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Do we need more trust or confidence in our leaders?

 

During the financial crisis when institutions fell, credit markets froze, and the Dow Jones Industrial Average routinely dropped 600-700 points in a single day, the financial sector became obsessed with confidence.

Although confidence is central to healthy and efficient markets, this single elixir for all things financial has been over-prescribed. As a result, we have overlooked the essential role of trust in business and society. While confidence and trust are closely related, they should not be used interchangeably. There is a remarkably subtle, yet significant difference between these terms.


The difference between confidence and trust
A good parallel for confidence is competence. When you are confident in someone, you believe that person is competent at the task at hand. Trust, however, is like integrity, defining character and civility in a single word. When you trust someone, you believe in that person’s loyalty to you and ability to be truthful in the task at hand.

For example, it is possible to have confidence in a person’s ability to count all the money in the register, but that does not mean you trust them with the money.

Another way to tease out these closely related terms is to consider how they affect outcomes in other areas of society. In sports, for example, we can have confidence in an athlete’s ability to win a race, but that does not mean we trust him to compete fairly. In this scenario, consider how a lack of trust in one winning athlete can erode confidence in the entire event. To restore confidence, it’s necessary to restore trust first by removing the dishonest competitor.


Restoring trust is easier said than done
The financial services sector has made many efforts to restore confidence since the financial crisis. Institutions have improved balance sheets and adjusted compensation structures. However, as chief executive of HSBC USA, Irene Dorner, points out, banks have not restored their reputations as successfully as they have restored capital can liquidity reserves.

Our standing has not recovered in step with better balance sheets.

In his October 17th speech at the British Banker’s Association’s annual conference, Financial Secretary to the Treasury, Greg Clark MP elaborated on the essential role of trust in financial services.

The foundation of this industry, probably more than any other, is trust. Think about it this way: how many people in your life would you trust with all of your money?

At the same conference, KPMG’s UK head of financial services, Bill Michael explained a crucial aspect of trust.

You can’t regulate good behavior.

Step-changes to rules and regulations will not be enough to rebuild trust,” Michael explained. “The industry is in need of a ground breaking shift in culture and behavior. It is up to the banks to lead by example by developing and implementing a Bankers’ Code – that is real and has the backing of regulators and other industry stakeholders. After all, we have ‘tone from the top’ and ‘three lines of defense’ yet no real principles-based foundation.


Requiring more from our leaders
Although confidence will always be essential to a strong economy, we are not currently in a crisis of confidence. Confident people abound and new ones exit preeminent universities each year. There is no shortage of sharp people in our country. Trust, however, means that those smart people will act with integrity and civility.

Trust means that investors don’t have to fear being stuck with the short end of the stick. It means that when our guard is down, and we haven’t read every line of the fine print, we’re not left feeling vulnerable.

Today, business leaders are promoted based on competence, not integrity. Yet, while we need confidence in the systems of business and government, we also need to trust the people who run these organizations. To restore trust, we must hold highly competent people to a higher moral and ethical standard. A leader’s skills and capabilities are important. However, a leader’s character and integrity should define his or her value to an organization, its customers, and the general public.

 

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