Saturday, July 3, 2010

Managing Trust, Risk and Chance

How do we know when to trust someone? Trust is based on character and competence. We trust someone to act in our best interest because of our assessment of their character, their motivation to do the right thing; and their competence, their ability to effectively take the correct action. Steven MR Covey’s book Speed of Trust: The One Thing That Changes Everything takes this approach to conceptualizing trust; and it is consistent with previous research on the subject.

What is risk? Risk is the probability that events will occur that cause us harm or are otherwise not in our perceived best interest. To the extent that our assessment of trust in someone is accurate, we reduce the risk associated with that person. But even if we could trust ourselves and others around us to act with character and competence one hundred percent of the time, we would still have the risk from events occurring by chance.

Are any of us perfect either in character or competence? No. That is why an important part of creating a culture of trust is to have systems of accountability. In society at large, we have laws and justice systems to enforce them. In organizations, we have policies and procedures and ways to monitor and enforce compliance. Systems of accountability help us to more consistently exhibit organizational and personal values and principles, by providing procedures and consequences (rewards and punishments) to guide behavior. More effective, however, than just procedures and consequences, is when an organization develops a culture of accountability at all levels of the hierarchy. Frequently, leaders at various levels of an organization are not consistent in holding themselves or their team members accountability. This arbitrariness erodes the sense of trust.

Is there risk from events that are outside of our control? Surely, there is. The most readily recognizable risk from chance events are natural disasters. Every year, we hear news of hurricanes, earthquakes and flooding and other natural disasters. Most of these do not seem to be the result of human action or inaction. However, there are also random or chance events that may have a remote relationship to some human action, even our own past actions. For example, building dams or making other structural changes in the land can affect flooding, for better or worse. But because we are often incapable of predicting the remote effects of particular human actions, many of these events for all intents and purposes must be considered random.

Is there anything we can do to reduce risk? Yes, there is a lot we can do in organizational life as well as in our personal lives, to reduce risk by developing trust. We can improve our own character and competence through reflection and practice, and we can build our social networks and organizational culture that promotes these values and behaviors. This includes putting in place systems of accountability to monitor and encourage compliance with positive values.

What do we do when trust fails or disaster strikes? For the risk that comes from failure of trust, when people do the wrong things through deficiencies of character or competence; or the risk from chance occurrences, we can use insurance to help us to recover from the damage, as much as that is possible. We can restore financial and physical assets, and sometimes health, but we cannot restore life. In all cases there are costs to failure of trust as well; and there are costs to managing risk from chance, including the cost of insurance itself.

It makes sense to do everything we can to manage trust as well as possible, since this is the risk over which we have the most direct control. We can also do as good a job as possible of developing effective methods of scanning our environment to get early warning of harmful chance occurrences. It may seem contradictory, but we should think positively and pursue happiness, while at the same time keeping an eye open for the potential impeding disaster.

I’m Dr. Bernard Brookes. You can reach me at