The Certainty Gap
The Wall Street Journal recently published a fascinating front-page feature story detailing how federal regulators handle the takeover of a bank which is in danger of failing. In this case, it was the tiny First Integrity Bank, in the railroad town of Staples, Minn., population 3,200. About 75 federal officials and contractors from the Federal Deposit Insurance Corporation (FDIC) swooped into First Integrity late on a Friday afternoon and revoked the bank’s charter in anticipation of a friendly takeover by another bank. Secrecy was paramount, to prevent panic among the locals and a run on the bank. The regulators worked through the weekend. By Monday morning, the bank had been reopened with a new name, First International Bank & Trust. Depositors were assured their money was safe and went about their business, barely noticing or caring about the change.
According to the Journal, the FDIC is likely to be fielding more SWAT teams like this in the coming months as banks struggle through a particularly difficult credit cycle. Some analysts predict that as many as 150 banks, mostly small and medium size, could fail over the next three years. The FDIC has been around since 1933, during the Great Depression, regulating banks and trying to insure that bank customers continue to have confidence in the U.S. banking system.
As I read about the behind-the-scenes staging of this financially bleak drama, however, I was struck by an odd thought – a fantasy, really. Wouldn’t it be wonderful if the federal government were somehow able to clone the FDIC and apply these same techniques to so many more situations in life? Suppose there was a Federal Certainty Insurance Corp. (FCIC) that would spring into action whenever uncertainty overwhelmed us as individuals, families, communities and a nation? The FCIC would be charged with correcting the vicissitudes of what I call the Certainty Gap.
I’ve written before about the Certainty Gap, the space between the unpredictable nature of the world and our ideal vision of stability and security. The Certainty Gap is always present, to a greater or lesser degree, as conditions around us change. As we grow more doubtful and fearful of the future, the Gap grows, and the resulting insecurity we feel leaves us distracted and without focus. I believe the Certainty Gap exerts a profound influence on our ability to succeed.
For most of us, there are three fundamental pillars to our lives — physical security, financial prosperity, and ethical and spiritual sustenance or meaning. While it’s always dangerous to generalize, I think it’s fair to say that many or most Americans put at least the first two of these – physical security and financial prosperity – in the uncertain column. News of war in distant lands, and the threat of terrorism, occupy prime mental and emotional real estate. In New York City subways, for example, advertisements and recorded announcements constantly remind riders to be prepared to act in the face of danger: “If you see something, say something.” Meanwhile, in many states, the housing market is in shambles, unemployment is climbing and consumer confidence is declining.
Historically, when one or two of the life pillars were shaking, there was always at least one other pillar to lean on as a source of stability. What’s especially troubling these days is that the third pillar seems to be shaking as well. I suggest that we are in the grip of a profound crisis in the basic fixtures that hold civil society together. People want to believe, but they’re finding it difficult. There’s a sense that all sorts of individuals who were once role models - professors, religious leaders, politicians and business executives - have somehow betrayed our trust, confidence and loyalty. That’s not idle finger-pointing; in fact, it might be considered collective self-analysis. At a time like this, I believe we all share in at least some of the blame.
The Certainty Gap never disappears entirely; it gets larger or smaller as conditions change. When small, we hardly pay it attention; we feel in our guts that we can take any hit that comes. As it grows, however, we close ranks and protect ourselves from the threats around us. The larger it becomes, the more help we need as we attempt to fulfill our life’s desires, because even when times get rocky and we feel at risk personally and professionally, we still need to carry on with our lives, grow our businesses, and pursue our goals. When that happens, we reach out for reassurance, for things that can stabilize us and give us confidence to go on. We look for something to fill the gap.
That something is trust. Trust allows us to function in times of uncertainty. As the Certainty Gap expands, we need more trust in order to take action because trust calms the fears that uncertainty breeds. In times of high uncertainty, we pay more attention to the source of trust: human conduct. Trust becomes, more vitally than ever, the currency of human exchange. Trust fills the Certainty Gap; it fills the space between where we are and where we would like to be.
This isn’t pure theory. In researching my book HOW, for example, I came across a groundbreaking 2002 study by researchers at Brigham Young University and Seoul National University who surveyed almost 350 buyer/supplier relationships involving eight automakers In the U.S., Japan and South Korea. They found a direct, and dramatic, relationship between trust and transaction costs. The least trusted buyer incurred procurement costs six times higher than the most trusted: same parts; same sorts of transactions; six times more expensive. These additional costs came from the added resources that went into the selection, negotiation, and compliance costs of executing deals. Not surprisingly, the researchers also found that the least trusted companies were also the least profitable.
Successful economic exchange is founded on trust. When officials at Bear Stearns tried in March to assure the financial world that all was well at the investment bank, they discovered that fundamental trust had been eroded. No one would believe them. That breach of confidence – that overwhelming sense of uncertainty - caused U.S. Federal Reserve officials to fear a worldwide run on the global financial system. Conversely, those 75 federal banking officials in Staples, Minnesota are proof that when the right people say and do the right things at the right time, trust can be engendered.
Trust, like a reputation, is a quality that can take years to build and foster but can be lost in a heartbeat. I think American business needs to lead a revival of the trust building process. With shareholders, customers, employees and a multitude of stakeholders. And with a determination fueled by the many dangers and challenges confronting our nation and the world.
So go ahead, imagine that there is a Federal Certainty Insurance Corp. and that you’re the FCIC’s CEO. Take charge, develop an agenda and go to it. As the world — and our lives — become increasingly subject to rapid change and uncertainty, trust becomes the currency of the realm. To leap higher and go further, you need a hard floor of certainty to propel you. That “soft” thing, trust, is now the hardest floor of all. Far from soft and emotional, trust and its effects on everything from creativity to the bottom line can be quantified as never before. To thrive in a rapidly shifting environment, we need to learn to make a lot of it.
Last 5 posts by Dov Seidman
• Why We Can't 'Motivate' Engagement - August 19th, 2010
• The Economy: Don't Hit the Reset Button - May 19th, 2010
• Is There 'Honest Tea' on Wall Street? - May 14th, 2010
• Inspirational Shame in the Era of Behavior - April 14th, 2010
• Philosophy Is Back in Business - January 13th, 2010
August 1st, 2008 at 4:53 am
I love everything I read here. A real estate customer said they have gone to so many open houses where the agent in charge followed them around. Talk about lack of trust.