The following is an executive summary of a white paper by Chris Hitch, program director at UNC Executive Development.
Leadership and organizational studies pioneer Warren Bennis once said that “trust is the lubrication that makes it possible for organizations to work.” Organizations with high levels of trust have more productive workforces, better employee morale and lower employee turnover. They also perform better financially than their industry peers.
Dr. Duane C. Tway, Jr. offered an excellent definition of trust as “the state of readiness for unguarded interaction with someone or something.” Warren Buffet put it another way. “Trust,” said Buffet “is like the air we breathe. When it’s present, nobody really notices. But when it’s absent, everybody notices.”
We know when we feel that state of readiness, but what elements are needed to get employees to that state within an organization? According to Amy Lyman, co-founder of The Great Place to Work Institute, there are three elements that come up time and time again in her interviews with clients: credibility, respect and fair treatment.
The Effect of Trust: A Better Bottom Line
Organizations with high levels of trust reap the bottom-line benefits, and numerous studies have been conducted through the years that confirm this:
- A classic study by Cornell University Associate Professor Tony Simon of 6,300 Holiday Inn employees found that hotels where managers followed through on their promises and had behavioral integrity were more profitable.
- A Watson Wyatt Worldwide study found that organizations in which front-line employees trusted their senor leaders had a 42 percent higher return on shareholder investment than organizations in which distrust was the norm.
- Amy Lyman’s tracking of publicly traded 100 Best Companies has shown that as a group and over time, those organizations have outperformed the Russell 3000 and S&P 500, posting annualized returns of 11 percent versus 4.26 percent and 3.83 percent, respectively. Lyman also notes that those best companies experience about half the turnover rate than other organizations in their industries.
With all the documented benefits of having trust in an organization, one would think that creating and maintaining it would be a high priority for senior business leaders. Unfortunately, many senior leaders cannot seem to shake the top-down model of management that adheres to the notion that authority creates trust. In reality, trust creates authority.
The Erosion of Trust in Organizations
Trust may be a valued commodity in organizations, but it is a rare one. A recent Deloitte survey on ethics in the workplace underlined the erosion of trust in the workplace and the negative financial effects on organizations struggling to regain their footing after the recent recession.
The survey found that one-third of employees surveyed said they planned to look for new jobs when the economy recovered. Of those who said they would be job hunting, the main factors in the decision to look for a new job were a lack of trust in their employer (48 percent), and a lack of transparent communication from senior leaders (46 percent).
Senior leaders are not blind to the erosion of trust in the workplace. The survey found that 65 percent of Fortune 1000 executives were concerned that employees would be job hunting in the coming months and that the lack of trust would be a major factor in the potential increase of voluntary employee departures.
To staunch the flow of talent planning to change jobs, it is more important than ever for businesses to assess the level of trust in their organizations and to focus on ways to improve it. Senior HR and talent development leaders can start by taking the following steps:
- Assess the level of trust in your organization.
- Report the results of the assessment.
- Assess your own trustworthiness and ask other senior leaders to do the same.
- Follow up and remain vigilant.
As the economy improves, valued employees who have lost trust in their senior leaders will seek employment elsewhere, leading to increased turnover, lost productivity plus higher recruiting and onboarding costs. Senior HR leaders can staunch the flow of talent leaving the organization by taking proactive steps to improve trust in the workplace.