Rebuilding Trust: Asking the Right Question Jim Ware, CFA

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Rebuilding TrustAsking the Right QuestionJim
Ware, CFA

FOCUS Consulting Group www.focusCgroup.com

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Win All You Can!

• 4 teams
• Each antes 100
• 6 rounds
• Each team declares Red or Green for each
  round
• Highest scoring team wins 400
• Scoring is as follows

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Red or Green?

• RED
• GREEN

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Same Scenario, but with people you respect and
trust?

• RED
• GREEN

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Overview

• Most investment leaders are asking the wrong
  trust question
• Trust in decline metrics on trust and markets
• Trust and prosperity why trust matters
• Trust and investment leaders scorecard
• Defining Trust
• Asking the Right Question
• Two different mindsets for trust
• Getting practical best practices for building
  trust

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Investment Leaders A Dialogue

• Peter Banziger- Head of Asset Management
  Institutional Clients, Swisscanto
• Roger Clarke- Chairman, Analytic Investors,
  Ensign Peak Advisors
• Glenn Carlson- CEO, Brandes Investment Partners
• Nate Dalton- COO, AMG
• Jeff Diermeier- Former CEO, CFA Institute
• Britt Harris- CIO, Teacher Retirement System of
  Texas
• Mellody Hobson- President, Ariel Investments, LLC
• Frank Holmes- CEO CIO, U.S. Global Investors,
  Inc.
• Jon Hunt- COO, Convergent Capital Management, LLC
• Jim Laird- CFO, Diamond Hill
• Jane Marcus- Asset Management Practice, Heidrick
  Struggles
• Steve Potter- President, Northern Trust Global
  Investments
• Scott Powers- CEO, State Street Global Advisors
• Bill Quinn- CEO, American Beacon Advisors

• Kim Redding- CEO, Brookfield Redding, LLC
• Ed Rosengarten- Chief Executive, Equities, M G
  Investments
• Dr. Andreas Sauer- CEO CIO, Quoniam Asset
  Management
• Paul Schaeffer- President, ReFlow
• Michelle Seitz- Head of Investment Management,
  William Blair Co
• Kim Shannon- President CIO, Sionna Investment
  Managers, Inc.
• Brian Singer- Chairman of the Board, CFA
  Institute
• Derrick Strizic- Former President, Foyston,
  Gordon Payne
• Maury Tognarelli- CEO, Heitman, LLC
• Robert Vanderhooft- CEO CIO, Greystone Managed
  Investments
• Robert Wagner- CEO, Victory Capital Management
• James Walsh- CIO, Cornell University Investment
  Office
• Kelly Williams- President COO, Atlanta Capital
  Management Company, LLC

Red Non-U.S.
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What a difference a year-and-a-half makes
January 19, 2009
May 14, 2007
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The State of Trust
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• Every financial system depends on trust.We are
  in a full-blown crisis because investors and
  financial managersthe people who run banks,
  investment banks, hedge funds, insurance
  companieshave lost that trust.
• Robert J. Samuelson, Economist

Bernie Madoff
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Leaders agree that

• Trust is the top issue right now
• Leaders have been asking the wrong question.

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Trust in Decline
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Since last year, do you have more or less trust
in senior management at U.S. companies?

• More
• Less
• Same

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Harvard Business Review survey

• Since last year, do you have more or less trust
  in senior management at U.S. companies?
• 76 of respondents less

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Trust in every industry declined in U.S.

• Banks and automotive led the way Technology had
  the smallest decline

• A25-37. TRACKING Now I would like to focus on
  your trust in different industry sectors. Please
  tell me how much you TRUST businesses in each of
  the following industries to do what is right.
  Again, please use a nine-point scale, where one
  means that you "DO NOT TRUST THEM AT ALL" and
  nine means that you "TRUST THEM A GREAT DEAL.
  (Top 4 Box) Informed publics ages 25-64 in the
  United States

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Who is Trusted?Younger informed publics find all
spokespeople, except a person like yourself, more
credible
Experts still trusted
Not CEOs!!

• C95-110. TRACKING Now Im going to read you a
  list of places where you might get information
  about a company. Please tell me how credible you
  believe each one of them is as a source of
  information about the companyis it extremely
  credible, very credible, somewhat credible, or
  not credible at all? TOP 2 BOX Informed Publics
  25-34 and 35-64 in the US

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Would you pay a premium for products/services
from a company you trust?

• Yes
• No

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Tangible Benefits of Trust

• B74-78 Thinking back over the past 12 months,
  have you taken any of the following actions in
  relation to companies that you trust? Please
  answer yes or no to each action.
• B79-82. Still thinking about the past 12 months,
  have you taken any of the following actions in
  relation to companies that you do not trust?
  Please answer yes or no to each action. Informed
  publics ages 25-64 in 20 countries and US

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Does Trust influence country prosperity?

• Yes
• No

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Does Trust influence financial markets?

• Yes
• No

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Trust and Markets
Any doubts that financial markets are built on
confidence and trust have been dispelled.
--Meir Statman, Financial Analysts Journal,
May/June 2009

• A10. Business in General TRACKING I am going to
  read you a list of institutions. For each one,
  please tell me how much you TRUST that
  institution to do what is right. Please use a
  9-point scale where one means that you "DO NOT
  TRUST THEM AT ALL" and nine means that you "TRUST
  THEM A GREAT DEAL". (Top 4 Box) Informed Publics
  35-64 in the US

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Does Trust affect investment team performance?

• Yes
• No

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Buffett on Trust

• Charlie Munger never grabs for himself and can
  be trusted without reservation. He has an
  absolute commitment to honesty, ethics, and
  integrity.
• I want employees to ask themselves whether they
  are willing to have any contemplated act appear
  the next day on the front page of their local
  paper to be read by their spouses, children and
  friends with the reporting done by an informed
  and critical reporter.

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Investment Leaders Key Issues

• Reduce fear and increase trust
• Enable communities of passion
• Eliminate the pathologies of formal hierarchy
• Share the work of setting direction
• Depoliticize decision-making
• Expand diversity
• Stretch executive time frames and perspectives
• Ensure the work of management serves a higher
  purpose
• Fully embed the ideas of community and
  citizenship/management systems
• Retrain managerial minds
• Develop holistic performance measures
• Better optimize trade-offs

• 4.92
• 4.08
• 4.00
• 3.92
• 3.91
• 3.73
• 3.71
• 3.63
• 3.36
• 3.25
• 3.18
• 2.86

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Defining Trust

• Character
• Integrity lining up words and actions
  consistently over time
• Intention showing concern for others, win/win
• Competence
• Capabilities talents and skills needed for the
  job
• Results delivering on promised results

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Trust Character (Large U.S. Asset Manager)
(High/Mean/Low)
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Trust Competence (Large U.S. Asset Manager)
(High/Mean/Low)
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How would you rank Trust on your team?(10
excellent, 1 poor)

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I have contributed to the trust issues on my
team.

• Strongly Agree
• Agree
• Somewhat Agree
• Neutral
• Somewhat Disagree
• Disagree
• Strongly Disagree

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Avoiding responsibility
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2 Mindsets for Trust To Me, By Me
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You cant always trust me

• around my time commitments.
• around not spinning how I say something. I am
  usually selling something to whomever Im
  addressing.
• around being fully revealing about what I know
  on a given subject.
• around never breaking confidentialities.
• around being honest with myself. Sometimes I can
  BS myself.

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Asking the Wrong QuestionWho screwed up out
there?
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Asking the Right Question

• How have I contributed to trust issues?
• I commit to taking responsibility for trust
  issues in my life by asking how can I improve
  trust in myself, my team, and my organization?

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I can think of several ways that I could improve
my own trustworthiness.

• Strongly Agree
• Agree
• Somewhat Agree
• Neutral
• Somewhat Disagree
• Disagree
• Strongly Disagree

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Which part did you like best? 3 votes.

• Prisoners Dilemma
• Metrics on trust
• Trust Prosperity
• Investment Leaders scorecard
• Definition of Trust
• To Me vs. By Me
• Trust Builders List
• Asking right Question
• Cartoons