Trust and Redemption


Trust is the cornerstone of our funding agency+. We seek implicit trust+, a trust that is automatic. Investors can buy and sell shares without having to work any harder than they would for an investment on the NYSE or NASDAQ.


If our investors trust us they give us slack when we make mistakes. If not then every mistake we make, no matter how innocent, serves to confirm their distrust. It’s a slippery slope.

Ours is unpredictable R&D+. Mistakes are common. We need slack. We try something and if it works, great, if not, we try something else. The mantra at Silicon Valley is you need to fail three times before you succeed, so your first few mistakes are expected. We need seven times three attempts.

Implicit trust+ lowers transaction costs. See here for a dramatic example of broken trust in a transaction. With this trust we don’t need to put in place special protections, or to perform investigations before executing each transaction. Trusting investors will buy and sell at the perpetual fund+ share price, and will remain calm despite any turmoil in the larger public markets.

Implicit Trust

There are two levels of trust: calculated and implicit. In calculated trust I measure each and every transaction with you against the probability that you will hold up your end of the deal. Each interaction is a rational calculation. Breaches of calculated trust+, though at times serious, are factored into the calculations and therefore can be emotionally contained.

With implicit trust we watch out for each other. Trust is grounded in shared interests and values, and emotional attachment to the relationship itself. Implicit trust relationships are often resilient to small slights; the relationship is not called into question. However, breaches of implicit trust can be emotionally devastating and call for a much more serious redemption process than in the case of calculated trust.

We build implicit trust with investors. Trust is grounded on shared understandings of fund operations and emotional attachment to the agency mission (i.e., we build great jobs and products). We attach very great importance to perceptions in this relationship. Perceived breaches are treated with the same seriousness as actual breaches.

People search for sincerity and truthfulness in the personality, public appearances, speeches and behaviors of their leaders. Trust includes an assessment of the moral values and attributes of officials of an institution. Agency management+ and other officials spending the investor’s money must be held to very high standards. Trophy brides, McMansions and luxurious vacations are viewed with suspicion. We practice modesty in our personal lives in exchange for a trust from investors that leaks into trust for the funding agency+.

Social Capital+

Social and political trust are transferable. We allow investors to air our dirty laundry. Protests and outrage are signs of success. You only get really mad at someone for whom you really care. Social capital, properly resolved, allows investors to more fully trust in the overall direction and progress of the funding agency. Our ‘politicians’ get slack.

Citizens involved in social activities tend to view their institutions in more positive terms. Face-to-face contact changes the dynamic between investor and investee+ (and agency management). We engage less in rhetoric and cheap generalizations, and look more at the underlying rationale for courses of action. We know Mary, and although her pronouncement seems at odds with our expectations, we stop and give consideration as to why she might say what she did. Similarly, investees who meet their investors might exercise greater diligence in how they spend grandma’s retirement money.

Social capital has a significant and strong effect on trust in institutions apart from, and along with, institutional performance.

Trust Violations

After trust has been damaged, the offender must quickly and voluntarily offer a thorough and sincere apology, conveying remorse for harm inflicted, an explanation of the details surrounding the betrayal, and a promise of future cooperation. The offender must substantively reaffirm commitment to the investor and to the ideals and values upon which the investment relationship is built. The offender pays restitution and discusses strategies to avoid similar problems in the future.

Restitution is often challenging. Officials may not be 'attuned' to other people's reactions and may not recognize the severity of a violation of trust. They have difficulty taking responsibility for their actions, communicating remorse, and compensating victims. These are individuals with inflated egos or self-esteem and their personal calculations for restitution make it seem not worth the cost.

Restitution has legal implications. While apologies convey remorse and responsibility, they also admit legal culpability. Trust rebuilding is a priority and we err on the side of opening ourselves up to litigation in these cases. The cost of litigation is far less than the potential costs from a collapse in investor trust.


Trust in our institution, the funding agency, extends to our currency (e.g., i-shares+ and perpetual fund shares). We need individuals to trade these currencies without stopping to think about their underlying valuation mechanisms. Breaches in trust taint our money, make it less fungible, and raise transaction costs for all members. In God We Trust is the tag-line attached to U.S. currency. An investment house will be sparsely inhabited by those we would associate with this guarantor. Instead we build structural protections+ that quickly check any incipient breaches in trust.

It sounds banal but trust is all we have. Wealth creation in intellectual capital+ is a product of the mind. There are no tangible manifestations. We need investors to trust in our ability to both measure this wealth creation during the interim, and to push this intellectual capital to its fruition as tangible, blockbuster+ products and services. This can be trust for twenty years, longer than many marriages. We have zero tolerance for deliberate breaches of trust, even minor breaches elicit severe punishment. We must have the fortitude to expel said offenders, even if they otherwise are quite valuable to our operations. We build an institution that goes beyond the contributions (or skills) of any one or few individuals. Trust in our institution, a product of trust in its officials, outweighs all other considerations.

Editor's Picks for September, 2011

Further Reading
Reba Tull
Joined: 03/30/2011
Dating 101

Sounds like materials you’d read on a dating site. Investors will rarely grant you automatic trust – every transaction is calculated (or automatic only in the sense of dumb investors in the marketplace). Your search for implicit trust+ increases the risk of catastrophic failure without much apparent upside.