I recently came across a video by British-American author Simon Sinek that changed my perspective on a number of issues, especially in the world of business and investing. In the video, Sinek describes his analysis of the most important qualities needed to become a SEAL Team 6, the most elite force of the United States Navy SEALs.
He sketched out a graph with the Y axis being performance and the X axis being trust. Surprisingly, the candidates they favored did not come from the highest performance and highest trust corners of the graph.
Just by being a member of the SEAL team, the candidates’ performance was already high, so the organization was willing to compromise on performance to find people with the highest level of trust — essentially prioritizing trust over highest performance. SEAL Team 6 members trust each other, as he put it, not only with their lives but also with their money and their wives.
Likewise, for organizations, adding high-performing but low-trust people can be harmful. Having worked in investment banking for nearly a decade, I have seen some of the effects of this approach.
I remember a story told by a friend who worked at a US investment bank in New York at the time. All new hires were called into the office at 7pm on Fridays and told to wait for a senior partner. That senior partner deliberately did not show up until midnight, just to test things out. Those who left early were fired. This type of behavior creates more fear than trust.
Companies can also damage their trusting relationships with external stakeholders.
Now, it’s normal to make mistakes, but it’s essential to quickly correct any mistakes and make changes to restore trust. For example, consider the recent money laundering scandal at Toronto Dominion Bank in the United States, which resulted in a massive $3 billion settlement with the U.S. government.
The company was punished by investors, with its stock price far below that of its peers. However, TD made changes fairly quickly, including several changes to its senior management team, including its CEO, and cut executive bonuses. It then announced it was selling its 10% stake in Charles Schwab Corp. and would reallocate the money to a stock buyback program and strengthen its balance sheet.
While the stock still has some catching up to do compared to its peers, we think it sends the right message about the seriousness of the situation and its intention to restore confidence. We think other Canadian companies struggling with lack of investor confidence and uncertainty about their future prospects should learn from TD’s recent actions.
As a discretionary manager, trust in our fiduciary relationships is critical. This means always putting the interests of our clients first and working with partners who also consider this a top priority. I find it particularly helpful to put myself in the shoes of my clients by imagining how I would want myself and my family to be treated. This includes how their portfolio is managed and cared for, the time allocated to the strategies being implemented, and ensuring every client is valued and treated equally while weeding out some that may require more time and complexity.
