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The economics of trust

Interesting topic for the first keynote today: Trust.


Trust comes up in almost any conversation one has about going business in China, as being essential to success there, and a core piece of building guanxi. (See for more about this.) Trust is built through conversation, personal knowledge, and eating and drinking together. One colleague pointed out that “professional” Western behavior, like scrupulous detail in a contract, suggests deviousness to Chinese colleagues.


The speaker is Stephen Covey, a name that sounded familiar and I finally found out why; he is the son of the Stephen R. Covey (this is how it was announced), who wrote the staggeringly dense (and repetitive) Seven Habits of Highly Effective People. An interesting example of a family business—name branding, and perhaps an inherited tendency to apply hard numbers to soft topics and to create odd-numbered sets of rules. Low trust doubles the cost of doing business and trebles the time work takes, for example, according to Stephen M. R. Covey. And his book, The Speed of Trust, provides 13 ways to build trust.


He just showed the Nordstrom “employee manual,” a card that says there is only one rule, “Use good judgment in all situations.” Hm. I’m not sure that’s going to help people find the bathroom or know whether the tea stash in the kitchen is provided by the company or a communal stockpile. Let alone some of the other tricky issues that employee manuals are designed to help people with.


Am I right in thinking that in spite of their wordiness, the real secret of success for the Coveys is that they simplify issues and situations?—complex issues and situations that are not actually amenable, in real life, to the easy solutions. But how comforting it is to be told that choices will be clear, and results will be predictable if you follow a set of rules. (Hm, sounds a bit like fundamentalist religion, doesn’t it?) There are also some remarkable assumptions involved in making rules on a social dynamic such as “trust.” First and foremost—and this is on my mind after being in China—the assumption that everyone has the same understanding of what “good judgment,” “fairness,” and even “trust” mean.

6 thoughts on “The economics of trust

  1. Good Morning Karen –

    Great points about sounding like religion and how people may have different definitions of key points. Several times during Covey’s presentation yesterday I felt the same way!

    His point are great in principle, but need to be applied carefully.

    Nice to find your blog!

    See you downstairs in a minute!


  2. On the other hand, the most exhaustively detailed contract covering every situation: one is only read in its entirety by the lawyers that don’t understand the business objectives and won’t be implementing it, two costs it costs a lot in time/$$ as well as good will as you negotiate penalties, failure and default clauses, and three will only work if the two business principals with principles trust each other enough to make sure the agreement works for the other party.

    I say give trust a shot, keep the lawyers around as consultants only (this is a trust yourself issue) and implement relationships that work for the other party.

  3. I wonder how much this cost both sides. Need I say any more:
    “the words “herein,” “hereunder,” “hereby” and similar words refer to this Agreement as a whole (and not to the particular section or clause where they appear); (c) terms used in the plural include the singular, and vice versa, unless the context clearly otherwise requires; (d) unless expressly stated herein to the contrary, reference to any agreement or other document means such agreement or document as amended or modified and as in effect from time to time in accordance with the terms thereof; (e) the words “including,” “included,” “include” and variations thereof are deemed to be followed by the words “without limitation” and will not limit the generality of any term accompanying any such word; (f) “or” is used in the sense of “and/or” and “any” is used in the sense of “any or all”; (g) unless expressly stated herein to the contrary”

  4. For all the complaints I’ve heard about the Chinese approach to contracts, I too am beginning to think that we’ve got it wrong. I’ll keep this in mind as I work out my next Chinese (and other) deals. And Charlie’s right, it’s also about trusting yourself, your knowledge and instincts.

  5. […] have been a number of comments on my post about trust, written after four weeks in China, where the word comes up a lot, and in response to a speech by […]

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