Crisis Musings

The concept of trust – the confidence that the public holds in private and public institutions – has finally succumbed after a long struggle.

The final blow was perhaps the revelation last week that the performance at last week’s Presidential Inauguration by the classical musicians Yo-Yo Ma, Itzhak Perlman, Gabriela Montero and Anthony McGill was actually pre-recorded music, and the artists were only pretending to perform for the millions of Americans who attended the historic event, and the hundreds of millions more watching on televisions around the world.

Back when I was in college, I was enrolled in a science class where the professor was fond of asking the question, “Why is it that everything you know just ain’t so?”

Of course, that rhetorical question was intended to force us to challenge the assumptions we had about science.  But it is equally relevant to the worlds of politics, the economy, business and society.

For the sake of this discussion, “everything you know” refers to the trust we have long held in public and private institutions, even in the face of evidence that said trust was improperly placed.

However, events of the past two years have so shocked our collective conscience that institutions (corporations, politicians, government agencies, etc.) will need to spend many years in the proverbial “time out” chair, and will need to demonstrate genuine remorse, sustained good behavior and carry out acts of selfless conduct in the public interest before we will again bestow up them the sacred trust which they have so completely squandered.

Consider the following episodes we have witnessed (or suffered through) in recent years…

1. The Abu Ghraib scandal, the arrogance of “Mission Accomplished” and the insensitivity of our federal government in the wake of Hurricane Katrina – events that, taken together, were nearly as damaging to the public trust in the Presidency as Watergate.
2. The baseball steroids scandal – Not only did we see athletes show utter contempt for our national pastime, we also saw headline-grabbing members of Congress creating a spectacle to serve their own purposes with little regard for the right of due process.  And at the same time causing us to wonder, “With all the problems our country is facing, should this be a priority for our Congress?“
3. The subprime debacle – where we saw in spades the unchecked greed of people who cared more about their own wealth accumulation than the plight of duped borrowers and the fragility of our economy.
4. The related collapse of commercial and investment banks, where it seemed executives were worried as much or more about their bonuses and corporate perquisites (i.e., corporate jets) than they were about the downward spiral of the economy.
5. The breathtaking fraud that seems to be pervasive in investment community, as exemplified by such scoundrels as Bernard Madoff and Marc Dreier, among others.
6. The demise of the auto companies, and their crawling to Congress, where both Congress and the media took far greater interest in the triviality of the CEOs travel arrangements than in the serious and substantive challenges facing the auto industry and our economy.  Considering that the Congress willingly gave the Treasury Secretary carte blanche to squander $350 billion of taxpayer money in the TARP program, only to then force the auto CEOs to carry out a humiliating kabuki dance in order to receive a fraction of that in order to save millions of American jobs is even more shameful.
7. The cheating by coaching staffs in the NFL, where we have come to learn that everyone does it, but only Bill Belichick and the New England Patriots got caught.
8. “Made in China” – A term which is now as synonymous with “dangerous” as it is with “low cost,” as we have seen with the reports of lead-laced toys and food products laced with melamine, which has been linked to cancer and other serious health conditions.
9. The Satyam scandal in India – where it now seems that when American industry outsourced much of its business to India, it also outsourced the concept of accounting fraud.
10. The funny-if-it-wasn’t-so-sad comedy from last summer, when the FDA insisted that rotten tomatoes were at the heart of a salmonella outbreak, only to later admit they weren’t and, instead, maybe it was peppers, but they couldn’t be certain.  While in the course of causing hundreds of millions of dollars of losses for farmers, food processors, retailers and restaurants (and causing immeasurable anxiety for consumers), this episode exposed how broken our food safety system is, and how the FDA’s actions seem more motivated by political fear than by science.
11. The never-ending litany of exposes of politicians accused (or convicted) of having their hands in the cookie jar – Ted Stevens, Sharpe James, Rod Blagojevich, Charlie Rangel – or politicians who’s conduct is guided not by their brains, but by certain organs found south of their waistbands – Elliot Spitzer, John Edwards, Kwame Kilpatrick, etc.  Now I know that political corruption is the second oldest profession, but nevertheless such revelations are profoundly damaging to the public trust, particularly when the politicians in question claimed to be such protectors of the public trust (Spitzer, Edwards).

The net result of these events – and these are only the most notable of many – is that the public and the media, will look at all institutions – public, corporate, etc. – with an even greater skeptical eye than ever before.

In the court of public opinion, companies and other institutions are now guilty until proven innocent.

So executives facing a crisis or serious challenges cannot expect to receive the benefit of the doubt from the media, or the public.  Even companies whose performance and conduct have been above reproach will suffer the consequences of this loss of trust.

At least for the near-term, the public will look at even the good and honorable performers with a suspect eye.  Can they be believed?  Is their performance legitimate, or illusory?

As Sir Martin Sorrell told the Institute of Public Relations last November, in these times companies need to think about communicating more, not less.  But that communications needs to be well-grounded.

An old boss of mine used to say that share price was based on two factors – current performance and expectations of future performance.  Today, however, the emphasis is on the former, whether it be about share price or reputation.  The willingness to believe an organization’s assertions about future performance has been too seriously eroded to be given any credence.

I have been around the business world long enough to spot trends (or fads, depending upon one’s view).  For a period we were all enamored with “quality.”  Then it was “diversity.”  After that, “the power of the brand” and “innovation” were the MBA buzzwords.

Today – and I suspect for some time to come – the mantra for both the public and private sectors alike will be “transparency” and “responsibility.”

“Transparency” in the sense of how institutions convey information about themselves (and what information they convey), and “responsibility” in terms of the manner in which they conduct themselves.

In the January 24 issue of the Wall Street Journal I saw a half-page ad promoting an upcoming conference, “2009 Global Ethics Summit.”  The headline for the ad read, “Win the Battle Against Corporate Corruption – Worldwide.”  The sub-headline promoted “Effective Compliance and Anti-Corruption Strategies for 2009.”

My initial reaction to seeing this ad was, “Do people really need to attend a conference to know how to fight corruption?  Is the understanding of and adherence to values now dependent upon what we learn at a conference?”

What a sad commentary on the state of the world we live in.

Upon further thought, though, I realized it was the sub-headline that captured the disconnect that is at the root of so many problems.

Compliance is simply adherence to the letter of the law.  It is not necessarily adherence to values.

Too many companies and corporate executives – it would seem – confuse compliance with good behavior.  People (consumers, voters, investors, etc.) don’t reward companies for compliance.  This level of performance is assumed, it is not rewarded.  Rather, the public expects a higher level of performance; an adherence to a set of values that is sometimes difficult to define, and the definition of which is often shifting.

The challenge for companies and other institutions going forward is to properly define that expected level of behavior, align its performance with it, and ensure there is no delta between their actual performance and stakeholders’ expectations of performance.  That will satisfy the “responsibility” requirement.

But they will also need to communicate with transparency.