Trust but verify Featured

8:00pm EDT September 30, 2007
Would you trust Enron? Of course not, at least not with what we know now. But before the scandal broke, thousands of investors, expert fund managers and many other smart people put a lot of trust into Enron and its executives. Fortune magazine even named Enron “America’s Most Innovative Company” for six consecutive years.

Maybe you didn’t trust Enron, or even necessarily know what Enron was, but your financial adviser probably did. If you trusted your adviser with your money and he or she trusted Enron’s executives, well, the end result was probably bad.

Business is built on a chain of trust. The stockholders trust the company’s directors who trust the officers of the company. There may be additional intermediaries, such as a financial adviser or stock broker, but everything hinges on trust.

When that trust breaks down, things get ugly. Unfortunately, it happens all the time. Enron got plenty of press but think about how many times you read about a local banker or business executive who was committing fraud at a company.

As a CEO, you have to walk a fine line between trust and control. If you trust someone too much, you may leave yourself open to mistakes of inexperience or just general oversights. If you don’t trust your team enough, you become a control freak, stifle innovation and your growth comes to a screeching halt. Failing to trust your managers means you’ll be spending all your time making day-to-day decisions, leaving yourself no time to manage the big-picture strategy of the organization.

The balance between trust and control is difficult to find because, as the CEO, you are ultimately responsible for what happens in the company. It’s a heavy burden to carry, but worrying about what an employee in a far-off office might do is counterproductive to your long-term growth, not to mention to your health.

The only thing you can do is prepare. Surround yourself with good people who can help you avoid bad situations. You have to trust in your managers and advisers, but no one is ever going to have everything covered.

You can have a high degree of faith in humanity and believe that people are good by nature and will do their best, but for me, it’s my faith in God that lets me sleep at night.

You do your best to oversee the operations, but the old Ronald Reagan saying, “Trust but verify,” applies here. Try to set things up so that there is always someone checking someone else’s work. One person might make a costly oversight, but if you have someone else checking, the odds are in your favor that the mistake will be caught before it costs you money.

You also need to be accessible to all your employees. Walk around and get to know as many of them as you can. Herb Baum, the former CEO of Dial, used to host “Hot Dogs with Herb.” He’d cook hot dogs out on the factory floor for the workers to give them a chance to speak about whatever was on their mind. The idea is, if there’s a major problem, someone is going to speak up. Maybe a machine isn’t working properly and it’s costing productivity, or maybe someone’s manager is doctoring timecards.

If employees feel comfortable talking to you, that’s another layer of protection. Good people don’t like associating with bad ones, and they’ll help you identify potential problems, regardless of whether it’s with a process or a person, if you just take the time to ask.

You have to take a lot of risks to be successful in business. One of the biggest risks of all may be the trust we have to place in our managers who control our money, our inventory and our people. To mitigate the risks, all you can do is educate yourself, educate your managers and get the best advisers you can. If you do all that, the only thing left is to place portions of your business in the hands of those you trust the most.

FRED KOURY is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or fkoury@sbnonline.com.