Shalene Gupta
Research Associate at Harvard Business School and co-author of The Power of Trust
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Companies are always being judged on whether they warrant our trust: as customers, employees, investors or members of the public. Right now, every company is either building trust through their actions, losing trust or recovering trust they’ve lost. In this time of uncertainty – a global pandemic, war, supply chain challenges – trust is more important than ever before. But what is it and how do organizations go about building it?
Trust has a real and tangible impact on a business’s bottom line.
Trust is our willingness to be vulnerable to the actions of others because we believe in their good intentions toward us. This isn’t just a nice-to-have. It has a real and tangible impact on a business’s bottom line. In a study of 30 NCAA basketball teams, those that trusted their coaches won 7% more of their games than teams that didn’t. In addition, the team with the highest trust in its coach had the highest number of wins. This translates to revenue gains. In another study of Holiday Inns, an 1/8 point increase in trust in managers (on a scale of 1-5), correlated to a 2.5% – or $250,000 – increase in revenue. Scale this up, and we see a huge impact on economies. In a World Bank study of 29 market economies, a 10% rise in trust in the population correlated with 0.8% increase in GDP.
Competence and motives to develop trust
There are four key elements that build trust: competence, motives, fairness and impact. The foundation of trust is competence, a company’s ability to build products and services that work well and live up to their promise.
According to a study by University of Singapore professor Daniel McAllister, people must trust in each other’s competence before they can trust in other more emotional aspects of trust. Consider Uber, the ultra-popular rideshare app. Uber transformed the taxi industry simply by making it easy to find, book and pay for a cab. In 2015, five years after Uber launched, it had 11 million users; the year after it grew to 37 million users, and by 2017 Uber’s users had skyrocketed to 68 million.
However, competence alone is not enough. In 2017, a slew of Uber scandals made headlines ranging from sexual harassment to shady business practices. Ultimately, CEO Travis Kalanick had to leave. During the same period, Uber’s competitor, Lyft, who provides the exact same service, saw its market share grow twice as fast.
Stakeholders also care about a company’s motives: that is, they want to know whose interests a company serves. We all understand that companies need to make a profit. However, as customers we expect that when we buy a product or a service, it will live up to its promise. Then, as employees we expect the company will not actively try to harm us and take a reasonable amount of care to ensure our wellbeing. As investors, we expect transparent and accurate disclosures so we know what to do with our money, as well as wise decision-making from company leaders so we know our investments aren’t being squandered.
This may seem obvious, but remember CEO Elizabeth Holmes of Theranos was able to get more than $700 million in investments, when her product – claiming to revolutionize blood testing – was simple fraudulent science. We cannot actively police everything a company does: in order to engage with a company, whether it’s as a customer, employee or otherwise, we have to generally trust that they have good motives and do not intend to hurt us.
Fairness and impact in trust building
Good intentions also need to be translated into action, which leads us to the next element of trust: fairness. There are four different types of fairness. The first is procedural fairness, which means the company has good processes, based on accurate data, that are used to make decisions and are applied consistently, and whether groups are given a voice in decisions affecting them. For example, at the Ritz-Carlton, managers invite, indeed expect, employees to offer feedback on processes.
Next is distributive fairness which is how resources such as pay and promotions or pain points such as layoffs are allocated. Employees at the Ritz-Carlton, including servers and housekeeping, are offered competitive pay as well as full medical, vision, dental and retirement match benefits. Then there’s interpersonal fairness, which is how well stakeholders are treated. The Ritz-Carlton treats even the employees they don’t hire to a respectful interviewing experience, a box of miniature Ritz-Carlton chocolates, and a fond farewell when they leave. Finally, there’s informational fairness, which is whether communication is honest and clear, and if the people who are impacted by a decision receive the relevant information about it in a timely manner.
The final element of trust is impact. You can nail competence, motives and fairness, but if the overall impact on other people is still negative, that’s what they’ll remember.
The final element of trust is impact: the effect a company’s actions have on other people’s lives. You can nail competence, motives and fairness, but if the overall impact on other people is still negative, that’s what they’ll remember.
For example, in 1958 Chairman Mao decided that he wanted to reduce disease and improve crop yields. He dreamt up the Four Pests campaign, where peasants were rewarded for turning in the bodies of pests – including sparrows, which ate roughly 10 pounds of grain a year. People who handed in sparrow carcasses received a reward. Overall, the campaign was a success: people killed a total of one billion sparrows. The campaign was competent, the motives of increasing crop yields were positive overall, and the campaign was fair – people got their rewards.
However, it turns out that sparrows eat locusts. Without sparrows to keep the locusts under control, the locust population ballooned. Locusts swarmed the land, gobbling up crops. This triggered the Great Chinese Famine, which killed over 30 million people. Today no-one is talking about the brilliant trust success of the Four Pests campaign, even though the impact was unintentional. Whatever the impact is – even if it’s unintended – to remain trusted, you have to take responsibility for it.
We live in an ever-changing world. Companies cannot offer any guarantees about the future: however, what they can offer is the promise that they will continue to do the best job they can.
Trustworthy intentions
The Nobel Prize winning economist Kenneth Arrow once stated that nearly every economic transaction has an element of trust. We live in an ever-changing world where it’s impossible to figure out what will happen next. Companies cannot offer any guarantees about the future: however, what they can offer is the promise that they will continue to do the best job they can, work to help rather than harm people, be as fair as possible, and take full responsibility for the impact they create. In a word, they can work towards being trustworthy.
