Trust in business transactions

By Edward J. Dawson
Chairman, President and CEO

Webster defines trust as confidence in, and reliance on, good qualities, especially fairness, truth, honor or abilities. When you trust someone, you depend upon them. You also risk that they might not perform up to your expectations.

In a business environment, when risk has been reduced to an acceptable level, a business transaction typically closes. This mix of trust and risk is a key ingredient of every significant business transaction.

The sale, merger or acquisition of a company is a one-time, complex transaction involving many people who frequently do not know each other very well. Handling risk in this environment is a much bigger challenge than the typical repetitive, smaller transactions encountered in most business environments.

Having dealt with this risk issue many times in the past, Capital Alliance has developed a Trust Prediction model that measures transaction risk.

This model relies upon three major factors to predict transaction risk and the extent trust must be relied upon: 1. the participants’ character, 2. the relationship of the parties, and 3. transaction characteristics. Analysis of just these three factors can yield significant insight into the risk of a transaction.

Trust is a facilitating factor for transactions and commerce. Distrust imposes a “tax” on an organization’s effectiveness by creating the need for rules/regulations, elaborate documentation and several layers of advisors.