Designing Trustworthy Organizations

Book description

In the aftermath of the well-publicized frauds of Enron, WorldCom and Tyco circa 2001 and 2002, there were major efforts in the United States to restore trust and enforce corporate compliance. Among other things, the U.S. Congress passed the Sarbanes-Oxley Act of 2002, corporate spending on compliance increased an estimated $6 billion annually and leading business schools created ethics centers and made ethics training mandatory. Yet despite these reform efforts, corporate trust violations continue. In fact, some of the most insidious practices from the Enron era (notably, disguising financial weakness with offbalance-sheet debt) were front and center again during the global financial crisis of 2008. Why do trust failures continue to occur with such frequency, and how can they be reliably prevented? The authors found that building and sustaining organizational trust is different from building and sustaining interpersonal trust, and that major organizational trust violations are almost never the result of “bad apples” or “rogue employees.” Rather, these violations are predictable in organizations that allow dysfunctional, conflicting or incongruent elements to take root. Trust betrayals occur, the authors note, when the organization actively caters to a group (or groups) at the expense of and even causing harm to another group. Given the global prevalence of social media, online global forums and 24-hour news cycles, a breach of trust with any one stakeholder group can rapidly undermine an organization’s reputation for trust in its broader stakeholder community. Ironically, the authors note, trust failures can act as catalysts for creating a high-trust organization. Much can be learned about how to establish and sustain organizational trustworthiness by examining how organizations successfully restore trust after a major violation. In analyzing cases of companies that have attempted to repair trust, the authors identified three critical stages: investigation, organizational reform and evaluation. Reforms must be evaluated to ensure they are working as intended, and shortfalls must be addressed. Successful trust repair requires taking a systems perspective to accurately diagnose and reform the true faults in the organizational system.