Wednesday, October 22, 2008

Human Resources Should Lead on Trust (Jarvis Cromwell)

The following piece written by me appeared in HR Leaders

Sure, trust is “topic A” among the pundits and in many respects it’s turning out to be one of the defining issues of the emerging century.

No news there. What is getting less attention is that the current state of low-trust is not confined to the financial markets. Public distrust in big business, Congress, even not-for-profits, reached its lowest ebb in a century… and not this past year, but back in 2002. In writing about how striking a finding this was for business results at that time, the Roper Organization grimly noted:

“It is unprecedented to see this many people with an unfavorable opinion of big business.”

For HR professionals, low-trust must now become a central issue in shaping human capital strategies, employee engagement and corporate performance initiatives. Why? Because trust is transactional and can impact relationships in every corner of your organization. No matter what the transaction may be – an interbank loan, a frank discussion with an employee, a sales pitch, or a team meeting – the outcome is aided when trust is high and hurt when it’s low. In this sense you can think of high trust as an accelerant to business performance and low trust as a kind of clotting agent that at best slows transactions down and at worst stops them dead in their tracks.

Low trust is a particularly nettlesome HR issue because it makes leadership success more difficult. A startling statistic comes from the Harris Poll, which in 1966 found that 55% of Americans had “a great deal of confidence” in the leaders of big companies. In 2007, only 16% of Americans expressed the same confidence.

Imagine you were designing an employee engagement program back in 1966 to help achieve an important operating goal. Maybe you needed to rally the troops around a new strategy, or convince sales about the quality of a new product, or persuade the union that certain proposed regulation is unwise. Now imagine that same program being implemented today amidst much lower trust among all the various stakeholders. It’s a pretty safe bet that the desired transaction in the higher trust world of 1966 would have greater chance of going smoothly than the same program delivered in 2008.

Beyond the Roper and Harris polls are literally hundreds of studies over the last few years that paint a very difficult operating environment for building trust, among the findings:

• As few as 13% of all Americans are placing their trust in big business
• Only 39% of employees in a Watson Wyatt survey said they trusted senior leadership
• On primetime TV you are 21 times more likely to be kidnapped or murdered by a businessman than by the mob. Some three-quarters of folks out there feel companies don’t tell the truth in advertising.
• Three quarters of employees in big companies observed violations of the law or company standards in a 12-month period.

Grim statistics all – but table them for now. Because the key question comes down to this: how do you lead a company to capture strong performance when trust is low?

As a performance discipline, trust today is where quality was in the 1970s before Deming and TQM were widely understood or applied. Senior executives often intuitively recognize that trust is important for driving results, but they lack an effective process to manage it. HR professionals can help their organizations close this gap by taking steps to begin institutionalizing processes that lead to higher trust.

As trust and reputation-related risk issues climb to the top of management agendas, HR can lead the way by seeking effective ways to align what the organization is doing (performance) with desired reputation (trust). The problem is that almost every management team lacks two vital components: 1) a disciplined review process to evaluate how decisions and actions across the organization have impacted trust among stakeholder groups and 2) a means for guiding operational execution and decision-making – both to achieve reputational goals and to mitigate the risk of a damaging “trust event.”

Accepting the idea that companies need to find new and more effective ways to ensure that performance is aligned with trust, how do you begin? Based on work we’ve done in the Reputation Garage, a collaborative founded to create new ways to improve organizational performance in an era of low trust, here are four steps worth considering:

1. Improve executive decision-making by sensitizing management to the issue of trust. Based on our study of this issue, the lack of understanding executives have for the downstream trust impacts of their decisions and actions is a primary contributor to the problem. The good news is that training can install a “trust lens” to guide executive decisions and improve appreciation for trust-related impacts.

2. Identify those key trust/reputation elements that are vital to achieving your mission, goals, and strategies. The first step in making trust a performance-related issue in an organization is to identify specifically where it fits into the core success drivers of the business. Call them what you will, but the strategic goals of the company need to link with your trust in meaningful ways, because it is management’s strategic goals that drive the focus of the company.

3. Consider adding a trust/reputational risk dimension to your current risk management program. Trust-related events occur with far more frequency than one might suspect. In a study conducted between 1989-99, Lippincott Mercer found a surprising number of Fortune 1000 companies experienced a serious event that damaged their stock price. To be considered serious, the event had to lead to a company losing 25 percent or more of its market value in four weeks or less—in other words, a major haircut. How many companies experienced this kind of corporate tsunami? One out of ten! The leading cause of loss was what Lippincott Mercer called “strategic missteps.” Representing some 58 percent of the events that took place during the study period, many of these missteps stemmed from trust/reputation issues. If you calculated the typical loss based on an average market capitalization for the Fortune 1,000 today, you would come up with a loss of more than $2 billion per company, on average.

4. Enhance transparency and measurement through a trust-related performance measurement program. Do you have a process in place to collect, evaluate, and report on how various operations, actions, policies, and decisions affect your brand reputation? What work have senior management teams done to identify and manage those key operational tasks that will create brand opportunity or mitigate reputational risk?

I have been involved with this issue for 20 years and the one thing I can say with confidence is that the tools for managing trust today are crude. My expectation is that in the next few years many companies will move from a state of stone knives and bearskins to a more sophisticated approach. Corporate performance and the world will be better for it.

Copyright 2008 by the Reputation Garage

1 comment:

  1. Very interesting post. It reminded me of a book I had been meaning to read but never got around to: Francis Fukuyama's Trust: The Social Virtues and the Creation of Prosperity. The author makes comparisons between high trust and old trust societies and even talks about the research on diminished trust in American society.

    You'll find an intriguing interview with him here where he touches on trust: . I'm guessing you may also find the PBS site, which is focused on a series called "The First Measured Century," to be interesting.



    Britton Manasco
    Illuminating the Future