Trust is the most potent force underlying the success of every board. When trust is in the room, great things can happen. Yet it can be shattered in an instant, with a devastating impact on the performance and effectiveness of the board and, potentially, ultimately, a company's market cap and reputation. How can boards build and sustain trust in the boardroom and with stakeholders? When it is lost, what can boards do to regain it?
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards discusses trust with Professor Sandra Sucher, Professor of Management Practice at Harvard Business School and an internationally recognized trust researcher. "The Power of Trust: How Companies Build It, Lose It, Regain It" is her third book, based on two decades of research on global companies' best practices and the gray areas of business.
"The board is pivotal in establishing trust"
Sandra starts with her opinion that boards are probably the most important contributor to companies being trusted. In the global environment, trust is a multi-stakeholder issue.
"I'm more or less willing to take risks depending on whether or not I trust the other people in the room"
Research confirms that trust is built from the inside out. It isn't easy to be trusted by people outside an organisation if the people within it don't trust each other. A boardroom is a small group environment where lots of risk-taking is required, as people need to talk about difficult issues, and the willingness to do this depends on trust.
"The first thing that board members can do is just be clear on what it is that they're good at, what they're there for, and to make sure that they actually can do that really well"
Sandra outlines a formula or framework for the basis on which people trust. Firstly, individuals and organisations trust that the other party is competent, without which there is no reason to trust. The second basis on which people trust is motive because if we are vulnerable to someone else, they have power, and what is motivating them is very important. Motives are the way that we show whose interest we take into account. She explains that the third dimension of trust is what she refers to as means, and to be seen as operating fairly and having fair means. Lastly, she covers impact, judged separately from the first three. This is the real, on-the-ground effect of their actions on us, the net effect of their actions, be they positive and beneficial or negative. Those four dimensions, competence, motives, means, and impact, are ways in which any board member can expect to be judged.
"Do a good root cause analysis and fix the steps that need to be fixed"
Sandra explains that there is much empirical research on recovering from lost trust and outlines the 'apology formula.' The first thing is to acknowledge the harm done and apologise for it. The second thing is to explain what happened, avoiding corporate-style apologies in the passive voice, "mistakes occurred," but in active language - "what we did wrong." Then they can build confidence in your ability to fix things. The third step is to offer a solution. What will you do about it?
The three top takeaways from our conversation are:
1. Boards have a central role in helping companies become trusted, and both earn trust over time and recover it if it's lost.
2. Inside the board, it's essential to be mindful of building trusting relationships. That is hard work, but it pays off enormously in the contentious decisions that boards must make.
3. When facing a big decision, board members should question, 'in this decision, will this cause us to earn or to lose trust, and with whom?'