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Monday, March 13, 2017

Strategic CSR - Trust

The article in the url below discusses the role of trust in the modern economy:
"One of the underrated achievements of the modern world has been to develop ways to extend the circle of trust by depersonalising it. Trust used to be a very personal thing: you would trust your friends or friends of friends. But when I withdrew €400 from a cash machine, it was not because the bank trusted me but because it could verify that my bank would repay the money. This is a cold corporate miracle."
Trust is essential for strangers to interact in an exchange of things of value. For example, if I buy a food item from my local supermarket, I trust it will not give me food poisoning (or worse); when I buy something on Amazon, I trust the company will send it to me; and so on. Of course, I do not base my trust purely on the goodness of strangers. Things like government regulations and NGOs provide seals of quality and there are penalties for transgressions that incentivize producers to not make me sick (or kill me). Repeat interactions are another incentive – if Amazon does not send my purchase, I am less likely to shop there again. Nevertheless, trust is a big part of our everyday experience. This becomes most obvious when it is abused, and it is surprising how infrequently that happens. Given this, the purpose of the article is to discuss whether the role of trust has changed with the emergence of online platforms that increase interactions at arm's length – specifically, the sharing economy:
"One example is Airbnb, which lets people stay in the homes of complete strangers, a considerable exercise of trust on both sides. We successfully used it on another stop in our Bavarian holiday. Airbnb makes personal connections but uses online reviews to keep people honest: after our stay, we reviewed our host and he reviewed us."
Rather than celebrate the mechanism developed to preserve trust, however, the author says this surface-level analysis of why Airbnb works misunderstands what is really going on:
"We're misunderstanding the reason that eBay and Airbnb work. … It's not because of the brilliance of the online reputation system but 'because most people aren't crooks', an idea any Bavarian hotelier would understand."
Recent research suggests, however, that, as with the everyday economy, there is a limit to the kindness of strangers that skirts the evaluation systems currently in place:
"When Harvard Business School researchers … conducted field experiments on Airbnb, they found that both hosts and guests were discriminating against racial minorities. Other researchers have found evidence of discrimination in places from Craigslist to carpools. New online tools are giving us the ability to treat faraway strangers as though they were neighbours — and we do, in good ways and in bad."
In other words, any system involving human behavior (i.e. all systems) at some level will be subject to the biases, emotions, and prejudices that define human nature. While, in the majority of cases we can limit the negative effects (because "most people aren't crooks"), we cannot rule them out completely. The author's conclusion is that the increased commercial interactions we have with individuals (as opposed to companies) as part of the sharing economy is tweaking our economic system, rather than revolutionizing it. It is not a better system, just different:
"Trust is sometimes given to people who do not deserve it. And it is often withheld from people who do."
Take care
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Trust in the age of Airbnb
By Tim Harford
August 13/14, 2016
Financial Times
Late Edition – Final
Life & Arts, 15