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Rebuilding trust

In times of crisis, it seems natural that people will work together for the common good.

By David De Cremer 01 June 2010

In times of crisis, it seems natural that people will work together for the common good. David De Cremer cautions us that, on the contrary, both economic and social researches prove otherwise. He proposes steps for organisations to take to prevent corrupt behaviours.
RebuildingtrustCrisis seems to breed further corruption within companies. Indeed, evidence is mounting that the present financial crisis has actually promoted acts of corruption. The idea that corruption and fraud can be propelled by the current financial situation is a conclusion that many of us find puzzling.

How can we explain this? Economic models clearly predict that corruption in times of crisis does not provide any useful means to overcome the crisis. However, from a behavioural science point of view, the conclusion that crisis breeds more corruption may be a surprise that we could have expected. Why?

First, a crisis situation is characterised by people’s tendency to negatively frame the situation in terms of losses. Both behavioural economics and social psychological research have shown that people are motivated more strongly to avoid loss than to achieve gain. Indeed, loss is considered more unpleasant than gain is considered pleasurable; and, as a result, loss looms larger than gain. For these reasons, it is in one’s own interest to make sure that loss is avoided. One way to do this is to take more risks. In other words,people are more motivated to engage in risky behaviours to avoid loss rather than to achieve gain. In the context of a financial crisis, risky behaviour to preserve one’s self-interest quickly takes the form of unethical actions and decisions. Put differently: when looking at a situation in terms of losses, corruption is never far away. This idea is actually supported by recent field surveys showing that many employees expect more corruption in the future and are themselves not wholly reluctant to use unethical means to achieve their goals.

Second, other behavioural research shows that crises are characterised by a large amount of distrust. A crisis elicits beliefs that things have gone wrong because commitments were not kept, unfair behaviours were displayed and parties did not take each other’s interests into account. Clearly, such beliefs signal that the corporate world is not a place in which one desires to be vulnerable to the actions of others. As a result, expectations of others’ goodwill are very low. Trust is commonly defined as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behaviour of another”. In the extreme form, a crisis can elicit a state of distrust in which the parties become defensive towards each other and information is not shared — or is even misrepresented — to preserve their own interests.

Third, a climate of distrust further motivates people to think more creatively — and perhaps unethically — about ways of dealing with rules and demands. In times of crisis, many new rules and obligations emerge that should prevent the same failures from re-occurring. As we know, however, change is not easily implemented, because people and organisations prefer to stick to the status quo, to the kinds of actions that preserve self-interest. Therefore, additional rules and control systems will force people to become more creative in ways that maintain their self-interest. As a result of such control systems, more complex ways of thinking will be employed, facilitating such actions as creative accounting and other forms of creative rule-bending — even more so than under circumstances in which crises are not at the surface.

“Rebuilding trust” by David de Cremer develops these themes. The full article can be read in the Summer 2010 issue of Business Strategy Review.

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