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On their way home from the circus that evening, afew people paused to listen to a man speaking under a bare light bulb from a platform. He was selling some gadget, but no one seemed interested. Among the onlookers was a short, poorly dressed man, his tired-looking wife and two small children. The salesman sensed that he wasnt getting anywhere, so he heightened his pitch: If you buy right now, Ill give you two for the price of one. Still no takers. The little man and his family began moving away. Looking straight at them, he continued, And, Ill give everything I take in tonight to charity.

The little man turned around, reached into his pocket, and handed some bills up to the man on the platform. Although he didnt have much, hed willingly give what he had to help others. The huckster quickly took the money and shoved it into his own pocket, saying, And, as we all know, charity begins at home. The little man stood there in disbelief. No one said anything. Finally, his wife said in a sad voice, Come on Nubbin, well just put a little more water in the gravy, and they walked slowly off, even poorer than they had been before.

In this true story, Nubbin obviously put his trust in the wrong person. Trust without reason is dangerous; an accurate assessment of the person with whom you are dealing is critical. And when you do form an opinion, it is wise to check with others before making a commitment. Judgments like this can be difficult in personal life and in business.

Trust is what makes the business world function. It is impossible to write a contract that covers every conceivable eventuality. An attempt to write such an agreement would lead to a huge document which, even then, could not completely anticipate the future. When questions arise, the spirit of the contract is usually invoked, and trust in the original intention of the parties becomes nearly as important as the written word.

Thats why so many business dealings – particularly the smaller, short-term ones – rely on oral agreements, trusting that each party will do the right thing. Thats also why no one will deal again with a business person who violates that trust.

Years ago, new to trading wet petroleum barrels, I sold a barge of distillate over the telephone to a trader at what seemed to be a good price. It was only after I hung up that I realized I had miscalculated the cost, and that the sale would actually generate a loss. Panicked, I quickly called the buyer back and explained that I had made a mistake. Since he was a friend, I thought that he would forgive my error. He didnt; to him, a deal was a deal. Thats when I learned the hard way that your word really is your bond, even if you want to take it back 90 seconds later. Trust is what makes business work, and oral agreements must be honored.

Thorold Barker wrote recently in The Wall Street Journal about the meltdown of the financial industry, … beyond the power struggles, huge losses and increased regulation, there is a more fundamental threat to the industry: the destruction of trust.

Lets not let that happen to us.

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