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Business Ethics Best Practice

Trustworthy Business Cultures

by Timothy Fort

Table of contents

This Chapter Covers

  • In an age when corporate conduct can be broadcast via a smartphone connection to the Internet, companies have additional reason to attend to whether they are perceived to be trustworthy.

  • Lawmakers continue to enact and enforce laws that regulate commercial activity.

  • Trust and corporate reputation have always been valuable assets for corporations and can best be thought of in three forms:

    • Hard trust pertains to company efforts to comply with applicable law and to at least steer clear of negative public reaction;

    • Real trust concerns aligning rhetoric and rewards to build corporate reputation, goodwill, and trustworthiness;

    • Good trust attends to the affective, aesthetic aspect that fosters an employee’s desire to be trustworthy; it recognizes that if employees care little about being ethical, they likely will not care about reputation or complying with the law either.

  • These dimensions of trust can be welded together to create ethical corporate cultures with economic value that, paradoxically, is at its greatest when trustworthiness is pursued as an end itself rather than as a means to increase profitability.

Analysis

When one thinks of Hollywood business practices, notions of competitiveness, intrigue, hierarchy, and creativity might first come to mind, but Kristin Hahn, cofounder and president of Echo Films, takes a different approach. Hahn, who among her credits includes producing “The time traveler’s wife,” “The departed, “Call me crazy,” and “The switch,” says that “We really look for people we know and who we trust and who also will bring positive energy to the film. Many talented people are available, but it’s important to bring people together who can work as members of a close community where trust and transparency is essential.”1

John Mackey, cofounder and co-CEO of Whole Foods Market, takes a similar approach. Mackey claims that he has never met an entrepreneur who started a business solely to make money. There is always, he says, is an additional reason. It may be that the entrepreneur wants to also achieve a social good, or it may be that she wants to show her father that she can run a business just as well as her brother. That “something else,” Mackey argues, resides in each employee, so the most effective businesses are those which create a business culture that taps into the additional motivation so that employees relish their work.

A Theoretical Model: Three Kinds of Trust

Hard Trust

People place their trust in a business when they know that a third party oversees the company’s conduct and stands ready to punish it for indiscretions. This is “hard trust” because of the coercive toughness of the discipline. The law stands as the classic example of such a third party. If a company violates a social standard, it is subject to prosecution, litigation, and regulation. Public opinion is another example of an external check on conduct. In the aftermath of the turn-of-the-century corporate scandals in the United States, former Federal Reserve chairman Alan Greenspan stated that, in today’s economy, what a company brings to the market is its reputation—and if that is destroyed, so too is its business (Federal Reserve Board, 2003).

Writing about the same events, University of Texas professor Robert Prentice (2002) argued that, in responding to the kinds of conduct shown by Enron and Worldcom, business schools should emphasize the importance of legal standards because what had occurred was pure flouting of the law. Hierarchy and accountability tend to predominate in a hard trust culture.

Real Trust

A second kind of trust is “real trust.” Too often, incentives offered by a company push employees to cut corners, violate standards, and ignore the long-term implications of corporate practices. Basic virtues like truth-telling, promise-keeping, and production of high-quality goods and services then become sacrificed to employees’ annual performance evaluations based on short-term metrics.

Yet real trust is based on the sense that ethics pays. In a comprehensive meta-study of more than 80 other studies, Joshua Margolis and James Walsh (2001) found that there was a correlation between corporate financial performance and corporate social performance. They did not find that one must be trustworthy in order to be profitable, but they did find that good corporate conduct was a viable strategy so that a given businessperson has a real choice of how they wish to conduct their business affairs. Considered over the short term, the focus on money and markets tends to create cultures with significant internal competition. Over the long run, however, assets like reputation and goodwill matter, and they can temper internal competition, although market-driven cultures remain vulnerable to such rivalries.

Good Trust

Then there is “good trust.” People trust individuals and companies when they believe that there is a sincere commitment to be decent. Paradoxically, the economic value of such conduct may be the greatest when individuals ignore its potential monetary value. No less an authority than Nobel Prize-winning economist F. A. Hayek (1988) wrote that businesses work better when business people practice virtues of integrity, and that the most efficient way to promote the practice of those virtues was when it was taught that they have their own independent value as opposed to being things that it pays to do. Put otherwise, sincerity creates additional trustworthiness. A culture built on good trust tends to act more like an extended family.

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Further reading

Books

  • Cameron, Kim S., and Robert E. Quinn. Diagnosing and Changing Organizational Culture Based on the Competing Values Framework. 3rd ed. San Francisco, CA: Jossey-Bass, 2011.
  • Denison, Daniel, Robert Hooijberg, Nancy Lane, and Colleen Lief. Leading Culture Change in Global Organizations: Aligning Culture and Strategy. San Francisco, CA: Jossey-Bass, 2012.
  • Dunbar, Robin. Grooming, Gossip and the Evolution of Language. London, UK: Faber and Faber, 1996.
  • Fort, Timothy L. Ethics and Governance: Business as Mediating Institution. New York: Oxford University Press, 2001.
  • Fort, Timothy L. Business, Integrity and Peace: Beyond Geopolitical and Disciplinary Boundaries. Cambridge, UK: Cambridge University Press, 2007.
  • Fort, Timothy L., and Cindy A. Schipani. The Role of Business in Fostering Peaceful Societies. Cambridge, UK: Cambridge University Press, 2004.
  • Hayek, F. A. The Fatal Conceit: The Errors of Socialism. Vol. 1 of Bartley III, W. W. (ed.), The Collected Works of F. A. Hayek. Chicago, IL: University of Chicago Press, 1988.
  • Johnson, Gregory A. “Organizational structure and scalar stress.” Chapter 21 in: Renfrew, Colin, Michael J. Rowlands, and Barbara A. Segraves-Whallon (eds), Theory and Explanation in Archaeology: The Southampton Conference. New York: Academic Press, 1982. Online: http://tinyurl.com/jwjudzv
  • Kelly, Raymond C. Warless Societies and the Origins of War. Ann Arbor, MI: University of Michigan Press, 2000.
  • Mackey, John, and Raj Sisodia. Conscious Capitalism: Liberating the Heroic Spirit of Business. Boston, MA: Harvard Business School, 2013.
  • Margolis, Joshua Daniel, and James Patrick Walsh. People and Profits? The Search for a Link Between a Company’s Social and Financial Performance. Mahwah, NJ: Lawrence Erlbaum, 2001.

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