Who can you trust, and how do you trust? These are two challenging questions that every entrepreneurial CEO has to address to ensure growth, profitability and productivity. Article #7 in a series exploring the big questions that entrepreneurs ask as they’re starting up and growing their businesses.
Trust is hard enough in-person. Online, it’s even harder.
Warren Buffet had it right: “It takes 20 years to build a reputation and five minutes to ruin it.” Trust is hard to earn, but easy to break. In today’s “hybrid” / “work-from-home” / “remote-first” work environment, earning trust is all the more difficult. As Alexandra Samuel writes in JSTOR Daily (emphasis mine):
Trust, as it develops in offline contexts, is inextricable from the tangible, face-to-face nature of human relationships. In the absence of that physicality—the ability for trust to be seen and felt, in eye contact or a handshake—many scholars are skeptical about the very meaning of “trust” online.
Many of us (be honest, now) were slightly relieved when the summer business ritual of the corporate leadership retreat was cancelled (or more likely, perhaps, moved online): at least we could get a few hours back to actually get some work done. But it turns out, those “rope courses” and “trust fall” exercises serve an important function (when done right). They build trust between leaders, and between leaders and employees. And this trust is critical, not just for happier employees, but for more efficient companies.
Trust is profitable.
Economist and Nobel Laureate Ken Arrow (perhaps best known for “Arrow’s Impossibility Theorem“) wrote in 1975 (emphasis mine): “It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence.” Chami and Fullenkamp (2002) noted the following about Arrow’s claim: “What is striking about Arrow’s remark is that he cites mutual confidence – trust – rather than technology, natural resources, education, or some other input as being essential to the development of an economy.”
Dirks & Skarlicki (2004) conducted a meta-analysis of studies relating various aspects of trust to corporate profitability. They found three studies in particular that (emphasis mine)
support the conclusion that trust is related to “bottomline” effects in terms of group and organizational performance. What is interesting is the magnitude of the effect suggested by the studies – the effect is even stronger than what might be expected based on the data from studies of trust at the individual level and its relationship with seemingly more proximal factors such as individual performance and organizational citizenship behavior.
Estimates for the “trust bump” in the bottom line vary from around 7% all the way up to 20% or so. For a high margin business, this may not seem like much, but for businesses where a few percentage points mean the difference between profit and loss, trust can be an important success (or even survival) factor.
Trust is complicated.
Now that we’ve established the importance of trust, let’s explore how trust works. Dr. Marianna Pogosyan writes in Psychology Today:
Researchers in social psychology differentiate between two kinds of trust – affective and cognitive. Cognitive trust is based on our knowledge and evidence about those we choose to trust. Affective trust, on the other hand, is born out of our emotional ties with others, including the security and the confidence we place in others based on the feelings generated by our interactions. Sometimes, the differences of cognitive and affective trust have been described as trusting with your head (cognitive) and trusting with your heart (affective).
Now the skeptics among you who have followed my logic closely may point out a potential flaw in the reasoning: what direction of trust was being measured in those profitability studies? Was is trust in the leadership, or trust in the employees? And what kind of trust was it? Trust is complicated — it’s multidimensional, as this diagram on the varieties of trust illustrates:
Furthermore, you can look at trust from two more dimensions: intent and condition:
As to directionality, well, ultimately it doesn’t matter: all the many different forms of trust can be broken — even the “unconditional” kind) if the recipient of the trust (the “grantee” or “trustee”) ultimately demonstrates untrustworthiness. Research shows that the acts of trust are based on both general and conditional factors. General (“trustor”) factors can be described in part as the “altruistic” nature of the trust grantor: are they generally inclined to trust or distrust others in specific circumstances? Conditional (“situational”) factors involve an assessment of the grantee’s intent and the observation of the grantee’s behaviors. How much each factor plays into the trust decision will vary dramatically from individual to individual. But one thing remains true.
Trust is easy to model, but hard to earn.
In his book The Decision to Trust: How Leaders Create High-Trust Organizations, Robert F. Hurley developed a model for trust that draws on these two categories of factors to describe the trust relationship. He identifies 10 total factors: three “trustor” (“general”) factors, and seven “situational” (“conditional”) factors that you need to address in order to build trusting relationships with colleagues, acquaintances, friends and loved ones:
Do you trust your employees, partners, consultants and suppliers? Let us know in the comments below.