Trust: A tool to defeat corruption

By Michael R. Czinkota and Courtlyn Cook

Trust bridges are increasingly emphasized in business relations and partnerships. They not only help to fight corruption, but also establish a sense of community that binds people together. Corruption continues to be a hot issue in business and is more prevalent than most people acknowledge.

The baseline standard of corruption, defined by the non-profit Transparency International, is an “abuse of entrusted power for private gain”.  The group sees corruption as the pursuit of selfish, individual gains and the desire to get ahead. Of course, corruption is an individual, as well as a corporate choice. Transparency International’s latest study reports that 25% of people used a bribe in the past year, which means that corruption infiltrates a significant portion of business transactions, which is crucial to take into consideration.

Corruption interrupts corporate culture because it destroys previously established trust that has been earned on a long-term basis. Trust is a valuable corporate asset since it typically translates into fulfilled expectations, which allow for better forecasts, less uncertainty in the future, and more realism.

Trust bridges, developed by shared expectations and experiences, allow people to get to know each other quicker, and help establish fair business practices on global terms. Thus, trust is one of the best ways to combat corruption. Connections that bring people together and lead to greater trust can be built upon a shared alma mater, military service, same work experience, sports fans for the same team, and even practicing the same religion. People are more likely to bond over these personal preferences and organizations because they already share a similar interest; therefore they expect to share similar values.

If two companies operate in similar environments and share values, they are more likely to connect and establish warm and trusting relationships. This ultimately establishes credibility and allows business to select patterns based on trust rather than strictly on proximity or financial measures. Trust is developed through interaction, although there are other spillover effects that come into play. An example would be two organizations that are led by former sports champions might be more likely to trust each other, particularly when it comes to sports. This may also connote, but does not necessarily require trust in financial matters.

It is important to note that trust is an extension of confidence, so high expectations often accompany trust. One such trust enhancing activity is especially present in the German model for developing trust, which due to its reliance on standardized training and internships, focuses on keeping processes flowing due to confidence in and reliance on other’s work. In contrast, less training in the US often leads to a lack of trust and little confidence in work. Therefore trust bridges may not as visible in the American corporate world.

Political connections often have a greater impact on communities that experience very little corruption. This means that people are not relying on bribes or other forms of under the table compensation to make business and personal decisions. Also, this may partially explain research on municipalities, which found that established trust bridges led to government growth and increased profitability of firms.

Relationships that are rooted in trust discourage people from engaging in dishonest behavior. One can therefore argue that corruption inhibits the foundation of relationships. When discovered, corruption can ruin a reputation. Once trust bridges are destroyed, they are difficult to rebuild.

In today’s global economy that is ruled by rapid, if not constant, communication and connection through technology, global trust standards can converge where people hold each other to the same standards. This makes international business easier because it reduces the necessity of local standards, which often results in greater costs for companies since they have to meet different standards in every country of operation.

If a global standard were in place, every country would more likely partake in international business interactions, and therefore would have a better chance of establishing trust bridges. Additionally, companies and managers making crucial decisions based on current trust bridges need to exercise less oversight. All this translates into more effective and efficient use of resources. Thus, trust bridges not only reduce the likelihood of corruption, but also lead to more efficient and profitable business transactions.

Prof. Michael Czinkota (czinkotm@georgetown.edu teaches international business at Georgetown University in Washington D.C. Courtlyn Cook is an undergraduate student at Georgetown, working on a degree in international business. is maimCCC

 

Building Global ‘Trust Bridges’

Michael Czinkota researches international marketing issues at Georgetown University. He served in trade policy positions in the George H.W. Bush and Ronald Reagan administrations. His International Marketing text (with I. Ronkainen) is now in its 10th edition. Kimberly Boeckmann participated in drafting this work.

A powerful concept in the international marketing community today deals with how to establish honorable practices in the workplace and, most importantly, across borders. This focus on “honorable practices” is of cutting-edge importance, at this time mainly in Europe, and brings new life to old thoughts.

Building Global ?Trust Bridges?The AMA’s global marketing special interest group dedicated its annual meeting in Cancun to the task of “The Honorable Merchant in International Marketing,” with three days of papers, presentations, discussion groups and workshops addressing the topic.

Honorable practices are the rules that were established to prepare merchants for conducting international business, and an honorable merchant is one who adheres to rules that go back as far as Proverbs (11:1) where merchants are specifically addressed: “A false balance is an abomination to the Lord, but a just weight is his delight.” The New Testament, Matthew 19:23-24, cites Jesus as saying that it’s easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God. Later on, the Quran makes specific reference to the charging of interest, which is seen as inappropriate and even sinful (Quran 3:130-131). In Chinese society, the role of a merchant was seen as a necessary evil, far below the exalted societal role played by, say, imperial officials.

Another example comes from medieval Florence, where the abrogation of guild bylaws were of great concern. Debtors, tax delinquents, interest-takers, falsifiers or forgers and robbers were punished harshly. Honorable merchants in cities were in charge of guarding and protecting processes and merchandise.

In practice, fines were reserved for the rich, whereas corporeal punishment was imposed on the poor. The harshest punishment, expulsion from the guild or exile, also had different effects on rich and poor. For the upper class, exile meant travel, the establishment of business branches abroad, perhaps even diplomatic service and the prospect of a glorious return. For the poor, exile usually meant death. In general, a person stealing or damaging merchandise would be dealt with much more harshly if he happened to be homeless or of low social status.

Cities, guilds and nations that had advanced international trade developed punishments that invoked both heaven and hell but still had their common touch. Here is a sample from a Venetian merchant code of ethics on handling cargo after a captain dies: “If you infringe on your duty or you are corrupted, let God the Father Almighty and his son Lord and the Holy Spirit be against you … and let you burn in hell with Judas the betrayer forever. In addition, you will have to compensate the executor of my will with five pounds of gold.”

If a violation of reliability and stability was caused by the ruler, then the populace broke out in anger, sometimes leading up to a revolution. For example, in 1253, the Duke (Herzog) of Munich inflated his currency by two-thirds so that 150 Munich pennies were worth only 60 Augsburg pennies. In 1284, a widely dissatisfied population destroyed the duke’s mint and killed the master of the mint, an equivalent to today’s chairman of the Federal Reserve.

In 1282, the Hanse, an association of north German merchants, felt that its members were suffering from severe injustices by Norway. On learning that one of its ships had been attacked and pillaged by the Norwegians, the Hanse called an assembly of its members and resolved on an economic blockade of Norway. The export to Norway of grain, flour, vegetables and beer was prohibited, and the penalties were fines and the confiscation of the goods.

The blockade was a complete success. Deprived of grain from Germany, the Norwegians were unable to obtain it from England or elsewhere. As a contemporary chronicler reported: “Then there broke out a famine so great that they were forced to make atonement.” Norway was forced to pay indemnities for the financial losses that had been caused and to grant the Hanse extensive trade privileges.

Honorable practices also dictated that organizations were held to account for the actions of their leaders. Early in the 15th century, creditors from abroad started to request that citizens persevere upon their nobility to pay their trade debts. If not, attacks were threatened, not only against noblemen and the cities themselves, but also against merchants from those cities, wherever they were.

A historic review summary then indicates:

1. The profession of merchants does not benefit from immediate strength and respect.

2. There are mixed emotions prevalent, since merchants can both help and hinder through their work.

3. Internationally, merchants suffer from the liability of foreignness, meaning that their backgrounds and their being different detracts from business success.

4. International merchants are attractive by bringing choice to market, but also are worrisome by displacing domestic relationships.

5. To overcome this psychic distance, merchants need to compensate for their shortcomings, both real and perceived.

Merchants have long had a variety of objections when engaging in their trade, focused both on the central players or anchors and on the path to trust. Trust is thought to provide trading partners with a means of overcoming international drawbacks because it facilitates investments in relationship assets, encourages information sharing and generally lowers transaction costs. However, the honorable practices designed millennia ago may no longer be effective today. Yet even in a time of frequent-transaction orientation, international marketers are again beginning to think of themselves as building long-term customer relationships, though they may encounter opposition by their firms’ financial managers who may prefer short-term actions.

I believe that the solution for honorable behavior remains in the construction of “trust bridges.” A reputation as the honorable merchant can be developed by highlighting commonalities and shared experiences, which allows the forging of these so-called trust bridges. The concept establishes a set of international standards for business based on a commonality of experiences. If two parties are exposed to common conditions and values, a discovery that they share these experiences will help them establish connectivity, warmth and trust more rapidly than if they had dissimilar backgrounds. Through a combination of collaboration, symposia, conferences and courses, partners can accredit and certify persons or companies into a database of trust bridges.

One interesting contextual difference that has emerged between Europe and the United States focuses on the use of honorifics that are designed to single out a person as being more special than others, both as an individual as well as through one’s role in society. In much of Europe, for example, the term used in addressing a leading government official is “excellenz,” derived from the Latin “excellere,” or “outstanding.” Whether such a special position is associated with any particular merit or simply “the protruding nail that will be hammered down” remains unresolved.

In the United States, by contrast, it is the election of an individual, be it a congressman, mayor or council member, that results automatically in a new term of address. The bestowment of the “honorable” title is by virtue of the election, not by any special appointment. There may be an underlying assumption of the election reflecting a special capability, but the proof is in the pudding. It appears that the term “honorable” provides a specific context in the United States. The conferral of the term indicates a process rather than a capability. Nonetheless, the use of the term helps in building a trust bridge. We cannot spend sufficient time together in order determine someone else’s capability and benevolence, but the act of a public election is taken as substitute knowledge that gives advance trust credit to a person and provides a feeling of commonality.

Key findings from the conference in Cancun were documented in a Delphi study conducted with the conference participants. The top three critical characteristics of the honorable merchant in today’s world trade are, 1.) building trust, 2.) demonstrating corporate social responsibility, and, 3.) demonstrating integrity and reliability. Global trust bridges will allow for these three key directions to be taken simultaneously, and these bridges can be facilitated in the realm of academia, business and policy.

A simple but key application of a trust bridge exists for a university’s alumni. The university’s ability to offer special experiences enables the building of a common bridge, which is anchored in the fact that many people have had similar life-shaping experiences. It is one of the most effective ways to develop a strong relationship when each party knows what the other can bring to the table. Teamwork, networking and reputation will increasingly become the key reasons why people will still choose to attend a bricks-and-mortar university, long after the Internet has substantially altered the common approach to education. For such efforts to be victorious, however, they must go beyond a mere transfer of information, and help with the collaboration and connection of interested parties.

Familiarity brings a fast track to a relationship and a database of shared experiences can be instrumental in fostering such familiarity. It therefore will be critical to select information on those new dimensions that are of common interest and form a common context. Through this better understanding of others, there will be a greater ability for trust and for shaping honorable relationships. After many decades of high variations, honorable practices would again become the expectation and the norm.

Article Source: American Marketing Association