06/15/2012 12:57 pm ET Updated Aug 15, 2012

It's the Trust Level, Stupid

Hearkening back to a previous headline and campaign slogan coined by James Carville in
2004, today it is the trust level that is causing our slow global recovery.  Trust in Congress,
business, and the media are at historic lows, according to Gallup. And only 33% of Americans
trust medical leadership (down from 73% in 1966); just as we face historic uncertainty in
healthcare.  The U.S. economy is driven more and more by consumer confidence, or in other
words, TRUST.  American consumers are gripped by fear of risk, and this lack of trust and
confidence is causing undue friction in much of our collective economic lives.  U.S. businesses
are afraid to hire due to uncertainty of tax policy.  Add to this the tension that we are in the
throes of hiring a new national U.S. CEO.

The truth is that we can't talk our way out of a problem we behaved our way into.  We must
behave our way out.  Recognizing that trust is at the root of our economic problems is the
first step.  So how do we restore trust? We start by increasing our tendency, our propensity to
extend trust -- not blind trust but Smart Trust. 

Blind trust was one of the reasons Bernie Madoff was able to defraud investors out of billions
of dollars, deprive thousands of people of their life savings, and destroy the viability of
charities.  Additionally, many observers believe that the global financial crisis was precipitated
by too much trust being given to the mortgage industry in the United States without sufficient
oversight -- in effect becoming blind trust that was ultimately abused, resulting in the housing
bubble that triggered the problems initiating the crisis. Others point to what might appear to
be the near-blind trust given to traders at some financial firms -- traders such as Nick Leeson.
He was trusted by Barings, the United Kingdom's oldest investment bank, to operate as both
floor manager for trading and the head of settlement operations (positions normally held by two
different employees for purposes of checks and balances). Leeson engaged in unauthorized
speculative trading
that brought Barings down.

Pyramid schemes, financial scams, and fraud all add up to an enormous cost, estimated to
be as high $2.9 trillion a year globally, with 88% of enterprises having been hit by at least one
type of fraud in the past year. Fraudulent activity becomes more apparent in difficult economic
times, when perpetrators find difficulty in hiding behind their perpetual cycle of attracting and
deceiving new victims. In the words of Warren Buffett, "It's only when the tide goes out that you
learn who's been swimming naked." It is also during hard times when people desperately want
to believe what they're hearing that they find themselves more likely to extend trust blindly.

Recent breaches of trust like the U.S. GSA scandal, CIA incident, Solyndra bankruptcy,
Walmart Mexico bribery allegations, and questions on inappropriate communications by
investment bankers in the Facebook IPO all reinforce a climate of distrust that fuels economic

Experiences such as these affect us on a personal level. Even more, deeply wounding
experiences -- such as discovering someone has lied to you, going through a difficult divorce
(as a spouse or a child), having a "friend" talk about you behind your back, having your identity
stolen, finding out that your child has been mistreated at day care, or having a business partner
continually break promises to you -- can easily shift an innate propensity to trust into an acquired
propensity to distrust.

Here's the rub.  Though we've become very good at recognizing the cost of trusting too much,
we're not nearly as good at recognizing the cost of trusting too little. In fact, we seldom, if ever,
even consider it. And, most of us wouldn't know how to measure the cost if we did. Though
we think we're being smart in taking precautions to protect ourselves against all the things that
can happen in this low-trust world, the cost of this approach of attempting to legislate civil and
ethical behavior (think Sarbanes Oxley) is incredibly high and is causing tremendous friction on
our economic recovery. Whenever there is distrust in a relationship, in an organization, or in a
community, a wasted tax is being paid -- and sometimes it's a significant one. You can see at
least some common low-trust taxes in many organizations: redundancy, bureaucracy, politics,
disengagement, employee turnover, customer churn, and even fraud.

Yes, there is risk in extending trust. That's why it takes courage. But there is also risk -- often
greater risk -- in not extending trust. So how do we navigate through the decision-making
process and determine whether or not to extend trust, and, if so, how much and under what

The skill of extending Smart Trust identifies the two factors people have found most helpful
in making smart decisions: the propensity to trust and the analysis of opportunity, risk, and
credibility.  It's the combination of the two that creates sound judgment.

Creating the highest harmony between these two factors is more of an art than a science.
It takes assuming positive intent in others -- unless there's good reason to do otherwise. In
takes determining when verification will enable trust -- or when it will get in the way. It takes
discernment and sometimes the willingness to take a leap of trust, sometimes even when "logic"
may direct otherwise.

Smart Trust requires judgment. It's an integral combination of the wisdom of heart and head --
a synergy between the propensity to trust and analysis that is far greater than the sum of its

Why is Extending Smart Trust Smart?

There are three primary reasons why extending Smart Trust is smart and can significantly
restore confidence and momentum in the economy: 

1. Extending Smart Trust produces results.  Why? Because extending trust to people inspires
them. It brings out the best in them. It motivates them. In fact, the reason extending trust is
so powerful is because to be trusted is the most compelling and sustainable form of human
motivation. This is a key source of economic growth and collaboration.

2. Extending Smart Trust increases trust. It's somewhat ironic that one of the best ways to
increase trust is to simply extend it. There are many reasons for this. Trusting people inspires
them to want to be worthy of that trust. It brings out the best in them. It makes it safer to risk and innovate.

3.  Extending Smart Trust generates reciprocity.  When we give trust to people, they tend to give
it back. When we withhold trust, they withhold it in return. In teams and organizations, giving
trust manifests in greater employee engagement and retention, increased customer loyalty and
referrals, and other economic benefits. 

Extending Smart Trust holds the key to restoring trust, civility, and overall economic
performance.  Smart Trust is a skill -- a career critical skill in today's volatile new economic
reality.  Consider this: whom do you turn to in an uncertain world?  You turn to a person you
can trust, a product you can trust, a company you can trust, a leader you can trust. Trust
has become the new currency of the global economy. It is the basis upon which people do
business -- or don't. Extending Smart Trust helps you minimize risk and maximize possibilities by
showing you how to trust in a low-trust world.

By Stephen M. R. Covey and Greg Link, authors of Smart Trust: Creating Prosperity, Energy,and Joy in a Low-Trust World