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Clinical Psychologist specialising in
Emotional Intelligence and Mindfulness

Emotional Capital at Davos  

This week more than 2,500 of the world’s busiest people will fly out to the small Swiss resort of Davos to attend the World Economic Forum. The purpose of this year’s forum is to discuss the “the new global context.” More specifically, according to the Founder and Executive Chairman, Professor Klaus Schwab, this year “we will look at all the burning issues like geographical conflicts, the future of the economy, social inclusion, and so on. But the key factor is trust. How can we restore trust in our future, in our institutions?

Trust – the Economic Lubricant

It’s hard to image a more important or more difficult subject to address than this, not only in the context of geopolitical and social conflict, but also in the context of business. Business operates in a social and emotional context, and following the subprime lending scandals, the excessive bonuses on Wall Street and countless other corporate scandals, understanding how to rebuild public trust in business leaders has never been more critical to a prosperous future.

From a business point of view, trust is the oil that keeps the economic wheels turning. It is an economic lubricant that reduces the cost of transactions between parties and enables new forms of cooperation, collaboration and engagement. Mountains of data confirm high levels of social trust is positively correlated with economic performance and, as such, trust operates in a business context as a form of capital. It involves people’s feelings; their highest hopes and aspirations, and influences their confidence in people and processes, their levels of engagement and, yes, their buying decisions. Trust is pure emotional capital – an asset that operates as a major economic engine that can be acquired and reinvested to create additional revenue.

Two Psychological Building Blocks

As a business psychologist, I’ve been grappling with the psychological building blocks of trust; why it matters and how to develop it for some time. Essentially, trust involves two important psychological elements; social influence and social identity. From a social influence perspective, it is easier to influence or persuade someone who trusts us. In practical terms this involves competency – ‘do you know what your talking about?’ and character – ‘do you do what you say?’ The second element involves social identity. We trust others when we recognize in them values and experiences that we ourselves share. It is this element of shared identity that creates the experience of emotional intimacy and it’s this that acts as a catalyst to engagement and improves stakeholder outcomes. Creating emotional connections with customers, employees and all stakeholders is a key factor in how you build trust.

A New Currency – Emotional Capital

Trust is fundamentally built on an emotional experience, and emotions are involved with everything a company does. Emotions determine whether or not people will work well with you, buy from you, hire you, or enter into business with you. Importantly, the value of these emotions eventually shows up in financial performance. In Fortune Magazine’s “100 Best Companies to Work For,” trust makes up 60 percent of the criteria for inclusion on the list and is the “primary defining characteristic.” And, according to a study by Russell Investment Group, companies on this list earned over four times the returns of the broader market over the previous seven years. This reinforces the idea that a company is not simply a commercial entity and its assets cannot be fully accounted for by inventories of financial capital and not even human capital. It’s time that companies broaden their definition of value and, in particular, their understanding of the workings of capital.

Despite its long-lasting allure, the balance sheet captures much less of the real value of the company than it’s given credit for. Emotional capital as an asset in business can be identified and to a degree measured in three core elements: external, internal and intrapersonal.

External Emotional Capital

The first element, external emotional capital, is the value of the feelings and perceptions held by the customer and the external stakeholder towards your business. Ultimately, the only way to create real profit is to attract the emotional rather than the rational customer by appealing to their feelings and imagination.

Customers are demanding that organisations do more than just make money. They expect to buy from organisations they like and that care about the things they care about. And, in the information age and globalised economy where values and meaning matter more in the market place, the value of emotional capital increases. This creates brand value and goodwill and results in repeat sales through customer loyalty, lifetime relationships and referrals. In other words, the brand is more than a name or a logo; it creates trust and recognition and is a promise and an emotional contract with each customer.

Internal Emotional Capital

The second core element, internal emotional capital, is the value of the emotional commitments held in the hearts and minds of the people within your business – their level of engagement. It can also be described as the feelings, beliefs and values held by everyone working in the business. At this moment, people’s sense of connection to their workplace is in decline. Last year Gallup reported the data from 47 countries indicating the engagement was at an all time low. Yet in those businesses where trust and confidence for the job flourished, productivity customer service, and profitability were all higher than average. The report declared that “Companies with engaged workforces have higher earnings per share.” It went on to suggest that: “Engagement has a greater impact on performance than corporate policies and perks.”

As a leader, you know that external customer relationships are important. But your interactions with internal customers — your people — are just as vital. Every relationship that your business has with everyone it touches is an asset and an investment. To build emotional wealth you must treat your people as investors because that is what they are — intellectual and emotional investors. Every day they bring their heads and hearts to work. And if they don’t, you won’t be in business very long. Internally, emotional capital is seen in the value of the energy, enthusiasm and commitment that people bring to work to create products and solve problems.

Intrapersonal Emotional Capital

The third element that makes up emotional capital — intra-personal emotional capital is the level of positive, focused energy that you invest at work and in your personal life. As a leader, you will inspire or demoralise others first by how effectively you manage your own emotional energy and second, by how well you mobilise, focus and renew the collective energy of the people you lead. According to Hirotaka Takeuchi, a management professor at Harvard Business School, “purpose is at the essence of why firms exists.” I agree and in my experience the best leaders have two things in common: a clear vision of the future they’re trying to create, and a carefully constructed mission of why their company exists. In other words, they are motivated not just by money but by the pursuit of a larger societal purpose.

I’m convinced the primary role of a leader is to create economic and emotional prosperity for collective advantage. Nothing in business is more rewarding or exciting. Leaders create emotional capital by inspiring trust in themselves and their vision. To achieve this, the important question to ask yourself is; What are you and your business currently doing that makes everyone who comes into contact with you and your business feel like they can trust you and what you stand for?

Davos – Rebuilding Trust and Reigniting Prosperity

While so much of the business world remains primarily obsessed with competitive advantage and quarterly financial performance, Davos will encourage us to consider a new currency driving global prosperity – emotional capital. At a time of economic uncertainty and when the pace of chance is unrelenting, the restoration of trust is paramount. This year Davos will argue for the rebuilding of trust as an urgent priority in business. At the very least, Davos asks us to re-imagine the potential of businesses that are lead by emotionally intelligent leaders who are more conscious of a higher purpose and more aware of their impact on the world, the environment and the economy.