People have been going nuts about how they “trusted” someone lately and were disappointed. The bond holders trusted GM, Madoff and the recent crop of knockoffs that are coming up, personal financial advisors and even the banks who claim that regulation isn’t necessary and that we should just trust them. What astounds me is that anyone can claim to be ticked at someone or a company for “failing them” when they made the mistake of trusting them in the first place. Trusting someone does nothing to guarantee their behavior. What people need to do is to look to see if their behavior is ethical. Though other aspects like knowledge and experience come into play, but ethics is huge. If they behave ethically, then consider trusting.
The correlation between ethics and trust is hard to pin down. It does not necessarily have a one to one relationship. Nor does one directly cause the other. But each does bring an element to another and needs to be addressed because of it.
Ethics does not immediately bring trust. A company can act incredibly ethically and yet not foster trust because they might be laying off a lot of people or even because of the product they make, like Nuclear Power Plants. The management of a Nuclear Power Plant might publish its quarterly maintenance report, might have policies and procedures in place to ensure safety, and have an open communication policy with the press and the public. Even though the company has acted above and beyond what is expected from a company but that doesn’t mean people will trust the company. And that would be purely because of the product they make, or the by-product of what they make. So acting ethically doesn’t always lead to developing trust.
That said, in many instances it can. In a scenario where a two people disagree on how to raise a child in the aspect of discipline, person A might still trust person B with person A’s child simply because person A knows that though Person B might prefer time outs over taking away items from the child, ultimately, Person B will act ethically in the discipline process towards Person A’s child.
There is also the difference in trust do to ethical and non-ethical behavior in the corporate culture. A company that is seen as behaving ethically will have more slack when things start to go wrong in the economy. An example of this would be Goldman Sachs. Where companies like Citigroup were doing bizarre subprime mortgage back securities credit swaps, Goldman Sachs was investing in more stable securities. When A.I.G. started to falter, many companies were being negatively impacted by it. The government came in and stabilized A.I.G. slightly, but it caused a wave of companies to appear on short sellers radar. Companies whose balance sheet was in good order started to see their stock plummet and their investors panic. But where Citigroup in essence went bankrupt and needed the government to step in, Goldman Sachs had a private investor come in and buy preferred stock. By doing this, Warren Buffett quickly stabilized Goldman Sachs stock price and short sellers moved on (Money & Co, 2008). Warren Buffett was willing to do this because he had seen Goldman Sachs investment strategy and their balance sheet and new they were an ethical company that behaved above board. Citigroup, who purposely built off shore subsidiaries to hide questionable investments, had no one willing to step in other than the government. Though many people think Nationalization is off the table as a national strategy to the economic mess, Citigroup will eventually need to be fully nationalized just so the healthy and legal pieces can be split off and sold and those that are though still legal, but amazingly unethical, can be stopped and allowed to die.
There is also when trust is used in order to cover up unethical behavior. A perfect example of this might be Enron. Employees trusted that the upper management knew what they were doing and that they were ultimately conducting business ethically. So when they were asked to look the other way on a specific minor issue (Simon and Peterson, 2000), they did since they thought overall the company was on the up and up. Trust allowed for employees and ultimately, their accounting firm, Arthur Anderson (Tuck, 2002), to do things that when looking back, was unethical behaviors in itself. Not only did Enron destroy itself, but it brought down the second largest accounting firm in the nation, emptied employees’ retirement portfolios and stole from millions of people.
To quote Aristotle in Shakespeare’s Richard II, “For God’s sake, let us sit upon the ground and tell sad stories of the death of kings.” History is filled with where trust was misused to cover up unethical behavior. A current example of this is Bernie Madoff. This story shows why trust is never enough. Madoff was charismatic and seen as brilliant, but he was able to con thousands of people out of billions. This happened because people were only basing their decisions on the concept of trust. No one asked how he did it. It was deemed propertiary so this was enough for his customers. Now common sense says you diversify your investments yet almost everyone who invested with him put all their money with him. This was because he was supposedly earning 20% interest annually on his investments. There are so many issues with this story that it borders on being overwhelming. What stuns most of all is that no one asked if how he was “earning” the 20% annual interest was ethical. If that one question had been asked he would have at least show what industries he was in and what aspects of that industry he was focused on. It would be hard to then follow the industry and not see the eventual ups and downs. More questions would be raised and this could have been uncovered much sooner.
When people act ethically, trust normally follows. But when trust comes first, it can lead to the misuse of that trust. There might be some correlation between ethics and trust, but it is not one that can be firmly depended on. Both trust and ethics are concepts that people need to work on daily. Otherwise both can be destroyed.
References:
(2002). Arthur Anderson. Tuck School of Dartmouth. Retrieved from
http://mba.tuck.dartmouth.edu/pdf/2001-1-0026.pdf
Bews, N. and G. J. Rossouw. (2002). A Role for Business Ethics in Facilitating Trustworthiness.
Journal of Business Ethics (V.39 N.4). Retrieved from http://www.springerlink.com/content/h631h1057l283484/
Brown, K. and J. Lublin. (2002, March). “Andersen’s Quest for Respectability Yields a Superb
Case of Image Goofs.” The WallStreet Journal. Retrieved from http://online.wsj.com/public/page/news-accounting-industry.html?hat_input=arthur+anderson
Lingfitt, F. (2008, Sept.). Bad Mortgages Taking Down Good Loans, Too. NPR. Retrieved from
http://www.npr.org/templates/story/story.php?storyId=94921465
Money & Co. (2008, Sept.). Buffett boosts Goldman Sachs with $5 billion investment. LA Times.
Retrieved from http://latimesblogs.latimes.com/money_co/2008/09/warren-buffett.html
Shakespeare, W. (1587). Richard II. Complete Works of Shakespeare. Massachusetts Institute of
Technology. Retrieved from http://shakespeare.mit.edu/richardii/index.html (I love this site)
Simons, T. and R. Peterson. (2000). Task Conflict and Relationship Conflict in Top Management
Teams: The Pivotal Role of Intragroup Trust. Journal of Applied Psychology (Vol. 85, No. 1, p. 102-111). Retrieved from http://www.sfu.ca/~jga16/web4/simons_peterson_2000.pdf
Zarroli, J. (2008, Dec.). Hedge Fund Maven Madoff Falls Hard. All Things Considered. NPR. Retrieved from http://www.npr.org/templates/story/story.php?storyId=98204357