3rd in Series: Calling All (Crisis) Leaders to Rebuild Trust in the Finance Industry
In this ongoing blog series that calls on crisis leaders to rebuild trust in the finance industry, I ended the second blog with the observation that “gifted crisis leaders create possibilities even in the most dire of circumstances. These leaders establish followers based on trust.” And there is no doubt that we are in dire circumstances in the finance industry, and probably will be for a while.
In this blog I’ll explore the elements of trust in relation to the financial industry and what led to the public’s feeling of their trust being betrayed.
What do I mean by “trust”? I think in this case organizational and industry reputations are built largely on the premise that trust is defined within a market-driven, economic context where we weigh the potential outcomes of creating trust relative to the cost of destroying it. So when one party (the financial institution) does not follow through in a competent and predictable manner, trust in the relationship is eroded. Collectively, the financial industry is suffering from a lack of perceived trust. In recent months, the industry’s clients have questioned the judgment and decision making of its leaders and their capability to manage in a transparent manner. Moreover, stakeholders (retailers in particular) are feeling the undue burdens brought on by the initial actions and subsequent reactions of the industry. In blunt terms, stakeholders of the financial industry feel betrayed on many different levels, with trust betrayal at the foundation.
On the surface, the notion of trust is simple. It is one of the first lessons we learn as children and it factors into every stage and phase of life. We either trust a person, or we do not. We are either trustworthy or we are not. Simple! Even the assumptions that we make about trust are relatively universal. We’re all familiar with these common sayings: “Trust takes a long time to develop, but can be broken in an instant” or “Trust has to be earned.” Fundamentally, trust represents our ability or willingness to depend on someone or something outside of ourselves. When we trust, we feel confident and secure in the other’s actions towards us. And trust extends beyond mere interpersonal relationships to trust within and between organizations and industries. There is a strong need to trust the industries of which we are a stakeholder. And when it comes to trusting those institutions in the finance industry with our money, our life savings, I don’t think it’s too dramatic to say we are essentially trusting them with the results of our hard work from the past, and our hopes and dreams for the future. And the betrayal has been devastating.
In order to better understand the many layers of trust, let’s break it down according to four common dimensions: competence, openness, concern, and reliability.
In my second blog in this series I said that we, as stakeholders, trusted that the leaders of the finance industry were looking our for our best interests. Here, competence-based trust, involves a confidence in the knowledge, skills, abilities, and judgments of others. Openness, and to use a related term, honesty, is another key element of trust. Stakeholders must trust industry leadership to be open and honest about strategy, intent, and purpose. When there is openness in the relationship between an industry and its clients it is easier to attract and retain followers in addition to gaining support of external bodies, such as regulatory agencies. Openness creates an environment that allows industry leaders to be agile in coordinating efforts across businesses and firms internal and external to the industry. But more important to us as stakeholders, agility and coordination leads to creativity and innovation in problem solving—which I agree with A.K. Mishra (a well-known author on the topic) is the primary activity in crisis resolution. The element of concern represents the demonstration of interest and care in the well-being of others. Concern is a delicate balance of self-interest and other interest, but when it appears that the concern lies with one’s self rather than with others, the sense of trust from others comes into question. I think what has been so hard for the public to grasp goes beyond the perceived lack of concern, and towards a blatant display of greed— the ultimate self-concern! The perception thus far is that industry leaders were more concerned about their own outcome than the damage done to the lives of so many stakeholders. Finally, trust is characterized by reliability. How consistent have the leaders been with their decisions-making and actions taken? Stakeholders gain confidence in and are more forgiving of a person, group of people, or industry when its activity and outcome is predictable. And the finance industry has had a chance to be prepared and be predictable in the wake of this crisis. This is not the first time we’ve experienced trauma in the financial industry: the severe recession in the early 1980s and the dot-com bust in early 2000. In light of the aforementioned key elements of trust, we can make a reasonable conclusion that the financial industry has done little to retain our trust, since it hasn’t demonstrated reliable performance, has not seemed to be concerned for the welfare of us—its constituents, has been secretive and defensive rather than open and honest, and consequently, we’ve questioned the competence of its work in general. Can the finance industry ever be trustworthy again?
In our continuing saga, the fourth blog in this series will explore the betrayal of trust and what happens when it rears its ugly head.
October 30th, 2009 at 11:16 am
Just wanted to say HI. I found your blog a few days ago on Technorati and have been reading it over the past few days.