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News & Events

Financial trust something money can’t buy

Kellogg School conference explores challenge of repairing corporate image after scandal

By Kari Richardson and Matt Golosinski

4/24/2002 - “Trust me.” Easy to say, not so easy to earn after a firm loses the faith of the investing public, according to experts at a recent Kellogg School conference on financial trust.

Rebuilding the confidence in financial institutions shattered by corporate accounting scandals is a necessary step for the United States to continue to prosper, agreed corporate and academic leaders who met April 24 and 25 at the Kellogg School’s James L. Allen Center for the “Conference on Trust in Finance.”

“If people cannot trust one another, trade, investment and economic growth will all suffer,” said John Boyd, an economist who is chair of the finance department at the University of Minnesota. Boyd said many of the most prosperous nations — Switzerland, Sweden and the Netherlands — are also those that score the lowest in corruption.

The conference, co-sponsored by the Zell Center for Risk Research and the , examined the role of financial institutions in building and maintaining public trust, as well as ways to repair and rebuild that trust once it has been lost or damaged. “Trust in Finance” is part of a series of Kellogg conferences that will examine the economy through the lens of risk management.

“Enron taught us that you can create an environment that encourages breaches of trust, but it still comes down to individuals creating that environment,” said Samuel Zell, chairman of Equity Group Investments LLC, whose gift established the Zell Center for Risk Research. “You need consistency and predictability to create a culture of trust. Predictability helps generate trust.”

Other keynote speakers included the Honorable Neil F. Hartigan, justice of the Illinois Appellate Court; and Charles D. Ellis, senior adviser with Greenwich Associates. Panelists and attendees included leaders from business and academia.

Panelist Barbara Ley Toffler, adjunct professor of management at Columbia University Graduate School of Business, described a “culture of denial” that existed at companies such as Arthur Andersen and that still exists at many companies today, she said. Toffler said many firms know of potential scandals months — even years — before they come to the attention of the public, but choose not to fix them.

“Until this is addressed broadly across the (accounting) industry, I don’t think we’re going to see very much change,” Toffler said.

Toffler had another message for leaders of financial institutions who are serious about reform: “Don’t shoot the messenger. Welcome the people who bring you good information.”

But fixing trust, Zell said, is no easy feat.

“How do you fix trust? It’s extraordinarily difficult to do. There are no simple formulas, primarily because the damage done is not necessarily definitively measurable.”

Duane Kullberg, retired chief executive officer of Arthur Andersen Worldwide, said leaders with the desire to build trust need to keep the public interest in mind.

“Firms need to hire outside public members for their boards. That influence would do a lot to curb the worst abuses,” said Kullberg, himself a public member of the Chicago Board of Options Exchange.

Other speakers offered positive examples for companies to follow. Jamie Dimon, chairman and CEO of Bank One Corp., gave details of the turnaround he has led at his company since joining it two and a half years ago.

Among other things, Dimon has helped the firm fortify its balance sheet, improve customer service and generally become more efficient. The company also has instituted strict governance policies, including the requirement that directors meet twice a year without management present, and was one of the first corporations to expense options.

Dimon also said he makes a practice of sharing the same facts with everyone who has a stake in Bank One’s future.

“Shareholders, employees, board members — they all get the same information,” Dimon said. “It’s the truth and we are going to have to deal with the truth.”