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Stephen M. R. Covey February 4, 2009 PROGRAM SUMMARY Leading at “The SPEED of Trust” Leading at “The SPEED of Trust” By Stephen M. R. Covey February 4, 2009 PROGRAM SUMMARY “Trust is a misunderstood topic,” lamented Stephen M. R. Covey, son of the time-organization guru Stephen Covey. Like his father, Stephen M. R. Covey found a topic to write about that people were hungry for. First published in October 2006, Covey’s book The SPEED of Trust is already in its seventh printing. A proven businessman who took his family’s business, the Covey Leadership Center, from a $2.4 million company in debt to a $160 million company with an extended credit line, Covey described trust as “a hard-edged economic driver.” Covey defended his depiction of trust as an economic factor rather than a “soft, social virtue” by saying, “Trust always affects speed and cost, and these are measurable.” He refuted some other common myths about trust as well, including the idea that trust is slow. On the contrary, he argued building trust requires intention but does not take as long as people think. Once you understand how to establish it (the behaviors that build trust), then you can build it faster. Once built, it increases the speed of all subsequent interactions. The last myth he tackled was, “You can’t teach trust.” Covey believes just the contrary. You can both teach and learn how to increase trust, “then you can measure it and watch it shift.” Warren Buffet, the Master of Trust Covey shared a story about Warren Buffet’s mastery of trust to demonstrate the efficacy of what he called “smart trust.” Warren Buffet, CEO of Berkshire Hathaway, is an avid investor, having acquired 42 companies. Not only does he acquire them, he also runs them afterward, as a conglomerate. He is one of the richest people in the world. He is also a very generous person, having donated millions to charitable funds and causes. Covey reported that Buffet acquired a large food service company called McLane Distribution from Wal-Mart. In his annual report, Buffet stated that the acquisition took place after a two-hour meeting that culminated in a handshake. Twenty-nine days later, Wal-Mart had its money, and the deal was done. Typically, a merger of this size takes several months, if not a year. Buffet completed the deal without doing any due diligence, a process that in itself takes time and costs tens of millions of dollars. Covey said that Buffet moves this quickly because of his own credibility and the trust he extends to others. Buffet’s company, Berkshire Hathaway, manages 192,000 employees in the 42 companies it has acquired. Every company is managed from central headquarters in Omaha, Nebraska. Typically, headquarters with this much administrative responsibility would itself employ from 1,000-3,000 employees. Buffet’s company headquarters has 2 17 people in it, including Buffet and his assistant. Buffet can operate so nimbly because he assumes his employees deserve trust until they prove otherwise. Many people believe that trust is risky. Covey concedes that there is risk in deciding to approach others with a propensity to trust, but he believes there is a greater risk in not trusting people. He asked the audience to think about what happens to the team, and to the environment, to the customers when there is a lack of trust in the working relationship. He argued, “The amount of damage done by a low-trust relationship needs to be factored into the risk- return equation.” Smart Trust vs. Gullibility Covey made it clear that he was not advocating trusting everyone and anybody, but he did encourage the audience not to operate with distrust of all other people. The optimal approach, he said, was one with a bias toward trusting, balanced by good analysis. Warren Buffet looks at each company’s corporate structure and informally studies each company he acquires before closing the deal. Covey believes that trust is “the key core competency in the new economy.” Because technology and globalization have reduced barriers in business, relationships and interconnectedness between individuals and among companies are now even more important than they were before, so trust is the currency of this new world market. Collaboration thrives or dies based on the degree of trust. Covey argues that every competency or skill that is deemed good is made better with trust. For instance, you may have excellent communication skills, but people will not hear what you have to say when trust is low. Distrust changes how people listen and interpret your words. Low-Trust World “We operate in a low-trust world,” argued Covey. “If you can create trust in this environment, you get a huge advantage.” Covey shared some startling statistics to drive home his point about our contemporary crisis in trust. Only 34% of Americans believe other people can be trusted, according to researcher and author David Halpern. Trust is declining in other countries as well. In Great Britain, 29% of people thought other people could be trusted, compared to 60% in a prior survey. In Canada, 39% believe others can be trusted; this was 60% in a previous survey. Trust is inculcated in a culture as well as being influenced by societal events. In Scandinavia, 68% of people still believe others can be trusted, whereas in war-torn countries such as Africa, the percentage of those who believe others are trustworthy is 18%, and in politically unstable Brazil, it is 6%. In the U.S., trust in institutions from the media to government to public companies is at an historic low. Distrust is replete within organizations too. Only 49% of employees trust their senior leaders, according to a 2005 Watson- Wyatt study. According to a Harris Interactive Study, only 36% of employees believe top managers act with integrity. In the UK, 31% of employees trust their senior leaders; in Canada, only 21% believe company CEOs are 3 trustworthy. Apparently, people have a reason for some distrust. A KPMG organizational survey conducted in 2000 found that 76% of employees observed a high level of illegal or unethical conduct at work in the past 12 months. Lack of integrity has shown up in the next generation of professionals as well. A Rutgers University Survey found that among graduate students, 43% of liberal arts, 52% of education, 63% of law and medicine, and 75% of business students acknowledged having cheated to get into graduate school. Indeed, Covey cited a study that showed that convicts in minimum security prisons had equal or higher scores on an ethical dilemma exam than did MBAs. What is Trust? For Covey, trust means you have confidence in the character and competence of another person, whereas distrust carries with it suspicion of motive, of integrity, and of capabilities. Covey cautioned that there is danger in seeing the world through the lens of distrust. “People reciprocate how they are treated,” he pointed out. “It becomes a vicious downward cycle. But you can turn it into a virtuous upward cycle by beginning with an openness to trust.” He asked the audience to consider the following two questions: 1. Whom do you trust? 2. Who trusts you? He suggested that many people have not posed the second question to themselves. But just as we each assess other people’s trustworthiness, so is our own assessed by everyone we encounter. Comparing High-Trust and Low-Trust Relationships As an interactive exercise, Covey asked the audience to identify someone with whom they have a high-trust relationship and someone with whom they have a low-trust relationship. For each relationship, he posed a series of questions: What is it like to work with this person? What is communication like? How long does it take to get things done? What kind of results are you able to achieve? Not surprisingly, people discovered that the two types of relationships were very different. In a high-trust relationship, for example, communication was spontaneous; you could even say the wrong thing and be understood. In a low-trust relationship, on the other hand, communication is guarded, stressful, and cautious; misinterpretation is common. Covey explained that legal communications are so expensive, time-consuming, and verbose because they are based on low to no trust. Legal language is a perfect example of how communication is hampered by lack of trust, and that impediment carries economic costs. Trust always affects speed and cost; low trust operates like a low trust tax. After the 9-11 terrorist attack on the US, 4 trust in air travel dropped. Now, air travel takes longer and costs more. Covey recalled how he used to be able to arrive at his home airport a half hour prior to a flight and now that has expanded to 90 minutes prior. He appreciates the security, but acknowledged that “security comes at a price.” As he was leaving a Middle Eastern airport recently, he had to arrive four hours before the flight to be interrogated and have his bags unpacked and repacked several times. Officials had to put into place systems to create trust because none was in place naturally. After the Enron and WorldCom scandals, trust in public companies plummeted. If left alone, these scandals, and others like them, would negatively affect the global economy, so Congress had to put into place regulations to enhance public trust. Covey cautioned, “You can’t legislate trust, but you can make rules and processes that help deal with the lack of trust. But there is a price tag.” The Doughnut Guy Covey shared the story of a man who sold doughnuts in a big city outside a busy office building. His cart always had a line in the mornings. Sometimes, though, he would see people toward the back of the line leave without buying anything. He realized that the main thing slowing down his service delivery was making change for customers. So he decided to allow change to be do-it-yourself. The doughnut guy set up a basket on his cart with dollar bills and plenty of different kinds of coins. He would sell people their doughnuts, then direct them to the change basket to make their own change. It was slightly risky to make this move; people might accidentally or purposefully cheat him out of money. But Covey concluded, “People like being trusted.” The doughnut guy doubled his business and more than doubled his revenues because people began leaving him bigger tips. The Southwest Airlines Guy and Other Examples Sharing another story from his book, Covey told how Herb Kelleher, the former CEO of Southwest Airlines, made a critical decision about a major reorganization while standing in a hallway. As Kelleher was walking through the halls, his direct report Gary Barron, presented him with a brief memo outlining a proposal for a massive reorganization. As the story goes, Kelleher read the memo, asked a single question, to which Baron responded that he was working on it, and then Kelleher approved the reorganization. Because it was a high-trust relationship, the entire interaction took about four minutes. When Greater Ormond Street Hospital for Children in London experienced an abnormally high number of deaths following infant cardiac surgery, they compared their process of handing off young patients from surgery to post- operative care to the efficient and effective work of pit crews in elite auto racing events. They discovered a lack of organization and leadership in their own process that they subsequently addressed by restructuring, education, and building trust among team members. When team members learned to trust each other it resulted in a 42% decrease in errors and a 49% decrease in omissions. 5 The Costs of Low Trust There are many costs to low-trust relationships, as we all know from our personal lives. Covey pointed out that innovation cannot occur in low-trust organizations. Innovative companies allow for mistakes and share ideas and credit. None of this is possible in a low-trust culture. Covey depicts high-trust as a dividend, saying that high-trust organizations outperform low-trust organizations by 286% (Watson-Wyatt Study, 2002). In Fortune magazine’s list of the top 100 companies to work for, those high on the index of trust are said to outperform the market by 400%. Some of the costs of low-trust organizations occur in thick policy and procedure manuals, in meetings, and in speed of execution. Covey joked that a meeting may be only an hour long, but the pre-meeting wherein people prepare what they will say, and the post-meeting, wherein people say what they really think to those they trust, actually consume many employee hours. How Do You Create Trust? Covey spent the second half of his presentation describing the framework and methodology for creating trust. To establish his framework, he explained that there are two features of trust: character and competence. Character is the constant; it is always required. Competence is critical as well, but is situationally specific. When Covey’s wife needed surgery, for instance, although she respected her husband’s character above all others, she needed a competency in surgery that he simply did not have. From character and competence flow credibility, judgment, and influence. Thought of as ripples in a pond, different levels of trust emanate from the qualities of character and competence: Ripple 1: Self-trust (individual credibility) Ripple 2: Relationship trust (one-on-one) Ripple 3: Organizational trust (within the team and the division) Ripple 4: Market trust (branding) Ripple 5: Societal trust (reputation) The Credibility Tree Covey likened character and competence and the other self-trust characteristics he discusses in his book as parts of a tree. Character is the root system, and competence is the branch system. Integrity For Covey, character is made up of integrity and intent, those qualities that lie beneath the surface: the roots of your character. Integrity refers to the perception people have of your truthfulness, of the congruence between your external self and your internal self. The test of true integrity is how you act when it will cost you to remain true to your ideals. To illustrate his point, Covey played a brief video clip of Andy Roddick losing a high-profile tennis match at the 6 Rome Masters Tournament. The judge had called his opponent’s serve out, so Roddick had won the game. But Roddick himself checked the clay court and saw a smudge indicating that the serve had actually been in. He notified the judge, and the play continued, with Roddick eventually losing the game and then the match. Covey believes that by showing integrity, you create a foundation of clarity and power. Intent Intent grows out of the roots and becomes the trunk. Intent refers to the fact that you care for others and truly have their well-being at heart. You strive for mutual benefit, and these good intentions build trust. Covey recalled the murder of three Starbucks employees in Washington DC a decade ago. Howard Schulz, Starbucks CEO, flew there immediately and spent time grieving with the family and fellow employees. Subsequently he dedicated the store in memoriam to the three slain employees, setting up a trust fund for their families and donating a portion of profits to the trusts as well as to other funds advocating nonviolence. His positive intent showed all of Starbucks employees that they were valued. “People knew he would do the same for them,” said Covey. Capabilities As the trunk expands into its branches, we find capabilities. These are your talents and expertise. Are you current in your skill set? Do your capabilities inspire confidence? One-hundred and forty years ago, Nokia was a paper manufacturer, and then it went into rubber boots, then raincoats, then hunting rifles, then electronics, and now cell phones. This company is an example of an entity that continues to expand its capabilities so that it remains a viable player in the world market. There is no telling what its next transformation will be. Results Finally, the fruits of the tree’s branches are the results. The real question ultimately is, “Can you deliver?” When Covey became CEO of the Covey Leadership Center, the company had “a great value proposition with its growing customer base,” but it also had 11 years of negative cash flow and high debt. When he met with the bank about his company’s violation of bank covenants, they put him on personal guarantees. He knew the Leadership Center needed an improved business model, so they became efficient and focused. One year later, they had eliminated much of their debt and increased profits. Such definitive results so impressed the bank that, in turn, it removed the personal guarantees and offered Covey Leadership Center a doubled line of credit. The key to building relationship trust is behavior. Do you act in ways that build trust? Covey likened relationship trust to a bank account. If you behave in ways that increase trust, you deposit into the account. If you behave in ways that decrease trust, you make withdrawals from your account. Covey firmly believes that you can ruin other people’s trust in you in a matter of minutes, whether or not you spent a long time or a short time building up the trust. 7 The 13 Behaviors of High-Trust Leaders Covey not only listed 13 behaviors exhibited by high-trust leaders, he also provided Behavior Action Cards. These Behavior Action Cards describe: Each behavior The opposite of the desired behavior Each behavior’s “counterfeits” (the behaviors that seem like the desired behavior but are nearly opposite). Behavior #1: Talk Straight Be honest, and let people know where you stand. Using simple language, be sure not to distort the facts and leave false impressions. Lying, on the other hand, deceives people and erodes trust. The counterfeit behavior is nearly like lying, but not as extreme. In this case, withholding information, spinning, and leaving false impressions are straight talk’s counterfeit behaviors. Covey sees counterfeit behaviors as dangerous. He admires Warren Buffet’s annual report because his management letter is full of straight talk. He doesn’t obfuscate the facts when he has had a bad year, for instance. Behavior #2: Demonstrate Respect Respect refers to genuinely caring for other people - whether or not they can do anything for you. Covey alluded to what he has heard called “the waiter rule.” You can tell someone’s character by how they treat the wait staff at a restaurant: Are they respectful or rude? The counterfeit behavior is showing respect only to those who can benefit you in some way and not to those who can’t. Covey pointed out that respect is needed to balance out straight talk, so your honesty is not offensive. He believes that if the core intent is good, then straight talk tends not to be offensive, but respect ensures it is not. Behavior #3: Create Transparency Tell people the truth in a way they can verify and validate. Find ways to increase your transparency. If you find yourself not expressing something because you think it won’t look good, or will expose your true motivations, Covey warned, “that behavior needs to be rethought.” Hidden agendas and withholding information are the counterfeit of transparency. Behavior #4: Right Wrongs When you are wrong, apologize quickly, then make restitution if possible. Rationalizing or disguising wrong behavior does not engender trust in those around you. The 1982 Tylenol scare is still the quintessential case study for the power of publicly and effectively righting a wrong. When Johnson & Johnson found out that a Tylenol package had been tampered with, the company reacted quickly and transparently. According to a Harris Interactive press release in 2007, Johnson & Johnson has ranked number 1 in the Reputation Quotient® index for seven years in a row, largely due to its proactive response to an incident 25 years ago. 8 In a contemporary example, Apple recently dropped its price on the iPhone, after its loyal customers had paid a much higher price when the phone first came onto the market. When iPhone owners complained, Apple tried to make restitution. Steve Jobs posted a letter online apologizing to those loyal customers and offering monetary compensation to ease the price difference. Behavior #5: Show Loyalty Speak about others as if they were present, even when they are not. Give others credit where it is due, and represent others when they are not there to speak for themselves. Gossiping or downplaying other people’s contributions not only betrays the trust of those near you, but also those who eventually hear about your behavior. Covey said, “The best way to build trust is to be loyal to those you are not with.” Behavior #6: Deliver Results Establish a track record of getting the things done you were hired to do. Be on time and in budget. Covey especially cautioned the audience not to over-promise and under-deliver. Delivering and taking responsibility only for activities rather than results undermines trust. Behavior #7: Get Better Be a constant learner. Develop feedback systems, both formal and informal, so you can grow from others’ perspectives. Don’t assume your knowledge or skills will continue to be sufficient. Here, the counterfeit behavior is to be an eternal student, always learning, but never producing. Another damaging behavior in this category is trying to force everything into what you are good at, rather than allowing yourself to grow new proficiencies. Behavior #8: Confront Reality Grapple head-on with difficult issues, even the undiscussables. Courageously acknowledging what would otherwise remain unsaid shows you are a leader and encourages trust. The counterfeit is to focus attention on side issues rather than addressing the core issues. Often leaders are afraid their subordinates will lose confidence in them if they acknowledge tough realities, but in fact, it will prove worse to act as if the reality of the situation does not exist. Behavior #9: Clarify Expectations In any new situation, either with a coworker or a client, disclose and reveal expectations. This is preventative behavior, working up-front to ensure expectations are not violated down the road. Renegotiate expectations if needed, but don’t wait until the end to find out that assumptions were not shared. Failing to pin down specifics that facilitate meaningful accountability is a counterfeit clarification behavior. Covey prefers to write down all expectations to ensure there are no discrepancies in understanding. Covey believes that the number one reason for ethical violations is unrealistic expectations: “People cut corners to achieve unrealistic expectations someone else has set for them.” 9 Behavior #10: Practice Accountability First, hold yourself accountable. Second, hold others accountable. Finally, take responsibility for results. When something goes wrong, don’t point fingers and blame others. Jim Collins, author of From Good to Great, uses the analogy of a window and a mirror to discuss accountability. When things are going well, great leaders look out the window and acknowledge those around them for their efforts. When things are going poorly, these same leaders look in the mirror for answers. Behavior #11: Listen First Listen before speaking. Don’t prepare your response while the other person is speaking. Don’t assume you know what matters to other people. You won’t know until you hear what they have to say. Listening without understanding or listening only to pass time until you can get your own agenda outlined will destroy trust. Active listening, wherein people actually feel heard and understood, will accelerate trust building. Behavior #12: Keep Commitments Keeping commitments is the number one behavior that will build trust, especially in new relationships. Covey advocated setting clear expectations for what commitments you will make and keep. Give people signals as to what to look for to validate that you are trustworthy. For example, “I will do X for you by this date.” Once you keep your first commitment with that person, then set another one and fulfill it as well. Repeating this process will quickly create a solid foundation of trust. Conversely, breaking commitments is the most effective way to destroy trust. Behavior #13: Extend Trust This behavior differs from the preceding 12 in that it makes you a leader. The essence of leadership, as Covey sees it, is to create and inspire trust. Covey encourages everyone to practice smart trust with high expectations and accountability. “This is the most compelling form of human motivation.” The spectrum of trust can be seen as ranging from blind trust, or gullibility, to suspicion, or distrust. Both extremes are detrimental to your leadership and to your organization. Starting with a propensity to trust, followed by exercising good judgment, results in smart trust. Smart trust leads to outstanding leadership. Proceed at the Speed of Trust Nordstrom, which is the number one customer service retailer in the US, holds its employees accountable in a unique way. The employee procedure manual, rather than being thick with rules and regulations to mandate certain behaviors, is made up of a small green card. The card says, "Rule # 1 -- Use your good judgment in all situations. There will be no additional rules." Nordstrom’s employee manual is the ultimate illustration of a smart trust company. This kind of trust is not just bestowed in a vacuum, however. Nordstrom employees are recruited, hired, trained, mentored, and supported in a culture that makes this sort of trust sensible. 10 Covey shared an example from his own life as well. When his son turned 16, his parents, eager to have another driver in the house, allowed him use of the family car. They discussed basic rules that would enable him to retain his driving privileges – using a seat belt, going the speed limit, getting good grades, chauffeuring his siblings, and being a good participant at home. The first month, he was stellar. Soon after, however, Covey received a call from a police officer. The fifth Stephen Covey had been caught speeding, 83 mph in a 25 mph zone. The teen ended up going to court and having to pay a hefty fine, but the judge did not take away his license. Instead, his parents did. To retain their credibility with him and his siblings, they needed to follow through on their promised consequences. Three months later, they revisited his driving privileges, asking him whether he was ready to try again and whether he understood the rules of driving better now. He assured them he did. Five years later, he has had no further incidents. His careful driving has earned him a reputation as a safe (and uneventful) driver with his friends and their parents. Everyone’s trust in him is higher than before, demonstrating that trust can be earned and developed through behavior. Having spent the morning describing trust’s economic benefit, emphasizing its potency as a leadership characteristic, and explaining how to build trust, Covey concluded with his credo: “Nothing is as fast as the speed of trust. Nothing is as profitable as the economics of trust. It truly is the one thing that changes everything.” 11 STEPHEN M. R. COVEY February 4, 2009 Application Points Stephen M. R. Covey outlined a plan for operating at the speed of trust. The questions and activities below will help you put that plan into action. 1. Whom do you trust? 2. Who trusts you? 3. Reflect back on a situation at work, or some other professional interaction, that you have had recently that would have been improved had you spent time up-front building trust. Were you to relive the situation, what would you do differently now, having heard Covey’s advice? 4. Think of circumstances in which you or your organization was able to operate at the speed of trust. Dissect that set of circumstances so that you can learn what went right. What was the economic benefit in that case, and what did it stem from? 5. Heeding Covey’s warning not to overwhelm ourselves with trying to change too many behaviors at once, identify one behavior to adopt in the next month from each of the three columns below: Talk straight Deliver results Listen first Demonstrate respect Get better Keep commitments Create transparency Confront reality Extend trust Right wrongs Clarify expectations Show loyalty Practice accountability 6. Consider how you can extend each of the behaviors (chosen above) beyond your own personal change to build organizational trust. Executive Forum Alberta www.leadershipsmarts.ca/efa email@example.com 403.420.2289 12
"Stephen M. R. Covey February 4_ 2009"