Home > Risk > Are you, your organization, and its leaders trusted?

Are you, your organization, and its leaders trusted?

December 28, 2012 Leave a comment Go to comments

Trust is critical to success. The trust:

  • Customers have for the organization’s products and services, including its vision and strategies
  • Customers have for the company’s representatives, such as their sales personnel, service representative, help desk, etc.
  • Employees have in their organization’s leaders and their vision and strategy
  • Employees have for their direct managers and supervisors
  • Managers have for their employees
  • Suppliers and vendors have in the organization, including representations concerning payment, handling of confidential information, bidding processes, and more
  • Channel partners have in the organization and its representatives, including representations about products and services, supply commitments, and more

A new book, “The Trust Edge” by David Horsager*, is an interesting read and makes a number of points regarding the value of need for trust:

  • Trust can accelerate and mistrust can destroy any business, organization, or relationship
  • Greater trust brings superior innovation, creativity, freedom, morale, and productivity
  • No matter what your role is, trust effects your influence and success
  • Watson Wyatt studied 12,750 U.S. workers in all major industries and at all levels. According to the study, “Companies with high trust levels generated total returns to shareholders at almost three times that of companies with low levels of trust”
  • Trust is a confident belief in someone or something. It is the confident belief in an entity:
    • To do what is right
    • To deliver what is promised
    • To be the same every time, whatever the circumstances
    • The trust edge is the competitive advantage gained when others confidently believe in you
    • It took an average of seven months for employees to build their trust in a leader but less than half that time for them to lose it
    • Fewer than two out of five employees today [Watson Wyatt survey] have trust and confidence in their senior leaders
    • One of the biggest reasons for trust is the perception that people are concerned, beyond themselves, for the good of the whole
    • The ability to show care, empathy, and compassion is a strong component of trust
    • A Gallup report found that “employees don’t leave companies, they leave managers and supervisors. People leave because they are not respected, listened to, appreciated, or cared about




My advice for individual leaders:

  1. Question the trust you have for your team. Do you freely trust them, giving them autonomy and decision-making powers? Or do you question every action, punish their mistakes, and retain decision-making for yourself?
  2. Ask whether you treat your employees the way you want your manager and your spouse to treat you
  3. Question whether everybody on your team trusts you. How many open up to you without fear? How free are they to share dissenting opinions? Do they tell you when you are about to make a mistake? Do you retain employees as long as or longer than your peers? Do employees from your prior positions follow you? Are they clearly happy?

My advice for board members:

  1. Question whether you trust each of the following individually: the CEO, the CFO, the general counsel, and other key leaders such as the head of internal audit, the chief compliance officer, and other key executives. How much confidence do you have in their integrity, transparency, commitment to the long-term success of the organization, and abilities?
  2. Ask whether you have sufficient collective trust in the executive leadership team to bring you the information you need when you need it, recommend strategies, and execute
  3. Do the executive leaders demonstrate trust both with each other and with you?
  4. Do you trust each other?
  5. What is your level of trust in your other key advisors, such as the external auditor, external counsel, and compensation advisor?
  6. Is the leadership team sufficiently trusted by the organization’s employees?
  7. Is the organization itself sufficiently trusted by customers, channel partners, agents, vendors, regulators, and others in the extended enterprise?
  8. Does management measure, monitor, and act to ensure trust?

My advice for the executive leadership team:

  1. Do you trust each other, freely sharing information and resources, making each other’s priorities your own priorities, sharing views and opinions openly and without fear, supporting each other in actions as well as words, and ensuring that everybody is working without exception to common purpose and goals?
  2. Do you have and demonstrate trust in the leadership of the CEO? CFO?
  3. Do you trust the board?
  4. Do you trust your employees? Are you sure? Do you demonstrate that every day?
  5. Do you trust those in your extended enterprise?
  6. Do you know whether the employees trust you? Is the level of trust sufficient? Do you act in such a way as to gain and retain their trust?
  7. Are you, as an organization, trusted by your customers, both current and potential? How do you know? Is the level of trust sufficient and how can it be improved?
  8. Is the organization sufficiently trusted by customers, channel partners, agents, vendors, regulators, and others in the extended enterprise?
  9. Is the organization sufficiently trusted by the community, regulators, examiners, etc?
  10. Do you measure and monitor trust? How will you know if it drops? What can and should you do to enhance it?

I welcome your comments on this topic. I think it is an interesting topic, going beyond a discussion of reputation. Do you agree?



*Disclosure: Representatives for the book contacted me to write a review and sent me a copy. They provided permission for the quotes (above) and a copy of the diagram I have included.

My comments are my own and I have not been compensated in any way for them.

The book has received plaudits from luminaries such as Ken Blanchard, Lou Holtz, and Harvey Mackay (author of Swim with the sharks without being eaten alive). It’s been on the Wall Street Journal’s best-seller list (as high as #2), although it is not listed at the moment.

Does it deserve such praise? Should leaders aspiring to greatness buy it?

I think it has some good content and give it a general “thumbs up”.

My recommendation is for leadership teams to use the book and its advice as the foundation for an open and frank discussion about trust in all its forms (see the first paragraph, above).

The good:

  • The value of trust is described at length and is persuasive
  • The book style is conversational, an easy read, and has useful summary questions at the end of every chapter
  • The advice on how to gain trust includes a wide variety of activities, such as the need for clarity of vision, demonstrating trust in your people, and more
  • It provides a good starting point for a discussion about how well your organization is trusted and what actions to take to increase it

The not so good:

  • There is no guidance on how to assess whether you and your organization are trusted. Maybe this should be a follow-up book: identifying and discussing the red flags signaling a lack of trust by employees; within the executive team; within the board; between the board and management; of employees; and of the company by customers, vendors, channel partners, regulators, the community, and more
  • The book doesn’t do enough, in my opinion, to separate the issues of whether you as an individual are trusted from whether the organization is trusted
  • While the book has a wide range of tips and advice, some of it is less relevant to trust. I wish it had focused more on the top issues instead of trying to cover the entire waterfront.
  1. December 28, 2012 at 12:04 PM

    You have to trust your coworkers and employees and neighbors and civil employees, etc., If you don’t, life as we know it doesn’t work, and breaks down into anarchy or totalitarianism.

    However, trust is not an internal control. Every embezzler was a trusted employee. Bernie Madoff was a trusted adviser. Arthur Andersen was Enron’s trusted adviser and the Enron employees and their families trusted the auditors and the company executives.

    This sounds like pop culture at its worst. It reminds me of 7 habits of successful people. Really? Only 7? That’s all it takes? Bah. Success in life takes either a large trust fund, or a unique set of circumstances and luck, or a lot of hard work. And in a lot of cases, it takes all three. All three would be nice.

    Sure, trust is good. Trust is nice. But if it’s all the same to you, we’re just going to go ahead and confirm those receivables and bank balances directly with the customers and bank.

    • Norman Marks
      December 30, 2012 at 6:30 AM

      Thanks for the comment, Dana.

      Don’t you think we should all be more sensitive to the lack of trust – whether as individuals, leaders, or executives?

      If we sense it in the organization as auditors, can it not be one of the causes of a poor control environment?

  2. December 29, 2012 at 6:05 AM

    I wholeheartedly agree (although I do think that trust and reputation are so bound up together that trying to separate them might be an exercise more academic than practical).

    In a recent paper I suggested, after reviewing some behavioral science work on organizational ethics and compliance,

    “…we might think of trust in management as the glue that holds all the data together, so much so that causation seems to go in circles (virtuous or vicious as the case may be). We trust leaders whom we believe to be ethical, while at the same time one of the main ways we judge a leader’s ethics is by observing whether their actions justify our trust. We also attribute leaders’ ethical character to the organization, trusting our company to the extent we trust its leadership. And if we trust the company, we tend to admire it, identify with its goals and interests, grant legitimacy to its rules, and behave accordingly. Yet, in the other direction, fair rules and policies, fairly applied, show an ethical commitment at the corporate level that may confer a corresponding halo effect on company leadership. The causation may be intricate and recursive, but what we know is that compliance rises and falls with our trust in the ethical values of our leaders and our organization.” (The rest of the paper can be downloaded at http://ssrn.com/abstract=2161076 )

  3. December 29, 2012 at 6:22 AM

    Benson, I believe trust is an internal control — but like any control, it doesn’t work in all situations or on all people. It is a hugely important part of the control environment nevertheless.

    Employees aren’t all alike, of course, nor are the situations people find themselves in. We can’t control psychopaths with trust, or others whose value systems begin and end with their own advantage. With trust alone we can’t control people who are under the thumb of toxic leaders, people who are under enormous financial stress, people subject to unusual temptations, or people who are given powerful incentives to cheat.

    But most people, absent desperate circumstances or extreme temptation (and the latter can be prevented by other kinds of controls that I’m sure you have more faith in) are not really potential embezzlers. Most people think embezzlers and other lawbreakers are bad, and most people would want to do something about it if they thought it was going on in the next cubicle or office. But when they observe or suspect wrongdoing in the organization, they will report it only if they do not fear retaliation — particularly, if what they spot is going on in management, only if they believe they will be protected by upper management. In short they must trust upper management, and the trust must be strong.

    These “regular folks” and their observations of what goes on around them can be the organization’s “eyes on the street:” an enormously important internal control, but one that is effective only if they report what they see, and that depends on trust.

    • December 29, 2012 at 7:34 PM

      How is trust an internal control? Look at my database of 151 embezzlement cases from 2012. Every business listed was the victim of betrayal by a trusted employee. How would you assess the efficacy of trust as an internal control in these cases? How about Bernie Madoff and Enron and all the others? I think you fall victim to a common and unfortunate misconception. Trust is an emotion. Trust is a feeling. It’s a failure as an internal control.

      Internal controls are not just to prevent fraud. They also help protect the innocent from false suspicion and accusations. If controls are effective and functioning, fraud perpetrated by a fellow employee cannot be foisted on me. If cashiers share a cash drawer because both are trusted, and one betrays that trust, both are suspect. Employers owe their employees a duty to see that the honest employee cannot be unjustly suspected of fraud.

      • Scott Killingsworth
        December 29, 2012 at 8:11 PM

        I wouldn’t recommend trust in person A as an internal control over a cash drawer to which person A has access. But the control environment includes many kinds of influences on behavior, hard controls and soft controls.

        You seem to be focused on hard controls and that is a completely legitimate focus for many professionals (for example internal audit professionals), and hard controls are necessary and sometimes sufficient for preventing many kinds of misconduct, especially those that lend themselves to access or process controls, auditing and surveillance. But they are not the entire picture. For those who have general responsibility for employee compliance, soft controls are quite salient, because we must be concerned with people and processes that cannot be externally controlled, audited or monitored with 100% effectiveness. That’s a lot of people and processes.

        If the notion of trust as a way of encouraging good employees to blow the whistle when they see wrongdoing that is not prevented by hard controls seems worthless or stupid from your perspective, I am not sure how best to convince you otherwise; but there is a huge body of behavioral science and other evidence of the enormous positive effect that ethical leadership, positive culture and, yes, trust exert on compliance results, and if you are interested in learning about and possibly taking advantage of that research, the article I linked to will provide a user-friendly entree into the science.

      • Scott Killingsworth
        December 29, 2012 at 8:26 PM

        Here is a nice piece, written by a credible commentator, about employee relations as a part of the control environment, and about the positive effects of such trust-inducing practices as transparency, consistency and fairness. http://internalcontrolfreak.com/?paged=4

        • December 30, 2012 at 2:39 AM

          I think I understand the importance of treating employees with respect and compassion as a factor in creating a work environment where people can apply themselves, excell, and find a fulfilling job or career, but I see too many instances where management confuses this with internal controls to the point of actually weakening the overall control environment by relying on “trust” in place of some other manner of hard control. If you saw my post on sharing passwords, I explain the same concept in a slightly different context. Since I see so much bad management in practice. I feel compelled to take a harsh stand in favor of real internal controls any time I get a chance. I will never be convinced that trust is an internal control.

  4. angelawerkt
    December 29, 2012 at 9:51 AM

    As some of the author’s above point out, trust is not the magic wonder-oil that heals all ills. In management discussions the issue of power in dealing with trust is consistently ignored. Managers have the power to change worker’s careers (and their lives), therefore it is always, always going to be very hard for workers to trust their managers. On the other side, if something goes wrong in the team you’re managing – it’s management that gets it’s head cut off. That power imbalance makes trust a hard thing to find in the workplace, people are wary of trusting others because the risks involved are huge. I would love to see some research that addresses this issue.

    There’s also some interesting research around suggesting that trust can be stifling when an organisation is confronted by severe changes in it’s environment – trust creates an inward focus that makes it difficult to react swiftly to changing markets.

    So let’s get real when we’re talking about trust and discuss the situations when it’s worth taking that risk. For managers, it means they can trust their team if they have seen evidence that their workers are professionals, know their job and can handle most stuff that gets thrown at them. For workers, it means they can trust their managers if they see that there’s space to make a mistake now and then, and learn from it. Trust requires a lot of investment in communications and building relationships – on both sides of the fence. If you’re working in rapidly changing markets, you just might not have that much time to invest in getting to know everyone really well – next week could be quite different again.

  5. Peter
    December 29, 2012 at 11:24 AM

    Interesting if not ironic. I recently left an organization because of my lack of trust in the CEO. My work changed the culture of the organization. However it required integrity to create that cultural change. When you are working with culture, I believe that all the actions require integrity. When I felt my integrity was going to be jeopardized by the direction, the influence and the actions of the CEO – I left. I didn’t trust the man. The irony is that in every place I had been, there had been embezzlement before I came. I saved millions of dollars each year and clearly paid for the investment in my position and I could be trusted. Yet when it came to getting the top person to do some self-evaluation and look at his own ethical issues – it was clearly communicated that this was not going to happen. When it comes to money issues the mafia refers to losses from below as “skim.” When you teach people to be crooked they are going to steal or skim as the money moves upward. A certain amount is tolerated because it is the nature of the beast when you teach people to be dishonest, but it is a slippery slope. I am lucky that I had the financial ability to leave. Many people have to make bad decisions because they are financially dependent upon their jobs. They slowly compromise. If you want good people to follow you – hold to your values and allow for transparency and evaluation.

  6. December 29, 2012 at 2:44 PM
  7. Norman Marks
    December 30, 2012 at 6:33 AM

    The thrust of my post is:
    1. Trust is important
    2. Know when trust is not at the desired level
    3. Understand the consequences
    4. Act to regain/rebuild trust

    In other words, it is not enough to recognize that there are trust problems. It is necessary to recognize how this affects individuals and organizations and then act to correct it.

    Do you agree?

  8. December 30, 2012 at 8:00 AM


  9. December 31, 2012 at 5:56 AM

    I’m trying to reconcile the discussion on trust with the activities at Enron and Arthur Andersen (and all the others, but these will do as an example.) I can’t help returning to the thought that it seems like the Supreme Court’s conclusion on porn – You know it when you see it. There is mutual trust and respect within the organization or there is not. I really struggle with how to measure and assess where, on a spectrum of trust, any particular organization sits at a single point in time, and how spectacularly vulnerable it is or may be to some precipitous change or betrayal. Clearly, I am bound tightly to the concrete and practical and not nearly as comfortable in an academic or hypothetical arena.

    I’m imagining the environment at Arthur Andersen and how the partners’ (and employees’) futures were directly bound by their reciprocal trust in each other. How would the discussion on trust be practically applied in that exercise and to Enron? And then my mind begins extrapolating the thought to all the other examples we see on a weekly basis in the media, of fraud and betrayal of trust at the corporate level.

    I apologize for droning on Ad nauseam.

    Benson Dana, CPA – that would be last name Dana, Middle name, by which I go, Benson.

    • December 31, 2012 at 11:48 AM

      I’ve read most of your blog entries, Benson, and I found them very interesting and informative and would recommend them to others. At the same time, I was struck by how many of them, and how many of the controls discussed, relate specifically to things that can be found in one place and counted, and how much relates to employee theft and other crimes against the employer as opposed to actions that damage customers or the public — all in all, a very concrete subset of compliance to be sure.

      As an internal audit professional I know you’re aware that a lot of behaviors and outcomes cannot be easily or economically audited or directly controlled. Antitrust conspiracies, employment discrimination in the workplace, compliance (in an arena dear to my heart) with 99% of all ethical rules that apply to the learned professions, deceptive trade practices or advertising, misleading investors, misuse of confidential information and intellectual property violations of all kinds, and virtually any action taken by a professional, manager or executive who has a lot of autonomy. Where hard controls are hard to come by, it makes sense to try to look at other ways of controlling behavior, or of detecting misconduct as soon as possible — such as by employee tips (which as I’m sure you know accounts for a substantial percentage of fraud discovery).

      This naturally leads to questions about what kinds of factors influence human behavior. If you believe that behavioral science research is “academic” (as opposed to, say, “scientific”) and is therefore, by definition not practical, that would be a barrier to getting on board with its findings, for sure. But there is a lot of very non-theoretical science out there and it has a lot to say. All you really need to accept is that:

      1. Behavior can be influenced by beliefs, attitudes, assumptions, emotions, and predictions about other people’s behavior. (As a simple example, if you think deterrence works, it works because people are deterred by their predictions of what others will do to them when they’re caught).

      2. Trust is some combination of belief, attitude, assumption, emotion and prediction.

      3. Responsible scientists have repeatedly found in cleverly designed controlled experiments and in in-situ workplace studies that employee trust in management positively influences both compliance with workplace rules and law, and reporting of observed misconduct.

      4. Similarly, there are ample findings that when management treats employees with trust and respect, employees are more likely to become committed to their employer, to take personal responsibility for their actions (rather than outsourcing their ethical decisionmaking or becoming ethically disengaged), to follow rules and report misconduct, at least if the trust is mutual.

      5. There are likewise compelling findings showing a very strong correlation between mistrust of management and the incidence of misconduct in an organization. You can argue about correlation vs. causation but the studies are pretty eye-poppling and whether or not you’re convinced, if you look at them critically you’d at least have to admit something is going on that is worth paying attention to. And if you compare the correlation-based in-situ studies with the similar experimental work where changing one variable demonstrably drives a change in another, it’s hard not to believe the causation in the correlational studies.

      6. You definitely don’t have to believe that trust, or leadership, or culture, or values, or any other soft factor, works all the time with anyone, or works any of the time with every person. You don’t have to believe that psychopaths and other fundamentally bent people can be reached with the soft stuff — they can’t be. All you have to believe is that the population is a bell curve on ethics and character just like on any other continuum. In this case there are psychopaths at one thin end of the curve and maybe an equal number of saints at the other. Then there’s the enormous fat middle that contains most of us. Most of us are susceptible to any number of group, social-psychological and inter-individual influences that can nudge us towards bad behavior or deliver us from temptation.

      7. If you accept 6, and think about the huge number of people in that middle group, then it’s not much of a step to consider that if, via leadership, culture, trust, etc. you can nudge any significant portion of that large population, any significant distance towards better behavior and towards reporting questionable behavior that they observe, then you’re going to have a significant overall impact on compliance in the organization. It’s simply the law of large numbers. Put it to work!

      8. Keep up the hard controls, the monitoring, the auditing, the punishment and deterrence, for the bad guys and the people who fall prey to temptation or rationalization, who have unusual pressures on them or are under the influence of toxic leaders. But to ignore soft controls and their benefits is to miss out on a great opportunity.

  10. January 4, 2013 at 7:52 AM

    The personal values and ethics of both senior management and other responsible line management play a critical role in shaping the culture of an organization, and that culture can be a powerful driving force behind corporate behavior. Call me a pessimist, but I see a shocking lack of ethics throughout the ranks of senior management at too many gargantuan multinational corporations. They are certainly too big to fail, and that provides the leadership the perfect cover for pillaging the firm and the customers to their own personal enrichment. I single out the largest global corporations because of their potential to wreak widespread harm.

    I do tend to focus on the mundane and immediately practical because that is the only perspective where I kid myself that I may have some influence.

    Let’s just kick the hornet’s nest of fracking for a second. How is it conceivable that anyone would purposefully contaminate groundwater with poisonous chemicals on a wide scale? In my mind, ground water is sacred. And yet, we have “debates” over this practice? Really?

    My only consolation is that I will not live long enough for this to seriously degrade my own life, but I fear for the future. Too many good people are standing on the sidelines, doing little or nothing or not enough.

  11. Jan Whitaker
    January 15, 2013 at 12:01 AM

    Sorry to hit and run, late at that!, but I have too experienced this recently in a volunteer organisation. Dare I suggest that ‘little Hitlers’ are everywhere, and maybe moreso in smaller orgs where they grasp for power? My response as others have mentioned was to leave, after being elected to the board, and after only 2 months in the position. Trust was broken permanently by the president of the group from my perspective. I relayed to the group why I was leaving (pretty much self-preservation from the actions of the bully president of the org), as Norman suggests, but for very little effect. To prove my point, the bully proceeded to rip me over the coals in a follow-up email to the same group after I resigned, call me self-centred, and taking no recognition of his involvement in the situation.

    So I guess my example is that sometimes you gotta just take yourself out of the distrusted situation, let people know why, and shift your efforts elsewhere that your contributions are respected and wanted. I’m still a general member of the group, so still have an interest in it, but not to the extent of contributing my knowledge and skills on the “c”-level team. Life’s too short. I might have taken a different tack if it was paid work and I had a family to feed. But then a whole other set of motivators kick in as well as personal ethical choices.

    There was a great (LONG!) article by Daniel Ellsberg on Huffington Post today, describing how he dealt with the major distrusted situation he found himself in. The psychology of it was fascinating, as well as the down side of unbridled authority combined with national security clearances. The trust issues are life and death in his example.


  12. March 3, 2013 at 10:11 AM

    I think of trust as a phenomenon with four attributes:

    * trusting party
    * trusted party (not necessarily an individual – think “brands”)
    * object of trust
    * degree of trust

    Three of these attributes appear straightforward.

    The fourth, which I call “object” for lack of a better term, is not trivial. If I trust you, what specifically does that mean? Is it about your integrity or your ability to complete a specific task? And how different are those really, if the task at hand requires a lot of integrity?

    Thanks for sparking this interesting discussion.

  1. December 28, 2012 at 12:50 PM
  2. January 9, 2013 at 3:30 AM
  3. January 10, 2013 at 7:10 AM

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