Whether we want to admit it or not, the core of most managerial philosophies is built on trust. And the research continues to mount that shows that organizations that inspire trust between employees and manager perform better - sometimes significantly better. One study even found that high-trust companies outperform the S&P 500 by a factor of 3 for financial results.

So, as a leader, shouldn't you be interested creating the conditions that lead to high-trust environment?

Let's start by considering what it's like to work in a low-trust environment, where the expectation is that people won't do their job unless you establish the proper oversight in terms of rules and regulations. But there are some real costs associated with putting these kinds of constraints in place. For one, there is a cost to your bottom line since the more rules you add, the more people you'll need to hire to help enforce those rules. You also slow down the organization by adding layers of decision-making and constraints. But perhaps more importantly is the cost to the people working inside the organization. Working in a low-trust environment sucks the life out of you. It's not a happy place to work because it's hard to bring your best self to work every day.

I know this from experience. Early in my career I worked for a big company where I was put in charge of a large product line. That was a big responsibility for me as a young guy since every decision I made could make - or cost - the company millions of dollars. Since I was trying to build my career, I put in a ton of hours, especially late at night.

But the catch was the company required me to punch a clock every time I arrived or left the office. And regardless of how late I might have stayed the night before working, if I was so much as one minute late punching in when I arrived the next day, I would be reprimanded for it. How silly is that? But that's why companies with low-trust environments under perform compared to high-trust companies. The rules outweigh the spirit.

In high-trust companies, they rely far less on rules and more on values.

Consider the example of the online shoe retailer Zappos, where every customer service representative is empowered to do whatever he or she can to please the customer with the goals of turning them into a customer for life. From offering free shipping to even offering to replace a pair of shoes at no cost to the customers, Zappos trusts its customer service reps to make good decisions.

They do this for really excellent and hard-nosed business reasons as well. Zappos has calculated the lifetime value of a customer and determined that keeping them happy and returning for years far exceeds the cost of some shipping or a free pair of shoes.

Now, anyone who runs a low-trust company could never believe their employees could handle this responsibility. They might think the employees would try to cheat the company somehow, perhaps by sending free shoes to a friend.

But companies like Zappos have two things going for them. One, they have systems in place to help ensure that something catastrophic doesn't happen by putting some rules in place, like that the rep might have a budget limit of $1,000 they can work with before needing to get a supervisor involved. This is a rules-light approach.

The other strength high-trust companies like Zappos have is that the social forces within the company help reinforce the values. In other words, they don't need managers to punish the outliers because their peers will call them out for bad behavior far quicker. When people like where they work, they don't want someone else screwing things up for them - which makes peer-to-peer accountability a very powerful moderator within an organization.

So the question you should be asking is whether you want to lead a rules-based, low-trust companies or one that's light on the rules but ranks off the charts when it comes to trust and performance?

It might help to ask yourself, what's the worst thing that can happen by trusting your people? Isn't it possible that whatever risk you think you perceive is worth the considerable upside you might be able to realize by trusting more?

I know which option I would gamble on.

Published on: Jul 5, 2017
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.