The Trust Imperative

PwC just announced a new strategy,?The New Equation. At the heart of the strategy is a simple idea: that our societies and our clients need trust and sustained outcomes in combination with one another more than they ever have. This blog post addresses the trust side of that premise and the next one will be about sustained outcomes.

Trust has been around as an idea and a key?aspect of business for a long time; the accounting profession was built on the creation of trust. So, why does PwC need a new strategy, one half of which emphasizes the criticality of trust? Here is my personal take on that question.

Just before I became a dean, my academic research was turning to the question of the basis for, and role of, trust in business relationships. I wrote a few articles on the topic and was beginning to get deep into empirical research, but my life turned in another direction — I entered a leadership position in education and founded Duke Corporate Education. My colleague, Roy Lewicki, took up the work we had begun together. At the time, trust was considered one of many important topics in a host of fields, such as political science, organization theory, negotiations, sociology, anthropology and economics. A basic tenet was that trust was a critical ingredient for effective personal relationships, economies and societies alike. The key questions were how trust was created and why trust matters.

Today, I would argue, it is one of, if not THE most important topic in social science. Trust is at an all-time low and we are seeing the very real consequences of its failure. Institutions, from multilateral global organizations to local policing, are under fire more than we have seen since the start of the 20th century, people are questioning the very basis of democracy and capitalism, and our societies are more polarized than I have seen them in my 68 years on this planet. Life does not work if we cannot trust the system in which we operate, the institutions that make it work, the people we interact with day to day or the economy we choose to work within.

Just before discussing trust on its own, I want to highlight that in the world we operate in today, you cannot separate trust from sustained outcomes. Bad or unachieved outcomes are at the heart of distrust: massive inequality across regions, individuals and generations; an ever-increasing threat from climate change; a fractured world; teenagers with the greatest anxiety and depression we have seen; slow or ineffective response to a pandemic; for example. Trust and outcomes are integrally intertwined. On the one hand, bad outcomes or failed outcomes erode trust; on the other hand, it is not possible to drive the kind of transformations we need in business and society without trust. With that caveat in mind we can now turn to considering the challenges with trust creation in its own right.

Where does trust come from and why does it matter?

Trust arises from the answer to three simple questions — does the person, organization, institution or system I am interacting with:

1. Tell the truth and do what was promised?
2. Behave in a consistent, predictable, high quality manner?
3. Really have my interests at heart?

Each question is important because they allow different kinds of relationships to function well.

1). Telling the truth and delivering what was promised.

From dating, to contracting, to investing, people need to know the party they are engaging with is telling the truth and will do what is promised. Being stood up for a date, leaving tasks unfinished or misrepresenting financials all have serious negative consequences for the date, the customer or the investor, and will cause them not to want to engage with the party again. At the heart of this aspect of trust is the willingness to relate to another party at all. We can depend upon people or organizations who tell the truth and do what is promised. It is true we can use sanctions to help ensure that a counterparty will tell the truth and deliver what is promised. Many television shows and movies provide graphic illustrations of what sanctions in the extreme can look like to ensure people do not lie and deliver on an agreement. On day-to-day terms they are less extreme, such as reward-based compensation schemes or penalty clauses in contracts.

Systems operate better and are more efficient when trust exists in the first place and can be created without sanctions, such as through verification or reputational rating schemes. The idea of double-entry accounting was first created in Northern Italy during the Crusades because nobles wanted to be sure their money was going where Crusaders said it would. The modern accounting profession was established to assure that money spent in the New World was going where those responsible for it said it would be going. Our traditional assurance business was established to provide verification for financial reports, so that investors could trust the statements of the firms they were investing in. PwC has been about that part of trust for nearly 180 years.

The challenge with truth and reliability today: The problem with truth and reliability today is that people need to trust organizations across a much broader array of issues than ever before: Will you really reduce your carbon footprint and how will I know? Is my personal information really secure? Are you really treating employees fairly? Firms find themselves accountable to more and more constituents and an increasing number of issues. This is occurring because there exists a significant set of issues of a growing concern today, for which business is either the cause or the best source of an answer to the problems. Disparity is, in part, caused by our business practices and the winner-take-all impact of platform technology. Climate change is a consequence of how we grow, transport, manufacture and build things and the energy source we use to do it. Cybersecurity would not exist as a problem without technology companies. Therefore, like it or not, firms need to report honestly on a much larger set of issues that they have in the past and deliver as promised on each of them. This is a whole new view of accounting than that which has existed for the last 180 years.

2). Behaving in a consistent, predictable, high quality and timely manner.

Life does not just entail relationships in which people depend upon one another, it necessitates interdependent relationships, relationships where the requirement is for each party to be consistent, predictable and perform to an essential standard. People and businesses act together to create things. All parties require an understanding of when, how, where and in what way others will perform a task in order to be able to do their part. When will you be available so I can plan my calendar? Will my responsibility or part link well with yours? Will your work be done on time and on budget so I can plan effectively? The greater the interdependence, the greater the need for consistency, predictability and quality. Generally, coordination has occurred through contracting or planning mechanisms. Whole jobs and professional development programs have arisen to help create people who can contract for, project manage and coordinate complex interdependencies. These are made possible when parties to the contract or in the plan behave in a consistent, predictable, high quality and timely manner.

The challenge with interdependence-based trust today. Coordination requirements have always been a part of life, but they are more critical now and more challenging. This is in part because the things we are trying to do are more complex and thus have a greater risk of failure — millions of lines of code, lean supply chains and ecosystems all share greater complexity and greater risk of failure. Moreover, in many instances the costs of failure are higher. In a lean manufacturing system, for example, not being able to effectively coordinate a dynamic supply chain results in the final product just not being available, or in complex software, the system crashing because of a small thing can result in operational failure. Customers do not get what they need, companies lose lots of money, lives can even be at risk when coordination fails today. The other challenge is that, because things are also more ambiguous and dynamic, the coordination task is significantly harder. As a result, the old forms of trust creation in interdependent systems just do not work anymore. They are too slow to adapt, execute and respond. One source of the growing distrust in society is that our old systems for coordinating and ensuring quality are failing to keep up.

3). Having the others’ interests at heart.

When a person (or organization) gets married, elects a politician, joins a partnership or joint venture, becomes an employee, becomes a citizen, or joins an ecosystem, they are taking on a very different kind of risk. A significant aspect of a person’s or organization’s entire future is at risk: one party puts their fate in the other’s hands. Here, one needs an even greater assurance than in a transaction or ongoing coordinated relationship. We need to know that when the other party is taking a critical action, or making a decision, they really have our best interests at heart. For organizations to create this form of trust, it is essential they are clear about their own preferences, strategy, and desired outcomes, and provide ongoing assurance that they are meeting those. Only if one knows the other has the same preferences or sense of personal responsibility for their preferences — and is meeting them — is it safe to put one’s fate in another’s hands.

The challenge with interest congruence trust today. This form of trust is of growing importance today for two reasons. The first is because our lives are increasingly intertwined. Each person or organization’s fate is dependent upon another, like it or not. This arises more today both because people, disease and information travel around the world much faster, and because our resource system and negative impacts on it are increasingly shared, such as through climate change, bio-diversity loss and resource scarcity. The number of constituents who feel they have a legitimate stake in a business is rising because they actually do. And second, because the scope and scale of the world’s challenges and opportunities will require that many more decisions and actions be taken without debate, coordination and agreement from all involved parties, things happen too fast and require too constant an adjustment. And in many instances the cost of the inaction that would arise from ongoing negotiation is just too high. The increasing overlap of our fates requires whole new forms of trust creation, forms that are just getting built, and they need to be scaled and made effective really, really fast.

Where does that leave us??Every person and every organization in the world has a greater need for trust, yet many also have a growing sense that it does not exist. Helping people and organizations address this trust gap is a really good reason to get up in the morning and go to work — one half of why I am proud of our new strategy. Now to deliver on it.