Corporate leaders discount the impact of trust at their peril. Trust holds the key to inspiring a sense of ownership and building self-esteem. In fact, there are few more important factors in attracting and retaining top talent than a corporate culture built on trust.
In the informal contract that exists between leaders and their teams, trust is the essential ingredient. In any top-performing company, this bond of trust is a critical driving force. But as our professional experience has shown over recent years, what should be a self-evident keystone in the personal relationships fostered by top executives is often the neglected dimension of leadership. By disregarding the need to cultivate and sustain trust in their organizations, some leaders are failing to build what we consider a vital “brand” of trust; and given the focus on a new “War for Talent”, this could prove a fatal error.
In the western world in particular, companies tend to abandon essential values like trust when faced with a fierce and competitive environment. What they forget is that trust is as fragile as it is precious. Like a good reputation, it can be destroyed so much more easily than it is built. Consider only the scandals of the early 2000s or the aftermath of the subprime crisis. Equally, hypocrisy in public-facing individuals, whether corporate executives, politicians or religious leaders, can break down trust, destroying value, organizations, careers and ultimately people’s lives.
But trust is not only important in creating a high-performance internal organizational environment. It is also crucial in motivating external stakeholders and customers. A recent Edelman Trust Barometer noted that 64 percent of opinion leaders surveyed in the United States, Canada, France, Germany, and Spain said that they would not buy the products and services of companies they did not trust. Interestingly, from a recruitment point of view, approximately one half of those interviewed also said they would not work for such companies.
Creating a trusting environment
Trust-based leadership is important to an organization because inviting employees to work in a “trustless” environment is both demeaning and dispiriting. On the positive side, trust-based leadership also drives superior organizational performance. It does so in three ways:
A trust-based organization is essential for attracting and retaining top talent. This has never been more important than it is now for the huge numbers of “Generation Y” who are currently in the critical years of their working lives. Studies show that this generation puts a premium on working in environments that are congruent with their own values – particularly integrity. They know the “War for Talent” is alive and well, and they have options. Organizations that want to attract and retain this generation of talent need to understand the imperative for trust-based leadership.
The second driver of superior performance in trust-based organizations is employee motivation. Employees working in an environment they trust – and in which they are trusted – “bring more of themselves to work.” They are not distracted by the organizational politics that characterize many large organizations, siphoning off significant amounts of team energy and generating debilitating fears amongst employees.
Finally, trust is a prerequisite for a culture of innovation: It fosters the confidence to experiment; to challenge the status quo; to go down different roads that will take the organization to another level of performance. Such a culture requires open and transparent communication, short feedback loops and non-judgmental behaviorally-based feedback, with a high level of candor and without fear or favor. In organizations where trust is absent, employees are focused on managing the downside risk – not the upside potential – of thinking and behaving differently.
The different types of trust
Leaders who are not trusted are not believed. Good leaders understand that trust is as critical to their company’s success – and thus to their own – as vision, strategy, and operational and financial performance. They understand that trust feeds on integrity and character as relationships are built. It is earned through consistent performance that reinforces the bonds of trust between colleagues again and again. The more time leaders spend face-to-face with their employees, the more likely they will be to build an environment of trust; an environment in which their team willingly support one another.
Trust is by far the most emotional factor in an organization. As we said, it takes time to build and can be lost so easily. But before we can start to build a brand of trust, we must first define what it is that we are building. Three fundamental types of trust affect an organization and its leaders, and each must be taken into account: The first is personal trust, which is defined as trust at its most fundamental level. It is based on faith in the other person’s integrity and is shared without thought of betrayal or being let down. The second is expertise trust, where an advisor’s established competence in a particular area counts for as much as his or her character. And finally there is structural trust, which reflects how roles and ambition color insight and information.
Great leaders are able to combine all these three dimensions of trust seamlessly. First and foremost, they have the ability to grow strong personal trust within their teams. Personal trust is, of course, the key building block in creating and sustaining effective relationships in all walks of life. Based on trust in themselves – the prerequisite for being trustworthy, as well as for the ability to build a culture of mutual trust – they deliver on their promises and they demonstrate integrity, honesty and openness. Just as important: They trust their own teams. These characteristics are evidenced consistently through their actions. When they speak, their teams believe them; when they direct, their teams act.
Great leaders also inspire expertise trust. They understand the challenges and opportunities facing their organization and they are able to weld together these insights into a compelling and motivating vision. This requires real domain expertise. Similarly, at the functional leadership level, the team look to their leader to be an expert in their functional area, to understand the latest international developments, and to understand and model best practices.
Great leaders can also build structural trust by ensuring that the organization they lead is consistent and fair; a company that makes decisions about its people in an equitable and transparent manner while remaining focused on performance. Leaders such as Jack Welch used to be able to build an environment of structural trust. Their employees felt safe to brainstorm, contribute ideas and engage. Today, under its CEO Jeffrey Immelt, GE continues to merge integrity with performance, focusing on the consistency between leaders’ personal attributes and their statements, actions and standards, and holding them accountable for lapses in integrity.
Trust and corporate social responsibility
Global CEO churn may have leveled off at a high plateau, but according to the sixth annual survey of CEO turnover at the world’s 2,500 largest publicly traded corporations published by management consultants Booz Allen Hamilton, less than half of CEOs leaving office in 2006 departed under normal circumstances. The study also found that the risk of being fired is very high when leaders fail to treat trust as a key asset: In 2006, 31.9% of CEOs who stepped down worldwide did so due to conflicts with the board, up from 12.4% in 1995. The forced departures were “nearly always because of transparency issues,” the core message ran.
On the other hand, managing risks to the reputation of their company is becoming one of the main strategic decision-making fields for CEOs. It involves limiting the damage to the brand and the bottom line that can be inflicted by a bad press and consumer boycotts, or dealing with threats of legal action. All of which is most effectively accomplished when founded on an atmosphere of trust and transparency within the organization.
Companies that strive for leadership in the world of corporate citizenship make trust and transparency the core values in their CSR efforts. Even if they first discovered CSR the hard way, by suffering a knock to their reputation, many now see it as more than just a risk management tool; they are convinced that it can be a competitive advantage and a source of growth in its own right.
So to become and remain a top corporate performer, leaders must build a brand of trust. A brand defines the experience that every stakeholder in an organization – leaders, employees, customers, suppliers or vendors – has with that organization. A brand of trust means that others perceive that the corporation offers integrity, consistency, and predictability in its values and actions.
Honest communication builds trust at the top
A good example of how openness and a brand of trust can pay dividends is provided by the former CEO of Gillette and Nabisco, James M. Kilts. Addressing a recent corporate governance conference, Kilts told his audience that he had learned over the years simply to tell the truth. The very fact that he stated something that, in the ideal world, would be axiomatic is indicative of the frequent lack of honest communication between CEOs and their fellow directors.
Of course, in many cases, the CEOs have the best of intentions. As leaders, they want to take charge and inspire confidence, even when things are turning sour. But that instinct can lead them to be less than forthcoming about problems, which can snowball into severe tensions with the board. While admitting that business plans are not working or business practices do not fit with the organization can be uncomfortable, the long-term benefits of a trusting environment provide a powerful argument for openness among leaders on such issues. And if they are to ensure proper oversight, boards need to be able to believe that the CEO – often their main source of information – is giving them an accurate picture.
So corporate leaders do well to remember the power of trust-based relationships to leverage human capital and maximize performance. Being trusted is equivalent to being valued. And establishing a brand of trust is fundamental to developing trust-based relationships, not only with the talent that a company seeks to attract and retain but also with its customers and other stakeholders.
Special thanks goes to co-author Jan Stewart, formerly with Egon Zehnder (1990-2014).