Trust, Purpose & Company Value

Paul Zak, founding Director of the Center for Neuroeconomics, has written a must-read book, The Trust Factor – The Science of Creating High-Performance Companies. Zak uses his lab’s brain research to delve into the foundation of the success of any organization – high trust and having a transcendent purpose. The author ties his research into company value. He writes, “The value of a company increases as a result of doing the right things: building a culture of high engagement and innovation, taking good care of customers and being good stewards of the resources entrusted to the company”. He brilliantly understands that “Shareholder value is a result, not a strategy”. Jack Welch, the ex-CEO of General Electric, called maximizing shareholder value “the dumbest idea in the world”. Indeed, shareholder value and generating profit is a result of doing the right things.

Zak’s neuroresearch has proven that  having a high engagement culture (that involves high trust and having  a transcendent purpose) is the key element involved in generating shareholder value. In terms of trust, Zak uses the acronym OXYTOCIN to outline “eight factors that the neuroscience affirms are the building blocks of organizational trust”. These eight factors are:

  • Ovation – Recognition of colleagues who contribute to the organization’s success
  • eXpectation -Occurs when colleagues face a challenge as a group
  • Yield – Occurs when colleagues choose how to do a project
  • Transfer – Enables self-management by permitting colleagues to craft their own jobs
  • Openness – Sharing information broadly with colleagues
  • Caring – Intentionally building relationships with colleagues
  • Invest – Investing in colleagues enables whole personal growth
  • Natural – Occurs when leaders are honest and vulnerable

A high trust culture is a foundation of high employee engagement and organizational performance – but equally important is “finding purpose”. Zak describes transcendent purpose as a big concept involving “how the organization serves people and their needs”. He continues by stating, “Fundamentally, organizations exist because they improve the lives of customers, colleagues and communities. This is an organization’s transcendent purpose. The only reason clients pay for a company’s services is because it makes their lives better”. Zak refers to two things that leaders can do to capitalize on the power of Purpose:

  • Clearly and succinctly identify your organization’s Purpose
  • Ensure that colleagues experience Purpose

To define your organization’s Purpose, “Start with its founding myth: Why did the founders put their livelihoods at risk to start the company?” He adds “Purpose is best communicated as a story in which the founders and their struggles are featured. Purpose narratives should describe how the founders sought to improve the lives of others: customers, community members and the world”. Zak believes that organizational narratives must be passionate, emotional and human – “featuring ordinary people doing extraordinary things”. Indeed, “When organizations have a Purpose, they become causes, not just places for transactions”. Zak quotes research from Professor Raj Sisodia of Babson College that concluded that “stock returns of high-Purpose organizations outperformed the S&P 500 average by 8 to 1 from 1996 to 2006”.

A neuroscience-based conclusion in The Trust Factor is that Joy = Trust X Purpose. Zak does not define joy as happiness but as “the result of working with trusted colleagues who have a transcendent purpose… Joy arises naturally when people want to be at work and are challenged and recognized for what they do”. From the brain’s perspective, “Trust effects Joy through the interaction of oxytocin and dopamine..Purpose provides a second oxytocin stimulant”. Zak presents lots of convincing research that organizations that are high on Joy (Trust X Purpose) significantly outperform other companies.

Zak concludes by writing that “Neuroscience belongs in the board room, on the factory floor and in store aisles. When organizations embrace their core humanity, they treat everyone at work like human beings rather than human resources. It’s not rocket science but it is neuroscience. And it is smart business”.