Trust Is a Must

In the eyes of employees, investors, clients and the public at large, honesty is the only policy that will do.

Adam Smith's The Wealth of Nations is perhaps the most famous book about economics. But it gets short shrift at his grave in Scotland. The father of capitalism's tombstone gives another book top billing, as is appropriate. He always felt The Theory of Moral Sentiments was his more important work.

Smith took trust and ethical behavior seriously. Perhaps the leaders of Arthur Andersen, Enron, WorldCom--and who knows who else by the time you read this--missed that part of history class. Thanks to their inattentiveness, other executives are relearning how much trust matters.

"We've got it wrong when we say business is business, and [it] has nothing to do with ethics," says R. Edward Freeman, who teaches business ethics at the University of Virginia at Charlottesville. "Adam Smith thought that markets wouldn't work unless people wanted to do the right thing."

Trust underlies your business relationships with employees, customers and suppliers, says Paul P. Baard, management and communications professor at Fordham University in New York City. "Where am I going to work? From which supplier am I going to purchase? These decisions all involve trust," Baard says.

W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College, thinks ethics tend to be taken for granted. "Warren Buffett said after the [1991] Solomon Brothers [U.S. Treasury bond] trading scandal that trust is like the air we breathe," he says. "When it's present, nobody really notices. But when it's absent, everybody notices."


"Warren Buffet said . . . that trust is like the air we breathe. When it's present, nobody really notices. But when it's absent, everybody notices."

In 2002, people paid attention as Arthur Andersen, Enron, Tyco, WorldCom and other companies cast a veil of suspicion across American business. Think this is only a big-company problem? Don't.

"Everyone has something to worry about," says Laura P. Hartman, president of the Society for Business Ethics. "You could be at the most reputable firm, and this stuff could trouble you."

If you need to be convinced of the importance of ethical behavior, just think of it in terms of your P&L statement. Entrepreneurs tend to pay employees less than corporate America does. According to Baard, that's because employees earn psychic benefits from growing a small business. If they get psychic scars due to broken trust, you'll have to pay more to retain them.

And consider that handshake deal you've got with your suppliers. If you fail to pay invoices within the agreed-upon time frame, you haven't kept your promise. "Suppliers will say that we're going to get more contractual now," says Baard. Breaking that trust just drove up your legal bill.

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This article was originally published in the October 2002 print edition of Entrepreneur with the headline: Trust Is a Must.

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