The Trust Crisis

Sandra J. Sucher and Shalene Gupta write about trust as an essential element of a company’s brand and risk management strategy, with Boeing, Volkswagen, and Facebook as examples of corporations that are failing to maintain the trust of customers, regulators, and investors.

Trust, as defined by organizational scholars, is our willingness to be vulnerable to the actions of others because we believe they have good intentions and will behave well toward us. In other words, we let others have power over us because we think they won’t hurt us and will in fact help us. When we decide to interact with a company, we believe it won’t deceive us or abuse its relationship with us. However, trust is a double-edged sword. Our willingness to be vulnerable also means that our trust can be betrayed. And over and over, businesses have betrayed stakeholders’ trust…..Creating trust, in contrast, lifts performance. In a 1999 study of Holiday Inns, 6,500 employees rated their trust in their managers on a scale of 1 to 5. The researchers found that a one-eighth point improvement in scores could be expected to increase an inn’s annual profits by 2.5% of revenues, or $250,000 more per hotel. No other aspect of managers’ behavior had such a large impact on profits.

Trust also has macro-level benefits. A 1997 study of 29 market economies across one decade by World Bank economists showed that a 10-percentage-point increase in trust in an environment was correlated with a 0.8-percentage-point bump in per capita income growth.

via The Trust Crisis

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