How - Dov Seidman [85]
But Dyer and Chu didn’t stop there. They also studied the relationship between trust and certain value-creating behaviors, specifically the willingness to share critical information among business partners. Though it was unclear, in a chicken-or-the-egg sort of way, which led to which, their data clearly demonstrates that trust extended by one company to another increases value-creating behaviors, like information sharing, which, in turn, leads to higher levels of trust. One executive they interviewed put it like this:
We are much more likely to bring a new product design to [high-trust Automaker A] than [low-trust Automaker B]. The reason is simple. [Automaker B] has been known to take our proprietary blueprints and send them to our competitors to see if they can make the part at lower cost. They claim they are simply trying to maintain competitive bidding. But because we can’t trust them to treat us fairly, we don’t take our new designs to them. We take them to [Automaker A] where we have a more secure long-term future.3
Like the oxytocin response between one person and another, trust between companies leads to more trust. It sets off an upward spiral of cooperative, value-creating behaviors. “This phenomenon makes trust unique as a governance mechanism,” Dyer and Chu conclude, “because the investments that trading partners make to build trust often simultaneously create economic value (beyond minimizing transaction costs) in the relationship.”
I was struck by these stories about transactions both small, like Ralph’s doughnuts, and medium-sized, like Dyer and Chu’s study, but I wondered if the same principles applied at the highest levels of business and the biggest deals. This reminded me of a story told to me by Mike Fricklas, executive vice president, general counsel, and secretary of Viacom Inc., one of the largest media conglomerates in the world, when we met recently at Viacom’s headquarters in Times Square. After a successful career in mergers and acquisitions (M&A), Fricklas came to Viacom to negotiate their purchase of Paramount and Blockbuster, two of the biggest media deals of the 1990s. Since then, he has played a central role in Viacom’s growth and acquisitions. Mike and I have worked together for many years, and I have found him not just a first-rate lawyer, but a true adviser to those at the highest levels of business. So I asked him how trust factors into the work he does every day. “Transaction costs are not such a big deal in large commercial transactions,” he told me. “What’s much more strategic is if people want to do business with you in the first place.”4 When we spoke, Mike confessed that Viacom was currently pursuing a strategy of modest-sized acquisitions, but pointed out what he felt was a significant advantage that Viacom, by virtue of its square dealing, enjoyed. “People trust us enough that at the beginning of the relationship, when we first reach out to potential acquisition targets, we’re getting a series of exclusivities—in effect, ‘trust me’s’—where