Despite the trust deficit generated by the collapse of Enron and its corporate fellow travelers, Francis Fukuyama of Johns Hopkins University’s School of Advanced International Studies expressed optimism that the American business community is “on its way to correcting itself.” Speaking at the November 18 Center seminar “Trust and American Corporate Culture,” Fukuyama examined where trust comes from and why the new economy places particular strains on it. He insisted, however, that the current situation is not as dire as some may think.
Trust within a society or an organization depends on shared norms “embedded in a social relationship,” Fukuyama said. Laws are necessary, of course, but they entail onerous enforcement costs unless they are supported by such values as honesty, reliability, and reciprocity. Because these qualities allow managers and workers to function effi ciently, businesses must take them seriously and understand that people never act solely out of narrow economic self-interest. The military provides an extreme example of an institution in which internal norms trump economic motives, Fukuyama noted, but every organization is based on “some mixture of formal rules and informal norms that govern behavior.” One cannot, therefore, pay attention only to formal rules when discussing corporate governance, and formal legal structures alone cannot protect “against crooks.”
Fukuyama observed that the corporate organization characteristic of the new economy relies much more heavily on “trust and norms than the old form did”—a fact that helps explain why many of these companies “got into trouble.” Unlike the hierarchical, centralized structure of the early automobile industry, which long set the standard for American corporations, the corporate culture that evolved in the 1990s required a high level of trust from its workers. This was “a necessary adaptation” because the technological complexity of modern industrial production requires better educated workers who often “know more about their output than the people ostensibly managing them.” Simultaneously, however, American business was becoming more ruthlessly competitive. When these two opposing trends intersected, they “exploded” in the recent scandals.
Corporate America has much to do to restore the trust and confi dence of its various stakeholders, Fukuyama acknowledged, but its fl exibility and diversity provide “a lot of different approaches.” It is, moreover, highly motivated by the recognition that “trust has an economic value.” He concluded that the goal is not to fi nd exactly the right balance between centralization and decentralization but rather to keep adjusting the rules of governance. “It is the constant recalibration that produces a socially optimal outcome.”
Center president Hillel Fradkin moderated the discussion that followed. Among the participants were Kyle Ballard of the Institute on Religion and Public Policy, Brian Cathart of Initiatives of Change, of Initiatives of Change, Kelly Hicks of the U.S. Conference of Catholic Bishops, Doug Johnston of the International Center for Religion and Diplomacy, Center board member Paul Klaassen of Sunrise Senior Living, Anne Morse of BreakPoint Radio, Philip Terzian of the Providence Journal, Ruel Hector R. Tiongson of Georgetown University, and Adam Wolfson of The Public Interest.
