5 May 2009 in Corporate Culture
To be sure, public trust is declining, not only within companies, but across many of our institutions—government, the news and other media, nonprofits, the major professions and educational institutions—but the focus of our concern here is the eroding trust of employees in their own companies and their leadership.
What drives this eroding trust within companies? There are some obvious causes and several, less obvious, but more insidious and persistent. Certainly, high profile scandals erode public trust in entire industries, like financial services in recent months. One recalls the remarks of then Citigroup CEO Chuck Prince: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” Prince told the Financial Times on July 10. Not any more. The dance is over for Mr. Prince, for Citigroup, for the industry; and we all are paying dearly. Often, amid scandals, it is not just one industry, but business generally, that suffers and, sometimes, companies not themselves implicated in scandal.
Other factors abound that contribute to declining trust. For instance, the globalization of business has drawn companies into markets where business practices differ from U.S. and Western norms, including the bribery of government officials to obtain contracts, or the employment of children and forced labor to reduce the costs of manufacturing goods sold here, but no longer produced here, because they have been outsourced to such cheap labor.
But there are less obvious causes, as well, including the loss of consistent leadership within companies, with a third of the CEOs of Fortune 500 companies leaving after fewer than five years, according to public relations firm Weber Shandwick’s report on executive turnover from 2000-2005. More recently, in an L.A. Times story on executive departures (October 9, 2008), Leslie Gaines-Ross of Weber Shandwick said, "It's the nature of the CEO job to have a short shelf life…. If you make it to five years, you're an old-timer."
Research by executive recruiters Challenger Gray & Christmas found that 1,484 CEOs left their jobs in public and private companies in 2008, the most since Challenger began tracking in 1999.
It is difficult for employees to trust leaders that they don’t know, whether due to the brief tenure of CEOs or their isolation by corporate hierarchy. Size matters. Primatologists, anthropologists and evolutionary psychologists agree that there is a limit to the number of individuals with whom one can maintain stable social relationships. Although there is no consensus about the size of stable interpersonal groups, ranging from approximately 150 (Robin Dunbar, primatologist) to nearly twice that (H. Russell Bernard, anthropologist), there is broad agreement that beyond this range, trust breaks down and reliance on complicated hierarchies and restrictive laws, rules and regulations correspondingly increases. In a corporate setting, companies like Gore Associates, creators of Gore-Tex fabric, have limited factory size, because “We found that things get clumsy at a hundred and fifty,” according to the late founder Wilbert Gore.
In most public companies, size and hierarchy lead to a dissolution of trust. Board members, as well as senior executives, are isolated from most employees. Research (Edelman’s “Barometer of Trust”, Ethics Resource Center's "National Business Ethics Survey", etc.) has shown that employees trust most those closest to them, their peers and immediate supervisor. Distance, both geographic and hierarchic, decreases trust.
In our next posting, we will examine some of the reasons why executive turnover is so high, and how those reasons affect related, systemic causes for the widespread dissolution of trust within companies.
GE
