Trust Is A Forward-Looking Measure

trust“It’s trust, not money, that makes the world go around,” observed Joseph Stiglitz, winner of the Nobel Prize in economics in 2001. Regrettably, trust in the business world has continued to deteriorate. The 2017 Edelman Trust Barometer, a respected measure of trust, shows a world in which trust is in crisis. Two-thirds of countries surveyed by the global communications firm are “distrusters” of the four main social institutions: business, government, media, and non-government.

Around the world, trust in large institutions and their leaders is at a distinct ebb. Trust in CEOs fell to a record low 37 percent in 2017, down from 49 percent in 2016. How well are CEOs trusted? Edelman reported a “trust gap” measured by lack of transparency, failure to exhibit highly ethical behaviors, treatment of employees, and disregard for the environment and the “social good.”

The Edelman research makes the point that trust is a forward-looking measure; it predicts whether people will find leaders and institutions credible in the future. In contrast, reputation is a backward-looking measure, based on your firm’s historical behavior.

Some industries do better in trustworthiness than others. The high-tech industry is the most trusted at 74 percent. No one should be surprised that the financial sector registers the lowest in trust at 51 percent.  Nor did the Edelman result factor in the recent revelations about pervasive misconduct at Wells Fargo, Equifax, and other subsequent failures.

“Around the world, trust in large institutions and their leaders is at a distinct ebb.”

In another sign of deteriorating trust in CEOs and finance executives, some hedge fund managers and other large investors now hire forensic experts to listen in on corporate earnings calls to detect if the executives are telling the truth. Valens Research in Cambridge, MA, a financial research firm, offers what in essence is a lie detector test for CEOs in a post-truth era.

For readers who have not participated in earnings calls, leaders of publicly traded companies periodically get on a conference call and report on the company’s performance. Any investor can dial in and ask the executives questions. The first half of these meetings tend to be heavily scripted.  In the second half, callers can ask questions. Sometimes the questions are inconvenient. That’s when the Valens system goes to work. The company uses a proprietary electro-audiogram (EAG) algorithm to record and measure 15 markers of deception in voice patterns. The markers include inflection, stress, vocal velocity or hesitancy, vocal dynamics, evasion, and the use of jargon and “weasel” words.

Consider the ethical failures of organizations—think Wells Fargo, Volkswagen, or Equifax—the breakdowns often start with an individual in a position of power or influence who have one thing in common: they see profits and values as belonging to fundamentally incompatible realms. In other words, profits appear on the “hard” side of the balance sheet while values, if they appear at all, show up on the “soft” side of the bottom line.

Patagonia, the clothing company, is a profitable values-based company. December 2017 the Venture, CA-based company, well known for its environmental activism, took an extraordinary public stand against the Trump administration’s decision to shrink the Bears Ears and the Grand Staircase-Escalante national monuments in Utah. Within hours of the decision, visitors to Patagonia’s home page saw only a message about its opposition to the plan with a request for visitors to take action to restore the acres. Then the company filed suit in federal court to block the president’s action.  It was the only retailer who chose to get embroiled in the such litigation.

The company quickly found itself under attack with halfhearted calls for boycotts of Patagonia products. The company maintained its resolve. It is impossible to know the costs that Patagonia will pay. But in the long run, it may well be that Patagonia’s values-based resolve will strengthen its worldwide brand, and inspire the loyalty of Millennial customers, who increasingly vote with their pocketbooks to support corporations that align with their values.