Leadership: Trust is Critical to an Organization’s Success

By Stephen Dupont, vice president, Pocket Hercules

Massive corporate cyber security breaches, wide-spread cyber spying, the recent government shutdown, the widening Catholic priest sexual abuse scandal, the near disastrous launch of Healthcare.gov – these, and a number of other events and scandals in recent years have tested the trust that Americans place in their corporate and government institutions.

Survey after survey confirms: trust in government, corporations, and the media have reached all-time lows. Americans don’t even trust each other as much as they used, too, according to an October 2013 Associated Press-GfK poll of Americans.

Suddenly, trust is a big deal. Target CEO Gregg Steinhafel made a point of it when he appeared on CNBC offering frank comments about how his company (mis)handled the holiday-season data breach that may have exposed the personal information of at least 70 million customers. During the interview, Steinhafel said, “We have to do everything possible to make it right by every guest and earn that trust back.”

If you’re a public relations, communications or marketing professional, if trust isn’t on your radar screen, it should be. Here’s why:

Communicators often speak in terms of managing the reputations of their organizations. But trust goes much deeper. It’s the lubricant that allows people to work together, to follow their leaders, and to maintain relationships with suppliers, customers and other stakeholders. Simply said: organizations cannot maintain positive relationships with its stakeholders without trust.

“Trust is at the center of everything,” said David Horsager, author of The Trust Edge.

As a management consultant, Horsager believes that many of the problems that organizations, large and small, stem from a lack of trust by key stakeholder groups. The problems with trust start at the very core of an organization’s character. “Far too many companies pay lip service to their mission and values statements,” Horsager says. “Very few organizations align the behavior and the culture they desire for their organization with their mission and values statements.”

“Look at Enron,” he adds. “They had a great mission statement. They completely ignored it. And we all know how that ended.”

Rich Chapman, author of All-Pro Wisdom: The 7 Choices that Lead to Greatness, believes that leaders need to embrace trust as a mantra in building the character and culture of their organizations. “Leadership thrives on relationships based on trust. With trust, people take risks. With risk, people grow. With growth, people change. Without change, organizations die.”

Trust, or a lack thereof, is at its most apparent in a crisis. When the glaring lights of media, investor, and customer scrutiny are at their brightest, an individual or organization or individual learns just how much trust has been earned over time. When a crisis hits, trust may be all that an organization has to maintain its reputation.

“Trust is a critical element at any time, but even more so in a time of crisis when an organization faces uncertainty, controversy and criticism,” said Jon Austin, a Minneapolis-based crisis communications consultant. “In such times, people may be asked to act outside their comfort zones and they will do so only if they trust that the people doing the asking are trustworthy.”

Building Bricks

As communications leaders, we’re called upon to protect, manage and enhance the reputations of the organizations we represent. To do so effectively requires building healthy, two-way relationships with key stakeholder groups.

“Trust is foundational to all aspects of a company,” said Paul Keel, managing director of 3M UK and Ireland. “It’s composed of many bricks – a company’s values, its people, its commitment to quality and innovation, and it’s track record. It’s the bedrock on which effective organizations are built. Trust may not be a leadership skill per se, but it’s a product of other leadership attributes such as authenticity and accountability. It touches all elements of organizational effectiveness – your relationships with employees, customers, shareholders, government agencies and others.”

Another way to look at it is this: Trust is the mirror of an organization’s health and the health of its relationships with stakeholders. “I really don’t think leaders and organizations are going to get much smarter with regard to management, financial acumen, sales and marketing,” Chapman added. “But I do believe that leaders and organizations can get a lot healthier. Trust is foundational and an organization without it cannot sustain itself.”

Bottom Line Impact

Our results-driven culture expects our institutions, from Fortune 100 corporations to a local school system, to measure performance. Revenues, profit/loss, awareness, perceptions, return on investment (ROI), reputation, and retention rates are just some of the scores that organizations tally.

Measuring the trust between an organization and its stakeholders, on the other hand, is often an overlooked performance measure that many leaders would be wise to consider. That’s because trust does have a bottom line impact.

“A lack of trust can often be a company’s biggest expense,” Horsager said. “Look at the millions of dollars lost by Target when consumers became wary about shopping at the retailer after millions of Target customer credit card records were stolen. Or, look at the millions of dollars in sponsorships that Tiger Woods lost following revelations of his many extramarital affairs. Losing the trust of your customers does have bottom line consequences.”

Further to Horsager’s point, publicly traded companies spend millions every year to comply with the Sarbanes-Oxley Act of 2002, enacted in reaction to a number of financial scandals involving U.S. companies such as Enron, Worldcom, Tyco, and Adelphia. These accounting and financial scandals cost shareholders billions and fueled a growing mistrust of American corporations by the average American.

Similarly, trust was at the very core of the Great Recession when the U.S. financial system became paralyzed when banks refused to lend to one another, or when banks refused to make mortgages and other loans available to all but the best customers based on credit scores. Even ratings agencies lost the trust of investors and the American public by giving high ratings to securities that, in the end, were determined to be highly questionable, leading to more regulation.

That lack of trust throughout the financial system led to the lay-offs of tens of thousands of people employed throughout the mortgage and housing industries, and later, millions of Americans, as our country’s economy ground to a halt.

“I think leaders should think about building trust in the same deliberate way they think about “increasing revenue” and “reducing costs,’” said Austin. “Most leaders intuitively understand the importance of trust, but they don’t act deliberately to create and preserve it.”

To many of us, we know trust when we see it. When customers spend their dollars with an organization, trust is implied. When employees choose to remain with a company even though they could make more with a competitor, trust is at play. Without accurate measures however that convert trust into a tangible asset, it’s difficult for many leaders to consider trust as a strategic imperative.

Some organizations are attempting to change this. GovernanceMetrics International (GMI Ratings), Next Decade, Inc.’s Trust Across America (TAA), and the Edelman Trust Barometer represent a few of measurement systems that have been designed to quantify trust.

As an example, based on GMI Ratings’ system of 60 governance and forensic accounting measures, which were applied to America’s publicly traded companies, Forbes magazine has published a list of “America’s 100 Most Trustworthy Companies” over the past six years. GMI Ratings noted in the release of its 2013 list (Forbes, March 18, 2013), that a fair amount of evidence exists to demonstrate that “the cost of capital for the most trustworthy companies is lower because their level of transparency is recognized in the workplace. Also, we have found evidence that, on balance, the most trustworthy companies outperform their peers over the long-term.”

Similarly, from a consumer’s perspective, the higher your credit score (i.e., the measurement of trust in a person’s ability to manage credit), the lower your costs of borrowing.

Transparency Not Enough

For some leaders pointing out an organization’s dedication to transparency is the easy path toward demonstrating trust. By releasing financial records, communicating frequently with stakeholders, making leaders available for interviews, cooperating rather than resisting regulatory scrutiny, leaders may think they own this trust thing.

Leaders do have an obligation to maintain confidentiality where appropriate. Not all aspects of an organization’s operations should be transparent. However, what should be transparent is an organization’s dedication to the core of trust, which is character.

For example, a CEO should fire an individual who is not meeting performance expectations out of maintaining the trust with other stakeholders, such as investors or other employees who are working hard. On the other hand, is a CEO who fires an employee in a public setting where hundreds or thousands of employees are watching or listening in (and recording the event) demonstrating character (or good judgment for that matter)?

In today’s world, leaders who equate transparency with trustworthiness miss the point. Leaders who lead from a sense of character and invest their time into building trust with their stakeholders will be rewarded with tangible benefits that will become transparent to the bottom line.

Stephen Dupont, APR, is VP of Public Relations and Branded Content for Pocket Hercules (www.pockethercules.com), a brand marketing firm based in Minneapolis. Contact Stephen Dupont at www.linkedin.com/in/stephendupont


Written by Stephen Dupont

Stephen Dupont, APR, Fellow PRSA, is vice president of public relations and branded content at Pocket Hercules, a Minneapolis branding and creative firm. He blogs at www.stephendupont.co.