ARTICLE

By Patricia Werhane

The current loss of faith in government may present an opportunity to strengthen trust in the private sector of the economy

“The value of trust at the individual, institutional, national, and global levels
cannot be overstated. Without…trust in our political economies, at all levels,
the future of an economically vibrant planet is indeed bleak.”

[1]

[1] Werhane, P., et. al., 2011. “Trust After the Global Financial Meltdown.” Business and Society Review. 116: 405.

Fukuyama defines the term trust as “a set of relationships between individuals, organizations, or political economies, a commonality on some level of mutual reliance or expectations that one’s word and agreements will be honored. The goodwill of each party is assumed usually without written contracts or legal documents…”[1]

[1] Fukuyama, F. 1995. Trust: The Social Virtues and the Creation of Prosperity. New York: Free Press, 5.

Trust entails a promise—a moral obligation to keep one’s word and honor expectations. When one has been in a trust relationship for some time, one becomes confident of future relationships of trust in that context. Most importantly, trust is the “glue” that holds together ordinary social expectations, business transactions, and viable political economies. Without trust in each other, in commerce, and in our political economy, we could not operate, or operate very well.

For example, the ongoing myriad of commercial transactions over the Internet, where orders are received and delivered, credit cards usually are not scammed, and privacy is expected to be protected, exemplifies how much we rely on trust in commerce. Thus, not only is there a moral obligation to honor trust relationships, it is also an economic and political necessity. When goods and services cannot be exchanged without fraud, or when our politicians violate their promises or our belief in their goodwill, trust begins to disintegrate for those institutions.

Since the Enron disaster in 2001, and culminating in the 2008 global financial meltdown, we experienced an erosion of trust and a concomitant rise of distrust in domestic companies, in multinational enterprises, and in political economies. However, since 2010, that scenario has changed. According to the 2014 Edelman Trust Barometer,” the…Barometer shows the largest ever gap between trust in business and government since we began this study in 2001. This can be attributed to a continued destruction of trust in government that began in 2011, and a steady rise in belief in business since its nadir in 2008.”[1] But, Edelman continues, this does not exonerate business from regulation, nor should it be a sign that more deregulation is appropriate. There are still a number of instances of questionable behavior in commerce, even today, such as hedge fund misrepresentations, GM’s massive recall, the ongoing BP deep water disaster case, FDA failures to regulate variable drug pricing in pharmaceuticals and their 2014 recalls of over 80 food products that did not meet legal standards or were mislabeled, and employee complaints including wage theft and sexual harassment. These and other newsworthy events belie justification for deregulation.

However, the disintegration of trust in government is an opportunity for corporate leadership to increase trust both within the company through fair governance and in their relationships with external stakeholders. How does a company do that? First, leadership must take the initiative by being transparent, by admitting mistakes when they occur, and by engaging in dialogue with a variety of internal and external stakeholders. Improving trust with employees, professional staff, and shareholders is key to best practices in corporate governance. Improving trust externally with customers, suppliers, community advocates, government and non-government organizations, and environmentalists, and taking seriously critiques of corporate behavior, are key to building trust as well.

Companies are made up of human beings and, like human beings, they make mistakes. The public is forgiving if one admits those mistakes. For example, proactive engagement with mortgage borrowers, transparency in lending practices, encouraging good watchdogs over their own lending practices early on in the 2008 subprime mortgage crisis, and admitting their mistakes might have saved JP Morgan and Bank of America millions of dollars in fines and reengaged disgruntled clients. This is an old lesson, learned in the 1980s when Johnson & Johnson publicly pulled Tylenol capsules off the market despite no evidence of company involvement in the poisoning incidents. That one transparent action endeared J&J for at least two decades as the most trustworthy of the large pharmaceutical companies.[2]

A second corporate strategy is connected with the first. That is a reminder that commercial activities affect, and are affected by, individual human beings or groups of human beings. This is obvious—so obvious that it is often neglected. For example, when mortgages are bundled, sometimes the “bundlers” forget that each mortgage in the package represents a real person or owner-borrower. Sometimes, when massive layoffs occur, company executives forget that each person laid off is that—a human being with a family and needs. These groups of individuals have names and faces, and woe to the company that forgets that.

This does not mean that bundling, per se, is wrong or that layoffs are not necessary, but the processes and assistance that can be offered, and sometimes are offered, are not universally occurring. Then distrust develops across commerce for the behavior of a few companies and managers. Note, for instance, how the behavior of a few deviant Uber drivers has hurt the taxi industry as well as Uber.

A third strategy, then, is the development of industry standards that are actually policed. There are many industries such as pharma, biotech, the defense industry, and the chemical industry that do just that. The protection of the industry “brand” is essential to achieving trust.

Why is trust so critical to our political economy and to corporations? Imagine trying to build a model airplane without glue. The parallels are obvious. Winston Churchill once said, “Democracy [and thus free enterprise] is the worst form of political economy, except for all the others.”[3] This current historical “moment” of loss of trust in government is an opportunity to strengthen trust in the private sector of the economy. Let us not lose that opportunity.

[1] http://www.edelman.com/insights/intellectual-property/2014-edelman-trust-barometer/about-trust/executive-summary/ Accessed January 10, 2015. Author’s italics.

[2] Recently, J&J has had some issues such as their recall of 100,000 faulty hip implants. Perhaps they forgot their own lesson.

[3] The original quotation is in many forms, but it is more accurately quoted as: “Many forms of Gov­ern­ment have been tried, and will be tried in this world of sin and woe. No one pre­tends that democ­racy is per­fect or all-wise. Indeed it has been said that democ­racy is the worst form of Gov­ern­ment except for all those other forms that have been tried from time to time.…” (Churchill, W., 1947; 2008. Churchill by Himself: The Definitive Collection of Quotations. Ed. Richard Langworth. New York: Public Affairs).