Crossroads

At the intersection of technology, finance and the Pacific Rim.

Tuesday, June 13, 2006

Trust

Sam Palmisano, CEO of IBM remarked that globally integrated enterprises and their leaders will need to reinforce trust. He writes in FT, "We need new ways of establishing trust based on shared values that cross borders and formal organizations." As companies increasingly partner for competitive advantage, the trust issue arises time and again between them.

About ten years ago I was a banker to a fast growing semiconductor company; their motto was "Say what you do, Do what you say". Take the words you say as commitments. This is the foundation of trust and as you enter or continue your business career you may find this hard to do. I say this having worked in two of the most "hyped" industries, technology and investment banking. Not easy to do but you need to stay on this course as it works in the long run.

5 Comments:

Blogger Jinwoo IM said...

The motto, "Say what you do, Do what you say" is very meaningful to me, and difficult to do because sometimes it is not easy to know what to do and how to do at the "proper" time.

11:00 AM  
Anonymous Lapasov Farhod said...

It is difficult to do what one said. It gives you good reputation in business to be honest.” Doing what one said" is not only gives you good reputation among the business partners, but also gives good brand about the company among the customers.

12:12 AM  
Blogger LeftBack said...

This post brings to mind some of your comments in class regarding guanxi. It may be that as the Chinese are slowly moving away from their reliance on guanxi, global corporations are moving closer towards a guanxi system whereby mutual trust takes over when international contracts prove inadequate.

I guess it makes sense. In the domestic arena, if a company has a gripe, it can go to the courts to have the issue resolved. But what about internationally? Let’s say you’re a mid-sized firm doing business with a large Russian company. During the course of business, the Russian company takes certain actions that are out of compliance with the contract they signed. You complain, the Russian company issues denials, and the dispute devolves into a he-said/she-said affair. At this point, what recourse do you have? Even if an international arbiter judges in your favor, the Russian company may choose to ignore the decision. In this kind of environment, where there is no external arbiter with sufficient clout to impose decisions, trust takes on a greater importance.

As I suggested, this article was a real eye-opener for me, a guy who has never been privy to the world of upper management or high finance. In my naïveté, I had always assumed that when you get up high enough, business was a courtly affair; that the contract was the be-all-and-end-all – and that all parties, except in extreme cases, abide by its terms. Never would I have imagined that contracts were so open to interpretation (don’t they have lawyers to make sure these things are airtight?) or that business between large enterprises gets so personal.

One of the lessons that I’ve taken from this course is that no matter the size of the company, most deals still get done person-to-person as opposed to committee-to-committee. Companies are like people, with personalities that more often than not reflect the personalities of their leaders.

On a personal level, I have no intension of deviating from my life of deceit, crime, and debauchery. But that’s just me. For everyone else, I highly recommend the path of virtue.

4:27 PM  
Blogger Stan Sakai said...

You raise a good point on international law. And here is the technical answer. Each contract is ruled by a given law: in the international context it is usually the State of NY or English Law. The reason is that Japanese and Korean law do not have enough court precedents (i.e., court cases that test and interpret the law). Thus, in a contract dispute that results in a suit you need to go to court in the jurisdiction under which the contract is written. You get a judgement there, and then take that judgement to the court of the country where the Company operates (or has assets) and seek enforcement. If they have assets in the jurisdiction where the law resides then you can seek enforcement action there as well. It is complicated. So ultimately you have to base your business decision on the contract on the power relationship"--i.e., the respective parties' leverage and trustworthiness.

9:16 AM  
Blogger LeftBack said...

Your words bring to mind a New York Times article I read recently, called After Neoconservatism, by the influential American political economist Francis Fukuyama. Fukuyama points to the need for bolstering “horizontal accountability” among states. Although he’s talking about geo-politics, I think his ideas are equally applicable to the commercial realm:


The world today lacks effective international institutions that can confer legitimacy on collective action; creating new organizations that will better balance the dual requirements of legitimacy and effectiveness will be the primary task for the coming generation. As a result of more than 200 years of political evolution, we have a relatively good understanding of how to create institutions that are rulebound, accountable and reasonably effective in the vertical silos we call states. What we do not have are adequate mechanisms of horizontal accountability among states.

4:22 PM  

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