No Rules, No Trust: How Accountability Shapes Communication
In this episode, Anat Admati explains why we can’t build trust without a solid foundation of rules.
Communication is like a game: for it to work, each person has to trust that their partner will play by the rules. And as Professor Anat Admati says, the same is true for corporations and their stakeholders.
“To have good governance, you need trust and accountability,” says Admati, a professor of finance and economics and the director of the Corporations and Society Initiative. How does a society ensure that markets, businesses, and governments are all on the same page? As Admati says, “We need rules. I can commit to you that I won’t harm you because something bad will happen to me if I [do].”
In this episode of Think Fast, Talk Smart, Admati joins host Matt Abrahams to discuss how communication forms a bedrock of trust that can align markets, businesses, and governments — for more accountable capitalism and a healthier society.
Matt Abrahams: Trust is foundational to relationships and communication, and you can’t have trust without rules. My name is Matt Abrahams and I teach Strategic Communication at Stanford Graduate School of Business. Welcome to Think Fast, Talk Smart: The Podcast.
Today I am super excited to speak with my friend and colleague Anat Admati, who is a professor of Finance and Economics at Stanford GSB, and the director of the Corporations and Society Initiative. Along with Martin Hellwig, Anat co-wrote the award-winning and highly acclaimed book, The Banker’s New Clothes: What’s Wrong With Banking and What to Do About It. She teaches a number of courses including Power and Finance and Is the Internet Broken, which led to a cameo to the TV show Silicon Valley. Welcome, Anat. I look forward to continuing our coffee chats here on the podcast.
Anat Admati: Thank you. It’s really great to be here.
Matt Abrahams: Let’s jump right in. I have watched and listen to you teach and present in a variety of venues from classrooms to congress. You have a superpower; you are really good at taking detailed, complex, and sometimes convoluted concepts and making them understandable to the average person. How do you do this?
Anat Admati: I realize that I actually had to do that, or I would just go back to my cocoon in academia. Basically, I got myself into a political discussion about banking regulation just by looking at what’s going on, watching the news, and listening to what people say, and then saying, “Wait a minute, I’m a corporate finance professor. What are they saying? What are they doing,” after the financial crisis of 2007 to 2009.
And so, it really was like, oh, I must’ve lived in some bubble. But as I came out of my bubble, I started interacting first with people I know better, which is the academics, and then going to the policymakers. And so, that was the beginning of this journey. And then it was clear. After a few years of this, trying to talk to these people, is just not going to get what I want.
So, I had to then find ways to communicate more broadly because that was the only way to make progress. If you leave this problem of banking to the people involved, and that includes both the people in banking themselves and the people in charge of supposedly keeping us, protecting us, from any problems in banking, you won’t make progress. And that’s why I had to find ways to communicate more broadly.
Matt Abrahams: So, it sounds like you were motivated by your mission. What are some of the things you learned as you moved to the broader audience that you now communicate with that have helped you communicate better?
Anat Admati: What I learned was that I actually really had to start where they are. Because the issues are a little bit complicated, but not that complicated. So, it’s not rocket science, as they say. So, deposit, everybody understands what it is. And then you go from that. Or everybody takes a mortgage, so everybody can understand about mortgages.
So, if you start from that and then you take them into what’s a corporation, what’s a balance sheet, what’s a bank, what’s a bank run, all of those concepts that they may have seen in a movie someplace or they heard something in the news, and then you try to connect from where you started to the current events. And it’s possible to do. It’s not that hard. It does take more than a sentence or two sometimes, but it’s doable completely because it’s really not that hard.
And then once you give the analogies to things, things related to safety. Do we have a building code? Do we have a speed limit? Do we have this role or that role? Then even in the broader context of, oh, we hate regulation or capitalism, socialism, all these things we might get to later, you can make progress.
Matt Abrahams: So, first you have to meet people where they’re at and then scaffold based on concepts and understandings that they have, and leveraging analogies, I think, is really powerful.
Now you often have had to argue for unpopular positions held by very powerful and entrenched people. What have you found works to move people towards your perspective or point of view?
Anat Admati: Well, it’s the communication that we just talked about. In other words, making them really understand what you’re saying. Because people easily get confused by these things. There’s obviously a lot of communication on the other side. So, there are armies of communication professionals who are propaganda, marketing, whatever you want to call it, is rampant. So, you’re trying to maybe unpack some of what they hear.
And so, that’s the real challenge. Especially if you’re challenging people with a lot of resources to get the views that they have into people’s heads, what happened to the power of truth? And of course, I come from education, so I care about truth. But when you get to the political domain and people say stuff, where do you start to communicate with people starting with something that you can maybe agree on and going from there?
Matt Abrahams: So, when faced with being the David to the Goliath in these arguments, it sounds like finding a place to agree as a starting point and really having your understanding of what you want to get across is critical. I think one of the advantages you have and why you have been successful to some extent is because you come to this as an educator and understanding that there’s some foundational principles.
Anat Admati: So, you do need to be an expert and have actual expertise so that you know what you are talking about, and then you need to try to get that through. Now the challenge if you’re saying things that powerful people don’t like is that some of them won’t engage at all. So, you’re just not getting emails, talking into the wind. And so, the issue is actually finding people to engage with. And that became a little bit more difficult as memories of that crisis receded. And it’s becoming a little bit easier right now because all of a sudden banking is in the news again.
Matt Abrahams: Well, I hope you do lean in because you do have a lot of value to bring to this conversation, and persistence sometimes can lead to good results.
Anat Admati: I hated along the way to be worn out by the other side and to just say, “Forget it,” because that’s what they want you to do. They want to wear you out. They have more persistence and more money to maintain their narratives. As a sort of advocate for the public with none of my own interests and just trying to help, I realize the limits of my power.
Matt Abrahams: I’m glad that you’re getting the microphone again. I know you stand for transparency and clarity in finance specifically, but communication more generally. Why is this so important to you, and what can each of us do to support your goals of transparency?
Anat Admati: So, first we need to know stuff. And I think part of the strategy of people in much of the world who cause harm, and sometimes for the kinds of objectives that we teach in a business school, is to obscure the facts.
And so, I really value investigative reporters and I try to view myself as well and tell my academic friends that we really are here to speak truth to power and to try to find that truth. Now that involves finding facts, but you have a lot of powerful people using their money to hide what happened. I mean, look at Harvey Weinstein. Read Catch and Kill. He intimidated the media, and he got his misconduct hidden.
Matt Abrahams: In these recent vents that we have with Silicon Valley Bank and now First Republic, I’m curious, what are your thoughts on the role communication played, or the lack of communication, and how has social media played out in all of this?
Anat Admati: Communication in banking is a lot about narratives. So, we had a financial crisis and what happened? So, I often start by saying, well, Jamie Dimon — famous guy, especially today — said to his daughter that a crisis is just stuff that happens. Then you have other narratives that say, “Oh, it was just a liquidity run like in the movie It’s a Wonderful World. And look at it, the social media version of it. Instead of people clamoring to get in the door of the bank, we have all these social media messages and all these mobile banking, and look at the speed of it,” and all of that.
So, it’s the modern version of Mary Poppins. Rumor gets everybody to run to the bank and want their money out. And certain people like that story because if that’s the story of what happened, then, “Oh, we should just insure all depositors. We should just keep everybody home so they don’t run.” But the problem is not this. And this is an effort to divert the discussion from what the problem really is. The problem really is reckless management and bad rules and bad enforcement of rules. So, it’s the governance that failed.
Matt Abrahams: But that’s not the story we’re hearing.
Anat Admati: That’s not the story. If you hear only about a run and how they needed to meet payroll and they needed insurance for that reason, people who left billions there without looking at whether they were safe or not, then the solution is always to just allow in certain corporations in this economy to do whatever they want with our money.
Matt Abrahams: How do you begin to change the narrative? How do you get that narrative out? What’s the story you’re telling, and who are you telling it to?
Anat Admati: I want to tell it to the public. I want to tell the public, “Let’s go to the actual problem.” The people who wanted to pull their money out of SVB didn’t just get up in the morning and decide to do this. The reason for it was the money was not safe. They had reason to do this.
It wasn’t just because they were afraid other people were doing it, which is sort of the classic panic runs that can take down a good bank. No, this was not a good bank. This was an insolvent bank. They showed their weakness because they tried to sell some of their assets, which were just government bonds. And it wasn’t like an illiquid market. It was just a market in which their bonds were worth less than what they paid for them.
And then they tried to raise more equity because that would help them pay their debts and cover their deposits, and they couldn’t. If you’re not able to raise equity, that’s a huge flag. They have these stupid stress tests they run. That’s a market test that any corporation that wants to not be in bankruptcy should pass. Now they might not like the price they get for their equity if they lost a lot, but it’s maybe the right price.
And so, I by now studied extensively, in my corporate finance theory hat, the dynamics of indebtedness for corporations. It’s just very addictive. And in banking, the way we have the system is feeding and enabling the addiction to living on only debt.
Matt Abrahams: It seems to me that what I’m hearing you say is the way you change the narrative is you go back to the roots or the cause and you make it very clear to people so that they can understand what’s really going on. It sounds also like part of what’s helping you be successful is that you’re making it very personal for people to understand that it’s about safety, it’s about security, it’s about honesty.
Anat Admati: The scary thing right now is we’re getting the biggest banks to be bigger, and they are inscrutable. We were told after the financial crisis that there won’t be any more bailouts. The public was very angered with the bailouts. Crypto, other phenomenon, all the public anger that got diverted by all kinds of people through means of communications, diverted away from where the problems actually are.
And so, during COVID, there was a lot of obfuscation again because, oh, people were saying, “Look at the system and how it’s doing.” What? You can do well if there’s money thrown all over the place and you take little bits of it because you sit in the middle of it. So, it doesn’t mean anything about the regulation.
And so, in our new edition of the book, we unpack all of that and go a lot deeper into the devilish details in ways people can understand, in the ways of talking about why no executives went to jail, all the things that animate people about the crisis, which are less deregulation. And all the post crisis movies, especially if you talk about communication — not necessarily all the books but the movies — we’re going only to that anger about greed and recklessness and getting away with it, which is legitimate anger.
Matt Abrahams: I look forward to the new edition of your book. It sounds like it’ll be quite the decoder ring to help us understand.
In your work with the Corporations and Society Initiative and the teaching of your Power and Finance course, you illuminate several important concepts and constructs you think everyone should know. Can you share one or two of these? And I’ll give you extra credit if you highlight the role of communication in at least one of them.
Anat Admati: Okay, so the main theme of my teaching is always governance. And it’s kind of a framework which just basically talks about power, information, and incentives, who’s making decisions, what is it that they know, what are their constraints, what motivates them to do it, and then how is it working out. So, that’s a governance framework that just helps you think through every situation, just about.
And then in order to have good governance, you need trust and accountability. So, let’s just take the trust because we already discussed accountability.
Matt Abrahams: Yes.
Anat Admati: What makes something trustworthy? You have to be genuine. You have to maybe look people in the eye. You are completely impartial to the situation, and then you’re able to actually say something that the listener gets, then that’s how you become worthy of their trust. Now for institutions, how does an institution, how does a government —the courts, the Supreme Court, whatever — be trustworthy? So, there are all these tests of do you trust corporations, corporate leaders, politicians, all of that.
Matt Abrahams: Absolutely, governance is important. And I love how you use it as a way of setting frameworks and ways of thinking about how we in a society interact, and trust is absolutely essential. And the point you made about not having a vested interest can help establish that.
Anat Admati: But let me say, if you have an interest, it doesn’t mean that it’s bad. I can trust a company. So, sometimes you can have a mission statement or a promise, but talk is cheap.
Matt Abrahams: Yeah.
Anat Admati: So, how do I commit to you? So, one of the other words is commitment, commitment and accountability. So, have three words: trust, commitment, and accountability.
So, where’s the commitment part come in? I can commit to you that I won’t harm you because something bad will happen to me if I harm you. That’s why we need roles. So, how do I promise you that you can trust me? You have to have a mechanism to commit to not harm the other person, and then you can be trustworthy. So, I bring in rules as a way to create trust. So, if you own the rules, that’s the ultimate power. And that’s the problem in banking, among other things.
Matt Abrahams: I love how you brought communication as well as accountability, trust, and rules all together so clearly. Well, you know that we end every one of these podcasts with the same three questions, and I would love to hear your answers as we go through these. So, for the first question, Anat, if you were to capture the best communication advice you have ever received in a five- to seven-word presentation slide title, what would it be?
Anat Admati: I’d say know your audience and meet them where they are. You’ve probably heard this before, but it is really the best one.
Matt Abrahams: We hear know your audience a lot. The added meet them where they’re at is really important, and you certainly have embodied that in the work that you have done. And so, it’s one thing to say it; it’s another thing to sit down with somebody who you can see very regularly do it.
Question number two: who is a communicator that you admire and why?
Anat Admati: There are a lot of good communicators around, but the admire part was a little harder for me because there are not as many. So, I found kind of a — it’s almost too obvious an example, but it still is a good one — and that is Martin Luther King. He is certainly admirable as a communicator. I mean, there’s no question about that. And the more you look, the more you realize just how effective he was, how persistent he was, and how passionate he was, and how he was able to mobilize his audiences whether in writing or in speaking. And so, I admire him for the communication, but especially for the cause: he wanted justice.
Matt Abrahams: And he deployed so many of the techniques that we’ve talked about previously in terms of knowing the audience, using analogies, connecting and scaffolding. Very, very wise choice, for sure.
Question number three: what are the first three ingredients that go into a successful communication recipe?
Anat Admati: Two of the three we said in the beginning: understanding very well what you’re saying, including your own shortcuts and implicit assumptions. Because you will be better when you truly understand what you’re saying. Second is, again, meeting audiences where they are. And third is the issue. I think it’s important to stick to the issues and really avoid ad hominem. And people do go ad hominem and try to discredit a person.
Matt Abrahams: So, knowing your content and the biases you bring to it, really understanding your audience and meeting them where they’re at, and focusing on your message and your purpose without getting distracted. Those are absolutely three essential ingredients, I would argue.
Well, Anat, I knew this was going to be fun, and I knew we were going to learn a lot. And I wish you were just more passionate about what you do. It is a true experience and a lot of fun to always chat with you. Thank you for the insight you gave, thank you for the work you do, and thank you for sharing with us some really key communication takeaways.
Anat Admati: Thank you very much for having me.
Matt Abrahams: Thanks for joining us for another episode of Think Fast, Talk Smart: The Podcast from Stanford Graduate School of Business. This episode was produced by Jenny Luna, Michael Reilly, and me, Matt Abrahams. For more information and episodes, visit gsb.stanford.edu, or subscribe to our show wherever you get your podcasts. Finally, find us on social media at StanfordGSB.
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