In business we trust?

I have been thinking about trust a lot recently. And the more I think about it, the more I see it woven into the fabric of our lives.

I see it when I let my 5 year old son play in the garden with his friends, trusting they won’t hurt themselves (or the plants) too badly. I am trusting his school to educate him. When I drive my car on the motorway at 70mph, I am trusting the engineers made it well enough so it won’t blow up or fall apart.

At a national level, I hear doctors’ leaders in England worry about losing public trust if they go on strike again. I see the UK government spending millions on the Leveson inquiry into press standards, with the aim of restoring trust in the press (and of course in politicians who are expected to keep an eye on the press).

We say that money makes the world go around. But it is not true – it is trust. After all, without trust, even money doesn’t work. If you give up something of tangible value (like your labour) in return for something abstract like money, you are trusting that you will get value back later. Northern Rock was on the point of collapse (before the government bail-out in 2008) because customers lost trust in it. All the efforts of politicians in the current Euro scare are focused on seeking to maintain the trust of markets and the public in the financial solvency of European governments and banks.

Trust is vital for businesses too. They spend considerable sums on CSR and “reputation management”, all designed to bolster trust and we do in fact place a lot of trust in large businesses. I think of a friend of mine who has a large apple tree in her garden, with shiny red apples hanging from every branch. But she won’t eat the apples. She is nervous, she says, about maggots and general cleanliness. Instead she insists on buying her apples from Waitrose, neatly wrapped in plastic. She has another habit I find strange – as soon as her potatoes (also from Waitrose) go past their sell-by-date, she throws them away, no matter their condition. She trusts Waitrose so much that she is happy to let them decide what is fit for her to eat, and discounts her own ability to discern what food is edible and what isn’t.

My friend may be a bit extreme. But the fact is that we grant large corporations huge power over us – we let them make all sorts of decisions about what we eat or wear, how we move about and what we read in our newspapers. They dominate our high streets, our advertising hoardings, and our supermarket shelves. Yet are we right to trust these large organisations? Is our health, our well-being, the future of the planet for our grand-children safe in their hands. I am not sure.

I don’t really trust Tesco, for example. Yes, I trust them to provide cheap, conveniently packaged food every day. I trust them to comply with food hygiene regulations (so I am unlikely to be poisoned) and indeed in general to comply with the law. These are no small things. Yet, for me, they are not enough. I don’t trust Tesco not to adulterate their food in subtle ways which are within the law (for example, along with some other retailers they have in the past sold meat injected with water to increase the weight at minimal cost). I don’t trust them to treat their suppliers, or staff, in ways that I would consider humane or fair. I don’t trust them to consider the ecological consequences of their actions, except in a very superficial way (giving people points for using less plastic bags, for example).

Nor do I really trust the pharmaceutical companies. Too often their actions seem motivated by a desire to maximise sales and profits, and human health, which is what got them started in life, has become a secondary consideration.

More broadly, businesses, hand-in-hand with governments, are letting us all down by failing to properly address the multiple crises we face today – economic instability, resource shortages, social fragmentation and ecological catastrophe.  They seem to believe that a bit more growth, a bit less carbon emissions and significant annual increases in executive pay will magic all these crises away.

Business has a special situation when looked at from a trust perspective. Whereas governments (although not necessarily individual politicians) can be assumed to have public service as their ultimate purpose, this is not the case with business. There is a direct conflict between the assumed purpose of many businesses (to maximise shareholder value) and what a business has to claim is its goal if it wants to be successful (service to customers, staff, suppliers and so on). This causes huge tension in the business and leads, too often, to abuses, such as we have seen most recently with the behaviour of Barclays staff, providing false information about interest rates.

No wonder that trust in business is generally in decline. PR group Edelman, who run a “trust barometer” every year, reported a 3% global decline in trust in business last year (down to around 50%), and this followed on from a dramatic fall in the wake of the recession in 2008/9. And although levels of trust in government are even lower (around 40%), almost half the people surveyed felt that government should regulate business more.

Can we re-build trust in large businesses? I hope we can. We need business functioning well if we are to make our way through the confluence of crises we find ourselves in. And I don’t believe business people are inherently dishonest or corrupt. I just believe the system is not bringing the best out of them. The institutions they serve were built for a different age and are no longer serving us and the complex world that we live in. This is fundamentally why we are losing trust in them.

There are two design flaws in the shareholder ownership model of business. Firstly, there is too much power and decision making authority concentrated at the top, in the hands of too few people: the senior executives. They answer to a nameless group of shareholders who are interested above all in short-term financial gain.

Second there is the privileged position of shareholders. Rather then seeing capital providers as being part of an eco-system helping to serve a particular end, we have placed them at the top of the corporate tree, giving them the exclusive power to appoint and dismiss the board. We call them “owners”, a strange concept when an organisation is mainly comprised of people. And we have given them limited liability. So, they have power, a limited sense of other interests, and no responsibility – a very dangerous position. This, combined with a mindset (not exclusive to business, is must be said) that says that we have to prioritise economic issues over social and environmental matters, has got us to where we are today.

What we really need is new institutions. They’ll be polycentric (having multiple, inter-dependent centres) with control ebbing and flowing throughout the organisation. They’ll empower people at all levels, bringing out their innate leadership rather than dividing staff into “leaders” and “followers”. These new institutions will disperse wealth and power rapidly, rather than concentrating it and freezing it as our old institutions do. And their key assets will be held in trust for the benefit of the community as a whole, including future generations.

Why do I believe this is the future? Partly it is hope – such organisations seem to me to be designed to release the human spirit and be more likely to serve the needs of society and the planet.

Partly it is observation – the organisations that have emerged most dramatically in the last decade or so have some or all of these characteristics (whether for-profit businesses like ebay, Google and Facebook or those which have a social mission like Flickr, Wikipedia and Linux). In the world of the media, it is institutions like Wikipedia, as well as the whole range of social media such as Twitter and blogs, that are growing in reputation as the traditional media sources sink. These organisations encourage people to be active and engaged and to interact more with each other, rather than with the organisation itself.   They form part of a broad wave of emerging social enterprises, led by pioneers who recognise the benefits of a business-like approach and want to apply it to achieving some positive purpose, a social or environmental good.

And partly it is based on theory. The classic theory of the firm, set out by Ronald Coase in 1937, suggests that the most efficient way of organising people is a marketplace (think ebay). The reason, Coase theorised, that large organisations exist was that “transaction costs” in a marketplace for people (as opposed to a marketplace for goods) are high and it is more efficient to arrange people in a hierarchy, where you don’t have to agree in advance to what people will do – you agree to pay them a wage and in return they agree they will do what they are told. So, the theory goes, large organisations exist only to the extent that the losses of efficiency in the hierarchy are less than the savings in transaction costs.  What’s changing these days is that modern communication technology has made transaction costs substantially lower than in Coase’ time. The natural conclusion is that many large organisations are now less efficient than a marketplace and should be replaced by markets. This is starting to happen – for example there is a “School of Everything” that mediates between teachers and pupils, without actually offering classes itself. Will it ever put universities out of business?  Who knows, but certainly a shake up is coming that will challenge all institutions in ways they can hardly imagine.

The fact that this isn’t happening at a faster pace is due to the massive inertia built into the system. Building a stable system must have seemed, in Europe in the aftermath of the second world war, to be really important. But it is no longer serving us – we need to become more adaptable, otherwise we will lurch from crisis to crisis, and learn our lessons in painful ways.

My conclusion? We don’t need institutions that say: “trust me”. We need institutions that enable us to trust each other. We don’t need institutions that treat all relationships between people, and between people and the planet, as transactions. We need institutions that help us to connect, be more human and be more alive. And ultimately we need to learn to trust ourselves, to build trusting relationships with each other, and to create institutions that support us in those relationships.