Corporate disgrace and the magic of candor

When corporations run into trouble, candor is the way to win back public trust.

Why do some companies win public trust and others lose it? That’s a question more people are asking themselves, as global faith in business remains unfortunately fragile. Turns out the trust deficit, a trend on the rise for ten years now, is more than a mere wrinkle on the face of capitalism. It’s a pressing concern for every shareholder.

When companies lose trust, they often lose capital. Case in point: Gulf disaster stocks BP, Halliburton, Transocean and Anadarko each sank between 25 and 45 percent during the past four months. The Goldman Sachs-SEC debacle pushed company shares down by 15 percent, and the Dow down by 130 points. Massey stock plunged 42 percent following a deadly string of safety failures. Toyota shares dropped 16 percent following its massive recall. And as of today, none of these companies has fully rebounded, indicating the markets grow slower to forgive.

“The last couple of years have provided plenty of reasons for a building sense of mistrust,” says Motley Fool’s Alyce Lomax. “Goldman Sachs and BP have become the most recent high-profile examples of the many big institutions whose highly paid managers seem to be only out for themselves. ”

Indeed, the lost faith Lomax describes seems to be the principle reason why many more investors demand greater honesty, disclosure, transparency, and professionalism from corporations – and flee stocks that don’t deliver. According to a recent Wall Street Journal article on the topic: “Small investors’ faith in stocks, which surged in the 1990s, has collapsed since the technology-stock debacle and the Enron and WorldCom scandals of 2000-2002…Investors talk of a growing disillusionment with big institutions, including corporations, government, banks and political parties.”

The reasons for today’s trust deficit are clear enough. What apparently isn’t as clear, particularly to the large corporations whose stocks are affected, is what to do differently in order to set things straight.

For the most part, the corporations mentioned above used a classic crisis management approach: deny, deflect, spin, repeat. Rather than open up, they withheld information. They denigrated critics, blamed others and refused to answer pertinent questions or engage in meaningful debate. They hid behind the veneer of canned statements and corporate rhetoric – with the occasional blunder thrown in.

There is “no evidence” that huge plumes of oil are suspended undersea, said BP. The charges against us will “hurt America,” said Goldman. The safety-related allegations against us are “a big lie,” said Massey. The independent research from Stanford University was “staged,” said Toyota.

When it comes to rebuilding lost trust, propaganda makes a bad problem worse. What improves situations is candor. Candor conciliates, clarifies and cuts through hype. Candor works. It’s the greed of the Twenty-first Century.

“Candor in business – or in any kind of organization – is a rare and wondrous thing,” write Suzy and Jack Welch in their book, Winning. “Rare because so few companies have it. Wondrous because when they do, everything just operates faster and better.”

Consider the success of online retailer Zappos, which grew its recently acquired, billion dollar business in under five years by forging open and honest relationships with people. From its standing invitation to the general public to come tour Zappos’ headquarters to its progressive use of blogs, videos and books – Zappos gives people outside the company an uncensored look inside the corporate culture. It even goes to so far as to share best practices with competitors.

“A lot of companies feel they need to guard the secret sauce,” said Zappos marketing executive Aaron Magness in a recent interview. “We’re very open to talking about our business model and plans with everyone. We’ve learned a lot along the way and made mistakes that a lot of other companies don’t need to make.”

Smart companies like Zappos don’t just aim for candor. They leverage it, invest in it, profit from it, and build new communities around it. For instance, Sun Microsystems CEO Jonathan Schwartz blogs freely about what his company and industry does right and wrong, engaging people on all sides of his business. Apparel company Patagonia tracks the social and environmental impact of its products from design through delivery, encouraging customers to buy smarter and contribute to rich discussions. Seventh Generation reveals the full list of ingredients used in its household products, earning customer loyalty and pressuring its industry to follow suit.

Candid companies help restore lost trust and balance to the markets. Rather than telling shareholders or stakeholders what to think, they allow the community to draw its own conclusions, which is precisely why people believe in them. As Seventh Generation’s Jeffrey Hollender said in a recent speech: “You can’t judge yourself to be sustainable or responsible. You can only be judged by others.”

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