frantic efforts to do so may only result in a further loss of trust, ending in some form of business-crippling scandal. One may safely predict that high turnover, conflict, financial problems, and decline will soon plague this organization. If new leaders are to be successful in restoring trust, they must replace the untrustworthy, remove the machinery of mistrust, and commit to a process that will be long, demanding, and testing of the character and discipline of all.

If your organization scored in the middle, it is important to know that trust not only can be repaired, it must be repaired. No organization can long survive trust's degeneration into mistrust. Evaluating trust's status is vital. Understanding, repairing, and keeping trust are a leader's essential duties.

About the Author

Joel C. Peterson, lecturer in management, is founder, CEO, and chairman of Peterson Interests, Inc., an investment and management advisory company. Peterson was formerly the national managing partner of Trammell Crow Company and president of Trammell Crow Residential. A member of the GSB Advisory Council, he sits on a number of boards, including the President's Roundtable of Brigham Young University, his alma mater. Peterson received his MBA from Harvard Business School.