Before watching the video, keep in mind that these are business professionals…so they speak faster than a normal person. Sometimes they speak so fast they tend to “eat” their words. You can follow the video with the transcript so you understand what each person is saying.

Questions:

1. Is Google an example of integrity or just another American capitalist company that wants to make more money?

2. What would you have done differently if you were head of communications for Toyota?

3. What standards of risk exist in today’s world?

4. How can your business generate wealth in the long term?

5. What is disclosure?

Transcript:

Anna Bernasek, financial journalist and author of the new book “The Economics of Integrity,” talks with BNET Editor-in-Chief Eric Schurenberg about why it pays to operate with integrity. Bernasek discusses how Google, Toyota and the banking industry can use trust to create value.

>> Eric: “Credit and debt make the world go around” the economists say. But economist and journalist Anna Bernasek has a different take. She thinks that trust and integrity are what makes the world go around and she says so in her new book, “The Economics of Integrity.” Hi, Anna. Thanks for being here.

>> Anna Bernasek: Hi, Eric. Thank you for having me.

>> Eric: Let’s talk first of all about the biggest story right now that involves integrity on a global scale: Google pulling out of China. Is that really the act of integrity that Google would like us to believe?

>> Anna Bernasek: Well I think it is on one hand. I mean I think it is—well first of all Eric, I mean they’re making a bet. They’re making a bet that this is going to pay off for their business long term. And I think it is about thinking about integrity because it is about appealing to the rest of the world and the fight against censorship. So on the one hand, yes. On the other hand, they’ve also made it a calculated decision about their market in China. They are the Number 2 search engine in China. And so the bet is if they do this, if they take a stand against censorship, will they actually draw more people eventually you know in China? So it is about integrity but it is about their bottom line. And my argument is that integrity actually is completely linked to your bottom line. So in that sense, I see it as compelling.

>> Eric: Alright, well that makes a lot of sense. For a company whose motto has been “Don’t be evil,” was hard to censor I suppose. Anyway, so they were true to their mission in that respect. Let’s move onto another company that has always had a great reputation for integrity and yet that reputation has been challenged a lot lately: Toyota.

>> Anna Bernasek: Right. Fascinating. Absolutely, and heartbreaking in a way to watch what has happened.

>> Eric: In your book you talk about some of the amazing things that Toyota has done to build trust with its customers over the years including recalling and replacing a bunch of trucks – Tacomas – that had a rust problem. And yet, they have taken a lot of blows in the press for being secretive and withholding information about unintended acceleration. What’s going on there?

>> Anna Bernasek: Well Eric I think you know understanding the initial problem, it is—what they were dealing with, with this unintended acceleration actually is a very tricky thing. It’s not something that you can easily prove. It’s not something that is necessarily divorced from human error. And so you’re also in a position as a company not wanting to criticize your customers or say that they’re dummies or you know they’ve done something wrong. So I think that’s part of the issue in their handling of it. I also think though they did mishandle it and they didn’t get out in front and really take things apart. If you remember, the whole thing began with that really tragic and spectacular accident in California with the Saylor family?

>>Eric: Yes.

>> Anna Bernasek: And part of that was this family went to their dealer, took in their Lexus, got a loaner car and the dealer actually put the wrong floor mat in the car. So when they actually went out, Mr. Saylor was driving and the pedal got stuck in the wrong floor mat. Now Toyota never really took that accident apart and sort of explained that when this happened what they wanted to do was insure this never happened again to people. Now they could have said to the public, “Well you know, you make sure you put the right floor mat in.” But they said no because people won’t necessarily do that. “Let’s recall the car—let’s think about the pedals. Let’s design a pedal so that this will never happen again even if you put 10 floor mats in or no floor mats.” So in that sense I think they operated with enormous integrity, but they weren’t able to get their message out. And I think that’s where they’ve really mishandled the situation.

>> Eric: Another industry that has had ups and downs in public trust is the banking industry. Right now I’d have to say they’re at a very low ebb, but that hasn’t always been the case. I remember when you would trust your banker implicitly and it was considered a real competitive advantage for that industry over other parts of the financial system. What happened there and what can bankers do to restore the trust they once had?

>> Anna Bernasek: Good question. The first thing is, “Do they want to restore the trust? Do they understand how important it is?” And I don’t know Eric because I feel like we went from a system where trust was so paramount to the business to this system where it all was about short term money making. And that was part of the financial crisis was that bankers could see this once in a lifetime opportunity because of the way the system was set up to make these enormous profits and hang whatever happens to their company and other people. So I think it really requires, I mean it does require new policies and it does require efforts on the government to change the incentives in the system. But it also requires the bankers themselves because a lot of this stuff that has to happen has to come from them. And they have to be thinking about long term wealth creation. And brining the U.S. financial system I think back or Wall Street back to its Number 1 position in the rest of the world which I think it really is slipping from.

>>Eric: Is there something you’d like to see in the financial regulatory reform that’s being discussed now that would help give people the incentives to act with integrity in that business?

>> Anna Bernasek: Absolutely. I mean you know I would have 3 major things. I mean 1 is just more disclosure because whenever you keep things hidden, you have that potential for cheating. And so I think bringing things out in the open like derivatives trading, you know having an exchange where derivatives of trade where we monitor what we know. How many -- we don’t even have any metrics on the market. Second thing is I think is standards for risk. Because I mean really and truly the whole crisis was caused by bankers, financial institutions, taking huge risks with other people’s money. So we need to address that. But lastly from the banks themselves, if they really care about long term wealth creation they do have to change their compensation incentives. And you can’t -- I don’t believe you can go in there and you can regulate and say, “You must pay your executives this and you must—” it has to come from them. And they have to realize that if they are thinking about the long term, they have to set compensation over the long term and to the health of the company.

>>Eric: Anna, thank you. Thank you for coming.

>> Anna Bernasek: Thank you.