The Business Case for Trust

By framing trust in economic terms you will establish a new paradigm for achieving results.  Trust always affects two measurable outcomes – speed and cost.  When trust goes down, speed goes down and cost goes up.  This creates a Trust Tax™.  When trust goes up, speed goes up and cost goes down.  This creates a Trust Dividend™.  It’s that simple, that predictable.

3 Big Ideas About The Speed of Trust™
 

Trust is a Measurable Economic Driver

Trust is more than a nice-to-have, soft, social virtue, it is a hard-edged economic driver.  Trust—more than Euros, Yen, or dollars—is the currency of the new, global economy. High trust increases speed and reduces cost in all relationships, interactions, and transactions. High trust also increases value – value to shareholders and value to customers.  The data supporting this is compelling.  In a Watson Wyatt 2002 study, high-trust organizations outperformed low-trust organizations in total return to shareholders by 286 percent.  High-trust organizations also consistently create and deliver more value to their customers through -- accelerated growth, enhanced innovation, improved collaboration, stronger partnering, better execution, and heightened loyalty. This customer value, in turn, creates more value for other key stakeholders.  Look at what’s happening in our financial markets today, where there’s a crisis of trust at its core. In reality, trust not only makes the markets work—trust makes the world go ‘round. Take away trust, and everything grinds to a halt.

Trust is the #1 Competency of Leaders Today

We define leadership as “getting results in a way that inspires trust.”  The first job of any leader is to inspire trust; the second job is to extend it.  Extending trust is the behavior that separates leaders from managers.  The vast majority of managers are better at managing than they are at leading.   As a result, most organizations today—business, government, and education—are “over managed” and “under led.” Real leadership doesn’t happen without followers, and people don’t follow managers they don’t trust.  Managers aren’t trusted when they’re not credible or when they behave in ways that dilute trust.  So how do we fix this leadership vacuum? It all comes back to the credibility and behavior of the individual.  When a person is not credible, no amount of “take charge bravado” will compensate for their lack of credibility.  

Trust is a Learnable Leadership Skill

Trust is both a noun and a verb. Trust as a noun refers to an outcome, a value, a state of being.  But trust as a noun is a direct result of trust the verb—the behaviors and actions we take that create and inspire that state of being. In other words, trust the verb is a competency—a leadership skill that can be developed!  It is a learnable and measurable skill that makes organizations more profitable, people more promotable, and relationships more energizing.  The Speed of Trust is the road map to establishing trust on every level, building character and competence, enhancing credibility, and creating leadership that inspires confidence. 


7 Low-Trust Organizational Taxes™

 

When trust decreases: speed decreases and cost increases.  When trust is low, relationships suffer, production is sluggish, customer retention erodes, employee turnover increases, stocks plummet and the costs are enormous.

Sarbanes-Oxley was passed in response to Enron, World-Com and other corporate scandals.  While Sarbanes-Oxley has helped maintain trust in public markets, this has come at a substantial price.  All executives subject to Sarbanes-Oxley rules know the amount of time it takes to comply with its regulations, as well as the added cost of doing so.  One study pegged the costs of implementing Section 404 alone at $35 billion – exceeding the original SEC estimate by 28 times.  Compliance regulations have become a prosthesis for a lack of trust – and a slow moving and costly prosthesis at that.  Clearly, Sarbanes-Oxley demonstrates the relationship between low trust, low speed and high cost. 

Once we understand the hard, measurable economics of trust, it’s like putting on a new pair of glasses.  Everywhere we look, we can see quantifiable impact.  If we have a low-trust organization, we’re paying a tax.  While these taxes may not conveniently show up on the income statement as “trust taxes,” they’re still there, disguised as other problems.  Once we know where and what to look for, we see The 7 Low-Trust Organizational Taxes™ everywhere:

  • Redundancy:  Redundancy is unnecessary duplication.  A costly redundancy tax is often paid in excessive organizational hierarchy, layers of management and overlapping structures designed to ensure control.

  • Bureaucracy:  Bureaucracy includes complex and cumbersome rules, regulations, policies, procedures and processes. One estimate put the cost of complying with federal rules and regulations in the U.S. alone at $1.1 trillion – more than 10 percent of the GDP.

  • Politics:  Office politics divide a culture against itself. The result is wasted time, talent, energy, and money.  In addition, they poison company cultures, derail strategies and sabotage initiatives, relationships and careers.

  • Disengagement:  Disengagement occurs when people put in enough effort to avoid getting fired but don’t contribute their talent, creativity, energy or passion.  Gallup’s research puts a price tag of $250 billion - $300 billion a year on the cost of disengagement.

  • Turnover:  Employee turnover represents a huge cost, and in low-trust companies, turnover is in excess of the industry standard – particularly of the people you least want to lose.  Performers like to be trusted and they like to work in high-trust environments.

  • Churn:  Churn is the turnover of stakeholders other than employees.  When trust inside and organization is low, it gets perpetuated in interactions in the marketplace, causing great turnover among customers, suppliers, distributors and investors. Studies indicate the cost of acquiring a new customer versus keeping an existing one is as much as 500 percent. 

  • Fraud:  Fraud is flat out dishonesty, sabotage, obstruction, deception and disruption – and the cost is enormous.  One study estimated that the average U.S. company lost 6 percent of its annual revenue to some sort of fraudulent activity.


7 High-Trust Organizational Dividends™

 

When trust increases: speed increases and cost decreases.  When trust is high, customers buy more—more quickly, more confidently, and more often. They stay longer and they refer more of their friends. High trust enables relationships to grow, employee loyalty to soar, stocks to rise, and organizational dividends naturally increase.

When trust is high, the resulting dividend you receive is like a performance multiplier, elevating and improving every dimension of your organization and your life. High trust is like a rising tide, which lifts all boats. In a company, high trust materially improves communication, collaboration, execution, innovation, strategy, engagement, partnering, and relationships with all stakeholders. 

Consider the example of Berkshire Hathaway CEO Warren Buffett in acquiring McLane Distribution – a $23 billion company – from Wal-Mart.  A deal of this size involving public companies would typically take several months to complete and cost several million dollars in due diligence.  But because both parities operated with high trust, this deal was made with one two-hour meeting and a handshake.  In less than a month, it was completed.  Buffett wrote in his annual report: “We did no ‘due diligence.’  We knew everything would be exactly as Wal-Mart said it would be – and it was.”  Imagine – less than one month and no due diligence costs.  High trust, high speed, low cost. 

Just as the taxes created by low trust are significant, so the dividends of high trust are equally as compelling.  When trust is high, the dividend we receive is a performance multiplier, elevating and improving every dimension of the organization.  The 7 High-Trust Organizational Dividends™ include:

  • Increased value:  Watson Wyatt shows high-trust organizations outperform low-trust organizations in total return to shareholders by 286 percent. 

  • Accelerated growth:  Research clearly shows customers buy more, buy more often, refer more and stay longer with companies they trust.  And, these companies actually outperform with less cost. 

  • Enhanced innovation:  High creativity and sustained innovation thrive in a culture of high trust. The benefits of innovation are clear – opportunity, revenue growth, and market share. 

  • Improved collaboration:  High-trust environments foster the collaboration and teamwork required for success in the new global economy.  Without trust, collaboration is mere coordination, or at best, cooperation.

  • Stronger partnering:  A Warwick Business School study shows that partnering relationships that are based on trust experience a dividend of up to 40 percent of the contract. 

  • Better execution:  FranklinCovey’s execution quotient tool (xQ) has consistently shown a strong correlation between higher levels of organizational execution and higher levels of trust.  In a 2006 study of grocery stores, top executing locations had significantly higher trust levels than lower executing locations in every dimension measured. 

  • Heightened loyalty:  High-trust companies elicit far greater loyalty from their primary stakeholders than low-trust companies.  Employees, customers, suppliers, distributors and investors stay longer.

 

So what is the role of leaders with respect to trust?

  • First, recognize the business case for trust – be an advocate instead of an obstacle.

  • Second, see leadership as “getting results in a way that inspires trust.”  In other words, personally model trust through character and competence and demonstrated behavior.

  • Third, align organizational systems and structures around trust.  In the words of Campbell Soup CEO Doug Conant, “The first thing for any leader is to inspire trust.”

Nothing is as fast as the speed of trust. Nothing is as profitable as the economics of trust. Nothing is as central to leadership as relationships of trust. It truly is the one thing that changes everything.


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Identify the Trust Gaps™ that Exist In Your Team or Organization


The Speed of Trust™ Organizational or Team Index measures which of the 4 Cores of Credibility™ and the 13 Behaviors of High Trust™ are strong or weak in a team or organization. This proven index can be used with any stakeholder including customers, employees, suppliers, partners, vendors, or others.  Learn more

The Business Case for Trust Article:

From Chief Executive Magazine

By Stephen M. R. Covey

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Trust is a Competency Article:

From Chief Learning Officer Magazine

By Stephen M. R. Covey

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What is the High Cost of Low Trust?

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