Business Trust Report Card: D-

Trust in business is falling like dominoes all over the economy.  Just think back over the past year.  Last year, Bear Stearns collapsed and was purchased by JPMorgan Chase for a pittance, leaving its stockholders and creditors facing steep loses.  Dock a few points from the trust barometer.   After all, Bear Stearns wasn’t some fly-by-night operation (or was it?).  It was one of the major Wall Street investment banks.  Around this time, business leaders started asking themselves, ‘if Bear Stearns can fail, who else is vulnerable?”

As 2008 rolled along, we learned that even U.S. homeowners with good credit were falling behind on their mortgages and failing to pay their credit card bills.  Foreclosures increased rapidly.  Dock a few more points from the trust barometer.

Remember all of the Collaterlized Debt Obligations(CDOs) that securitized mortgages, sliced up the risk and were sold off to investors around the world with AAA ratings from Moody’s and Standard & Poor?  Well, the credit rating on those CDOs was really more like junk bond status then AAA.  Dock a few more points from the trust barometer.

Over the summer, in rapid succession, Fannie and Freddie Mae are taken over by the government, Lehman Brothers fails and banks charge exorbitant rates when lending to each other.  By September, even the banks didn’t trust their own kind.  Dock a few more trust points.

Most recently, in December, Bernie Madoff, a former Chairman of the NASDAQ (think about that for a moment!) reportedly admitted to regulators that his investment management firm was really a $50 billion ponzi scheme.  Now watch the trust barometer fall like a rock.

At the World Economic Forum in Davos this month, Richard Edleman unveiled his annual Trust Barometer and as you might guess, trust has hit an all-time low in the U.S.  To make matters worse, it had recently hit highs in the U.S. just last year.

Trust is the lubrication that makes the economy work.  It is essential for business to transact.  However, trust is also important inside an organization.  In fact, it is the central ingredient for employee engagement.  The degree to which an employee has trust in senior management or their manager impacts the degree of commitment and discretionary effort that employee is willing to make to the organization.

Even if the senior leadership at your organization isn’t behaving like Enron or Bernie Madoff, the overall low level of trust in business can drag down everyone.  If revenue and profit are slipping, that can erode trust as well.

The best way to combat low trust is to communicate.  As Richard Edleman says in this interview at Davos below, this is no time for CEOs to be withdrawing into their shells.

In a recent interview in business week, Gamal Aziz, the CEO of MGM Grand Hotel & Casino, talks about the challenge of keeping employees engaged during times of economic crisis.  Mr. Aziz’s response is almost identical to Richard Edleman; he says the key is communication.  The most important task for senior leadership at MGM, especially during difficult times, is keeping employees updated on what’s going on.  Even if it is bad news, employees want to know the reality that the hotel is facing, the strategy that is employed to confront the hotel’s challenges, and the progress the hotel is making.  When trust is low, start communicating.