BGA | BUSINESS IMPACT
L eaders have powers other people don’t. They get to decide (or lead a process of deciding) what products or services a company will offer, how many people to employ and what kinds of jobs they will have, which suppliers to partner with, and even how to interpret laws and regulations. On the flip side, this also means leaders have to make difficult decisions that may mean causing harm in order to preserve the greater good. One senior executive told us that, ‘the fair decisions are easy. My job is to make the difficult decisions.’ Leaders have the responsibility of making decisions which also means in order to keep this responsibility they must be trusted. ‘Trust’ refers to our ability to be vulnerable to an organisation or person that may have power over us. For example, customers are vulnerable to an organisation because they have no window into how a product or service is created, they must trust that the product or service will work as it is supposed to and that it is ethically created. Similarly, when employees agree to work for an organisation, they are trusting that they will not be abused and that they will have a reasonable amount of job security. The benefits of trust Research shows that teams that trust their leaders perform better. In a study of National Collegiate Athletic Association (NCAA) basketball teams in the US, researchers found that trust in a leader was more important to winning than trust in one’s teammates. Teams that trusted their coaches won 7% more of their games than teams that didn’t. And the team with the highest trust in its coach won the national championship, while the team with the lowest trust in their coach only won 10% of their games. As one player commented: ‘Once we developed trust in Coach___, the progress we made increased tremendously because we were no longer asking questions or were apprehensive. Instead, we were buying in and believing that if we worked our hardest, we were going to get there.’ The importance of trust translates to a company’s bottom line as well. In a 2002 study of Holiday Inns, 6,500 employees rated their trust in their managers on a scale from 1-5. An increase in trust of 1/8th of a point was correlated with a 2.5% increase in revenues. And at a macro level, this all scales up: a 1997 study of 29 market economies showed that a 10% increase in trust in the population was correlated with a 0.8% increase in GDP. But as a community, business isn’t capitalising on the benefits trust can bring. According to the 2021 Edelman Trust Barometer , CEO credibility is at an all-time low in several countries, including Japan at 18% and France at 23% (in terms of the proportion of people who rate a CEO as a very or extremely credible source of information about a company) making the challenge for CEOs even more critical as they try to manage today’s issues.
Earning trust Because leaders have the responsibility of making decisions, leaders earn trust differently than organisations. Followers want first to know that a leader has earned her power legitimately, and second that she will use it well because she has the power to make decisions that will impact their careers and even the ways that they live their lives. They rely on their leader to make these difficult decisions with compassion and fairness. A leader who is not trusted will not hold on to their position for long as we can see in the case of companies, such as Boeing, that have suffered a major scandal where the CEO is later dismissed, or in the case of Harvey Weinstein, who was ousted after his multiple abuses were uncovered. The American philosopher, John Rawls, calls that first act of earning trust by acquiring power legitimately at the beginning of a leader’s tenure (or the first exposure that you might have with her in her role) ‘originating consent’. There is then what he calls ‘joining consent’ – the fact that people continuously assess whether they want to keep trusting a leader with power. Even if you come to your role through the right process, fairly carried out, people still want to know how it originated – on what basis you were selected. In other words, how, exactly, did you come into your role and get the power that comes with it? In democratic societies, we recognise the result of an election by consenting to allow the winning candidate to assume the job of mayor, governor, or president as our leader. In corporations, the
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process is less visible: boards of directors appoint CEOs, who we in turn, consent to allow to lead our organisations. The process of earning trust, however, does not end with originating consent. Earning trust does not just happen when a leader first acquires power. It’s a status that is always being reassessed through joining consent, that is, trust needs to be earned over and over, throughout time. However, leaders face an uphill battle when it comes to
joining consent because it turns out that the very qualities that cause you to earn people’s trust in the first place are easily destroyed by acquiring power. Business students need to be keenly aware that part of retaining trust as a leader is governing yourself to resist the heady side-effects power can create, which paradoxically cause leaders to lose trust. The lexicon of business history is filled with stories of CEOs like Travis Kalanick, who created large companies and then got ousted due to losing touch with the public. But why does this happen?
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