By Stephen M. R. Covey
Almost everywhere we turn, trust is on the decline. Trust in our culture at large, in our institutions, and in our companies is significantly lower than a generation ago. Research shows that only 49% of employees trust senior management, and only 28% believe CEOs are a credible source of information. Consider the loss of trust and confidence in the financial markets today. Indeed, “trust makes the world go ’round,” and right now we’re experiencing a crisis of trust. This crisis compels us to ask three questions. First, is there a measurable cost to low trust? Second, is there a tangible benefit to high trust? Third, how can the best leaders build trust in and within their organizations to reap the benefits of high trust?
Most people don’t know how to think about the organizational and societal consequences of low trust because they don’t know how to quantify or measure the costs of such a so-called “soft” factor as trust.
In 2004, one estimate put the cost of complying with federal rules and regulations alone in the United States — put in place essentially due to lack of trust — at $1.1 trillion, which is more than 10% of the gross domestic product. A recent study conducted by the Association of Certified Fraud Examiners estimated that the average American company lost 6% of its annual revenue to some sort of fraudulent activity. Research shows similar effects for the other disguised low-trust taxes as well.
Think about it this way: When trust is low, in a company or in a relationship, it places a hidden “tax” on every transaction: every communication, every interaction, every strategy, every decision is taxed, bringing speed down and sending costs up. My experience is that significant distrust doubles the cost of doing business and triples the time it takes to get things done.
By contrast, individuals and organizations that have earned and operate with high trust experience the opposite of a tax — a “dividend” that is like a performance multiplier, enabling them to succeed in their communications, interactions, and decisions, and to move with incredible speed. A recent Watson Wyatt study showed that high trust companies outperform low trust companies by nearly 300%!
I contend that the ability to establish, grow, extend, and (where needed) restore trust among stakeholders is the critical competency of leadership needed today. It is needed more than any other competency. Engendering trust is, in fact, a competency that can be learned, applied, and understood. It is something that you can get good at, something you can measure and improve, something for which you can “move the needle.” You cannot be an effective leader without trust. As Warren Bennis put it, “Leadership without mutual trust is a contradiction in terms.”
The first job of any leader is to inspire trust.
With the increasing focus on ethics in our society, the character side of trust is fast becoming the price of entry in the new global economy. However, the differentiating and often ignored side of trust — competence — is equally essential. You might think a person is sincere, even honest, but you won’t trust that person fully if he or she doesn’t get results. And the opposite is true. A person might have great skills and talents and a good track record, but if he or she is not honest, you’re not going to trust that person either.
The best leaders begin by framing trust in economic terms for their companies.
The best leaders then focus on making the creation of trust an explicit objective. It must become like any other goal that is focused on, measured, and improved. It must be communicated that trust matters to management and leadership. It must be expressed that it is the right thing to do and it is the economic thing to do. One of the best ways to do this is to make an initial baseline measurement of organizational trust and then to track improvements over time.
The true transformation starts with building credibility at the personal level.
There are 4 Cores of Credibility, and it’s about all 4 Cores working in tandem”Integrity, Intent, Capabilities, and Results.
Consider the example of Warren Buffett — CEO of Berkshire Hathaway (and generally considered one of the most trusted leaders in the world) — who completed a major acquisition of McLane Distribution (a $23 billion company) from Wal-Mart. As public companies, both Berkshire Hathaway and Wal-Mart are subject to all kinds of market and regulatory scrutiny. Typically, a merger of this size would take several months to complete and cost several million dollars to pay for accountants, auditors, and attorneys to verify and validate all kinds of information. But in this instance, because both parties operated with high trust, the deal was made with one two-hour meeting and a handshake. In less than a month, it was completed.
High trust, high speed, low cost.