A former student, seemingly on the way to success, is in my office. Let’s call him Harold. Having founded an eco-friendly irrigation technology business, backed by some of Silicon Valley’s prestigious venture capital firms, Harold, the business’s CEO, has come to see me to show me a separation agreement he’s been handed by his outside lawyer, while his “alumni mentor” sits across the table from him next to the lawyer. This was the very same woman who had agreed to provide advice and support as he grew his company; the very same person whom he had originally introduced to his company. And now, she was here to tell him it was time to go, to step down as CEO of the company he’d founded.
We were discussing what to do, but his options were very limited at this point.
“Were there warning signs?” I asked. “Of course,” Harold replied, as he detailed many over the past few months. “Why didn’t you do anything?” Because, he commented, he was ultimately being pushed out of the company by his alumni mentor. Harold hadn’t paid attention to the early warning signs because he had trusted her to protect him and to have his best interests in mind. Big mistake, as it turned out.
“She was rich and successful from previous jobs in some high-profile Silicon Valley companies,” he continued. “I could not believe she would be interested in messing around with such a small, new venture.” I thought, If you put a chicken in a cage with a python, you know what is going to happen. You don’t ask about the chicken’s size—is it too small for the python to bother with—or if the chicken is organic or free-range, or its proportion of white meat, or its breed. Pythons eat chickens. This woman had become rich and successful over the course of her career by doing to others what she was now doing to this former student. Her behavior had been learned over time, had stood her in good stead, and had become, as a consequence, almost automatic. She had learned to exploit relationships to her advantage and was doing it again. Her behavior wasn’t personal; it wasn’t directed against Harold. It was just her modus operandi. Harold had done well in my course on power, but obviously he had not learned all the lessons yet. This recent event would cement his learning. He had trusted too much, and in the wrong person.
It is often asserted that trust is essential for effective leadership. After all, how can someone build a successful enterprise, a task that invariably requires the collaboration and cooperation of many interdependent people, if there is not trust among them? Trust is more efficient and cost-effective in coordinating and ensuring collaborative behavior than the financial incentives or contracts that, as Oliver Williamson, a Nobel prize–winning economist, first pointed out decades ago, are difficult to write in ways that cover every possible future contingency.1
Trust is the glue of many social relationships, and organizations are essentially all about social relationships. Research in experimental economics consistently shows that when people try to take advantage of others, they get punished by those others or observers, even if administering such punishment is costly, and even if there will be no future interactions among the people involved.2 People expect trustworthy, honest behavior and react when they don’t see or receive it.
I am a big fan of trust. I try to be trustworthy and honest in my own behavior. The social science literature certainly demonstrates that leaders who inspire trust and build workplaces in which employees trust their leaders perform better.3 In fact, workplace trust is one of the fundamental dimensions measured by the surveys done by the Great Place to Work Institute and their international affiliates to determine the best places to work. Decades of evidence demonstrates that companies with high levels of workplace trust enjoy higher stock market returns.
But I no longer believe that trust is essential to organizational functioning or even to effective leadership. Why? Because the data suggest that trust is notable mostly by its absence. Nevertheless, organizations continue to roll along, as do their leaders who seemingly suffer few consequences for being untrustworthy.
Although many commentators on leadership consider trust to be essential for social and economic organization, few contemporary leaders garner much trust. Consider some representative data. The 2013 Edelman Trust Barometer, based on surveys conducted all over the world, reported that fewer than one in five respondents believed that government or business leaders would actually tell the truth when confronted with a difficult issue.4 The 2014 index reported that trust in CEOs remained below 50 percent worldwide.
Maritz, a company that does customer and employee research and polling, reported in 2011 that only 14 percent of Americans believed their company’s leaders were ethical and honest, while just 10 percent of those polled trusted management to make the right decisions in times of uncertainty. That same poll uncovered that just 7 percent of employees believed that their senior management’s actions were completely consistent with their pronouncements.5 These are not exceptions found by lots of digging using online searches. Any search for data on trust in leadership reveals that such trust is generally lacking, and if there are trends, they are mostly in the wrong direction, down not up, except for some recovery from the nadir of the 2007–2008 financial crisis. So it cannot be true that trust is necessary for organizations to function, because numerous organizations are operating even though trust in leaders is in short supply.
Roderick Kramer, a business school professor, has studied and written about trust for decades. In an insightful article, Kramer makes the following important points: First because trust is essential for human survival, it is hardwired into us so that in many cases we are predisposed to trust too much and the wrong people. Second, we are likely to trust those who are similar to us, something that the Edelman surveys also confirm. Third, and most important, our ability to accurately discern who is taking advantage of us is remarkably poor. Kramer cites the case of Bernie Madoff and his $65 billion Ponzi scheme as just one example of the many instances in which massive frauds have been perpetrated even on seemingly sophisticated, well-connected individuals. Kramer also lists just a small but nonetheless extensive selection of the numerous business frauds perpetrated over the decades, ranging from false claims of automobile safety (including the Pinto, the Ford model with the exploding gas tank, and the Chevrolet Corvair, the subject of Ralph Nader’s pathbreaking book Unsafe at Any Speed) to the AIG insurance group’s financial collapse from uncontrolled gambling on financial derivatives.
In his article, Kramer details the reasons why people are frequently unable to spot untrustworthy people or situations. Those reasons include the tendency to see what we want or expect to see (sometimes called confirmation bias); an illusion of personal invulnerability in which we underestimate the likelihood of bad things happening to us; a related illusion of unrealistic optimism; a tendency to believe that we are above average in our abilities (the above-average effect), which also applies to our perception of being above average in our ability to figure out whom to trust; and the fact that indicators of trustworthiness can be faked, often with great success.
On the point that people are not very good at discerning whom to trust, Kramer notes that many studies have found that detecting cheaters is difficult. In his own research, he instructs students in negotiations to use their intuitive theories of how to build trust. He writes:
Usually, they make it a point to smile a lot; to maintain strong eye contact; to occasionally touch the other person’s hand or arm gently . . . They engage in cheery banter to relax the other person, and they feign openness . . . by saying things like, “Let’s agree to be honest and we can probably do better at this exercise.” . . . Their efforts turn out to be pretty successful.
Kramer’s description sounds like the behavior of most leaders. Kramer also found that even when the negotiating partners were told that half of the people had been instructed to deceive them, they were no better at detecting the deceivers than people not so forewarned were. Kramer’s excellent and insightful bottom-line recommendation: temper your trust.6
Not only is trust unnecessary—although it may be helpful to leaders if they can foster it—but there also seems to be only limited consequences for violating trust. Think about it: if violations of trust brought severe sanctions, fewer such violations would occur, and as a consequence, trust in leaders would be higher than it is.
To that point, it’s worth noting that nothing happened to Harold’s alumni mentor who ousted her mentee from the company he was ostensibly running. I suspect that she engaged in this behavior because she had learned over the course of her career that violations of trust are seldom—which is not to say never, but seldom—followed by adverse consequences. In fact, if the violation of trust brings the violator money and power, there are essentially no consequences at all. That is because our desire to bask in reflected glory and our motivation to achieve status in part by associating closely with high-status others overcome any ill will toward those who violate trust but wind up with money, power, and status.
Consider, as an interesting example of this phenomenon, Bill Gates, the famous and incredibly wealthy cofounder of Microsoft. As described in David Kaplan’s book on the origins of the Silicon Valley, The Silicon Boys, as well as in an article by Steve Hamm and Jay Greene in BusinessWeek 7 and in a book by Harold Evans, They Made America,8 Gates and Microsoft bought the operating system that led to Microsoft’s success from Seattle Computer for $50,000—an operating system essentially copied from one developed by a computer whiz with a Ph.D. named Gary Kildall. Kildall died at fifty-two after twice being hurt by Gates.
Although there is considerable controversy over the exact details, everyone acknowledges that Kildall invented an operating system, CP/M (Control Program/Monitor), which by the late 1970s was running 500,000 machines and bringing his company, Digital Research, Inc. (DRI), substantial revenues. When IBM entered the PC business, it needed an operating system and approached Microsoft, which to that point had been building programming languages such as Basic. IBM came to Microsoft under the mistaken belief that Microsoft was the progenitor of CP/M. Gates introduced IBM to Kildall, but when DRI and IBM did not come to terms, for reasons that remain disputable, Gates sensed an opportunity, buying a similar operating system from Seattle Computer and never mentioning that he intended to resell it to IBM. Microsoft renamed the system MS-DOS for “Microsoft Disk Operating System.” The operating system was quite similar to the CP/M operating system built by Kildall, but of course copyrighting or patenting software is difficult today, and pursuing claims for the appropriation of intellectual property was almost unheard of in the early 1980s. Kildall had been outmaneuvered by Gates, “who may not have had Kildall’s talent for programming, but his instincts for business were a whole lot better.”9
As Kaplan describes the turn of events:
[Kildall] couldn’t imagine being knifed in the back—certainly not by Gates. The two had known each other since Gates was a thirteen-year-old hacker in Seattle and Kildall was getting his doctorate. . . . They discussed merging their young companies . . . there seemed to be a gentleman’s agreement that neither would get involved in the other’s business. DRI would stay away from languages, and Microsoft would leave operating systems alone.10
Even after this incident, Kildall continued to trust Gates, with unfortunate consequences. In the mid–1980s, Kildall became interested in CD-ROM technology and cofounded the company KnowledgeSet, which built the first interactive encyclopedia on a CD-ROM. Kaplan describes what happened next:
Kildall took a long time to recognize how Gates did business. . . . To share his ideas and hear others, Kildall planned a conference near Pacific Grove [California]. . . . On a visit to see family in Seattle, Kildall mentioned the conference to Gates. Three months later . . . Gates called Kildall about his own Microsoft CD-ROM conference to be held in Seattle . . . Unlike Kildall, Microsoft didn’t even have a CD-ROM on the market; yet Gates-the-imitator would be seen as a leader in the field.11
This tale is well known. It has appeared in books and magazines and online. More important, the software community was a small one at the time, and these incidents were widely known within the network of software programmers and company founders. If there were adverse consequences for Gates or Microsoft from these episodes, I can’t see them.
Or how about some other examples? There’s Martha Stewart, the lifestyle doyenne, who was recently back in court. Not for insider trading or perjury this time, but for a contract dispute. Stewart, who once peddled her wares through Kmart, had signed what was purported to be an exclusive deal with Macy’s, but she subsequently set up housewares stores-within-stores at J. C. Penney that used her name as part of their branding. Macy’s was not happy, having paid Stewart a tidy sum for what the company thought was the exclusive use of her services and name. Stewart was unperturbed by the whole kerfuffle:
Martha appears completely unsentimental, willing to scrap anything . . . and start over if she hits a roadblock or thinks there may be a better way. This seems to be what’s happening with the Macy’s/J.C. Penney dispute. “She was married to Macy’s, but she went off and had an affair, and got in bed with a direct competitor, with J.C. Penney,” Pamela Danziger, a marketing expert, said on CNN.12
Has Stewart suffered from not honoring her agreement with Macy’s? Not that anyone can see. After all, this is “a woman who emerged from federal prison after five months as, somehow, a more sympathetic figure” and whose website continues to gain visitors with a name that apparently “has never been worth more.”13
Why are there so few sanctions for leaders who violate trust? For many reasons. As Roderick Kramer, a social psychologist, has persuasively argued, we are predisposed to trust and have an evolutionary need to do so. Therefore, people are motivated to overlook a violation of trust as a onetime thing that won’t occur again, or at least won’t happen to them—because they are, after all, above average in their ability to detect people who shouldn’t be trusted.
Furthermore, one consequence of the just-world effect (people’s tendency to believe that the world is a just and fair place in which people get what they deserve) is that when someone is taken advantage of, others engage in a “blame the victim” exercise in which they actively seek out information that demonstrates how the victim was complicit in some way in his or her own deception and therefore deserved it. In Gary Kildall’s case, one version of events suggests that he missed out on the deal that made Microsoft because he was supposedly flying that day and didn’t personally attend a crucial IBM meeting, and because his wife, who first met with IBM, and then he, too, refused to sign a nondisclosure agreement. The truth is more complicated as to why he missed the meeting and as to what happened next, but Kildall’s account, from an unpublished autobiography he subsequently wrote, portrays his role as much more of an innocent victim than an incompetent individual.
Most important, people are frequently strategic in their interactions. This means that they consider not just what someone has done to them, but what that individual might be able to do for them in the future. Trust-breakers for the most part retain their networks and social relationships because others in their orbit haven’t been harmed by their actions, so they don’t feel compelled to redress the harm. Trust-breakers frequently maintain their financial resources. Martha Stewart may have jilted Macy’s, but she maintained wealth, personal contacts, and cachet, which could provide benefits to other retailers. Once Microsoft became successful, at one point becoming virtually a monopoly, there was no point in taking on Bill Gates, the richest man in the world. Don Quixote is a great literary figure, but most savvy leaders understand the implication of the term “quixotic.” Few people want to fight losing causes when they have a much better alternative—making peace and cozying up to the other party.
And even when publicized, or possibly particularly when publicized, trust-breakers attain notoriety. That public visibility is a valuable resource itself. The “mere exposure effect” holds that we buy, choose, and prefer what is familiar, and what is familiar is what we hear about and read about continually.14
The old public relations adage that there’s good publicity, bad publicity, and then there’s no publicity is completely consistent with the research conducted to demonstrate the positive effects of mere exposure. For example, when I wrote a case on the networking guru Keith Ferrazzi, I asked him about his experience, which at that time was as the CEO of YaYa, a company in which Michael Milken, who in 1990 had pled guilty to six felony violations of federal securities law, had served twenty-two months in prison, and paid a fine of hundreds of millions of dollars, was a major investor.15 Ferrazzi told me that Milken’s name actually opened doors, helped him secure meetings, and was useful in building relationships for the Internet marketing firm that Ferrazzi was running. Because people had heard of Milken, that familiarity helped induce them to take the call and the meeting.
The advantages of not trusting too much, of harboring a good degree of skepticism and distrust in most situations and interactions, seem obvious for the gullible individuals who lose money and careers when their trust is violated. Had people not trusted the apparently staunch pillar of society Bernard Madoff, he would never have been able to run his Ponzi scheme for so long and at such a scale. Had Harold not trusted his alumni mentor, he might still be running his company—or at least have been able to negotiate a much better severance to soften his ouster.
The best advice I can offer you, based on the many similar stories I have seen and read about, is this: the best predictor of future behavior is past behavior. People who have reneged on commitments, stolen intellectual property, sued or forced out their partners, failed to fulfill promises, and moved on to greener pastures in the past will do so again. Don’t blame the victims, don’t think you are going to be better or smarter, and don’t believe in some personal invulnerability because of your superior intelligence and social perceptiveness or because of your education or current position. It can and will happen to you. This suggests that you would be well served to get data on people’s past behaviors. Try not to be too caught up in their status, money, and trappings of success, or for that matter the positive stories they (or others) tell about themselves. Instead, carefully, systematically investigate what the people you are going to entrust with important dimensions of your future well-being have actually done.
Of course we are cognitively lazy in so many ways, which, as the famed social psychologist Robert Cialdini has noted, is why we often are so readily influenced.16 Making the effort to check people out, and doing so with a sufficient degree of skepticism, can make life uncomfortable, because if you turn over a lot of rocks, you are more likely to find some snakes. But that form of discomfort may be much less painful than losing your job, your money, your reputation, or all three, because you put too much trust in the wrong person or the wrong company. And if you, for various business reasons, believe you have to do business with people and companies that cannot be trusted, try to do things, for instance, through legal contracts, patents, copyrights, and so forth, that can protect you against those who might seek to take advantage of your lack of power in the relationship.
Consider this cautionary tale, related to me at a Stanford alumni event in October 2013 by a Los Angeles resident who has worked in the film industry for decades. In 2008, he and two senior Hollywood colleagues put together a proposal to create a new Hollywood distribution company. They thought there was an opportunity, as the major studios, fueled by the availability of easy financing, had released too many movies into the market and therefore had stopped acquiring independent films. This meant there was, at least temporarily, an opportunity to acquire quality product for not much more than the marketing costs.
The three partners put together a business plan, agreed with a major studio to handle video rights, lined up a line of credit, and set about raising equity for the venture. Although they were trying to raise money at a bad time, as the recession was in full force by then, a theater chain backed by a private equity group was interested. Their company would give the theaters another source of product. The chairman of the theater group, who was from the private equity firm, assured the three that they “were his guys.”
You can guess what happened. Their presumed “investor” brought in a consultant to presumably make the deal happen. And then “the phones went dark,” as my Hollywood friend wrote in an e-mail. Nine months later, the putative investor opened its own independent film distribution company, which included the consultant on its staff, effectively executing the business plan that had been presented by the three Hollywood executives who had sought to build their own business. As one of them said in an e-mail, “We didn’t have the power. Life isn’t fair.”
Could the three partners have done a better job of protecting their legal rights in their idea so that it could not have been appropriated, or at least appropriated so easily, by others? Quite possibly. Could they have pursued parallel options to reduce their dependence on the theater chain and its private equity investor, who wound up taking advantage of them? Maybe. But in the dynamics of the moment, having identified an interesting business opportunity and having found a large strategic partner interested in backing it, having done all this in a difficult economic environment, and after getting lots of assurances that they were the people, the three industry executives trusted too much, and they trusted the wrong people. It’s not really their fault. It happens all the time.
The lesson from this case and its all-too-frequent cousins: People will frequently act in their own interests, and if those interests involve breaching commitments made to you, then you should probably kiss those commitments good-bye. And often there won’t be sanctions for violating trust, the experimental research notwithstanding. In such experiments, people have the opportunity to expend modest resources to punish the norm-violating behavior of people with whom they will almost certainly have no interdependence or future interactions. In the real world, people confront business partners—suppliers, investors, distributors—whom they may need and for whom there are few alternatives, in order to run or grow a business. So people will make excuses—this is how things happen in this industry—or they will blame the victim whose own behavior or lack of foresight or mistakes caused the difficulty. Or they will think that, the past record notwithstanding, their case will be different. For instance, even though entrepreneurs in technology often know the statistics that about 80 percent of founders are forced out of their companies by their venture capital investors, I have never heard anyone tell me that this would happen to them.
In the end, most people will continue dealing with the distributors or the financiers, in the Hollywood case, or the venture capitalist’s in the case of technology entrepreneurs, or Martha Stewart or Microsoft in the case of vendors and suppliers, or, more generally, whomever they think they need to deal with to advance their immediate personal interests, the past behavior of their “partners” notwithstanding.
The advantages of skepticism and distrust seem clear for followers or others who might thereby avoid getting caught up in the blandishments and false promises that have become all too common in contemporary organizations. But are there advantages to creating distrust for leaders and their companies? Phrased in that fashion, the answer is almost certainly no, at least most of the time. But articulated in a slightly different way, the answer can be quite different.
It’s pretty clear how to build or destroy trust. Trust implies that others know that someone or some company will honor their commitments and promises. Therefore, trust requires constancy and predictability. Because building trust entails, most fundamentally, keeping one’s word and honoring promises, including the promises—either explicit or implicit—that are made to employees and customers, building and maintaining trust necessitates honoring commitments and obligations. But sometimes, or maybe even frequently, leaders and their firms either require for their economic survival or can benefit from more flexibility than previous agreements and assurances may provide. Therefore, leaders, who first and foremost are responsible for ensuring their organization’s well-being, sometimes have to take tough actions. Such actions can entail breaking implicit promises or even abrogating contracts, and doing things that render the leader disliked and the company distrusted.
Before Daniel Debow and David Stein founded Rypple, a human capital software company now owned by Salesforce.com, they had cofounded a workforce management company but did not have controlling interest. When that company was sold, Debow described to me at lunch what happened—a tale that is quite common in the software space. The acquirer purchased the company for its customer list and customer contracts—it was in the software-as-a-service space with multiyear agreements (although the fundamental logic holds with possibly even more force for licensed software). Buyers of such businesses sometimes do the following calculation: regardless of whether the acquired company would maintain its level of customer service or product innovation, existing customers would confront some level of inertia in moving to a new vendor and platform. Therefore, if the purchase price is right, the acquirer can earn a handsome return on its investment as it essentially slowly drives the existing customer base away, because costs will decrease more rapidly than revenues. Precisely this sort of thing happens in the enterprise software space quite regularly. The founders discovered this was occurring to their former business when customers with whom they had developed strong relationships called them to complain about the treatment at the hands of the new owners.
But it’s not just in software where this happens. Before Richard Kovacevich arrived as the CEO of Wells Fargo bank and changed its culture and strategy, the bank’s strategy had been to acquire banks such as Crocker and First Interstate, slash costs and service in an often messy and painful merger integration process, and then profit from the fact that banking relationships are also characterized by inertia. This inertia meant that profits would rise at least for a while because what was being offered to customers and the associated costs were falling more rapidly than the customers could defect.
Note that profits, in these situations, come from breaking “trust” with customers by not honoring the implicit obligations to provide a certain level of ongoing customer service and product evolution and innovation, which the customers had come to expect and may have even been promised by marketing programs designed to woo them in the first place. In consulting, such situations are often called “cash cows,” although few consultants would advocate quite this level of turning one’s back on existing customers.
A similar arbitrage opportunity exists with employees. There are many forms of deferred compensation, ranging from pensions to retiree health benefits to the oft-observed positive age-wage relationship, which labor economists such as Edward Lazear argue are used to reward long-tenured employees and thereby ensure their retention.17 An acquirer, either from the outside or from a management buy-out, or, for that matter, a new management team altogether, can reap substantial rewards by changing the “deal”—no longer offering pensions, retiree health benefits, and, subject to discipline by laws forbidding wage discrimination, by laying off senior workers whose wages may be above their level of productivity, as a payoff for working earlier in their careers for wages that were less than their productivity warranted. Defined benefit pension plans have disappeared at a rapid rate, and even company contributions to defined contribution plans have been decreasing, as are the proportion of companies offering retiree health insurance and, prior to the passage of the Affordable Care Act, the proportion of employers offering health insurance to active employees. This can happen because as a labor lawyer told me, “Companies cannot take away compensation already earned or accrued, but many employers explicitly reserve the right to change the terms of their benefits practices in the future.”18
So employees may sign on for a particular basket of wages and benefits, but there is no assurance that those benefits—or even wages—will be maintained. Much like customers, employees also confront inertia, particularly in weak labor markets, but also to the extent that they have developed organization-specific skills that make them comparatively less valuable in the broader labor market than they are to their current employer. And finding a new job takes time and effort. These circumstances present management with the opportunity to change the deal in ways that increase profits. And there is also an opportunity to clean up the balance sheet by shedding future obligations. The airline industry has been in the forefront of doing precisely this. Look at airline income statements and balance sheets after most of them in the United States went through the bankruptcy process. And consider what their financial statements would be, even with current revenues and costs, had they maintained the pensions and other obligations that they shed through the courts.
Of course there are costs to distrust, in the form of more skeptical customers and employees who want their wages up front and not deferred in the sometimes-vain hope of realizing the benefits of those promised economic returns in the distant future. Although there is controversy about how much of the profit from leveraged buyouts comes from abrogating implicit promises, there is no question that in some specific instances, breaking promises—and thereby violating trust—has been a road to riches.
I would argue that one of the reasons the Edelman Trust Barometer and other similar measures of trust in leaders are so low is because of a recession that led to numerous cuts in wages, benefits, and employment levels. And another reason is a consolidation in industry after industry, ranging from banking to airlines to retailing to consumer products, which has increased the market power of companies vis-à-vis customers and therefore has made it easier, and more profitable, for those companies to renege on commitments implicitly made to the buyers of their offerings.
The simple fact is that maintaining trust requires honoring commitments, but commitments constrain. To take yet one more context in which this dynamic plays out, consider vendor-supplier relations. Every day companies turn their backs on alliance partners and become direct competitors. Jason Calacanis, an Internet entrepreneur (he sold Weblogs to AOL in 2005), a blogger, and an organizer of technology conferences, well understands how companies turn on their presumed partners. In an e-mail blog posting, his advice for building a start-up inside some other, larger company’s ecosystem (like that of LinkedIn or Facebook or YouTube) is simply, don’t. Once you develop and prove a business idea or application, he continues, the larger company is going to do its own version, almost certainly not by purchasing your start-up at some enormous price but by doing it better themselves.
Lenovo, one of the largest manufacturers of personal computers under its own label, was once a contract manufacturer for some of the big players. Ditto for most of the well-known Korean electronics companies that began making appliances and other electronics for others before moving in on those markets themselves. A company’s partner today may be its competitor tomorrow. And what holds for companies is also true for the individuals inside them. Alliances are fluid for a reason—changed circumstances often result in changed networks of support and opposition.
Commitments constrain, and this holds true for personal relationships as well. That’s why every day inside companies, people eliminate their supposed onetime friends and allies. Ask John Reed, who was forced out of Citigroup after its merger with Travelers by Sandy Weill, his co-leader and presumed partner. Ask Jamie Dimon, Weill’s right-hand man for decades, fired by Weill when Dimon got into a dust-up with Weill’s daughter. Ask Gil Amelio, ousted as Apple’s CEO after he bought Steve Jobs’s company Next Computer and brought Jobs back into the company, where Jobs forgot to thank him for the favor. Or the senior executives who lost internal battles at Discover, Morgan Stanley, or decades ago at Lehman Brothers. There are scores if not hundreds of examples in companies big and small of individuals often losing political battles and getting deposed in coups by the very same people they had themselves promoted, brought into the company, or thought of as partners.
Sort of like Frankenstein, leaders frequently create monsters. Through hiring and promotions, these new senior executives rather than showing loyalty, become participants in ousting their onetime sponsors. People—famous people, rich people, some people who regularly appear on most-admired lists and give talks at leading business schools—turn their backs on commitments when it suits their interests all the time. If you don’t believe this, you are really not keeping up with the news.
To be clear, leaders go back on their word not because they are necessarily venal or evil, but because keeping commitments, a fundamental basis of trust, constrains their behavior. When circumstances change, so do people’s behaviors, objectives, and needs. Leaders shed commitments all the time. Just ask the former employees of the city of Detroit as they watch a bankruptcy process unfold that will tell them how much of their promised pensions and other benefits they will actually receive.
The behaviors described in this chapter are reasonably common in everyday life. That fact suggests two things: first, that violations of obligations must not be perceived as that serious, and second, that people, to avoid being perpetually unhappy and dissatisfied, will figure out ways of coming to terms psychologically with the reality of breaches of trust. Both processes probably operate.
There is empirical evidence consistent with the argument that breaches of contract done by companies are perceived as being not as serious or morally repugnant as when such breaches are done by individuals. Uriel Haran, a management professor, studied what happened when people saw contracts breached. He found that breaches of contract by individuals are seen as moral transgressions. Breaches of contracts by businesses, however, are viewed more as reflecting a business necessity (or reality), and therefore are seen more as legitimate business decisions with less of a moral transgression aspect.19
Haran’s research results are completely consistent with the idea that breaches of trust—and contracts are certainly a form of binding agreement that one would expect to be honored—can and often are seen as business necessities and therefore do not provoke much moral outrage. Although Haran looked at differences in the moral outrage between breaches by individuals and companies, there may be many other factors that affect how seriously people take breaches of trust. One such factor should be how many times people have personally seen agreements violated. People become habituated. In a world such as that described in this chapter, one in which individuals and companies pursue their interests and will renege on promises to do so, moral outrage has to become attenuated, or most people, not just a relatively small slice of the population, would be more angry more of the time. That doesn’t mean that people will trust contracts or other agreements to be honored—people see the world and are not stupid. But it does mean that there will be less affect, less moral outrage, less anger over what has become business as usual.
So there is a dynamic process in play. Because commitments constrain, people and companies break them, and they do so reasonably regularly. Because there are few sanctions, such trust-violating behavior becomes more frequent. Because the breaking of promises becomes more frequent, it becomes more “normative,” in the sense that more entities do it. And as a more normative way of behaving, it provokes less moral outrage and comes to be seen as how business is done or how people make their way in political battles inside organizations. And the absence of moral outrage then leads to more breaches of agreements and promises, and the cycle continues.
So yes, trust is a quality widely touted as being helpful, indeed essential, for good leadership. There’s only one problem: it is largely missing in most leaders and in most work organizations. You need to understand why, so you don’t get fooled again.