Why Trust Matters
Leaders are under relentless pressure to do more with less: deliver results faster, cut costs, and still find room for more innovation. The instinctive response to such pressure is often to exert more control through additional reporting, stricter performance monitoring, and layers of compliance.
Yet control, while intended to reduce risk, comes with hidden costs. It slows decision-making, discourages initiative, and transforms employees into box-checkers rather than problem-solvers. The result is a culture of compliance rather than creativity.
Denmark, consistently ranked as one of the world’s highest-trust societies, offers a radically different approach. Here, businesses and public institutions often rely less on regulation and more on mutual trust, supported by reputation and social capital. The payoff? Lower transaction costs, faster collaboration, and resilience in crises.
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What is Psychological Safety and How to Create it?
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This article examines how trust-based leadership is not only culturally feasible but also strategically advantageous. Through the story of a small Danish machine factory, broader Scandinavian practices, and lessons from economic theory, we show why cultivating trust may be the most important competitive edge of the 21st century.
Or, to borrow and rewrite Lenin’s famous phrase:
Control is good, but trust is cheaper
Case Study: Bonnet Machine Factory — Resilience Through Trust
In the small village of Bonnet in western Jutland, Denmark, a family-run machine factory has quietly thrived for over 130 years. With just 15 employees, Bonnet Machine Factory produces gears and specialized machinery components. On paper, this company appears vulnerable: it is small-scale, has limited resources, and is heavily exposed to cyclical industries.
Yet during the 2008 global financial crisis, when orders dried up and many manufacturers collapsed, Bonnet managed to survive. Its secret was not aggressive cost-cutting or increased oversight. Instead, it relied on a collective effort rooted in trust.
Employees proactively suggested ideas to reconnect with former clients, explore new niches, and optimize the factory’s use of capacity. Director Lars Emtkjær, a mechanical engineer, recalls:
“It’s actually healthy to be under a bit of pressure. That’s when people become creative. Like in football, you play better in a real match than in a training game.”
The analogy is telling. In a competitive match, you cannot hide; you must step up. At Bonnet, everyone contributed, and nobody flew under the radar.
The Core Principle: Trust Rather than Control
The real differentiator, however, was not pressure alone. It was trust-based leadership.
At Bonnet, there are:
- No punch clocks.
- No time registration systems.
- No heavy quality-control department.
Instead, employees are trusted to take responsibility and correct their own mistakes. As Emtkjær puts it:
“We don’t spend time preaching morals or controlling people. If a mistake happens, colleagues will address the issue immediately — better to fix it here and now than send it out.”
This is not blind faith. It is a reputation-driven system. New employees quickly learn “the jargon”: you are expected to be reliable and honest. Easy-riding—doing the minimum while others carry the weight—is socially unacceptable. In a close-knit community, one’s reputation is a form of currency. Lose it, and you lose more than a job; you lose credibility.
The result? High morale, low absenteeism, and a culture of ownership. Customers, too, are treated on trust. Contracts are minimal, deals often sealed with a handshake. While this carries risks, it saves significant costs on lawyers, paperwork, and bureaucracy. As Emtkjær says bluntly:
We are a machine factory, not a paper factory
Trust as Economic Capital
Economists refer to this invisible glue as social capital—the norms and networks that facilitate cooperation. Trust reduces what Nobel laureate Oliver Williamson once called “transaction costs”: the time and money spent monitoring, verifying, and enforcing agreements.
A single phrase captures this:
Trust reduces costs, while control multiplies them.
Consider the alternatives. A low-trust company must invest heavily in monitoring systems, compliance officers, audits, and litigation. A high-trust company, by contrast, resolves most issues informally, through dialogue and reputation.
In Denmark, this principle extends far beyond Bonnet. From roadside vegetable stands where customers pay on the honor system to billion-dollar companies delegating authority deep into their organizations, trust is built into the operating system.
The Roadside Stand: A Microcosm of Trust
Drive through the Danish countryside and you will encounter a uniquely Scandinavian institution: the roadside stand (‘vejbod’ in Danish). Farmers leave fresh produce unattended with a simple honesty box for payment.
Why does this work? Because most people pay, trust becomes self-reinforcing: as long as the majority behave honestly, the system thrives, creating win-win outcomes for both the seller and the buyer.
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Different Types of Leadership and Management Styles – Quick Overview
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The roadside stand illustrates both the strength and vulnerability of trust. If too many free-riders exploit the system, the owner ends up with “the sucker’s payoff”. Yet in Denmark, the cultural norm of honesty sustains the practice.
This is not naïveté but a rational approach. In high-trust societies like Denmark, trusting others is not a sign of gullibility but a reflection of social norms that reward cooperation. When the risk of being cheated is low, trust reduces transaction costs and makes collaboration more efficient.
The Scandinavian Paradox: Trust, Tolerance, and Free-Riders
While trust brings many benefits, it also carries risks. In a culture where people assume good intentions, there can be a tendency toward conflict avoidance and over-tolerance.
Danes are famously reluctant to confront colleagues head-on, sometimes preferring to “walk around the hot porridge” as the Danish saying goes, rather than raise uncomfortable issues. This leaves room for free-riders—those who exploit the goodwill of others.
Literature offers vivid warnings. George Orwell’s Animal Farm shows how unchallenged leaders can exploit collective trust. John Steinbeck’s novels, such as Tortilla Flat, depict lovable but manipulative free-riders who justify their behavior while others shoulder the burden.
The Danish welfare model, with its strong ethos of supporting the vulnerable, can inadvertently perpetuate such dynamics. How do you distinguish between the genuinely vulnerable and those who strategically “play helpless”? This creates what scholars call the ”cuckoo effect”: scarce resources are diverted to impostors at the expense of the truly needy.
The lesson for leaders: trust must be balanced with accountability. Otherwise, the best employees—who could be named the “hard-riders”—risk burnout, while free-riders thrive unchecked.
The Optimal Balance: Trust Plus Smart Control
The true art of leadership lies in striking a balance between trust and control.
Too much trust, and you suffocate initiative under bureaucracy. Too little control, and you enable exploitation.
Economists frame this as the marginal cost of control. If the last million dollars spent on control produces less than a million dollars in benefit, you have crossed into over-control—a situation where “we get less for more.”
History offers extreme warnings. Under Stalin’s Soviet Union, virtually every activity was closely monitored, resulting in a vast army of controllers and guards. People were reduced to vintjiki—“little screws” in the state machine. The cost of control became so enormous that it undermined the entire system. Denmark shows the opposite path: with high trust, less control is needed, freeing resources for innovation and value creation.
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Responsible Knowledge Management in Organizations: Solutions for Current Challenges
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Ten Practical Recommendations for Leaders
Drawing from Bonnet’s example and broader research, here are ten steps to embed trust in your organization:
- Co-create goals. Involve employees in defining objectives. Shared ownership reduces free-riding.
2. Define fair rules. Transparent task distribution prevents resentment.
3. Reinvest savings. Use resources saved from reduced control to strengthen core tasks.
4. Encourage face-to-face meetings. Relationships thrive on human interaction.
5. Keep teams small. Personal accountability is most effective in smaller groups.
6. Promote cross-level dialogue. Ensure employees’ ideas reach decision-makers.
7. Leverage local knowledge in your firm. Avoid one-size-fits-all solutions.
8. Foster peer regulation. Informal social sanctions are often more effective than formal audits.
9. Normalize honest dialogue. Create a safe space for raising mistakes and learning.
10. Accept failure. Mistakes are not grounds for exclusion but opportunities for improvement.
The Danish Advantage: Competitiveness in the New Millennium
Why does this matter globally? As countries and companies converge on many dimensions—such as technology, capital access, and regulation—trust may become the decisive competitive advantage.
High-trust organizations move faster, adapt better, and innovate more boldly. They spend fewer resources on control and more on creation. In contrast, low-trust systems are often bogged down by audits, paperwork, and suspicion.
Trust is not a “soft value”; it is an economic asset
This is why Denmark consistently scores high in global competitiveness rankings. Trust is not a “soft value”; it is an economic asset. It makes collaboration more affordable, governance lighter, and crises more manageable.
As we enter an era of digital surveillance, AI monitoring, and rising compliance demands, the Danish lesson is urgent: don’t let control spiral out of proportion. If employees feel constantly monitored, they disengage. The warmth of collaboration turns cold, and the cost of compliance skyrockets.
A Final Word: From Lenin to Leadership
The 20th century gave us Lenin’s famous maxim:
“Trust is good, but control is better.”
The 21st century calls for a rewrite:
“Control is good, but trust is cheaper.”
For leaders, the challenge is not whether to use control—it is how to balance it wisely with trust. The organizations that master this balance will be leaner, faster, and more resilient. They will cultivate employees who innovate rather than comply, collaborate rather than compete, and take pride in carrying their share of the load.
In a world awash with surveillance technology and bureaucratic expansion, this may be the most appropriate business strategy of all: choose trust. It works in Denmark.
References
Svendsen, Gert Tinggaard. Trust. John Hopkins Press
Svendsen, Gert Tinggaard; Gunnar Lind Haase Svendsen, Urs Steiner Brandt (2021). Kontrol eller tillid? Akademisk Forlag.
