Clarify Expectations
E
N
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Assume expectations or don’t disclose them; create vague and shifting expectations.
Practice Accountability
C
E
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Don’t take responsibility: “It’s not my fault!”; don’t hold others accountable.
Listen First
B
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Don’t listen; speak first, listen last; pretend listen; listen without understanding.
Keep Commitments
O
T
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Break commitments; violate promises; make vague and elusive commitments or don’t make any commitments.
Extend Trust
H
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Withhold trust; fake trust and then snoopervise; give responsibility without authority.
Now, if your organizational culture is best described on the right side of the chart in one or more of these behaviors, ask yourself why. What is it in the systems and structures of the organization that’s rewarding—either formally or informally—low-trust behavior?
The core of the matter is always changing the behavior of people.
—PROFESSOR JOHN KOTTER, HARVARD BUSINESS SCHOOL
A few years ago, a friend of mine returned an unopened stereo he had received as a gift to the customer service department of a large retailer. He had his receipt with him, and it was obvious that the box had never been opened. After he had waited in line for several minutes, a customer service representative told him, “I’m sorry, but I can’t refund this until we get someone from our electronics department to come here and check out this box.” Frustrated, my friend pointed out that he was in a hurry and it was obvious that the box had never been opened. The customer service representative completely agreed with my friend that the box had never been opened, but said it was the policy of the company to have an electronics associate check it out, and she had to follow it. It took more than 10 minutes for someone from electronics to arrive. When he did, he simply looked at the box, declared that it was obvious it had never been opened, and said that no inspection was needed. My friend walked out of the store determined to never return, and he recounted this story to many others.
As you can see, this company’s policy was internally focused, and it was clearly not aligned with the principles of customer service and extending trust to its own employees to exercise good judgment. And this absolutely impacts the bottom line.
A careful analysis of all your structures and systems—including information, communication, decision making, and compensation—will pinpoint areas of misalignment. It will show you where you’re being taxed, where you’re losing speed and increasing cost, and where you’re throwing away the dividends that could come from high trust.
Ultimately you’ll want to make sure that leadership paradigms are aligned with the principles that create trust. When leaders fundamentally don’t believe people can be trusted, they create systems and structures that reflect that belief, such as hierarchy, multiple layers of management, and cumbersome processes. In turn, these systems and structures ultimately help produce the distrusting behaviors that validate the leaders’ perceptions that people can’t be trusted in the first place. It becomes a vicious, downward cycle.
[T]he surest way to make [a man] untrustworthy is to distrust him and show your distrust.
—HENRY STIMSON, FORMER U.S. SECRETARY OF STATE
David Packard validates the reality of this cycle from his experience in working for that company that zealously guarded its storerooms and tool bins. He said:
I learned, early in my career, of some of the problems that can be caused by a company’s lack of trust in its people . . . . Faced with this obvious display of distrust [the locks on the bins], many employees set out to prove it justified, walking off with tools or parts whenever they could.
By contrast, when leaders such as David Packard, Blake Nordstrom, and David Neeleman fundamentally believe that people can be trusted, they create systems and structures that reflect that belief, such as open storage bins, one-page employee manuals, and home reservationists. These systems and structures reinforce and ultimately help produce the trusting behaviors that validate the leaders’ perceptions that people can be trusted to begin with. Thus, the paradigms and the behaviors work together to create a virtuous, upward cycle.
The 4 Cores and 13 Behaviors are your tools. They are the keys to creating organizational alignment and trust. They empower you to create significant shifts on all three levels—to help your internal stakeholders to see how trust affects every relationship and outcome in your organization, to speak about trust in a way that promotes understanding, dialogue, and problem solving, and to behave in ways that build trust. They enable you, as a leader, to create a high-trust organization—and both the symbols and the bottom line of your organization will reflect it.
FROM TAXES TO DIVIDENDS
If you don’t yet have enough incentive to work on increasing trust in your organization, here’s one more piece of information which I believe will be the “clincher.”
I’ve said that if you don’t have a high-trust organization, you are paying a tax, and it’s a wasted tax. While these taxes may not conveniently show up on the income statement as “trust taxes,” they’re still there, disguised as other problems. So I invite you to put on your trust glasses so that you can see what’s happening below the surface. I want to show you the hidden taxes in your organization. Then I’ll show you the extraordinary dividends that can come from high trust.
THE 7 LOW-TRUST ORGANIZATIONAL TAXES
1. Redundancy
Redundancy is unnecessary duplication. Of course, redundant mission-critical systems and data management are necessary. But a redundancy tax is paid in excessive organizational hierarchy, layers of management, and overlapping structures all designed to ensure control. For the most part, it grows out of the paradigm that unless people are tightly supervised, they can’t be trusted. And it is very costly.
My father shared with me an experience he had once when he did a presentation for a gaming organization in Las Vegas. The management showed him the gambling floor of the casino. They pointed out that because of the low-trust environment, coupled with the high risk of theft, the gambling floor had four to five levels of management. Thus, they had people watching people watching people watching people. In a high-trust culture, however, one to two levels of management would likely have sufficed.
In some circumstances, rework and redesign might also be considered costs of redundancy that’s triggered by low-trust behavior. In software development, as much as 60 to 80 percent of expenditures can be on rework. In manufacturing, rework costs can often exceed the original cost of producing the product.
2. Bureaucracy
Bureaucracy includes complex and cumbersome rules, regulations, policies, procedures, and processes. It’s reflected in excessive paperwork, red tape, controls, multiple approval layers, and government regulations. Rather than focusing on continuous improvement and getting better, bureaucracy merely adds complexity and inefficiency—and costs—to the status quo. And as management theorist Laurence Peter has said, “Bureaucracy defends the status quo, long past the time when the quo has lost its status.”
The costs of bureaucracy in all types of organizations—including government, health care, education, nonprofits, and business—are extraordinary. In 2018, one estimate put the cost of complying with federal rules and regulations in the U.S. at $1.9 trillion, which is about 10 percent of the gross domestic product. Gary Hamel of the London Business School asserts that cutting bureaucracy in half would result in a $3 trillion increase in productivity growth in the U.S. and an additional $5.4 trillion worldwide. He states: “We need to be honest about how much bureaucracy is costing the economy.”
Low t
rust breeds bureaucracy, and bureaucracy breeds low trust. In low-trust organizations, bureaucracy is everywhere.
When trust is absent, you can see it—more checks, more controls. And processes. That’s bureaucracy.
—RANDALL STEPHENSON, CHAIRMAN AND CEO, AT&T
3. Politics
In an organization, “politics” is defined as the use of tactics and strategy to gain power. Office politics divide a culture against itself by creating conflict with what author Lawrence MacGregor Serven calls the “enemy within” instead of the enemy without.
Office politics generate behaviors such as withholding information, infighting, trying to “read the tea leaves,” operating with hidden agendas, interdepartmental rivalries, backbiting, and meetings after meetings. These behaviors result in all kinds of wasted time, talent, energy, and money. In addition, they poison company cultures, derail strategies, undermine personal health and well-being, and sabotage initiatives, relationships, and careers. The indirect costs related to office politics are estimated at $100 billion per year; some observers put them substantially higher.
Office politics thrive in low-trust environments. In fact, in many ways, “politics” is an antonym for trust.
4. Disengagement
Disengagement is what happens when people continue to work at a company, but have effectively quit (commonly referred to as “quit and stay”). They put in what effort they must to get their paycheck and not get fired, but they’re not giving their talent, creativity, energy, or passion. Their bodies are there, but not their hearts or their minds. There are many reasons for disengagement, but one of the biggest reasons is that people simply don’t feel trusted.
In its 2017 State of the Global Workplace study, the Gallup organization estimates the cost of disengagement worldwide at approximately $7 trillion in lost productivity.
The study further estimates that 85 percent of employees globally are either not engaged or are actively disengaged at work. In some countries, including several in East Asia, the disengagement figure is even higher. With regard to trust, additional Gallup research shows that 96 percent of engaged employees—but only 46 percent of actively disengaged employees—trust management. As the age-old question goes, Which came first, the chicken (distrust) or the egg (disengagement)? It’s a self-perpetuating cycle that gradually grinds the organization to a crippled pace, or even to a halt.
5. Turnover
Employee turnover represents a huge cost for organizations, and in low-trust cultures, turnover is often significantly higher than the industry or market average and several times higher than in high-trust cultures. I’m not talking about the desirable turnover of nonperformers, but the undesirable turnover of performers. Low trust creates disengagement, which leads to turnover—particularly of the people you least want to lose. Performers like to be trusted and they like to work in high-trust environments. When they’re not trusted, it’s insulting to them, and a significant number will ultimately seek employment where they’re trusted. This voluntary turnover also flows from the first two taxes. People just don’t want to deal with all the bureaucracy and politics of a low-trust environment, so they leave. Or, as Gallup’s research suggests, their relationship with their boss is so poor (i.e., has such low trust) that they leave.
The cost of turnover to a company can be enormous, ranging from 25 percent to 250 percent of pay to replace an exiting worker.
Employees who work in high-trust environments are more likely to stay put. Among the Fortune 100 Best Companies to Work For, voluntary turnover rates are approximately half that of industry peers.
—GREAT PLACE TO WORK INSTITUTE
6. Churn
Churn is the turnover of stakeholders other than employees. When trust inside or outside an organization is low, it gets perpetuated in interaction in the marketplace, causing greater turnover among customers, suppliers, distributors, and investors. This is increasingly becoming an issue as social media platforms and other technologies effectively empower both employees and customers to communicate their experiences to the world.
When employees aren’t trusted, they tend to pass that lack of trust on to their customers, and customers ultimately leave. My sister told me about a restaurant she went to once where she asked the waiter what he recommended from the menu. The waiter’s response? “I recommend going to another restaurant.”
Now, I don’t know the context of this waiter’s comment, but I do know that employees tend to treat customers the way they’re treated by management. That’s why former Southwest Airlines President and COO Colleen Barrett said, “Because we approach customer service exactly the same way—whether it’s internal or external—I place the same degree of importance on the word ‘trust’ talking about employees or passengers.”
Studies of customer defection indicate the financial impact of having to acquire a new customer versus keeping an existing one is significant; some say by as much as 500 percent!
7. Fraud
Fraud is flat-out dishonesty, sabotage, obstruction, deception, and disruption—and the cost is enormous. In fact, most of the first six organizational taxes are actually a result of management’s response to this “fraud tax”—particularly the taxes of redundancy and bureaucracy. So in addition to all the individual taxes, there is a circular tax at play—the “fraud tax” giving rise to multiple low-trust taxes intended to deal with the fraud, but creating their own drain of time and money in the process.
In a 2018 study done by the Association of Certified Fraud Examiners, it was estimated that organizations lose 5 percent of their annual revenue to some sort of fraudulent activity. In the Ponzi scheme case of investment manager Bernie Madoff several years ago, the fraud tax was ultimately 100 percent, which sank both him and his company.
Fraud is almost exclusively an issue of character—a lack of Integrity coupled with self-centered Intent. If our only approach to this character challenge is to tighten the reins and put more controls in place, we will reduce the fraud tax only slightly, and in so doing, trigger the other six taxes, which are cumulatively far greater—maybe even five to ten times greater—than the original fraud tax.
Common sense suggests that we need to draw back and approach this problem differently. We need to utilize the 4 Cores of Credibility. We need to hire for character as well as competence. We need to focus our training and development to help people increase Integrity and improve Intent. We need to build and rely on an ethical culture to become the primary enforcer of cultural mores and values. As French sociologist Émile Durkheim has said, “When mores [cultural values] are sufficient, laws are unnecessary; when mores are insufficient, laws are unenforceable.” The key is to strengthen the cultural mores or values; without them, there are not enough means to enforce compliance everywhere.
Rules cannot substitute for character.
—ALAN GREENSPAN, FORMER CHAIRMAN, U.S. FEDERAL RESERVE
When you add up the cost of all these taxes that are being imposed on low-trust organizations, is there any doubt that there is a significant, direct, and indisputable connection between low trust, low speed, and high cost?
THE 7 HIGH-TRUST ORGANIZATIONAL DIVIDENDS
Now consider the dividends of high trust. Obviously the opposites of the 7 Low-Trust Organizational Taxes we’ve just discussed are dividends. To lower or eliminate redundancy, bureaucracy, disengagement, politics, turnover, churn, and fraud will certainly make a huge positive difference in the Trust Accounts and results in any organization.
But there are additional high-trust dividends—dividends that clearly show how trust always impacts speed and cost . . . and also a third measure: value.
1. Increased Value
High trust increases value in two dimensions.
The first dimension is shareholder value—and the data is compelling. As I noted earlier, in a Watson Wyatt study, high-trust organizations outperformed low-trust organizations in total return to shareholders (stock price plus dividends) by 286 percent. Addi
tionally, according to a study by Russell Investment Group, Fortune magazine’s “100 Best Companies to Work for in America” (in which trust constitutes nearly two-thirds of the criteria) earned over four times the returns of the broader market over a prior seven year period. As Fortune declared, “Employees treasure the freedom to do their job as they think best, and great employers trust them.”
The second dimension is employee and customer value. As a result of the last six dividends described below, high-trust organizations are consistently able to create and deliver more value to their employees as well as to their customers. This employee and customer value, in turn, creates more value for other key stakeholders.
2. Accelerated Growth
High-trust companies outperform low-trust companies, not only in shareholder value, but also in sales and profits. Research clearly shows that customers buy more, buy more frequently, refer more, and stay longer with companies and people they trust. Plus, these companies actually outperform with less cost. It’s “Jim,” the donut and coffee guy writ large.
With high-trust relationships, not only does customer retention significantly increase; so does word-of-mouth marketing—as well as the quantity and quality of referrals. Referral business is a great illustration of the speed of trust in action. When your customer tells your prospect that he or she can trust you, that typically creates a transference of trust from your customer to your prospect, and your prospect becomes a new customer much faster and at less cost than normal. The net result is not just accelerated growth, but accelerated profitable growth. A 2015 study by Interaction Associates shows that high-trust companies “are more than 2½ times more likely to be high performing revenue organizations” than low-trust companies. As former Vanguard Investments CEO John Brennan declared, “Trust is our number one asset . . . . As customers learn to trust us, they generate a surprising amount of growth.”
The SPEED of Trust: The One Thing that Changes Everything Page 31