Added: Cherlyn Alcock - Date: 13.09.2021 07:11 - Views: 17775 - Clicks: 8225
We bet on the rational case for trust.
Economists, ethicists, and business sages had persuaded us that honesty is the best policy, but their evidence seemed weak. Through extensive interviews we hoped to find data that would support their theories and thus, perhaps, encourage higher standards of business behavior. To our surprise, our pet theories […].
To our surprise, our pet theories failed to stand up. Treachery, we found, can pay. Honesty is, in fact, primarily a moral choice. Businesspeople do tell themselves that, in the long run, they will do well by doing good. But there is little factual or logical basis for this conviction. Without values, without a basic preference for right over wrong, trust based on such self-delusion would crumble in the face of temptation.
Most of us choose virtue because we want to believe in ourselves and have others respect and believe in us. When push comes to shove, hard-headed businessfolk usually ignore or fudge their dollars-and-cents calculations in order to keep their word. And for this, we should be happy. We can be proud of a system in which people are honest because they want to be, not because they have to be.
Materially, too, trust based on morality provides great advantages. It allows us to in great and exciting enterprises that we could never undertake if we relied on economic incentives alone. Economists and game theorists tell us that trust is enforced in the marketplace through retaliation and reputation.
If you violate a trust, your victim is apt to seek revenge and others are likely to stop doing business with you, at least under favorable terms. A man or woman with a reputation for fair dealing will prosper. Therefore, profit maximizers are honest. This sounds plausible enough until you look for concrete examples.
Cases that apparently demonstrate the awful consequences of abusing trust turn out to be few and weak, while evidence that treachery can pay seems compelling. Hutton was brought down by its check-kiting fraud. The cost? But what do these fables prove? Check-kiting was only one manifestation of the widespread mismanagement that plagued Hutton and ultimately caused its demise.
Incompetently run companies going under is not news. Considering the low probability of a spill, was skimping on the promised cleanup equipment really a bad business decision at the time it was taken? Compared with the few ambiguous tales of treachery punished, we can find numerous stories in which deceit was unquestionably rewarded. Philippe Kahn, in an interview with Inc. How much of that is apocryphal? If it had failed, I would have had nowhere else to go.
We figured the only way was somehow to convince them to extend us credit terms. What we did was, before the ad salesman came in—we existed in two small rooms, but I had hired extra people so we would look like a busy, venture-backed company—we prepared a chart with what we pretended was our media plan for the computer magazines. On the chart we had BYTE crossed out. When the salesman arrived, we made sure the phones were ringing and the extras were scurrying around. Further evidence comes from professional sports. In our study, one respondent cited the case of Rick Pitino, who had recently announced his decision to leave as coach of the New York Knicks basketball team with over three years left on his contract.
Pitino was quoted in the New York Times the week before as saying that he never broke a contract. The stupidity of it all is that they get their way. Compared with the ambiguity of the Hutton and Exxon cases, the clear causality in the Kahn and Pitino cases is striking. Without subterfuge, Borland International would almost certainly have folded. And there is a hard dollar with lots of zeros in it that professional athletes and coaches gain when they shed a contract.
What of the long term? Does treachery eventually get punished? Nothing in the record suggests it does. The robber barons who promoted them enjoyed great material rewards at the time—and their fortunes survived several generations. Power can be an of effective substitute and for trust.
But they continue to prosper. Why do reputation and retaliation fail as mechanisms for enforcing trust? Power—the ability to do others great harm or great good—can induce widespread amnesia, it appears. Its early deceit is remembered, if at all, as an amusing prank.
Prestigious New York department stores, several of our respondents told us, cavalierly break promises to suppliers. You used the wrong carrier. Financial types have taken control, the merchants are out. I delayed payments an average of 22 days from my predecessor at this kind of amount, and this is what I saved.
They have too much power—they screw one guy, and guys are waiting in line to take a shot at them again. Heroic resistance to an oppressive power is the province of the students at Tiananmen Square, not the businessfolk in the capitalist societies the students risk their lives to emulate.
Businesspeople do not stand on principle when it comes to dealing with abusers of power and trust. You have to adjust, we were told. If we dealt only with customers who share our ethical values, we would be out of business. But the deal was so good, I just accepted it, did the best I could, and had the lawyers make triply sure that everything was covered. Sometimes the powerful leave other no choice. The auto parts supplier has to play ball with the Big Three, no matter how badly he or she has been treated in the past or expects to be treated in the future.
Suppliers of fashion goods believe they absolutely have to take a chance on abusive department stores.
Power here totally replaces trust. Nevertheless, even those with limited power can live down a poor record of trustworthiness. To illustrate, consider the angry letters the mail fraud unit of the U. Post Office gets every year from the victims of the fake charities it exposes. They want to avoid information that says they have trusted a fraud. When the expected reward is substantial and avoidance becomes really strong, reference checking goes out the window. In the eyes of people blinded by greed, the most tarnished reputations shine brightly.
Such investors want to believe in the fabulous returns the broker has promised. The search for data that confirm wishful thinking is not restricted to naive medical practitioners dabbling in pork bellies. The Wall Street Journal recently detailed how a year-old conglomerateur perpetrated a gigantic fraud on sophisticated financial institutions such as Citibank, the Bank of New England, and a host of Wall Street firms.
A Salomon Brothers team that conducted due diligence on the wunderkind pronounced him highly moral and ethical. A few months later…. Even with a fully disclosed public record of bad faith, hard-nosed businesspeople will still try to find reasons to trust. Lured by high yields, junk bond investors choose to believe that their relationship will be different: Wyatt had to break his contracts when energy prices rose; and a junk bond is so much more, well, binding than a mere supply contract. Similarly, we can imagine, every new Pitino employer believes the last has done Pitino wrong. Their relationship will last forever.
Ambiguity and complexity can also take the edge off reputational enforcement. When we trust others to and keep complexity their word, we simultaneously rely on their integrity, native ability, and favorable external circumstances. So when a trust appears to be breached, there can be so much ambiguity that even the aggrieved parties cannot apprehend what happened. Was the breach due to bad faith, incompetence, or circumstances that made it impossible to perform as promised? No one knows. Yet without such knowledge, we cannot determine in what respect someone has proved untrustworthy: basic integrity, susceptibility to temptation, or realism in making promises.
We own the market. Then the company went on the skids. The funny thing is, afterwards he bought the business back from us, put a substantial amount of his own capital in, and still has not turned it around. He was independently wealthy from another sale anyway, and I think he wanted to prove that he was a great businessman and that we just screwed the business up.
If he was a charlatan, why would he have cared? Where even victims have difficulty assessing whether and to what extent someone has broken a trust, it is not surprising that it can be practically impossible for a third party to judge. That difficulty is compounded by the ambiguity of communication.Looking for a honest persone
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Why Be Honest If Honesty Doesn’t Pay