4th in Series: Calling All (Crisis) Leaders to Rebuild Trust in the Finance Industry
In my first three blogs in this series, we defined trust, looked at what led to the dismantling of trust in the finance industry, and discussed why we, the public, felt betrayed by this industry. Now, in the final blog in the series I’ll delve more into the betrayal and steps the finance industry can take to begin rebuilding our trust.
As human beings with emotions and passion, betrayal in any form is devastating, and worse, is extremely hard to recover from. Once our trust is betrayed we immediately put our guard up and are reluctant to trust the individual again, or even other individuals in a similar situation. We experience feelings of despair, hurt, anger, and potentially a desire for revenge. Betrayals hit at the core of what is important—a set of firmly entrenched values, assumptions, beliefs, and expectations (VABEs) about how people, organizations, or industries should behave. In the case of the American public as the stakeholders in the financial industry, the economic crisis can be interpreted as a betrayal by retail customers, credit issuers, investment banks, and more. The consequences of this betrayal can be severe enough to debilitate progress at precisely the time when forward momentum is critical to recovery.
Will it be possible for the financial industry to rebuild itself in such a way as to regain the public’s trust? I think so, but it will not be easy! For the financial industry to be perceived as trustworthy, ethical, and high performing in light of the financial crisis it must develop the capacity to respond to, learn from, and generate positive outcomes even if the crisis is perceived to be one of its own making. To do so requires that the industry demonstrate integrity, positive intent, and clear capabilities:
- Integrity. The financial industry must act in accordance with a set of core values and beliefs. Moreover, these values and beliefs must be aligned within and across firms. Certainly individual firms or businesses within the industry will pursue unique goals. Investment banks have a different purpose than do credit issuers after all. Yet as an industry there should be an overarching belief system and set of values about how the various entities that comprise the industry will achieve their purpose, and there must be a unified commitment to visibly live and reinforce those values—something that was clearly lacking in the months leading up to demise of our economy. Important questions for industry leaders to consider are:
- What does the industry stand for? What values do we hold true?
- Does what we stand for reflect a spirit of respect for all stakeholders?
- Do the structures, systems, and incentives reinforce industry values?
- Do the structures, systems, and incentives create a culture of honesty?
2. Positive Intent. Creating a sense of positive intent toward stakeholders of the industry is a critical component in the trust rebuilding process. Behavior that is interpreted as malicious or self-serving undermines the possibility of creating trust, whereas behavior that is deemed to be steeped in a genuine care and concern for those affected by one’s actions is more generative in creating trust. In previous blogs on this topic we explored the feelings that the industry leaders had much more of their self-interest at heart than the interest of their stakeholders. Positive intent requires that the industry be clear in its motives and that it communicate its motives to stakeholders. In most cases, motives that are mutually beneficial (to the firm and its stakeholders) are not only more likely to inspire trust, but they are more likely to be adhered to and to be at the forefront of decision making rather than an afterthought. Relevant questions to consider with respect to positive intent are:
- Does the industry have positive intent toward all stakeholders?
- To what extent are the underlying motives that drive industry behavior internally or externally focused?
- Do the processes and means of engagement within the industry reward cooperation or competition?
- Does the industry explicitly communicate its intentions and motives?
3. Capabilities. The financial industry is ripe with talent. The intellectual horsepower of the employees in the industry has created innovative ways to structure loans, manage securities, and generate phenomenal wealth. Some might argue, however, that it is in fact this talent and skill base that has created a complexity in financial innovation products and models that outpaces an ability to manage it. Consequently, risks are being taken that might not otherwise if there was a greater transparency about the underlying assumptions of the innovations and potential unintended consequences. On the other hand, pairing capabilities with positive intent and integrity will create fertile ground for trust to grow. Industry leaders might ask the following:
- Does the industry deliver value?
- Does the industry attract, select, and retain the best ethical and technical talent?
- Does the industry reward ethical behavior to the same extent that it rewards technical competence?
- Does the industry strive for continuous improvement and innovation?
- Does the industry have a system of checks and balances with respect to continuous improvement and innovation?
Underlying the three pillars of trust (integrity, positive intent, and clear capabilities) is the need for mutual understanding and transparency. In working with executives on building trust I highlight (if they do not) the significance of mutuality, because with it comes a recognition of risk and vulnerability for all parities in the relationship. Leaders must work together to clarify the mutual values, goals, expectations for performance, and communication standards. And this includes mutuality with their clients, regulators, and the general public as well. When there are common values and goals, customers and clients are more willing to believe that a firm or industry has their best interest at heart. Likewise, when a firm or industry identifies with the goals and values of its stakeholders they will be more deliberate in doing what is in the best interest of those stakeholders. When mutually held values are absent, assumptions, beliefs or expectations, the perception of imbalance in power, risk, and vulnerability pervades, and trust cannot flourish under those conditions.
The pillars of trust also require transparency, especially in an industry that to the public seems muddled and complex. Transparency is created through communication. Attempting candor and open and honest communication in the midst of a crisis is not only extremely difficult for any leader of a large organization (they certainly do not want to expose any weaknesses, whether personal or organizational), but is also likely to be met with some resistance. But it is in these moments and under these circumstances that a leader’s mettle will be tested. Part of candor is accepting responsibility for things that are of one’s own making, and taking accountability for those things that may have been beyond one’s control. Only once a culture of mutual understanding and transparency exists can we expect trust to proliferate throughout the industry, and when there is trust we can more readily and collaboratively respond to threats and other crisis situations that may arise in the future.
There is much work to be done: our trust has been betrayed; it will take a long time to come back; when it does return, we will be tentative in trusting again; the critics will be more critical, and those who forgive will be less forgiving; for many of us, the time for our personal financial recovery is short; and the eyes of the world are upon us.