When people, businesses or other groups commit to each other, they often make agreements and contracts that can be enforced. This creates accountability and builds trust in the transaction, and it provides appropriate recourse should any party fail to deliver on the agreement. This could be the terms for a bill of sale, the conditions of a purchase order or some other promise between parties.
But this mutual understanding is still subject to risks. Cases of fraud, for instance, can initially give the appearance of upholding a contract, only to damage trust when discovered. And when quid pro quo is violated broadly, or at least perceived to be, damage to trust can extend from economic partners to supporting institutions.
In extreme cases, groups that aren’t part of a transaction can be harmed when trust is violated on a large scale. The 2008 financial crisis and subsequent economic recession is one example.
Trust is created when people share common interests and values and agree which values are most important. This can be personal and naturally understood, such as the trust between friends. It also can be more explicit, such as the trust a business hopes to gain through a corporate purpose statement.
In the business world, labor unions are an example of how people with shared interests and goals engage in a trust-based relationship. Within society, trust has been instrumental in volunteer efforts, such as collecting food donations or building homes for less fortunate people. More recently, technology has enabled social networks to bring together groups with a common purpose.
At the same time, polarization increases the chances for interests to diverge, posing risks to trust. Consider that in today’s digital world, many appreciate improved access to information and greater connectivity, yet concerns about security and privacy have grown. Managing those often-competing demands and maintaining trust in the digital age is an ongoing challenge.
When a party to a transaction breaks a contract or violates an agreement, a third party often is called on to enforce the consequences. In business, this includes regulators, advocates, watchdogs and other “disinterested” parties, and their presence helps preserve trust within the transaction.
Even if an individual agreement is upheld, other factors may lead to unintended consequences that can damage trust. Economic or industry changes during the lifetime of a contract can alter the conditions that were in place at the start and require new dialogue to avoid the involvement of a third party.
In recent years, declining trust in institutions has made some people seek alternatives for transactions. New technology has opened opportunities that don’t rely on a centralized authority and are outside the scope of current regulations. Transaction and contract options such as blockchain rely on peers rather than an established institution to ensure fairness.
Transparency and information
Trust in a transaction is enabled by transparency and information, which help ensure that the parties know who they’re doing business with and understand the value that will be provided through the agreement. The information itself must be trustworthy, creating the need for assurance, and how it is communicated helps determine its transparency.
Small print, hidden terms and deliberate vagueness in agreements all are threats to transparency and can damage trust. Similarly, withholding information – even if a party hasn’t asked for it – can weaken a person’s or company’s confidence in the other party.
On the other hand, too much information does nothing for transparency, as relevant facts can be lost in the firehose of data. With better technology today, the challenge isn’t a lack of information, but the lack of communicating the right information. Consider that the vast amount of potentially useful business information, including data relevant to detecting cybersecurity breaches, is still unstructured, often in the form of text. Yet only a small percentage of that data is analyzed.