The Economics of Trust
By Noreen Kelly | July 15, 2008
The 2008 Shift Report: Changing the Story of Our Future, published by the Institute of Noetic Sciences, describes research in the emerging field of neuroeconomics related to the economics of trust.
In his essay, “The Neuroeconomics of Trust,” Claremont Graduate University professor of economics Paul Zak, outlines new research showing that, on average, we are predisposed to trust and cooperate with others, even when doing so puts us at financial risk. The experiments revolve around “the trust game,” in which participant A is given an opportunity to transfer a portion of money to participant B, who automatically triples the amount that A sent. While doing this, A knows that B will have an opportunity to reciprocate the gesture by”sharing the winnings” with A.
“The traditional view in economics is that individuals respond to incentives, but absent strong incentives to the contrary, selfishness prevails,” Zak said. However, research showed that over repeated trials, in 75 percent of the cases, A will transfer money to B. This action demonstrates that A trusts B to do the right thing and share the increase. Furthermore, in 90 percent of the cases where participant B was trusted, B returned some of the money to A.
These findings reveal both our innate predisposition to trust, and provide an opportunity to examine how trustworthy we are - or are not.
The trust game used by Zak in his experiments is a classic example of a “nonzero sum game.” Evolutionary theorist Robert Wright argues convincingly that the history of human cultural evolution can be seen as the result of our ever-increasing willingness to play larger and larger nonzero sum games, in other words, to cooperate across larger and larger circles. “The simple truth,” Wright said, “is that, more often than not, it pays to work together.”
Topics: High trust, Trust | No Comments »
Common Lies Companies Tell Themselves
By Noreen Kelly | July 7, 2008
“I have seen great ideas wither and die because companies tell themselves lies that are ingrained in their corporate makeup, and thus they fail to fix problems,” Davis states. “This is why one of the biggest barriers to optimizing a company’s profitability is not external (unless the market strategy is extremely flawed). It is the culture of the company.”
So what are these lies?
#1: ‘‘We’re so much better than the competition, we don’t have to worry.”
#2: ‘‘Our profits are so good they can’t be improved.”
#3: ‘‘Our business model is as good as it can possibly be.”
#4: ‘‘Our pricing model can’t be improved—besides, we’re charging the maximum we can get.”
#5: ‘‘Our cost structure is the optimum it can be under the circumstances.”
#6: ‘‘Our organization is so good that I (the CEO) don’t have to be involved on a daily basis.”
#7: ‘‘Our organization is at its optimal level.”
#8: ‘‘Complacency is not a problem in my company.”
#9: ‘‘Fraud is not a problem in my company.”
#10: ‘‘My bank loves me.”
Davis expands on each of the 10 points in the AMA e-newsletter issue. He concludes by stating that an effective leader must continually review his decisions. One thing that he does is to take a few quiet moments at the end of each day to be introspective and ask himself if his actions truly reflect the principles of management that he espouses, or if he has lapsed because of inertia or other distractions. Davis says that the key to good management is the ability to be self-critical enough to admit mistakes and correct emerging problems.
Aligning principles with actions and admitting mistakes is all about creating a culture of trust. By opening up to what is true, managers and leaders can both succeed in enhancing the bottom line and create a vision for the highest good. As Freud said, “In small matters, trust the mind; in large ones, trust the heart.”
Topics: Business, Trust | No Comments »
1933 Business Credo
By Noreen Kelly | June 17, 2008
The following is the text of a Business Credo, published by Christian Businessman in 1933. This business creed is as relevant today as it was 75 years ago:
I believe in business as a means whereby each member of society may render helpful service to others.
I believe that if any conflict arises between human interests and business, human interest should be placed first.
I believe that the profits of a business should be shared and that this is fundamental to sound business success.
I believe that business, to be of greatest value, must take God into active partnership.
I believe that meditation and prayer are essential to business and personal success.
I believe that business life should be a rich, expanding, abundant life, ever opening new channels of service.
I believe that partnership with God will give a joy, a satisfaction, a faith, and a courage in business that cannot otherwise be obtained.
Charlotte Shelton, CEO, Unity, shared this creed on Unity FM, Unity’s Online Radio Network, and remarked on the timelessness of this message and the need for the text to be recognized by business everywhere so as to fully engage hearts and minds.
Topics: Business, Trust | No Comments »
Quotes on Trust and Trustworthiness
By Noreen Kelly | May 31, 2008
More trust quotes for inspiration …
“The glue that holds all relationships together — including the relationship between the leader and the led — is trust, and trust is based on integrity.” - Brian Tracy
“When people honor each other, there is a trust established that leads to synergy, interdependence, and deep respect. Both parties make decisions and choices based on what is right, what is best, what is valued most highly.” - Blaine Lee
“We need people in our lives with whom we can be as open as possible. To have real conversation with people may seem like such a simple, obvious suggestion, but it involves courage and risk.” - Thomas Moore
“Faith is the substance of things hoped for.” - Heb. 11:1
“Trust is like te air we breathe. When it’s present, nobody really notices. But when it’s absent, everybody notices.” - Warren Buffet
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Edelman Trust Barometer
By Noreen Kelly | April 27, 2008
I recently attended a BMA (Business Marketing Association) Chicago luncheon meeting, presented by Richard Edelman, CEO of Edelman PR, the world’s largest independent public relations agency.
Edelman spoke about findings from the ninth annual Edelman Trust Barometer:
- Business and non-governmental organizations (NGOs) are trusted more than government
- Young opinion elites show higher levels of trust in business than older elites and rely on multiple sources of information to form opinions about companies.
- Communications today requires top-down and peer-to-peer spokespeople. All ages trust word of mouth.
- Social media is growing, though mainstream media is still the most widely used and believed for information about companies.
- The new reputation makers can be either advocates for companies they trust or naysayers against those they distrust. Companies must evolve “reputation management” into “reputation leadership,” working proactively to build stakeholder trust.
- The gap between trust in U.S. business and government is at its widest in Trust Barometer history. Wikipedia is the second most credible source for young Americans.
- NGOs have a trust advantage in most European countries, with differences seen in Eastern Europe.
- China’ s economic influence on the world and the region is enormous, but trust in Chinese companies is at an all-time low.
- Canada’s and Latin American’s levels of trust in business are among the highest in the world.
For the first time, the 2008 Trust Barometer included young people (ages 25 to 34). Historically cynical toward business, the young “info-entials” who participated in the survey indicated they trusted business more than their older counterparts. Edelman said that finding revealed a great opportunity for business to communicate its story to this demographic, for whom sharing information is an everyday activity.
Richard Edelman also discussed how communicators are being challenged to think and act differently in a new age of communications where the audience “is on the field and ready to play in the game.” No longer can brands just focus on talking to their stakeholders; now they must engage in a participatory dialogue with them.
Topics: Business, Trust | No Comments »
Spirit at Work
By Noreen Kelly | April 10, 2008
I came across a review of a book, Spiritual Enterprise: Building Your Business In the Spirit of Service, by Lawrence Miller, which talks about the spiritual principles that lie behind all successful business organizations.
Specifically, Miller links the following principles with successful corporate practices:
• honesty and trustworthiness
• the spirit of service
• justice
• consultation
• unity
• moderation
• world citizenship
• universal education
“Honesty and trustworthiness are not only the foundation of virtue but of economic activity as well,” Miller writes, outlining how honesty and trust are essential for wealth creation, innovation and leadership.
The book also serves to educate readers on Baha’i spiritual, social and economic principles, and how the teachings of the Baha’i faith are being rediscovered in the corporate world.
Topics: Spirituality, Business, Trust | No Comments »
You can’t know - you have to trust
By Noreen Kelly | March 10, 2008
In terms of trust in business, the “soft” stuff is the hard stuff. Trusting relationships increase profitability, boost market value, add competitive advantage, lower costs, and provide efficiencies. Creating bonds of trust leads to higher morale, lower turnover, and improved productivity. Partnerships based on trust provide the greatest value at the lowest cost.
Trust need not be measured in standard business or financial terms. The word faith comes from the Latin fidere, meaning “to trust.” The concept of fiduciary responsibility is about more than financials. Trust in Spirit, trust in ourselves, and trust in each other create the bottom line. We can look at trust in economic terms, after we acknowledge the first priority.
Topics: Spirituality, Business, Trust | No Comments »
Ethical courage
By Noreen Kelly | February 22, 2008
In my last post, I talked about the results of the 2007 National Business Ethics Survey (NBES), which reported that, based on interviews with almost 2,000 employees at U.S. public and private companies, disturbing numbers of workers are witnessing ethical misconduct at work, and tending not to report what they see. The NBES news release (November 28, 2007), in reporting on the survey results, commented, “Six years after high-profile corporate scandals rocked American business, there has been little if any meaningful reduction in the enterprise-wide risk of unethical behavior at U.S. companies. “Despite new regulation and significant efforts to reduce misconduct and increase reporting when it does occur, the ethics risk landscape in American business is as treacherous as it was before implementation of the Sarbanes-Oxley Act of 2002,” said Patricia Harned, Ph.D., President, Ethics Resource Center (ERC).
I concluded my post by talking about the lack of ethical leadership among many leaders and the absence of ethical courage by a great number of employees. I came across a couple of articles from A Heathen Blog - Expanding Inward that talk about the The Nine Noble Virtues and the subject of ethical courage.
The Nine Noble Virtues, existing throughout the corpus of Heathen lore and echoed by the ethical standards of cultures around the world, are: Courage, Truth, Honor, Fidelity, Discipline, Hospitality, Self-Reliance, Industriousness, and Perseverance. Ethical courage is described as the “willingness to hold to one’s personal ethics in spite of fear of alienation or other form of personal loss. The author states that ethical courage is often overlooked and, at the same time, so vital: it’s required in everyday situations, where it would be so much easier to cave in or not stand up for something we feel is right, where no one would really notice one way or the other, except ourself.”
This lack of ethical courage is evident in the workplace when employees witness serious ethical lapses, especially conflicts of interest, abusive behavior and lying, and fail to report what they see. Dr. Harned, ERC President stated, “Employees at all levels have not increased their ‘ethical courage’ in recent years. “The rate of observed misconduct has crept back to where it was in 2000. And employees’ willingness to report misconduct has not imprved, either.” What is needed are positive, preventive measures that can help forestall disaster.
Topics: Business ethics | No Comments »
Ethics survey - good news and bad news
By Noreen Kelly | January 30, 2008
The 2007 National Business Ethics Survey (NBES), published by the Ethics Resource Center (ERC) last November, based on a nationally representative survey of more than 3,000 employees of U.S. companies, both publicly and privately held and of varying sizes, indicates that ethical misconduct is back at pre-Enron levels.
The survey revealed the following key findings:
- High rates of misconduct. In the past 12 months, more than half (56 percent) of the employees surveyed observed conduct that violated company ethics standards, policy or the law. This matches the level (55 percent) reported in 2000, before Enron and other, more recent corporate scandals.
- Misconduct is more common in negative work environments. In companies where employees distrust management, ethical lapses abound.
- Management is often unaware of unethical behavior. In the latest survey, 42 percent of respondents said they do not report misconduct. Only 3 percent of all employees said they would prefer to use a company hotline rather than speak to someone they know.
- Only 1 in 4 companies has a well-implemented ethics and compliance program. Where such programs exist, only 29 percent of employees fail to report misconduct. In companies with no program, 61 percent do not speak up.
- Fear of retaliation. This is a primary reason why employees do not report unethical behavior. The survey found, however, that one out of eight employees who do report actually experienced retaliation. While any retaliation is a concern, far fewer experience it than fear it.
According to ERC President Patricia Harned, Ph.D., “Despite new regulation and significant efforts to reduce misconduct and increase reporting when it does occur, the ethics risk landscape in American business is as treacherous as it was before implementation of the Sarbanes-Oxley Act of 2002.”
“There is a strong sense of futility and fear among employees when it comes to reporting ethical misconduct, and that increases the danger to business. More than half (54 percent) of employees who witnessed but did not report misconduct believed that reporting would not lead to corrective action. More than a third (36 percent) of non-reporters feared retaliation from at least one source; but our research shows that having a strong ethical culture virtually eliminates retaliation.”
While employees at all levels appear not to have increased their “ethical courage” in recent years, Harned said, “the good news is that the rate of misconduct is cut by three-fourths at companies with strong ethical cultures, and reporting is doubled at companies with comprehensive ethics programs.”
In the post-Enron era, formal rules like The Sarbanes-Oxley Act will never be enough. Compliance alone does not substantially reduce risk. The challenge ahead is for corporate leaders to help employees move beyond feelings of futility and fear of retaliation towards empowerment and find the ethical courage to do what is right.
The complete NBES survey is available at www.ethics.org
Topics: Leadership, Business ethics | 1 Comment »
Trust and relationships
By Noreen Kelly | December 22, 2007
The vision of Golin Harris, named PR Agency of the Year 2007 by The Holmes Report and Large Agency of the Year 2007 by PR Week Awards, is ” … building long-term partnerships based on mutual trust.” Al Golin, Founder and Chairman of Golin Harris, led the firm with this philosophy.
A culture of trust between employees and management promotes respect, loyalty, cooperation and commitment. Leaders who place trust in their team to lead themselves, and team members who trust in one another, can achieve a spirit of cooperation toward common goals and successful outcomes.
Topics: Culture of trust | No Comments »
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