Here is an excerpt from an article written by Sandra J. Sucher and Shalene Gupta for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
Credit: Stuart Bradford
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Facebook, Boeing, and too many other firms are losing the public’s faith. Can they regain it?
Businesses put an awful lot of effort into meeting the diverse needs of their stakeholders — customers, investors, employees, and society at large. But they’re not paying enough attention to one ingredient that’s crucial to productive relationships with those stakeholders: trust.
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.
Consider Facebook. In April 2018, CEO Mark Zuckerberg came before Congress and was questioned about Facebook’s commitment to data privacy after it came to light that the company had exposed the personal data of 87 million users to the political consultant Cambridge Analytica, which used it to target voters during the 2016 U.S. presidential election. Then, in September, Facebook admitted that hackers had gained access to the log-in information of 50 million of its users. The year closed out with a New York Times investigation revealing that Facebook had given Netflix, Spotify, Microsoft, Yahoo, and Amazon access to its users’ personal data, including in some cases their private messages.
The Big Idea
So, in the middle of last year, when Zuckerberg announced that Facebook would launch a dating app, observers shook their heads. And this past April, when the company announced it was releasing an app that allowed people to share photos and make video calls on its smart-home gadget Portal, TechCrunch observed that “critics were mostly surprised by the device’s quality but too freaked out to recommend it.” Why would we trust Facebook with personal data on something as sensitive as dating — or with a camera and microphone — given its horrible track record?
Volkswagen is still struggling with the aftermath of the 2015 revelation that it cheated on emissions tests. United Airlines has yet to fully recover from two self-inflicted wounds: getting security to drag a doctor off a plane after he resisted giving up his seat in 2017, and the death of a puppy on a plane in 2018 after a flight attendant insisted its owner put it in an overhead bin. In the spring of 2019 Boeing had to be forced by a presidential order to ground its 737 Max jets in the United States, even though crashes had killed everyone on board two planes in five months and some 42 other countries had forbidden the jets to fly. Later the news broke that Boeing had known there was a problem with the jet’s safety features as early as 2017 but failed to disclose it. Now, customers, pilots and crew, and regulators all over the world are wondering why they should trust Boeing. Whose interests was it serving?
Betrayals of trust have major financial consequences. In 2018 the Economist studied eight of the largest recent business scandals, comparing the companies involved with their peer groups, and found that they had forfeited significant amounts of value. The median firm was worth 30% less than it would have been valued had it not experienced a scandal. That same year another study, by IBM Security and Ponemon Institute, put the average cost of a data breach at $3.86 million, a 6.4% increase over the year before, and calculated that on average each stolen record cost a company $148.
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.
So our need to trust and be trusted has a very real economic impact. More than that, it deeply affects the fabric of society. If we can’t trust other people, we’ll avoid interacting with them, which will make it hard to build anything, solve problems, or innovate.
Building trust isn’t glamorous or easy. And at times it involves making complex decisions and difficult trade-offs.
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Here is a direct link to the complete article.