“For example, we have one supplier in whom we have complete trust. Everything happens fast with this group, and the relationship hardly costs us anything to maintain. But with another supplier, we have very little trust. It takes forever to get anything done, and it costs us a lot of time and effort to support the relationship. And that’s costing us money—too much money!”
This CFO was amazed when everything suddenly fell into place in his mind. Even though he was a “numbers” guy, he had not connected the dots with regard to trust. Once he saw it, everything suddenly made sense. He could immediately see how trust was affecting everything in the organization, and how robust and powerful the idea of the relationship between trust, speed, and cost was for analyzing what was happening in his business and for taking steps to significantly increase profitable growth.
I know of leading organizations who ask their employees directly the following simple question in formal, 360-degree feedback processes: “Do you trust your boss?” These companies have learned that the answer to this one question is more predictive of team and organizational performance than any other question they might ask.
Once you really understand the hard, measurable economics of trust, it’s like putting on a new pair of glasses. Everywhere you look, you can see the impact—at work, at home, in every relationship, in every effort. You can begin to see the incredible difference high-trust relationships can make in every dimension of life.
THE TRUST TAX
The serious practical impact of the economics of trust is that in many relationships, in many interactions, we are paying a hidden low-trust tax right off the top—and we don’t even know it!
Several years ago, when my son Stephen turned 16, he got his first job. He was very excited. He was going to be a manager of a shop that sold snow cones.
His first couple of weeks went really well, and he was thrilled when he received his first paycheck. He tore open the envelope and looked expectantly at the check. Suddenly, a frown covered his face. “Dad,” he exclaimed, “this is not right!” He thrust the paper at me. “Look,” he said. “They’ve done the math all wrong.”
“What do you mean?” I asked as my eyes went over the paper.
“Look right here,” he said, pointing. “I’m supposed to be making eight dollars an hour. I worked for 40 hours. That should come to $320. Right?”
I looked at the paper, and, sure enough, he’d worked for 40 hours and the check was only for about $260.
I said, “That’s right, Stephen. But look a little higher—there on the paycheck stub. See these words—‘federal income tax’?”
“What?” he responded incredulously. “You mean I’m paying taxes?”
“Yes, you are,” I replied. “And there’s more. See, here’s ‘state income tax,’ ‘Social Security tax,’ ‘Medicare tax’ . . .”
“But, Dad,” he practically wailed, “I don’t even need Medicare!”
“No, son, you don’t,” I replied, “but your grandfather does! Welcome to the real world.”
Probably no one really likes to pay taxes. But we do so because they serve a greater societal cause (and also because it’s the law). But what if you didn’t even know you were paying taxes? What if they were hidden—being taken right off the top without your even being aware? And what if they were completely wasted taxes—if they were going right down the drain and doing absolutely no good to anyone anywhere?
Unfortunately, low-trust taxes don’t conveniently show up on your income statement as a “cost of low trust.” But just because they’re hidden doesn’t mean they’re not there. Once you know where and what to look for, you can see these taxes show up everywhere—in organizations and in relationships. They’re quantifiable. And they’re often extremely high.
Mistrust doubles the cost of doing business.
—PROFESSOR JOHN WHITNEY, COLUMBIA BUSINESS SCHOOL
You’ve undoubtedly seen this tax in action many times—perhaps in a conversation where you can tell that your boss, your teenager, or someone else is automatically discounting everything you say by 20 percent, 30 percent, or even more. This is what I was experiencing firsthand in the difficult days of the FranklinCovey merger. If you think about it, you’ve probably been the one taxing some of those interactions yourself, discounting what you’re hearing from others because you don’t trust them.
In some situations, you may even have had to pay an “inheritance tax” when you’ve stepped into a role that was occupied by someone who created distrust before you. When you move into a new personal or work relationship, or if you step in as the new leader in a low-trust culture, it’s possible that you’re being taxed 30, 40, 50 percent, or more for something you didn’t even do! I recently consulted with one executive who lamented that the manager she replaced had destroyed trust with the organization so dramatically that the culture was taxing her for all of his behavior, even though she was new to the organization.
As bestselling author Francis Fukuyama has said: “Widespread distrust in a society . . . imposes a kind of tax on all forms of economic activity, a tax that high-trust societies do not have to pay.” I contend that this low-trust tax is not only on economic activity, but on all activity—in every relationship, in every interaction, in every communication, in every decision, in every dimension of life.
THE TRUST DIVIDEND
I also suggest that, just as the tax created by low trust is real, measurable, and extremely high, so the dividends of high trust are also real, quantifiable, and incredibly high. Consider the speed with which Warren Buffett completed the McLane acquisition and how quickly Gary Barron’s massive reorganization proposal was approved. Consider the doubling of revenues for Jim the donut and coffee vendor. Consider the speed with which you can communicate in your own relationships of high trust—both personal and professional.
When trust is high, the dividend you receive is like a performance multiplier, elevating and improving every dimension of your organization and your life. High trust is like the leaven in bread, which lifts everything around it. In a company, high trust materially improves communication, collaboration, execution, innovation, strategy, engagement, partnering, and relationships with all stakeholders. In your personal life, high trust significantly improves your excitement, energy, passion, creativity, and joy in your relationships with family, friends, and community. Obviously, the dividends are not just in increased speed and improved economics; they are also in greater enjoyment and better quality of life.
THE HIDDEN VARIABLE
One time I hired a guide to take me fly fishing in Montana. As I looked out over the river, he said, “Tell me what you see.” Basically I told him I saw a beautiful river with the sun reflecting off the surface of the water. He asked, “Do you see any fish?” I replied that I did not. Then my guide handed me a pair of polarized sunglasses. “Put these on,” he said. Suddenly everything looked dramatically different. As I looked at the river, I discovered I could see through the water. And I could see fish—a lot of fish! My excitement shot up. Suddenly I could sense enormous possibility that I hadn’t seen before. In reality, those fish were there all along, but until I put on the glasses, they were hidden from my view.
In the same way, for most people, trust is hidden from view. They have no idea how present and pervasive the impact of trust is in every relationship, in every organization, in every interaction, in every moment of life. But once they put on “trust glasses” and see what’s going on under the surface, it immediately impacts their ability to increase their effectiveness in every dimension of life.
Whether it’s high or low, trust is the “hidden variable” in the formula for organizational success. The traditional business formula says that strategy times execution equals results:
S × E = R
(Strategy times Execution equals Results)
But there is a hidden variable to this formula: trust—either the low-trust tax, which discounts the output, or the high-trust dividend which multiplies it:<
br />
(S × E)T = R
([Strategy times Execution] multiplied by Trust equals Results)
You could have good strategy and good execution (10 on a 1 to 10 scale), but still get derailed by low trust. Or high trust could serve as a performance multiplier, creating synergy where the whole is more than the sum of its parts. Just look at the math:
Strategy
x
Execution
=
Result
Tax or dividend
=
Net Result
10
x
10
=
100
Less 40% tax
=
60
10
x
10
=
100
Less 10% tax
=
90
10
x
10
=
100
Plus 20% dividend
=
120
A company can have an excellent strategy and a strong ability to execute, but the net result can be either torpedoed by a low-trust tax or multiplied by a high-trust dividend. As one eminent consultant on this topic, Robert Shaw, has said, “Above all, success in business requires two things: a winning competitive strategy, and superb organizational execution. Distrust is the enemy of both.” I submit that while high trust won’t necessarily rescue a poor strategy, low trust will almost always derail a good one.
Perhaps more than anything else, the impact of this “hidden variable” makes a powerful business case for trust. The Great Place to Work Institute regularly partners with Fortune magazine to produce a list of the “100 Best Companies to Work For.” Their research shows that “trust between managers and employees is the primary defining characteristic of the very best workplaces,” and trust comprises nearly two-thirds of their criteria. Bottom line, these companies outperform “the average annualized returns of the S&P 500 by a factor of three.” Similarly, a study by Watson Wyatt shows that total return to shareholders in high-trust organizations is almost three times higher than the return in low-trust organizations.
The performance multiplier of high trust can also be seen in the social sector. An education study by Stanford professor Tony Bryk shows that schools with high trust had more than a three times higher chance of improving test scores than schools with low trust. On a personal level, high-trust individuals are more likely to be promoted, make more money, receive the best opportunities, and have more
One of the reasons why the hidden variable of trust is so significant and compelling in today’s world is that we have entered into a global, knowledge worker economy. As New York Times columnist Thomas Friedman observes in The World Is Flat, this new “flat” economy revolves around partnering and relationships. And partnering and relationships thrive or die based on trust. As Friedman says:
Without trust, there is no open society, because there are not enough police to patrol every opening in an open society. Without trust, there can also be no flat world, because it is trust that allows us to take down walls, remove barriers, and eliminate friction at borders. Trust is essential for a flat world . . . .
This is why I again affirm: The ability to establish, grow, extend, and restore trust with all stakeholders—customers, business partners, investors, and coworkers—is the key leadership competency of the new global economy.
Below, I’ve summarized the impact of trust taxes and dividends in both organizations and personal relationships. As you look at this summary, I suggest you ask yourself: Is my organization paying taxes or receiving dividends? And what about me—am I a walking tax or a walking dividend?
Also, think about your relationships both in and out of work. Ask yourself: Where in this summary do these relationships fit? And where can I focus my effort to make the greatest difference in my life?
A SUMMARY OF TAXES AND DIVIDENDS
The 80% Tax (Nonexistent Trust)
In the organization . . .
In personal relationships . . .
• Dysfunctional environment and toxic culture (open warfare, sabotage, grievances, lawsuits, criminal behavior)
• Militant stakeholders
• Intense micromanagement
• Redundant hierarchy
• Punishing systemsand structures
• Dysfunctional relationships
• Hot, angry confrontations or cold, bitter withdrawal
• Defensive posturing and legal positioning (“I’ll see you in court!”)
• Labeling of others as enemies or allies
• Verbal, emotional, and/or physical abuse
The 60% Tax (Very Low Trust)
In the organization . . .
In personal relationships . . .
• Unhealthy working environment
• Unhappy employees and stakeholders
• Intense political atmosphere with clear camps and parties
• Excessive time wasted defending positions and decisions
• Painful micromanagement and bureaucracy
• Hostile behaviors (yelling, blaming, accusing, name-calling) followed by periods of brief contrition
• Guarded communication
• Constant worrying and suspicion
• Mistakes remembered and used as weapons
• Real issues not surfaced or dealt with effectively
The 40% Tax (Low Trust)
In the organization . . .
In personal relationships . . .
• Common “CYA” behavior
• Hidden agendas
• Militant stakeholders
• Political camps with allies and enemies
• Many dissatisfied employees and stakeholders
• Bureaucracy and redundancy in systems and structures
• Energy draining and joyless interactions
• Evidence gathering of other party’s weaknesses and mistakes
• Doubt about others’ reliability or commitment
• Hidden agendas
• Guarded (often grudging) dispersing of information
The 20% Tax (Trust Issues)
In the organization . . .
In personal relationships . . .
• Some bureaucratic rules and procedures
• Unnecessary hierarchy
• Slow approvals
• Misaligned systems and structures
• Some dissatisfied employees and stakeholders
• Regular misunderstandings
• Concerns about intent and motive
• Interactions characterized by tension
• Communications colored by fear, uncertainty, doubt, and worry
• Energy spent in maintaining (instead of growing) relationships
No Tax/No Dividend (Trust Is Not an Issue)
In the organization . . .
In personal relationships . . .
• Healthy workplace
• Good communication
• Aligned systems and structures
• Few office politics
• Polite, cordial, healthy communications
• A focus on working together smoothly and efficiently
• Mutual tolerance and acceptance
• No worries
The 20% Dividend (Trust Is a Visible Asset)
In the organization . . .
In personal relationships . . .
• The focus is on work
• Effective collaboration and execution
• Positive partnering relationships with employees and stakeholders
• Helpful systems and structures
• Strong creativity and innovation
• Cooperative, close, vibrant relationships
• A focus on looking for and leveraging one another’s strengths
• Uplifting and positive communication
• Mistakes seen as learning opportunities and quickly fo
rgiven
• Positive energy and positive people
The 40% Dividend (World-class Trust)
In the organization . . .
In personal relationships . . .
• High collaboration and partnering
• Effortless communication
• Positive, transparent relationships with employees and all stakeholders
• Fully aligned systems and structures
• Strong innovation, engagement, confidence, and loyalty
• True joy in family and friendships, characterized by caring and love
• Free, effortless communication
• Inspiring work done together and characterized by purpose, creativity, and excitement
• Completely open, transparent relationships
• Amazing energy created by relationships
Now I suggest you take any mission-critical project you need to work on and look at it in terms of this summary. Say you need to pull people together to have a project completed within six weeks. Ask yourself: What’s the level of trust in the culture? Am I paying a tax or getting a dividend? If so, what percent? What impact is that going to have on speed and cost and on my ability to execute this project effectively?
Now consider what would happen if you were able to change that percentage. What if you were able to move from a 20 percent tax to a 20 percent dividend? What difference would that make in your ability to execute your project?
Think about what’s happening in your personal relationships or in your family. Ask yourself: What’s the level of trust? What impact is that having on quality of life for me and for the people I care about? What if I could move from a tax to a dividend? What difference would it make?
TRUST MYTHS
Examples such as the McLane acquisition, the Kelleher reorganization approval, and others I’ve shared in this chapter go a long way toward dispelling some of the debilitating myths that keep us from enjoying the dividends of high trust.
The SPEED of Trust: The One Thing that Changes Everything Page 5
