Businesses of all kinds are mired in a crisis of trust. Whether it’s the exposure of embarrassing corporate details stemming from a hack initiated in Asia; the revelation that a company has systematically misled its customers, subverted regulators, or made unreliable claims to patients; the release of sensitive financial documents through WikiLeaks or the Panama Papers; or any one of many other cases, the general public is seeing in fine-grained detail the innermost workings of business institutions. They are discovering, often for the first time, the unfiltered attitudes and mind-sets of the leaders who run big enterprises. For a variety of reasons — including the incentives they have been given by their boards of directors, the demands of shareholders, and the general pressure of day-to-day expedience — leaders are swayed by the allure of short-term gains over the pursuit of long-term success.
It’s no wonder that, over the past several years, companies have had disconcertingly low levels of employee and consumer engagement. People see that many of the companies where they have put their time, money, and faith are not actually working for them. Many employees and customers have adopted mistrust as a way of life, assuming that every big mainstream business will sooner or later fail to live up to their expectations.
To be sure, business isn’t experiencing this crisis alone. Governments are also grappling with citizens who feel little reason to trust them. Yet the corporate world is best positioned to lead the way in the search for a solution because businesses must increasingly compete based on trustworthiness: on their commitment to their promises, on their competence at delivering valuable products and services, on the depths of their relationships and the strength of their bonds with customers and employees.
Business leaders have an urgent need to rebuild trust with their constituents, and those companies that stand on the sidelines will soon be outpaced by competitors who are willing to change. But how should you begin this process? After all, your previous behavior, including some of your most sound business moves, may be the very things that have distanced your company from its people in the first place. Indeed, if your company is typical, your governing model — the way you guide and control activity — could be subtly leading you to break your promises, favor expedience, and undermine your relationships with customers, employees, shareholders, and other stakeholders.
In 2016, my firm, LRN, conducted a comprehensive statistical analysis of the impact of different types of corporate governance, culture, and leadership on the behavior of organizations, their leaders, and their people. We used data from more than 16,000 employees in 17 countries. The resulting document, The HOW Report (LRN, 2016) (pdf), which was independently verified by the Center for Effective Organizations at the University of Southern California, found that organizations fall into one of three categories.
• The largest group, about 62 percent, were “informed acquiescence” firms: They use rules, incentives, and rewards to govern employee behavior.
• About 30 percent of the companies we analyzed were “blind obedience” organizations: strict hierarchies where employees follow direct commands backed by formal authority.
• The remaining 8 percent were “self-governing” companies, where employees value work for its own sake, communicate readily and easily with one another, and are inspired by a sense of shared purpose.
Many companies have characteristics that resemble all three governance types, but most have a predominant style that falls into a single category. When we analyzed the financial performance of companies representing each of the three governance types — using such metrics as market share growth and systematic innovation in products and services — the self-governing companies we studied were clear winners. They were also far less likely to be caught in cases of observed or reported misconduct. Their employees felt more engaged at work, more willing to innovate, and made more sustainable commitments to the business than employees at the other firms.
Leaders at self-governing companies give their employees the freedom and resources to develop new ideas that can lead to additional sources of revenue and unexpected paths for career growth. Self-governing companies extend trust to their workers to manage themselves, draft their own job descriptions, and determine the best way they can advance the company's mission. And leaders at self-governing firms not only make sure they understand the deeply held values of their employees and customers but change the way they and their organizations behave based on what they have learned.
Self-governance offers the best path for companies to rebuild trust with the people they employ and the customers they serve. Building such a high-trust environment can deliver immense dividends. The HOW Report found that self-governing companies are 32 times as likely to take healthy risks, 11 times as likely to experience higher levels of innovation, and six times as likely to achieve better performance compared with their industry competitors.
With a machine, hitting the pause button stops the action. But if you’re a human being, that’s when you start.
How, then, do you go about building a high-trust, self-governing enterprise? It’s tempting to think that you can do this by taking immediate action: dashing off a memo that espouses the benefits of shared values, deep purpose, and accountability, and then putting in place the necessary incentives. But the most effective way to start is to pause.
With a machine, hitting the pause button stops the action. But if you’re a human being, that’s when you start. You pause to make sense of your situation and to reconnect with your deepest beliefs. For business leaders, you pause to consider the fundamental issues that led your company down its current path and to its present challenges. Building trust is not just a matter of practices and policies. It requires getting in touch with your humanity. And when a business leader takes the necessary steps to do that, such behavior can be broadcast as an example for the entire organization to emulate.
In building a self-governing enterprise, you’re creating a high-trust environment where it is understood that people have the necessary autonomy and support to achieve results in the way they feel makes the most sense. You’ll need to ensure that people clearly understand the link between their day-to-day work and the ideals that lie at the heart of the enterprise. There are many methods for accomplishing this, and I hope to write about them in future strategy+business posts, but they all start in the same place: the pause. To rebuild the trustworthiness and reputation of your business, you must trust people with the truth, engage in candid conversations about critical issues, and recognize the capacity people have for doing the right thing.
The seemingly simple act of building trust is extremely difficult to perform. It can't be reduced to following a specific set of steps, nor can it be accomplished by giving a single inspiring speech to the staff. And this process is especially hard when neither your employees nor your customers can be sure of your long-term allegiance to them. One thing is certain, though: You cannot begin to build trust without serious reflection. This starts with the pause, but it does not end there. It’s in the pause that you can start to see where the next step on the journey will take you.