4 Ways to Implement the Economics of Trust
Part 3 of our series on "The Speed of Trust" by Stephen Covey — you can also read Part 1 and Part 2.
How should finance leaders account for the economics of trust? In "The Speed of Trust: The One Thing That Changes Everything" by Stephen R.M. Covey and Rebecca R. Merrill, the author has this to say: "[I]f developed and leveraged, [trust] has the potential to create unparalleled success and prosperity in every dimension of life. Yet, it is the least understood, most neglected and most underestimated possibility of our time."
This third and final installment in a series on trust explores key takeaways from Covey's must-read book. What do the economics of trust look like, and how can organizations put these theories into play in their own workforce management strategies?
Standing Out From the Competition
According to Covey, developing a reputation based on trust helps organizations stand out from the competition. "While corporate scandals, terrorist threats, office politics and broken relationships have created low trust on every front," he writes, "I contend that the ability to establish, grow, extend and restore trust is not only vital to our personal and interpersonal well-being; it is the key competency of the new global economy."
Lack of trust is a widespread problem. The Economist reports that the percentage of Americans who believe most people can be trusted declined to just 32 percent in 2016. For organizations working to find their footing in today's economy, taking concrete steps to build trust can translate into stronger customer relationships, higher revenues and — ultimately — growth and profit.
Lack of Trust Means Lack of Funds to Reinvest
The Economist has also found signs that businesses are holding on to more money in these lower-trust contexts: "The median firm in the S&P 500 holds 62 cents of cash on its balance-sheet per dollar of gross operating profit, up from 45 cents in 2006 (this yardstick excludes America's giant technology companies, which hoard money)." At the same time, litigation costs are up, "a sign that more corporate deals end in tears," whether mistrust is the cause or the effect.
For finance leaders, these issues have a tangible impact on the resources available to reinvest in talent, infrastructure and other areas related to growth. Look closely at your organization's own financial position to determine whether a lack of trust — specific to certain relationships or more broadly in the market — is influencing key money-related decisions.
Building Trust Through the Way You Do Business
Covey writes that building trust (or not) is the end-to-end result of the way organizations do business, from how leaders view themselves to the way companies interact with a variety of stakeholders. According to the World Economic Forum (WEF), 75 percent of respondents to one survey felt that businesses can take actions that both improve profits and the social and economic conditions where they operate. What does that mean for strategic decision-making?
"A contemporary CEO cannot afford to ignore this sentiment," writes the WEF. "The epoch of corporate social responsibility (CSR) as a cost of doing business has passed; the era of 'doing well by doing good' is upon us. Balancing the profit motive with the creation of societal value is about to become a precondition for the long-term success of any corporation, sector, scale or geographic reach notwithstanding."
At a practical level, this means prioritizing trust-building approaches and transparency in all the organization's relationships, from how you hire and retain employees to the way you treat customers, investors and the wider community.
Focus on Your Own Team
Perhaps the most important takeaway when considering the economics of trust is that successful trust-building begins in your own office. Take a closer look at how you as a finance leader are modeling the behaviors associated with building trust. Are you a clear communicator, transparent in your leadership, accountable for your promises and generating real results? If there are opportunities to improve, set the pace for your organization by making those improvements yourself.
It's also helpful to look at critical indicators of employee trust:
-Is your compensation model fair and equitable?
-Do your employees understand what they need to do to get ahead?
-Are you managing your reputation more widely in the market?
-Do your employees, both current and former, have good things to say about your organization?
-Does the way you manage your employees on a day-to-day basis signal trust, or are you micromanaging and communicating in a way that suggests distrust?
By focusing on the economics of trust, it's possible to change your firm's financial future. View trust as a continuum that begins with your own employees and then expands out to the way you do business in the larger world. Establishing your firm as trustworthy is critical to retaining top talent, having sustainable relationships with customers and fundamentally standing out from the competition.