Introduction
Being trustworthy resonates with the actions of you or your employer in the past. This is inherently different than trust which is something you individually prescribe to someone or something. The trustworthiness of institutions can tell us a lot about economic performance and resilience. We have discovered in (Potw #1) that path-dependence is determining the origins of trust as a demographic factor. So, being trustworthy will have a likely have a positive impact on performance.
For organizations, How a company treats its employees is one of the best indicators of its level of trustworthiness. You think it would pay to live up to employee satisfaction in order to boost performance.
Aristoteles argued that strong institutions make it unattractive for people to not be trustworthy. Since a significant part of our Western political culture is based upon these ancient perspectives it gives us a clue about why we generally have so much trust in our institutions.
Since 1981 the World Values Survey has done research on trust with the following question: “do you generally feel that you can trust the person in front of you?”.Assessing my own Dutch culture, which is heavily rooted in Calvinism, we could further argue why we could expect relatively high trust scores in The Netherlands. However, as we see secularization progressing we see at the same time that on both the WVS and the Edelman Trust Barometer that trust in people and institutions is declining in Western countries.
For this paper, I would like to illustrate the following case. Focussing on the Netherlands for once, we are currently facing a difficult circumstance with organized crime. And that is emphasized with the scrutiny our largest banks are under at the moment for not doing enough to avoid money laundering by these criminals.
This is a perfect case of a strong institution with a long history. Therefore it serves as a perfect case to illustrate how the findings of this paper play out in a real scenario. Both ABN and ING got into trouble for not being careful enough about the processing of criminal payments. According to the NRC, some alarms where modified because the frequent warnings send by the alarms became annoying. This is also an indicator that their security culture might need a boost. However, how can such large institutions breed trust and overcome these types of dysfunctional behaviors? That is the theme of the paper that we are reviewing this week.
About the research
It is the first framework that is created to model the development of behavioral norms and institutions. The data collection and focus of the research is on institutions that facilitate trade.
All the preemptive data points towards a negative bias towards being a large country. However, they also claim that large institutions require lower amounts of trust to be functional. This seems like a paradox at first, but being functional and highly trustworthy is something different.
Typically, larger institutions are more functional since they can cover more work and are more efficient. Therefore they are better institutions and would so be able to create more trust. However, evidence shows that trust often more readily is established in small communities and teams. One interesting point is that people in large cities often experience a lower level of trust. But a very high level of trust is not necessary to be functional. People in larger countries and organizations might, therefore, experience lower levels of trust then their smaller counterparts without facing significant issues in their functionality. For smaller institutions and teams trust is way more important to be functional and incentives cooperation. For both small and large institutions, the authors mention that making promised actions accountable builds trust and it is a key determinant of economic activity in both small and large countries.
Interesting implications for the curious executive
We could argue that large cooperations function as institutions. Certainly, our banks are highly interdependent institutions that are at the core of facilitating trade. The value of trade is very high in banks, therefore incentives for institutional improvement are great and institutions improve quickly. However, banks also serve as a gatekeeper for unacceptable behavior and states should play an important role in co-creating a trustworthy environment for trade.
Having the insights of this paper in mind, the outcomes of the current trouble with money laundering arguably will be solved in the next couple of years. It will require a better incentive plan with the intention that even opportunistic people, such as criminals and their internal assistants find no incentive to act in a poor matter.
However, if institutions do not develop quickly enough, honesty norms eventually erode away. Taking the research into the future, if the banks fail to overcome the money laundering issue this could be seen as an indicator that the institutions are already weakening. This could make sense since the banks have faced numerous problems in the last two decades up to the extent that they are completely tied down by our European governments to avoid unethical behavior.
If we now go back to your own organization it would require you to think of a problem. If that problem is not easily solved but appears simple, you could be looking at the weakened version of your organization.
Trust is a key indicator of longevity and strategic issues on the time-horizon of several years.
Increasingly the stories of “blown-up” companies are being mentioned in regular meetings in which the company grows with such an extent that it doesn’t have the bone structure to support its unnatural weight and therefore falls to the ground like an “inflated chicken” or “luft huhn”
Important notes
Full credit goes to Chris Bidner and Patrick Francois. The one-and-only aim of this paper is to further promote it’s content to a wider audience. For the original paper please visit: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1931353
