Putting Trust at Apple’s Core

Posted on June 29, 2009 | 7 Comments

Trust should be top of mind for any executive trying to navigate the minefields of today’s business environment. The Page Society and Business Roundtable Institute for Corporate Ethics report on corporate trust offers great insights into how organizations are wrestling with this issue and what key questions CEOs and CCOs now face about public trust in business. I had the opportunity to take part in this research and believe that now, more than ever, the corporate world must recognize a mindshift is mandatory in how companies attempt to preserve and build long-term relationships with their core constituents – customers, employees, investors and community members.

Given today’s business landscape of skepticism and wariness, trust, transparency, and authenticity are critical sources of competitive advantage. Even organizations like Apple – enjoying high levels of credibility, a “most admired” status, and a strong reputation – cannot afford to lose competitiveness by depleting the trust of their core constituents.

In light of this, it was surprising and disappointing to observe Apple mishandling the issue of CEO Steve Jobs’ health. The timing and tone of Apple’s communications surrounding Jobs’ illness has been nothing short of unacceptable. As I stated in my article today in PR News access to equity markets comes at a cost and, as a publicly traded company, Apple must acknowledge its responsibility and act with a sense of accountability.

This case serves as a great example of what the Page report tells organizations and communicators to be cautious about. As a (former) investor and (current) customer of Apple, (I’m writing this on my MacBook Pro, and have used Apple products since their first introduction in the 1980s), I find the disparity between Apple’s marketing messages (which seem so transparent, responsible, and constituency-focused) and the company’s corporate communications activities (inconsistent, detached, obscure, and inconsiderate) to be remarkable. This stark contrast calls Apple’s broader authenticity into question, even for an Apple loyalist like me.

Perhaps the most troublesome issue, and what I consider to be a very serious problem for Apple going forward, is the company’s inability to adhere to baseline regulatory requirements in disclosing information to its investors, despite the flood of criticism recently unleashed in its direction. I appeared on CNBC last week to discuss this issue with a panel of experts and the global debate has continued, with heavyweights like Warren Buffet, New York Times’ Joe Nocera, and Silicon Alley Insider’s Henry Blodget weighing in and agreeing that proper disclosure did not occur. To me, the chronology of real-life events is very simple to track and explain: Steve Jobs got pancreatic cancer, it spread to his liver, he got a transplant in Tennessee, and supposedly went back to work today. Is it THAT hard to be honest about this chain of events?

Apple missed a significant opportunity to “talk plain” and hold an open and truthful conversation with its constituents. Clearly, had the company kept us properly up to date on the issue, it would have only enhanced our perception of what Fortune has called the most admired company in its annual survey for two years running. (Let’s not divert the discussion now, but we all know that the Fortune poll is just “popularity contest” of sorts — a poll of CCOs, not CEOs, coupled with some financial data and a bit of CSR thrown into the mix.)

Instead, Apple opted for a cagey, opaque approach. The company first said Jobs had a hormonal imbalance, projected his blood pressure on a screen behind him at a speech in gargantuan font to underscore his good health, put him on a leave, said the situation was “more complicated,” then held back information about his transplant. So, maybe the company will win the legal battle of whether or not this information was material because Jobs was on leave, but who cares? What really matters is a single question: can I trust a company, especially one whose reputation is based in large part on its CEO (like Martha Stewart, Sir Richard Branson and Oprah), when it very clearly lies to me, then tries to justify that lie through a slight of hand? This isn’t a question of following the letter of the law, but its spirit—and by doing so, keeping constituents feeling engaged and good about their relationship with an “admirable” company.

Until CEOs and CCOs fully recognize the importance of trust, and their mandate to preserve and enhance it with their constituents (as outlined in the Page Society’s report), the reputation of big business will continue its endless, downward slide. It’s never too late to say you are sorry, and it’s never too late to take a more transparent and trustworthy approach to communicating with key constituents and the world at large. As a feel-good, household brand, trust should be embedded at the center of Apple’s core—in everything it does, and everything it says it does. Without that emphasis on openness and trust, Apple’s sheen will be lost. Innovative products and an addictive brand won’t last forever—a company must be founded on something more lasting and meaningful. I ask Steve Jobs and Apple to set an example by coming clean, apologizing to all constituencies, and embracing the concepts from the Page Society’s Authentic Enterprise and its new Trust Report.

By Professor Paul Argenti, Tuck School of Business
With Jenny Farrelly & Kimberley Tait, Tuck School of Business

Trust Is Ephemeral

Posted on June 23, 2009 | 1 Comments

Trust is the central subject of a new special report by the Arthur W. Page Society and the Business Roundtable Institute for Corporate Ethics. In sum, the comprehensive and carefully written study says that trust (or its absence) affects everything in our economy from employee performance to customer perceptions, to the willingness of people to loan money to one another.

“Trust is an important lubricant of a social system,” writes the Nobel Laureate economist Kenneth Arrow. “It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance upon other people’s word.” And the time, effort, and investment required to regain trust, once it’s lost, are substantial.

In view of recent untrustworthy behavior on the part of businesses, ranging from the Enron scandal of 2001 to the more recent Madoff and Stanford Financial schemes, people have more reasons than ever to be distrustful of businesses and the people who run them. The authors of the Page-Roundtable study, however, would have us believe that the erosion of trust is a widespread and broad-ranging phenomenon that extends well beyond the private sector.

Citing 2008 survey data, they note that “only 17 percent of Americans trust government to do the right thing most or all of the time,” and that 52 percent of Americans agreed with the statement that “quite a few government officials are crooked.” What’s wrong with those views? First, they’re the product of survey samples that ask narrowly framed questions regarding topics that are prominent in the news media. They’re subject to change without notice and they come without a price. That is to say, it costs the respondent nothing to express his or her opinion.

The fact is, most government officials are not crooked, and most governments (from federal to municipal) do the right thing most of the time. To assert that the public simply doesn’t trust anyone these days is an overstatement that ignores a recent, fairly important trend: trust has shifted from business to government. For a variety of reasons, people now believe that government at all levels ought to be paying closer attention to the banking profession, to the stock market, to the food supply, to the automobile industry, and more.

In the near term, that may prompt fewer risky loans and safer food, but it may also create a regulatory and cost structure that makes it more difficult for businesses to compete on an even footing in a global economy.

Ronald Reagan famously said in the 1980s, “Government isn’t the solution to the problem. Government is the problem.” The three decades that followed were characterized by unfettered, de-regulated, and unimpeded competitors in the marketplace. Absent regulation, many of them took the opportunity to re-package sub-prime mortgage loans, credit default swaps, and other little-understood instruments, take the profit and shift the risk to someone else. When the loans went sour, bankers turned to the federal treasury for help. Is it any wonder the public (and the taxpayer) is now distrustful of people who claim the marketplace is self-regulating?

The most significant event in recent years was the November 2008 election, in which the American voter said, “Enough.” That display of political behavior is clear evidence that those who wanted less government, less regulation, and fewer social programs have changed their minds. Even now, five months into the Obama presidency and ten months into a dismal economic spiral, confidence and trust in the new administration are in the low- to mid-sixties. Compare that with numbers in the mid-twenties for the previous administration.

Do people trust capitalism? They don’t trust unregulated markets, that’s for sure. They don’t trust investment bankers and bond merchants who refuse to speak to them in Plain English (despite the best efforts of Arthur Levitt to get them to do so). They don’t trust a global marketplace with uneven rules that mean lower wages, no health care, and unfunded pensions.

As healthcare legislation makes its way through committee, it’s clear that the public and their elected representatives no longer trust the private sector to look after many of their most basic needs. Why? Company after company, particularly in the American heartland, has shuttered its doors, locked the plant gates, and turned employees away. Yet, with remarkable regularity, executives in many of those same companies have departed with fat severance packages, rewarding irresponsible risk-taking and sub-standard business decision making.

Business people in just about every sector of the economy are saying, “trust me.” Now here’s a simple question for you: “Why?” Given your recent behavior, why should people trust you? People put their money in a demand deposit account because they trust the FDIC, not because they trust the bank. The fact is, the private sector is going to have to do a better job on a behavioral level in order to regain the trust that’s been lost in this decade.

Social psychologists tell us that the three components of an attitude (or intellectual viewpoint) are cognitive, affective, and behavioral. That is, how we look at something (or someone) depends a great deal on what we know, how we feel, and how we (and they) behave. In addition to arguing in favor of mutuality, balance of power, and trust safeguards, why not argue in favor of morally acceptable behavior?

Business ethicist Ken Goodpaster tells us that business ethics “is the application of what is good and right to that assortment of institutions, technologies, activities, and pursuits which we call business.” “Ethics,” he says, “refers most often to a domain of inquiry, or discipline in which matters of right and wrong, good and evil, virtue and vice are systematically examined.”
That’s not the same as morality, though. By contrast, morality refers not to a discipline but to patterns of thought and action that are actually operative in everyday life. Thus, what we have here is not so much a business ethics problem leading to a breach of trust. It’s actually a morality problem. The vast majority of folks in business today (including Bernie Madoff and Alan Stanford) know and understand the right thing to do. The problem isn’t what they know or how they feel – it’s their behavior.

And, until people in business begin internalizing issues and principles associated with business ethics (and morality) in both a personal and professional way, the public will continue to trust the regulators, auditors, inspectors, and legislators. If you want less regulation, less oversight, and fewer restrictions on business – if you want a resurgence of trust in business – begin making business ethics a part of your core values and everyday behavior. The pendulum will swing back away from government and toward those managers and firms who’ve shown they’re worthy of our trust.

James S. O’Rourke
Professor of Management
Mendoza College of Business
University of Notre Dame

Rebuilding Trust

Posted on June 10, 2009 | 1 Comments

It's encouraging when the Harvard Business Review agrees with you. That was my initial reaction when I saw the bright yellow cover of the most recent issue of HBR highlighting the topic for the month -- "Rebuilding Trust" -- and featuring a smashed coffee cup to symbolize just how much things are broken. It's the same topic of the Page white paper - “The Dynamics of Public Trust in Business - Emerging Opportunities for Leaders” - released this morning. The paper, which we developed in conjunction with the Business Roundtable Institute on Corporate Ethics, specifically addresses the current crisis of trust in business and lays out some approaches that we might take to start to rebuild that trust.

We don’t pretend that the report is the last word on the issue. Nor is it meant to be a definitive position that's endorsed by all Page members. It does, however, provide a new framework for understanding how public trust operates. It highlights the importance of three core dynamics in relationships between business and stakeholder groups - the fact that we have shared values and interests, that we share risks and opportunities, and that a feeling of vulnerability can be detrimental to the building of trust.

Understanding these dynamics can point the way to solutions. What I hope is that the report is a significant contribution to the debate, and that that debate amongst members of the Society will be vigorous and productive.

Of course we can always ask “Does it really matter? Why are we even spending time talking about this issue?” I strongly believe that this is a fundamental business issue that's important to every organization, and so it's a very relevant and important topic for us to be discussing. Without society's approval, ultimately business cannot survive. Companies that can figure out how to align their core business objectives with the public interest can earn trust, and that is essential to the achievement of business objectives. And when trust is broken as much as it is now, I believe that it is incumbent on business to take the initiative -- as Anne Mulcahy, Chairman and CEO of Xerox Corporation and Chairman of the Business Roundtable Corporate Leadership Initiative, says in commenting on the report, we have "an opportunity to step forward." The ongoing relationship between the Page Society and the BRT Institute will provide an opportunity for business and academic leaders to work together on building and sustaining trust, and make a commitment that can change reality. That would be an important contribution for us to have made to the future of society and of the profession.

Maril MacDonald
President, Arthur W. Page Society
CEO, Gagen MacDonald