Commercial judgment – there’s a disconnect

Whenever I run workshops about successful contracts and projects, there is always someone who raises the question of trust. There’s a widespread view that trust is the critical ingredient, making the difference between success and failure.

We can certainly debate whether this view is valid, but I think few would disagree that trust is a helpful ingredient and certainly, once lost it is hard to restore. But trust is also something you earn and is not automatically present. Within trading relationships, the extent to which trust matters is highly variable, but when it is absent we take a variety of steps to protect ourselves. First, we might undertake extensive investigations into our potential counter-party, asking questions, seeking references, undertaking searches. Then we may enter into a bidding process in which we are testing and evaluating capabilities and competencies, before moving into a formal negotiation in which we aim to extract specific promises related to performance – and consequences for non-performance.

Just because we are competent does not mean we can be trusted

But does any of this really build trust? Probably not. It may increase confidence, but that is not the same. Trust is ultimately much more about character and proven performance. It is also influenced by typical experience within or between cultures – hence we have significant variations due to different social value systems.

How well are corporations and government agencies doing when it comes to levels of trust? Not very, if all the surveys and indicators are to be believed. And much of that is because there is a real disconnect between what they say and what they do. Nowhere is this more consistently obvious than in commercial and contracting policies and practices. Here are a few examples:

• Executives regularly claim that customers are the core focus of the business, but in reality they concentrate on cutting costs and maximizing shareholder returns.
• Many organizations now have a ‘reputation management strategy’, yet if you ask how that aligns with their legal strategy, you will typically receive a blank look. There is no better example of this than the efforts to transfer contract risk. In a recent survey, the idea that contract terms should be aligned with brand image was soundly rejected by over 70% of participants.
• Surveys of executive priorities show no alignment with public priorities. For example, big issues for business tend to be productivity growth, coping with market uncertainty and integrating digital technologies. The public reflects reduced trust, greater activism and concerns over the honesty and integrity of business and political leadership.

Within business, there is a big – and understandable – focus on competence and capabilities. Without these, it would indeed be hard to survive. But survival also increasingly depends on perception and experience – honesty, fairness, integrity and alignment with customer and social interests are the barometers that ultimately impact levels of trust. The single biggest driver of reputation is the extent to which  there is a gap between what you say you do and what you actually do.

And when it comes to commercial practices and terms and conditions, the gap is frequently quite large.