Valuating Corporate Virtue?

BusinessConsultingCulture

Posted on February 10, 2010 by Blake Leath

I stumbled across an interesting article in a recent European issue of Fortune that explores the dollar-value of corporate virtue and, in particular, trust.  Perhaps you'll find it interesting, too.

But can you really measure the impact of good behavior? One promising area of research is around trust. In his book, Seidman discusses Jeffrey H. Dyer and Wujin Chu's landmark 2003 study of buyer/supplier relationships among eight major automakers in the U.S., Japan, and South Korea. Dyer and Chu found a strong correlation between trust and procurement costs. The least trusted buyers in the study incurred procurement costs that were five times higher than the costs of the most trusted buyers. Moreover, the least trusted companies in the study were also the least profitable. And companies that trusted each other were more likely to share valuable information like new product designs. “Trust between companies leads to more trust,” Seidman says. “It sets off an upward spiral of cooperative, value-creating behaviors.”