Report of the 

President’s Commission 

on Critical Infrastructure Protection

1997
1

PRESIDENT'S COMMISSION ON

CRITICAL INFRASTRUCTURE PROTECTION

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ACADEMIC WORKSHOP ON

PUBLIC CONFIDENCE

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Friday, May 30, 1997

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The workshop met in the Riggs Library,

Healy Hall, Georgetown University, Washington, D.C.,

at 9:30 a.m., Mary Culnan, Chair, presiding.

PRESENT:

MARY CULNAN, Chair, Commissioner

BILL GARBER, Moderator, Fleishman-Hillard

ELIZABETH BANKER, PCCIP Staff

ROBERT BIES, Georgetown University

MICHAEL DARBY, University of California, L.A.

DAVID GEDDES, Fleishman-Hillard

DORIS GRABER, University of Illinois at

Chicago

BETSY HARRISON, PCCIP Staff

RAY HIEBERT, University of Maryland
2

PRESENT (Continued):

BRIAN HOEY, PCCIP Staff

PAUL KLEINDORFER, University of Pennsylvania

ROD KRAMER, Stanford University

ROY LEWICKI, Ohio State University

LIZ LIPTAK, Georgetown University Staff

DAN McALLISTER, Georgetown University

STEVE MITCHELL, Commissioner

JOE MOORCONES, Commissioner

TOM TRIPP, Washington State University

TOM TYLER, University of California, Berkeley

NANCY WONG, Commissioner

LYNNE ZUCKER, University of California, L.A.
3

CONTENTS

PAGE

Welcoming Remarks by Allen Andreasen 5

Introduction by Mary Culnan 6

Discussion of What is Trust 32

Discussion of Elasticity of Public Confidence 165

Discussion of the Role of the Media 173

Discussion of Role of the Government 194
4

1 PROCEEDINGS

2 (9:16 a.m.)

3 CHAIR CULNAN: Good morning. My name is

4 Mary Culnan, and I want to welcome you on behalf of

5 the President's Commission on Critical

6 Infrastructure Protection, which is a real mouthful.

7 We're the PCCIP, and we haven't quite figured out

8 how to say that either.

9 But as we do say here inside of the

10 Beltway, we are from Washington, and today we're

11 from the government, and you're here to help us.

12 (Laughter.)

13 CHAIR CULNAN: So I want to thank you

14 all for coming. We invited each one of you because

15 of your particular expertise we thought could come

16 to bear on our research, and so we're really glad

17 you could find the time and come to join us. I know

18 everybody is very busy.

19 I'm from the Business School here at

20 Georgetown, my home when I'm not on the Commission,

21 and Allen Andreasen, who's our Associate Dean, is

22 going to say a couple of words of welcome on behalf

23 of Georgetown, which is officially hosting the
5

1 occasion here.

2 MR. ANDREASEN: Thank you, Mary.

3 I do want to welcome you all here on

4 behalf of the Georgetown School of Business, and

5 we're pleased that we're able to host such an event.

6 This kind of activity fits, I think,

7 very well with where the Georgetown School of

8 Business is trying to carve itself a major niche in

9 the academic world, and I think in the public policy

10 world. I think there are several things that we do

11 here that impinge on the kind of work that this

12 particular group is involved in, and you have

13 several of my colleagues among you. We are very

14 interested in all sorts of issues of trust.

15 We're also interested in the broad area

16 of business and government relations. We've been

17 hiring a number of folks and growing rather rapidly

18 in all of these areas, and the chance for our

19 faculty to work with such bright and interesting

20 people as you've assembled here today is great for

21 us, and we hope that by hosting this we can make

22 your work at least pleasant, and I'm sure my

23 colleagues will help a lot to the intellectual side
6

1 of your enterprise.

2 So thank you again. Welcome. Have a

3 great day.

4 CHAIR CULNAN: Thanks, Al.

5 Before we get started, I'll just tell

6 you a little bit about the Commission and our work.

7 This is going to be informal. We want the workshop

8 to be informal. So there are no overheads. I'm not

9 going to stand up and turn slides, but there are

10 some overheads in your packet if you want to look at

11 that because I'm just going to go through these

12 quickly, that have some more details.

13 The first question is: what are

14 critical infrastructures, which was interesting to

15 me in reading the different papers that were

16 submitted? And this is another thing for which

17 there is no real good sound bite, but really they're

18 the nation's life support systems, the kind of

19 things we take for granted.

20 And probably the best example of the

21 fact that people really do take these things for

22 granted was illustrated by President Clinton at the

23 beginning of the month when he was asked how he felt
7

1 about his daughter going away to college 3,000 from

2 Washington at Stanford, and he said, "Well, the

3 planes run out there and the phones work and the E4 mail works out there, so we'll be all right," and

5 that pretty much sums up, I think, how the public

6 feels about infrastructure.

7 So why have a commission to study this?

8 President Clinton signed the executive order that

9 established the Commission last July, motivated in

10 large part because of some recent terrorism events,

11 such as Oklahoma City, the World Trade Center, and

12 some things that had taken place in some other

13 countries as well.

14 And so our mission during the year and a

15 half that we are in business is to develop policy

16 recommendations for the President that will assure

17 that the nation's critical infrastructures will be

18 safe from both physical and cyber threats.

19 We have 20 Commissioners under the

20 executive order, and ten of these are from the

21 federal government, and then there are supposed to

22 be ten from the private sector, which is broadly

23 defined. I think business people wouldn't consider
8

1 me to be a private sector person, but I'm not from

2 the government. So we have five private sector

3 people on the Commission now, including our

4 Chairman, who is a retired general and then served

5 in the private sector after he left the Air Force,

6 and we have some more private sector Commissioners

7 to come, which we hope will help us as we finish up.

8 Our work is organized around five

9 different sectors which represent the critical

10 infrastructures from the executive order, which

11 named eight. There's banking and finance. We have

12 an information and communications sector. We used

13 to call this electronic distribution, but decided it

14 was broader. Physical distribution, energy, and

15 vital human services, and the slide on the sector

16 teams shows what kinds of specific activities are

17 included in each one of these teams.

18 One of the things that makes our work

19 particularly interesting is that the private sector

20 owns the infrastructures, not the federal

21 government, and so one of the major challenges in

22 our work is to build a partnership with the private

23 sector or, in fact, to get the message out so that
9

1 the private sector on its own will take steps that

2 may turn out to be necessary to plug any holes that

3 currently exist.

4 We're also looking at a number of

5 crosscutting issues, and I'll talk about them at the

6 end. These are really the research questions for

7 our Commission.

8 Terrorism was the driver for

9 establishing the Commission, but one of the things

10 we've found as we proceeded in our research is that

11 the real issues that are perhaps threatening the

12 infrastructures are what we call the new risk

13 environment, and people in business schools know

14 this already because the business environment has

15 changed so much, and this drives a lot of the things

16 that we're teaching our students.

17 Deregulation has meant there are more

18 players, and there's more complexity. It's now a

19 global environment. We have the merger between MCI

20 and British Telecom. So now you have foreign

21 companies operating part of what used to be a

22 formerly American infrastructure.

23 Greater dependence on information
10

1 technology, in general, and specifically on

2 telecommunications, and that this goes across

3 infrastructures. So you have a lot more

4 interdependencies across these different

5 infrastructures. Internet is one big example, but

6 there are others.

7 Also there's really a new paradigm for

8 national security that's emerging. Where it used to

9 be if you wanted to attack the U.S. you took out a

10 missile silo, now you will take out a financial

11 institution, and so this, again, creates some new

12 realities that the private sector and the government

13 have to address and how to do this.

14 So the research questions that we're

15 addressing in our work, we're looking at what is the

16 national risk. Are there new threats that represent

17 problems or potential problems for the

18 infrastructures, and are the infrastructures

19 vulnerable to these threats or, in fact, are we

20 protecting against them already? What is the

21 business case for why the Commission is in

22 existence?

23 National structures issue. How should
11

1 the government be organized to address these issues,

2 and is it currently organized in that way or not?

3 Public confidence, which is what we're

4 here to talk about today.

5 Economic issues. Who pays for any

6 changes that may be necessary?

7 Research and development. What kinds of

8 new tools or new technologies may be needed? And,

9 again, who should pay for these?

10 Legal and regulatory landscape. What is

11 it with regard to infrastructure, and are there

12 holes that need to be plugged or are there laws that

13 serve as impediments to assuring infrastructures?

14 And finally education, training, and

15 awareness both for the business community today and

16 the future business leaders of tomorrow, which are

17 our clients or whatever we'd like to call them, our

18 students.

19 And so these are the kind of issues that

20 we're addressing. The last slide in the handout has

21 our address. We'd be happy to hear from you or if

22 you'd like to follow our work, we have a Web site,

23 and we put up transcripts of public meetings. We
12

1 will put up a transcript of this meeting eventually

2 when it's done so people can see what we hear, have

3 said about this today, and so, again, you can see

4 the executive order or anything else you'd like.

5 Before we start and I turn this over to

6 Bill Garber, I know I'm going to trip up and call

7 you "Graber" because Doris Graber is here, and I've

8 already made this mistake once, but I'll start out

9 the day right.

10 I want to thank my colleague on the

11 Commission, Steve Mitchell, who before I came to the

12 Commission had the idea that we should focus on

13 public confidence, and he started Team Confidence,

14 as I understand it, and really serves as a champion

15 for this idea. I think I heard some of the other

16 people that were skeptical that maybe this wasn't

17 such an issue, and now any time we have a meeting

18 and discuss an issue, public confidence inevitably

19 rises to the surface.

20 And on a personal note, because I've

21 started looking at trust and justice in my own

22 research, when he called up and said, "Well, you

23 know, you're going to be on the Commission, and
13

1 we've started this project on public trust. Maybe

2 you'd be interested in being involved in that," I

3 thought, "Boy, would I ever."

4 One final thing. In the paper this

5 morning, if you get a chance to look at the Post on

6 the Federal Pages, which is on the back of the

7 editorial page, there's an article that some of the

8 top appointees in the Clinton administration are

9 having a retreat this weekend, and they're talking

10 about public trust also, not in infrastructures, but

11 in government, which was a topic that some of you

12 addressed in the papers you sent in. So we're

13 timely without even realizing it.

14 So, again, thank you all for coming.

15 We're going to have an interesting day, and I'll

16 turn this over to Bill, who's going to co-moderate

17 this with me.

18 MR. GARBER: I'm the guy that's supposed

19 to keep us on scheduled, and obviously I have

20 miserably failed at this point because we are

21 probably about 30 minutes into our allotted time.

22 A couple of ground rules of no

23 particular order. First of all, for those of you
14

1 that haven't found the restrooms in this facility,

2 they're very, very close. They are out the door to

3 your right, and then an immediate left, and then

4 just beyond the elevator, which is on your left just

5 as you go in that next little ante room there, there

6 is a little hallway back to your left, and both the

7 men's and ladies' rooms are there.

8 And as Mary said, this is informal

9 despite the lovely setting and everything else and

10 some kind of sense of formality, and so we have

11 scheduled breaks, and we'll go over the agenda in

12 just a moment, but don't feel as though you have to

13 wait for those either to get something from the

14 table, some fruit or juice or coffee, whatever the

15 case may be. I mean do as you please in terms of

16 coming and going as you need to.

17 In your folder there are some discussion

18 questions, which perhaps you've had a chance to look

19 at previously. Most of them were part of the

20 correspondence that was initially sent to you when

21 we started forming this workshop, and they'll be the

22 basis for which we will go through the day.

23 It's sort of my task to keep us on
15

1 subject, on task, and to get through these

2 particular points.

3 Along the administrative lines, I'd like

4 to say that Kristin Cuscella is a member --

5 CHAIR CULNAN: Who just left.

6 MR. GARBER: -- who just walked out the

7 door, but the woman by the door there. She and I

8 both work for an international communications firm

9 called Fleishman-Hillard. We are working with the

10 Commission on a variety of fronts. My colleague,

11 David Geddes, is a senior member of our research

12 staff from our corporate headquarters in St. Louis,

13 and he is specifically working with Mary and the

14 Commission on the survey research that we're going

15 to do on this particular subject, and of course, of

16 which this is a part.

17 If there's anything that Kristin or I

18 can do regarding arrangements, flights, whatever the

19 case may be, anything at al, please just ask and

20 we'd be delighted to help you out.

21 As we go around, as we start these

22 things, I'll essentially just sort of read the

23 questions and whatnot or a question, and then what
16

1 I'd like to do is if the area that's being talked

2 about here is in your particular field of expertise

3 or you have done research or whatnot in that, signal

4 some way.

5 CHAIR CULNAN: Turn your card up.

6 MR. GARBER: Well, initially kind of let

7 me know in some fashion that you're willing to take

8 the lead on the discussion because what we want to

9 do is, I mean, this is not one person carrying the

10 ball and one person speaks on a question and then we

11 go on to the next one. I mean we're in the

12 discussion mode here, and Mary told me I didn't have

13 to tell academicians that they had to talk, but for

14 subsequent things, if not for the first one, rather

15 than raising your hand or something like that, just

16 put your name tag up on the corner, and that will

17 signal me that you have some additional comments,

18 challenges, debate, or whatever the case may be

19 regarding the topic that we're talking on.

20 And if we go on a little bit long, I'll

21 sort of, you know, say it's -- I'll look at Mary and

22 I'll say, "Mary, have we gotten what we need?" and

23 then we'll move on.
17

1 The other thing I would like to tell

2 you, each of you, is that we have a court reporter

3 here with us in the corner, who is making a verbatim

4 transcript of these proceedings, and if we follow

5 suit the way the Commission has worked previously,

6 in a couple of weeks that probably will be posted on

7 their Internet site and, of course, is accessible by

8 any of you who might like to download part or all of

9 that transcript, but I certainly want you to be

10 aware of that.

11 Are there any questions at all or

12 whatever before we start? Anything I've forgotten

13 to tell everyone?

14 The agenda is also in your packet, and I

15 might just mention that we have a break scheduled at

16 10:30. We have lunch scheduled here at 12:30. We

17 don't intend to -- I mean, while we want to have

18 some time for social talk and whatnot during lunch,

19 we don't have a long time scheduled for that.

20 Obviously, you know, this is the lunch table where

21 we sit, and so we'll intend to resume, you know,

22 when it's comfortable for everyone after lunch.

23 The 3:00 p.m. adjournment time is pretty
18

1 firm because I think there's another function in

2 this room at four. So we will end at three o'clock

3 today for those of you that may have other plans or

4 reservations and whatnot to leave.

5 Before we get started with the

6 questions, I would like to kind of -- I would

7 appreciate it if we could kind of go around the

8 room. In your folders, for those of you who stayed

9 in the hotel, there were some bios of the Commission

10 members, but, of course, the Commission members do

11 not have bios of you. So I'd just like each person

12 to go around the table, starting with you, Joe, and

13 introduce yourself and not just names and where

14 you're from, but maybe a little bit about your

15 interest in this particular subject, whatever

16 research you may have done, and whatnot. I mean

17 this won't last too long, but nonetheless, we'd just

18 like to get everybody to know each other and know

19 who we've got around the table here so that we can

20 then continue.

21 So, Joe.

22 MR. MOORCONES: I'm Joe Moorcones. I'm

23 a Commissioner. I come from the National Security
19

1 Agency out of Fort Meade. I've spent 25 years in

2 information systems security, worked on everything

3 from nuclear command and control codes to make sure

4 they can't launch our missiles, where we have a big

5 deal of trust and confidence, and it goes to

6 everything from personal security all the way

7 through physical security, all the way down today to

8 trying to figure out how we're going to get better

9 security enabled features in commercial products

10 because that's what everybody in government is

11 using, including the military.

12 So that's sort of my background. I've

13 been involved in this area for a long period of

14 time, but never looked at trust as just a pure

15 academic kind of a view, but I would say mistrust

16 was probably the way we designed our systems,

17 assuming we could trust no one.

18 MR. BIES: Yeah, my name is Bob Bies.

19 I'm in the School of Business here at Georgetown

20 University. My area of research has longstanding

21 been in issues of justice, perceptions of justice or

22 injustice more accurately in the workplace, but more

23 recently gotten more involved in looking at how
20

1 people act out the dynamics of distrust,

2 particularly in the form of revenge and paranoia and

3 things like that. So I'm really interested in the

4 distrust piece, much more so than trust. So that's

5 it.

6 MR. HIEBERT: My name is Ray Hiebert.

7 I'm a professor at the University of Maryland,

8 former Dean of the College of Journalism there.

9 I've written a few books on journalism and public

10 relations and the mass media, and for the last 23

11 years I've been the editor of the Public Relations

12 Review, which is a quarterly journal of critical

13 commentary on public relations.

14 And I'm interested in the public

15 relations aspect of this question of public trust.

16 MS. ZUCKER: I'm Lynne Zucker. I'm a

17 professor of sociology at UCLA, and I guess my

18 interest is focused most on the social construction

19 of trust, and I've looked at it in a number of

20 different contexts, and that's my major approach.

21 So it's kind of a blending of sociology and

22 economics.

23 MR. DARBY: I'm Michael Darby, Lynn's
21

1 husband. I'm a professor at the Business School,

2 the Anderson School of Management, and the Economics

3 Department at UCLA.

4 I guess I come at trust from two ways:

5 one, from sort of an industrial organization

6 orientation towards, with Eddie Carney, I introduced

7 the idea of credence goods, when you buy something

8 like an operation and you really don't know if you

9 need it or new transmission, and how do market

10 structures enable those kinds of transactions to be

11 made?

12 And the other is from the financial

13 markets, safety and soundness questions, and

14 questions of what we call systemic risk. What can

15 set off a run on the system?

16 MR. GARBER: Gee, I wish you'd publish.

17 I really want to know about that. It sounds like

18 we small investors that that might be some good

19 knowledge to have.

20 MR. MITCHELL: I'm Steven Mitchell. I'm

21 the Department of Justice representative to the

22 Commission, and I come at this question from a

23 criminal law perspective, having formerly been with
22

1 the department's Computer Crime and Intellectual

2 Property Section, and in the course of the last nine

3 months with the Commission, I can say that one of my

4 proudest achievements is successfully recruiting

5 Mary Culnan to be a part of our Commission as well.

6 So I look forward to discussing this.

7 MS. GRABER: I'm Doris Graber. I teach

8 political science at the University of Illinois. My

9 main area of research has been the mass media,

10 particularly television news, and of course, there

11 the issue of what it does in terms of people's trust

12 is a very important issue.

13 I've also done work in information

14 management in the public sector, and part of that

15 involves public communication campaigns, and there

16 again, the issue of trust comes in, and I've done a

17 good bit of work in what people call political

18 psychology, which again deals with perceptions and

19 people's attitude towards information and such.

20 MR. TYLER: I'm Tom Tyler. I'm from the

21 Department of Psychology at the University of

22 California at Berkeley. I have been concerned with

23 public confidence in government and government
23

1 institutions.

2 I think there are really two aspects of

3 that problem that I've particularly explored. One

4 is the consequences of trust. That is, I've been

5 concerned with why people comply with legal rules,

6 why they obey the law, and how trust in government

7 shapes whether or not people, in fact, will obey

8 laws, will accept decisions by political and legal

9 authorities.

10 The second issue is the mechanisms that

11 government can use to create and maintain trust, and

12 in particular, I've been concerned with procedures

13 through which government functions and how those

14 affect trust in government and trust in government

15 authorities.

16 MS. WONG: Thank you.

17 My name is Nancy Wong, and I'm a

18 Commissioner on this Commission from the private

19 sector. I'm serving as a private citizen. So I

20 don't represent the company I came from, but before

21 I came on this Commission, I worked for Pacific Gas

22 and Electric Company. I've been in the information

23 technology field, serving that company for the last
24

1 25 years.

2 My particular interest in this is I've

3 taken on the assignment of putting together a

4 profile of the national risk as we move forward into

5 the Information Age and how that has changed, and

6 risk is an area which I am responsible for in my

7 company, particularly related to information assets

8 and how risk has changed in my company as a result

9 of our dependence on information technology and the

10 use of information in our business processes.

11 For national risk, risk is very much

12 related to perception and expectations of the

13 public, and it plays a very important component in

14 determining risk as it is perceived and as it is in

15 reality, and so I really look forward to today's

16 discussion.

17 Thank you.

18 MS. BANKER: I'm Elizabeth Banker. I'm

19 an attorney at the Commission, and I work with

20 Steven Mitchell on the legal issues that the

21 Commission is facing.

22 MR. HOEY: My name is Brian Hoey. I'm

23 the first public affairs officer detailed to the
25

1 Commission as a Special Assistant to the Chairman.

2 My most recent experience in building trust was in

3 Sarejevo-Bosnia with warring factions.

4 (Laughter.)

5 MR. GARBER: Did you succeed?

6 (Laughter.)

7 MR. HOEY: Not entirely successful.

8 MR. GARBER: Not yet anyway, right?

9 MR. HOEY: Correct.

10 MS. HARRISON: My name is Betsy

11 Harrison, and I handle legislative affairs at the

12 Commission, our outreach to members of Congress and

13 the committees on the Hill, many of which have

14 jurisdiction over the areas that we're studying.

15 And I wanted to join Team Confidence

16 because I think that public confidence and trust

17 will be of major interest to Congress when the

18 Commission finally sends its report to the President

19 and eventually it becomes public.

20 MR. TRIPP: Hi. I'm Tom Tripp. I'm

21 with Washington State University. I've always been

22 interested in issues of transactions at work between

23 workers and subordinates and bosses and how power
26

1 differences affect that and how perceptions of

2 justice come into that.

3 More recently I'm interested in when

4 trust fails, how it affects those relationships, and

5 in particular, revenge in the workplace and how

6 workers tend to get even with each other when trust

7 fails.

8 MR. LEWICKI: I'm Roy Lewicki. I am

9 professor of management and human resources at Ohio

10 State University. Most of my career has been in

11 areas of negotiation and conflict management,

12 justice work, and in the last few years on questions

13 of trust and trust development.

14 I've been most interested in

15 interpersonal trust, how trust develops, how people

16 view different kinds of trust and the way it

17 develops, how to repair trust, how you fix broken

18 trust, and how to measure trust and trust dynamics,

19 how to understand sort of what trust level people

20 are and how that process grows or changes over time.

21 MR. KRAMER: I'm Rod Kramer. I guess I

22 would describe myself as a trans-social. I'm a

23 social psychologist trapped inside a business school
27

1 professor's body.

2 (Laughter.)

3 MR. KRAMER: I was trained as an

4 experimental social psychologist, but I've been at

5 the Stanford Business School since 1985, and I study

6 sort of the social psychology of collective action

7 and inaction, and in particular, I've been

8 interested in why people cooperate with other people

9 when they're sharing scarce or critical resources.

10 So I'm very interested in many of the themes that

11 this Commission is studying.

12 I'm also interested in why cooperation

13 fails or unravels, and recently have been working a

14 lot on the relationship between trust and people's

15 willingness to cooperate, and Tom Tyler and actually

16 quite a few people who participate in this

17 conference or in this Commission also got together a

18 few years ago and thought about some of these issues

19 in the context of organizational areas, and we

20 published a book, Tom and I and a number of the

21 people, reflecting our views.

22 And one of the things that came out of

23 that for me has been an interest in paranoia, why
28

1 people don't trust other people, and the antecedents

2 of collective suspicion. So I think probably

3 national security issues and other issues are

4 involved with that, but it's been a fascinating

5 topic. It's made me a little paranoid myself.

6 (Laughter.)

7 MR. KRAMER: But I'm happy to be here.

8 MR. GARBER: And they are recording

9 this.

10 (Laughter.)

11 MR. McALLISTER: Dan McAllister, and I'm

12 from here at Georgetown University. It's a pleasure

13 just to be able to walk down the hall from your

14 office and step into such a wonderful intellectual

15 environment.

16 My work is in organizational behavior,

17 trusted personal relationships within an

18 organization or work setting. If there's something

19 that's distinctive about my thinking, it's getting

20 beyond the reasonable useful information towards the

21 affect and emotion that's in the personal baggage

22 that can build and can influence the sort of

23 confidence that people have in their relationships
29

1 with one another. Call it the affective component,

2 as well as the cognitive.

3 I'm very much concerned with not only

4 the function, the positive side of the question, but

5 also the dysfunctions of trust. The bottom line is

6 in order to pull off the scam, you've got to be

7 trusted, and the larger the scam, teams of trust are

8 needed.

9 (Laughter.)

10 MR. McALLISTER: And so within this

11 context, I'm very much interested in a balanced

12 perspective on trust and understanding and exploring

13 not only the reasons why we should be pursuing it,

14 but also the controls that we need to have in place.

15 MR. GEDDES: I'm David Geddes. I'm from

16 Fleishman-Hillard. I'm Vice President of Research.

17 My direct involvement has been through Bill Garber

18 and Mary Culnan in designing and soon to implement

19 some research, a public opinion survey and then

20 surveys of both owners of infrastructures. As Mary

21 pointed out, most of these infrastructures are

22 privately owned, yet the public has near complete

23 dependence upon them, and the users of critical
30

1 infrastructures, which can include virtually any

2 business in this country, but we will focus on those

3 that are tremendously dependent.

4 Outside here, my primary work over the

5 past ten years has been for telecommunications

6 companies. I previously worked for one of the major

7 long distance companies, and now most of my time is

8 spent with working for at least what is today the

9 largest local phone company in the country, although

10 that may change in the next few days, and also

11 working on, I guess, strategic marketing and brand

12 image development for both telephone company,

13 telecommunications companies, and technology

14 companies.

15 As I reflected on a few things, it

16 became clear that we actually spend a lot of time on

17 a day-to-day basis on the issue of what is

18 essentially a commodity business, trying to get

19 people to develop trust in our company.

20 CHAIR CULNAN: Before we get started, I

21 wanted to bring this to people's attention because a

22 number of you here may be interested in this, and

23 you can get a copy free, and if you call before you
31

1 leave town, it's a local phone call, but the Pew

2 Center, which used to be the people in the press

3 that was part of the L.A. Times, just released in I

4 think it was this past month a survey they did

5 called "Trust and Citizen Engagement in Metropolitan

6 Philadelphia, a Case Study," which touches on a lot

7 of the issues that many of you are interested in,

8 and so this will be here if you want to look at it

9 during lunch, and inside the front cover is their

10 phone number. If you call them up, they'll send you

11 a copy for free.

12 There's also an executive summary on the

13 Internet, but this has all of the items and all of

14 the statistics, and they do actually some analysis

15 at the end that they report.

16 MR. GARBER: Okay. It's perhaps unique

17 that two days ago the Washington Post had an article

18 in it that talked about the confidence index, and of

19 course, this is consumer confidence here, but the

20 confidence index hitting a 28-year high, and that

21 the country is basically feeling pretty good, which

22 is one of the challenges, of course, that the

23 Commission has in terms of looking at the other side
32

1 of things and planning for the potential eventuality

2 that some failure, intentional or otherwise, might

3 cause some major and abrupt change to feeling good

4 about some particular infrastructure.

5 But in any event, as I mentioned,

6 looking at the first question, what is trust? And

7 how does trust in individuals differ from trust in

8 institutions, such as infrastructures?

9 Who's going to be the first? Lynne, do

10 you want to give us a shot at this?

11 CHAIR CULNAN: We pick on you because

12 you're sort of our institutional person here.

13 MS. ZUCKER: Okay. I have to admit I

14 didn't really prepare a speech based on what I

15 wrote.

16 MR. GARBER: No, no.

17 MS. ZUCKER: So I hope you can take a

18 look at what Michael and I put together because I'm

19 not going to cover all the points.

20 But I guess the major thing I'd like to

21 start out with is just, you know, there are kind of

22 two ways of looking at trust, and I really look at

23 trust as not generally a manipulative strategy by
33

1 people to try to get people to, you know -- a

2 confidence game kind of thing -- or to try to get

3 people to do something against their own self4 interest, and I think, in fact, that if trust is

5 extensively used that way, you finally don't have

6 any, and that's when systems collapse and you don't

7 have any of this critical infrastructure you're

8 talking about.

9 And so I think that just as we talk

10 about signals in many areas, especially in the labor

11 market with Spence's ideas on using signals that

12 contain information about the underlying

13 characteristics of the worker, and for us it's

14 signals of trust that tell us something about the

15 underlying characteristics that we can expect in

16 ongoing transactions.

17 And if there's much divergence between

18 the signals and the underlying real "this really is

19 really there and is really supporting the

20 transaction," then eventually, and not very long,

21 the transaction really breaks down.

22 So, you know, kind of if we went around

23 the table and asked how many of us have been taken
34

1 in by these scams we read about, we probably find

2 that not many of us actually have been because we

3 understand signaling and we understand reputation

4 pretty well, and so because we know about these

5 things, we're much less likely to get taken in by a

6 confidence game. We ask the right questions and,

7 you know, we don't proceed. We don't act

8 immediately. We reflect on it and we think. You

9 know, we may collect other information certainly

10 before we make a big investment, even of time and

11 energy, let alone money, right, which people often

12 talk about as one of the kind of classic confidence

13 areas.

14 So building confidence, building public

15 confidence and public trust I see as really

16 something that requires real investment and a lot of

17 underlying structure that actually supports the

18 transactions that are going on rather than something

19 that can be done superficially on the surface and

20 then radically change public confidence.

21 Michael, we going to probably get ahead,

22 and I don't know if I'll be actually able to use

23 this, but one of the really good surveys that's been
35

1 done -- I promised to bring survey items -- one of

2 the long-term surveys that has asked questions over

3 a number of years is the general social survey, and

4 if you look at the questions on the banking

5 institutions, which is what we focused on in our

6 statement, what you see is that, in fact, public

7 confidence really responds to what happens.

8 There was a lot higher public confidence

9 in banking when you didn't have the savings and

10 loans' failures, and you know, again, there's a nice

11 distinction between banks and savings and loans, but

12 a lot of the public mix those up, and as Michael

13 pointed out, actually after we put together the

14 statement, he pointed out that, in fact, there was

15 actually a depreciation of kind of the bank's

16 reputation capital by allowing --

17 MR. DARBY: The use of the word "bank"

18 by federal savings banks, the former thrift

19 institutions.

20 MS. ZUCKER: You know, so there are real

21 effects. So if you, you know, assume someone else's

22 losses or you take on the responsibility of another

23 institution that hasn't done well and which makes
36

1 people nervous and, you know, doesn't really support

2 their trust, then you lose some of the trust in your

3 institution. That is, there is real depreciation of

4 the reputation, and it can occur very quickly.

5 You know, you can think about the actual

6 runs on banks, and there are actually very few, and

7 they were mostly limited to state banks where the

8 state --

9 MR. DARBY: Savings and loans.

10 MS. ZUCKER: Yeah, the state savings and

11 loans. Sorry. The state savings and loans where

12 there could actually be insufficient support for the

13 insurance fund, so that the states might default on

14 promises to insure some of the accounts.

15 And that's kind of one of the most

16 extreme examples of what happens with lack of trust,

17 that you really do get these runs on institutions

18 that basically make the situation much more serious

19 than it was before the run started. It causes a

20 further collapse of the system.

21 So trust is something that's built up,

22 and the question is: can you understand well enough

23 the mechanisms of supporting trust to be able to
37

1 actually develop a strategy of increasing trust in

2 the institution? And the answer is, of course, yes.

3 And we can see that because practically,

4 that's what you do. You advertise, and you point

5 out the characteristics of your product or service

6 that really is competitively better, and you try to

7 emphasize your strengths, right? That's what

8 advertising really does.

9 But, again, there has to be something

10 under there. It's not just putting out a nice ad

11 and saying this is the way we are. If there's not

12 something underneath that, eventually the system

13 collapses, and again, I think the gap between the

14 time the signal is sent and it's really false, a

15 false signal, and the time the system collapses is

16 not very long. You know, it's time you start to

17 decrease the amount of reputation or trust in the

18 organization.

19 I've talked a lot in my previous work

20 about the replacement of trust between people,

21 between individuals, with trust that's based on

22 institutions, and I do think that is a general

23 process. That is, as we know less about individuals
38

1 and we don't know whether or not -- you know, we

2 haven't had a lot of repeat interactions with them

3 and the investment of time and energy in these

4 repeat interactions may be more than would be offset

5 by the gains in the relationship, we tend to rely on

6 other kinds of institutions to replace that kind of

7 trust.

8 And it's partially because of the

9 complexity of our exchanges. So if you think of

10 exchanges you do, if you just think of your average

11 day and you think of the kinds of exchanges you

12 engage in and think of the situation if you had to

13 build enough personal trust with each person you

14 interact with during the day, what that would mean

15 in terms of your time. You know, as the kinds of

16 exchanges you're involved in and the number of

17 exchanges really increases a lot, which is part of

18 what's happened in modern society, you can't

19 possibly develop those relationships quickly enough

20 and extensively enough to support the kinds of

21 exchanges you're involved in.

22 So that's led to the development of

23 institutional based trust or at least growth of that
39

1 component of trust, I think, a lot in modern

2 societies.

3 You know, will this be reversed? I

4 mean, one question you could ask is one consequence

5 of the Information Age could be that we really gain

6 so much more information, are able to gain so much

7 more information about individuals that actually we

8 could engage in more direct transactions and bypass

9 the institutional structures more.

10 I don't know if that will happen, and I

11 don't know which sectors it would be most likely to

12 happen in either. We tend still to rely on a lot of

13 intermediaries, like escrow accounts. We don't try

14 to qualify the person who's trying to buy our house

15 ourselves to determine whether or not they actually

16 can pay the money. We don't generally extend loans

17 to them, although this is actually becoming more

18 frequent because when the housing market gets very

19 bad, people will loan on their own.

20 You know, we tend to rely on these third

21 parties to guarantee transactions, but there is a

22 cost to that, and there's kind of two costs. One is

23 the direct cost, that is, someone's time and energy
40

1 is going into actually certifying all of these

2 people that engage in transactions or at least kind

3 of limiting your risk or limiting various people's

4 risk in the situation.

5 This is expensive. So it increases the

6 transaction's costs. So we're paying a lot for

7 these structures that then protect us. So it's not

8 as though, well, gee, we don't need interpersonal

9 trust anymore. Look at all of these substitutes we

10 have, but rather it's kind of a tradeoff in terms of

11 different kinds of costs.

12 There are certain kinds of costs in

13 terms of time and focus, I guess, to actually engage

14 in interpersonal trust and sort things out, and

15 there are typically financial costs to kind of

16 laying off this trust relationship onto an

17 institutional structure.

18 And then you get into questions of,

19 well, now that you've moved all these trust building

20 relationships into an institutional setting, then

21 what about trusting the institution and how do you

22 build that?

23 And, I guess, again there are a number
41

1 of different ways of looking at this. One way we've

2 looked at it on scientific teams is that on your --

3 on the team itself -- so if you're a principle

4 investigator and you have your group of students and

5 all of us are familiar with this, so I think it's a

6 good concrete example -- if you're actually a member

7 of a working team in the university, typically it's

8 all interpersonal because, you know, you're talking

9 almost everyday or, you know, very, very frequently,

10 and you are working back and forth and you are

11 working out the dimensions of the trust

12 relationship.

13 But in the very large scientific

14 collaborations which typically happen more in high

15 energy physics or in space science or some

16 geophysics collaborations or like that, where these

17 individual teams that are built up at universities

18 end up becoming interdependent in a very large

19 collaboration, then the question of how you actually

20 construct trusts becomes extremely critical.

21 Why? Because each group has kind of its

22 own mechanisms, but when they get together, they

23 don't whether to trust the other teams. And here
42

1 they are putting their cutting edge research ideas

2 on the table to try to really move this project

3 forward because they'll get the maximum out of it,

4 you know, if they put their best ideas in.

5 But there's a real risk. The risk is

6 that someone will try to publish from this

7 collaboration before they're able to publish really

8 their own ideas and their own work, their own data.

9 This especially becomes critical when the data is

10 all shared. So there is no way to really protect

11 your property rights by saying, "Well I'm going to

12 publish first and then I'll release the data to the

13 rest of the collaboration."

14 I mean, high energy physics is a pure

15 example of that, since all the data basically is

16 released at the same time to all the teams on the

17 project.

18 In geophysics sometimes you're able,

19 especially oceanography, you're able to kind of

20 segment. You have your instruments down there off

21 the ship, and you're are able to kind of segment

22 your own data a bit better, although because the

23 multi-disciplinary an area is, the more conflict you
43

1 tend to get into.

2 So oceanography actually is fairly high

3 in conflict over both allocation of time on the --

4 how much time can you have putting your instruments

5 over the side? Not all of the instruments can be

6 down at the same time. So, therefore, there is a

7 lot conflicts over who gets to collect the most

8 data.

9 In high energy physics that's typically

10 not a real constraint. So you get into different

11 kind of disputes in different projects.

12 So the question of how much you have

13 initially, socially constructive, that is the same.

14 That is the idea of, you know, the cross-discipline

15 versus within discipline. If you're inside the same

16 discipline, you tend to share a lot of the same

17 rules and ideas about how you share data and what is

18 appropriate and what our property rights really are.

19 And as you move across disciplines you

20 lose those rules. They don't apply. You're not

21 sure what the other, you know, the other team from

22 the different discipline really will think. So as

23 you move across these boundaries, you tend to be
44

1 more uncertain and you tend need to construct trust.

2

3 Now, if trust construction were free,

4 that is, if it didn't really cost anything, well,

5 you know, so what? So you just construct some rules

6 or you construct some way of working together.

7 But the argument really is that you

8 actually have to construct trust, and that it takes

9 time. Instead of collecting data or analyzing data

10 or writing your paper, you're busy trying to create

11 rules that will protect your property rights, and so

12 it takes time away from things that you value and,

13 you know, your real, you know, your real task.

14 So trust is seldom -- you know,

15 occasionally it can be the main thing you are trying

16 to do, but very seldom is it really your main job.

17 I mean, banks' main job is not constructing trust.

18 It's, you know, engaging in these financial

19 transactions.

20 So it's only -- you know, it's very

21 important to what they do, but it's not kind of --

22 their only job is kind of a side part of there work,

23 and the more they have to work on it -- and of
45

1 course, that's what exactly what they think you

2 confronted with is they've had to work on it more --

3 takes time away from their normal kind of business

4 activities.

5 MR. GARBER: Thanks.

6 Doris.

7 MS. GRABER: I'm going to look at this

8 more generically and probably much more briefly. I

9 defined a trust as confidence that expected

10 performance will take place, and that's really two

11 elements that I find very important in the creation

12 of trust.

13 The first thing is that one has

14 confidence in their several level schemata. One

15 would be individual confidence where, based on own

16 experiences that expected behavior has taken place,

17 we decide that some institution or individual is

18 trustworthy.

19 I think there is a collective aspect of

20 this where the question of confidence becomes an

21 issue of group confidence. There's also a what I

22 like to call a historical aspect to it, where one

23 has certain notions that certain -- which has more
46

1 or less historically reinforced that certain groups

2 are trustworthy or not trustworthy.

3 For instance, in this country,

4 unfortunately there's sort of a general belief that

5 politicians cannot be trusted as a group, and you

6 have to work against this sort of political myth.

7 And there are consequences which I won't

8 spell out in terms of the initial, you know, how you

9 create confidence on their personal level,

10 collective level, and on the collective myth level,

11 and how do you dispel distrust. Those variations

12 are very important, I think, in the practical sense.

13

14 The other thing, and I think that was

15 alluded to here, is the question of what is expected

16 behavior. And I think that's a very important

17 aspect, on one hand, in building trust when people

18 are not familiar with a certain situation. You do

19 have to lay down rules so that people will know what

20 to expect.

21 I think under many circumstances when it

22 comes to major institutions, and that includes

23 government as well as many major projects at the
47

1 institutions, the individual really does not know

2 what trust ought to be based on and has

3 misconceptions. So, for instance, you know,

4 in my particular field being government, there are a

5 lot of expectations about what a political candidate

6 can do or what a Congressman can do that are really

7 quite false, and people don't understand it, and

8 then they become disappointed with the performance.

9

10 And so I think in any investigation of

11 the level of trust, one needs to ascertain what

12 people really expect, and if those perceptions are

13 false, do something about these perceptions.

14 Advertisement was mentioned as one thing. The media

15 very often are involved in this, and there I think

16 we talk about a chain of trust in the sense that

17 those institutions are fine to pass on the word, but

18 they have to be trusted as well, and if they're not

19 trusted, if you don't trust the advertisement, it's

20 not going to do any good.

21 If you don't trust journalism, the

22 media, et cetera, and they publicize something, it's

23 no good. So one needs to look at the chain of trust
48

1 and who the agents are that are likely to be

2 believed by the particular community that one tries

3 to address.

4 I think there's also such a thing as the

5 overall climate of trust. There are so many

6 different institutions and there's sort of a spill

7 over from one institution to another. If you have a

8 number of experiences that indicate distrust, you

9 started out with the notion of distrust because in

10 terms of many international aspects, I think,

11 there's very good reason for distrust, and then you

12 distrust everything. The basic principle becomes

13 distrust.

14 On the other hand, that's, I think, the

15 one thing that's really favorable. People like to

16 trust because trusting is very reassuring and

17 confidence building. So once you can create a

18 climate of trust, you can ride on that a good ways.

19 So I think that's a generic approach

20 that might be useful across many different types of

21 infrastructures.

22 MR. GARBER: Rod?

23 MR. KRAMER: Thanks.
49

1 I actually I appreciated your comment

2 about the fact that people seem to like to trust

3 because I think there's some good social

4 psychological evidence of that, but I'm also

5 reminded of an essay that David Kipnes recently

6 wrote where he talks about the antipathy towards

7 trust. People have also kind of an aversive

8 reaction, having the trust or rely on institutions

9 and stuff, and I like his notion, especially, I

10 think, in terms of this Commission, because he draws

11 it out in the context of people's reluctance to

12 trust technological systems and social technical

13 systems; that there's an ambivalence towards trust,

14 which is just a side comment.

15 In terms of what is trust with respect

16 to critical infrastructures, one of the notions I

17 thought was interesting was sort of the sense of

18 fiduciary trust, the trust we have in institutions

19 to carry out their perceived obligations or duties

20 or responsibilities, and within the trust literature

21 one distinction that I think is useful there is the

22 distinction that some people have made in terms of

23 the perception of trustworthiness of institutions
50

1 and authorities, a difference between the intention

2 to be trustworthy, which is kind of a motivational

3 dynamic or inference, but also the ability to be

4 trustworthy. Can they actually do what they say

5 they can do?

6 And I think in some ways with respect to

7 many of these kinds of infrastructures, that's where

8 the public needs to be reassured, that in fact,

9 regardless of the intentions of people, which are

10 always good, can they actually do what they say they

11 want to accomplish.

12 And my favorite example of that, I

13 guess, is I remember when I was doing my

14 dissertation on the arms race, I used to

15 occasionally hear these references to studies about

16 the survivability, for example, of the postal system

17 in a post-nuclear environment and that mail would be

18 delivered. It would be slower, but it would be

19 delivered, and it just was very hard for me to

20 imagine scenarios --

21 PARTICIPANT: It might be glowing.

22 MR. KRAMER: Yeah. I mean when you

23 really try to visualize it, it was very hard to do,
51

1 despite the rosy, optimistic reports of how through

2 snow, sleet, and nuclear snow this would happen. So

3 I just wanted to make that one point about the sense

4 of ability to be trustworthy as an important

5 dimension, which maybe has not been looked at

6 enough.

7 CHAIR CULNAN: It's all because David's

8 science fiction, you know, about carrying the mail.

9 MR. GARBER: Roy, I think you're next.

10 MR. LEWICKI: Yeah, Dan, Bob, and I did

11 a paper this fall where we tried to grapple with the

12 question of what trust is and some of the research

13 that's been done, and we defined trust picking up

14 very much on some of the terms that you used, Doris,

15 as an actor's confidence in and willingness to act

16 on the basis of the words, actions, and decisions of

17 another.

18 And I think for us there were two

19 things, again, that were critical in that

20 definition. One was confidence and a sense both in

21 a cognitive sense of predictability and an emotional

22 sense that you could sort of believe it was going to

23 happen, that it was going to occur, and a
52

1 willingness to base one's decisions on that

2 confidence.

3 So it's not only that I have some both

4 thoughts and feelings about predictability, but I'm

5 willing to act on that.

6 We saw, I think, something that we've

7 begun to grapple with and tried to struggle with in

8 the paper, which was that we see distrust as

9 somewhat different from and not necessarily just the

10 opposite of trust, and this is something that we're

11 struggling with and trying to understand.

12 We defined distrust as skepticism in and

13 unwillingness to act on the basis of the words or

14 actions or decisions of another, but I think in

15 spite of the fact that that may sound like it's just

16 on the negative end of the trust dynamic, that trust

17 and distrust, we think, are phenomenologically a bit

18 different, and it's one of the issues that I'd like

19 to pursue because of what I tried to grapple with in

20 my own little contribution here, which I think that

21 there are things that you can do to build trust, and

22 I think that there are things that you can do to

23 decrease distrust, and I think those are quite
53

1 different from each other.

2 And the impact, therefore, of where you

3 put your resources and what you worry about may be

4 to make some very key, strategic decisions and

5 choices.

6 CHAIR CULNAN: There's, in fact, a great

7 infrastructure example for that, that most people

8 expect the lights to come on when they flick the

9 switch, but how many people here have an alarm

10 clock, an electric alarm clock with a back-up

11 battery in it? Which doesn't say you don't have

12 confidence in the electricity, but, hey, it goes

13 off, and you want to get up on time.

14 So I think that sort of shows the --

15 MR. LEWICKI: The duality, yeah, and I

16 mean, we reviewed a lot of research, and I know

17 there's a lot more out there, that tries to grapple

18 with the question of what is trust and are trust and

19 distrust different from each other.

20 We think they are a bit different, and I

21 think it may be important to talk about them

22 differently as we begin to explore some of the

23 issues about how people feel about infrastructure
54

1 questions.

2 MR. GARBER: Dan.

3 MR. McALLISTER: Two quick comments.

4 One, I'd like to building off Doris' comments,

5 confidence and the expected performance, which

6 brings me back to Morton Deutsch's comment that

7 trust is the expectation that we will find what one

8 had hoped for rather than what one had feared.

9 If there's one thing we know about human

10 nature, what is to be human is to err, and in that

11 sense, which would you rather be trusted, in the

12 expectation that you would always deliver or in the

13 expectation that there would be grace when you

14 failed?

15 And trust builds into it the expectation

16 of imperfection, an expectation that somebody will

17 not deliver, and in that moment there is a benefit

18 of the doubt component, and that trust is linked not

19 so much in the expectation of performance, but the

20 judgment and the decision that will be made when

21 somebody doesn't deliver.

22 A scholar by the name of Rheabietzme

23 (phonetic), is his first name, but in 1962 he had a
55

1 nice measure of trust that included my boss, when he

2 makes decisions that don't appear to be in my best

3 interest, I know that they're driven by other

4 factors, as a nice element of a measure of trust

5 that moves us a little in a different direction.

6 The other comment that I'd like to make,

7 I am not a parent. I'm sure that there are quite a

8 few here who are, and I have been learning about

9 parenthood by studying trust. It's interesting.

10 (Laughter.)

11 MR. McALLISTER: It's interesting to

12 think --

13 PARTICIPANT: Which direction?

14 (Laughter.)

15 MR. McALLISTER: It's interesting to

16 think about what a secure attachment between the

17 child and the parent is. That is the child who sits

18 in the room and isn't nervous when the parent leaves

19 the room. It's the child who when the parent

20 returns to the room doesn't cling. This is the

21 child who can explore, be creative, and play and can

22 build attachments with others.

23 That is a trusting individual, and as
56

1 parents we want to nurture that sort of capacity in

2 our children, but one thing we don't want to do --

3 at least I'm extrapolating here -- is to create a

4 child who would trust all of the time. Also as

5 parents we would not want to trust the child in

6 everything. There are certain parameters and

7 domains, of course; there are things in which we

8 wouldn't want to trust.

9 I think of Nick Luhmann's comment that

10 trust is the positive expectation of the desired and

11 distrust is the positive expectation of the

12 undesired, and where there are certain areas where

13 you know your child isn't trustworthy, that's a

14 positive expectation of undesired. You put

15 boundaries on that. You create a domain in which

16 you can trust the child.

17 We bound the rationale, using Herb

18 Simon's term, and we create a domain in which we

19 expect and we understand that people will behave

20 rationally.

21 The challenge is to understand how as a

22 parent we can create a child who trusts as much as

23 possible, but knows when to catch the signs and to
57

1 distrust. Distrusting becomes so important because

2 trust is so important, and because we want to create

3 a society, a context within which people can trust

4 and trust well, we have to prepare them to know the

5 signs so that they can know when the positive

6 expectation of the undesired is, not to always be

7 vigilant, but to put in control so that vigilance

8 can be set aside and they can move ahead on the

9 trust side.

10 MR. GARBER: And I lost track between

11 David and Bob, but whichever.

12 MR. GEDDES: Let me add a few comments.

13 Lynne stimulated some thoughts based on the banking

14 industry, some thoughts from the private sector

15 perspective.

16 Local telephone companies have a

17 tremendous amount of trust. We have some questions

18 we've been using over the past couple of years that

19 mimic the GSS questions and really the level of

20 trust is at the highest levels you had at the very

21 beginning of the GSS.

22 And when we look at why this may happen,

23 I think Rod mentioned this kind of fiduciary, you
58

1 deliver what you're going to deliver. Dan mentioned

2 that as well.

3 Basically it works. You pick up the

4 phone; it works. You flip on the light switch; it

5 works. There's a tremendous amount of trust

6 engendered by that, as well as local presence. You

7 see repair trucks. When there's a storm, service is

8 restored very quickly.

9 It's interesting, however, at the same

10 time over the past decade, as you all know, there's

11 been a tremendous amount of what I think we could

12 probably honestly call a con game, which is the long

13 distance advertising or, depending on where you

14 live, you have seen or will in the very short future

15 see a lot of the same thing appearing in local

16 telephone advertising.

17 We know from research, and we follow

18 this very closely for obvious reasons that people

19 discount this and they recognize it for the con game

20 that it is, and they look to the underlying

21 fundamentals and discard the mud slinging, which is

22 seen as like political campaigning, and why couldn't

23 we get rid of this?
59

1 There's an interesting trust phenomenon.

2 One of the big fears of the established, the

3 incumbent local telephone companies is that new

4 entrants to the business come in as resellers. They

5 buy your services and package it and sell it under

6 another name, and that this will bring down public

7 confidence in the whole system even though it's the

8 existing providers that are delivering the

9 fundamentals.

10 I can assure you we do spend a lot of

11 time within more strategic marketing issues within

12 the phone companies, and they operate, and I've seen

13 this in a number of companies, they operate on the

14 belief that there is long-term trust to be built,

15 and they spend time advertising and marketing.

16 Now, the question that Lynne raised is,

17 you know, bankers are supposed to be the silent

18 partner who delivers the services. You know, should

19 they be spending money reminding you that your

20 telephone does work? Within the industries, they

21 tend to believe that it is valuable because they

22 will argue, "Let's look at the long-term value to us

23 of the customer. So we spend advertising and
60

1 marketing."

2 Yet from another perspective we could

3 say, "Let's get rid of the advertising department

4 and spend the money on building reliability in our

5 phone networks."

6 MR. GARBER: Is your comment a direct

7 follow-up to this one? I don't want to break the

8 chain of thought if it is.

9 MS. ZUCKER: It is because he's

10 addressing exactly the issue that I think was raised

11 with the alarm clock example, which is: how much

12 does it cost and how much are you willing to pay for

13 it?

14 Because a lot of what we're talking

15 about, you know, again, you have to be very careful

16 because building this trust does cost something, and

17 at least in terms of activities that you're not

18 engaging in that you would have been doing had you

19 not been building trust, even at that level.

20 But, you know, what you also have to

21 realize is that banks, even if you cut out the

22 advertising budget totally, what they do is they

23 hire economists to talk to clients, right, since we
61

1 do some of this, to talk to clients to basically

2 reassure them that the bank is making very good

3 decisions.

4 MR. GEDDES: They do the equivalent of

5 over engineering their network.

6 MS. ZUCKER: Exactly, exactly.

7 MR. GEDDES: And is that a good

8 investment of the money.

9 MS. ZUCKER: Right, and then the other

10 question that you raise, which is very important and

11 I want to make it explicit, is who should pay. You

12 know, if advertising cost, everyone bears it, what

13 about government? What role should it be?

14 You know, Michael and I were talking

15 this morning kind of about the elasticity idea that

16 we didn't really talk about in the paper, but, you

17 know, who should be in that business and how much

18 should be invested in constructing trust or, in the

19 case of one of the forms of it that's especially

20 governmental, is insurance. You know, how much

21 should the government be in the insurance business?

22 And is it really -- it's kind of the deep pocket

23 insurance problem.
62

1 So anyway, I'll leave it at that, but

2 those are the two issues I wanted to raise.

3 MR. BIES: Frank Crane had a great

4 quotation. He said you'll be deceived if you trust

5 too much, but you'll be in constant torment if you

6 don't trust enough. So there's that sort of curious

7 balancing act.

8 One thing that Rod said that's going to

9 take me back to something Doris said, talking about

10 intention of capability. One of the things that

11 makes the issue interesting to me is when there are

12 these performance failures, whether system failures

13 or something breaks down. Then it becomes

14 interesting politically, socially, and there's

15 always two questions that cross people's minds when

16 a failure occurs. Why? And how does it affect me,

17 or does it affect me?

18 And if it doesn't affect me, I'm

19 probably not going to worry about it, outside of

20 general sympathy for the people that are affected,

21 but the why question is important.

22 And one of the things we're going to

23 look at to go into the intention capability: was it
63

1 an act of God? Was it an act of terrorism, which

2 seems to have motivated much of this Commission? Or

3 was it a set of human errors, sort of normal

4 accidents that get created?

5 So they're going to ask that question in

6 terms of who did it. I mean all of the lawyers say,

7 "Who did it?"

8 But another question they're going to

9 ask about the capability issue is: should they have

10 known? Should they have anticipated? Okay. We're

11 going to ask that question.

12 My feeling is that people have the

13 expectation that government is all knowing; business

14 is all knowing. Business should have anticipated.

15 My colleague, Roy Lewicki, says he's

16 working on the computer on a paper. Okay? The

17 electricity goes out in Columbus, Ohio. Okay?

18 Well, geez, you know, they should have let me know

19 about five minutes in advance they were going to cut

20 off the power.

21 I mean I think we have high expectations

22 when there's failures that you should be

23 instantaneous. When my phone system goes down, my
64

1 electricity goes down, I want them there right then,

2 and they should have anticipated it.

3 I think that's the thing we're going to

4 have to think about, is the role of the expectations

5 that you should have known.

6 The other thing, just to add on to

7 something Dan said and Roy said, was I think

8 actually you should be both trustful and distrustful

9 in engaging in everybody. You see, part of the

10 issue with my daughter, to go back to parental

11 upbringing, is I want her to be trusting, but I also

12 want her to survive in the world, and she's going to

13 have to be distrusting.

14 It's hard to teach distrust until

15 there's trust violations, but you have to have both,

16 and you have to be a little more skeptical. Okay?

17 So it's the trust and distrust. Both can coexist

18 and make sense to me.

19 If I'm going to do electronic commerce

20 or do business, I want to be trusting and

21 distrusting.

22 MR. GARBER: Joe?

23 MR. MOORCONES: I had a question, and I
65

1 think when the discussion went around the room we

2 talked about institutions and we talked about

3 individuals, talked about prime investing resources

4 to build trust to be able to do things, and then

5 institutions as part of their job building trust,

6 individuals having transactions.

7 My question is: does trust have a time

8 frame? And if it does, does it vary for individuals

9 and institutions? And what can break it or change

10 that time frame if that's what you have, if it is

11 dependent on time?

12 And I don't know who to ask the question

13 to.

14 CHAIR CULNAN: Just lob it out there.

15 MR. GARBER: It's on the floor.

16 CHAIR CULNAN: Or we could keep going

17 and then somebody can come back and respond.

18 MR. GARBER: Doris.

19 MS. GRABER: It seems to me, yes, it

20 does have a time frame both in terms of building

21 trust and in terms of violations. So, for instance,

22 what's that poem about fool me once, you know, it's

23 okay, and fool me twice, you know, I'm stupid.
66

1 We have certain rules. At what point?

2 I mean we forgive certain kinds of transgressions as

3 whatever the error, but beyond that we don't go.

4 Then in terms of building trust, you

5 aren't going to build trust on the basis of just one

6 single experience. You have to have a number of

7 experiences. I think there are individual

8 variations.

9 So, for instance, we've talked about

10 kids, and kids tend to build trust very quickly and

11 also tend to be very disappointed. So you have a

12 kid that will go with some guy who says, "Help me

13 find your lost puppy," because that seems

14 trustworthy if anybody has a puppy. Yet the kid,

15 you know, breaks down in tears if the toy doesn't

16 perform the way he thinks when he's trusted that the

17 toy will behave the same way.

18 I think for grownups it tends to be a

19 longer period of time. I think there's also a

20 social psychological factor there. In terms of

21 institutions, I think it's the same thing. Before

22 you trust a brand name, for instance, it takes a

23 while to soak in.
67

1 Now, I would think that those limits

2 vary with individuals, with the type of institution,

3 with the ease of getting experience whether or not

4 expected performance will take place, and I also

5 think there's, again, a certain cultural kind of

6 thing. I know, for instance, I travel a lot, and in

7 many countries. Like, for instance, you go to

8 India, and people don't want to buy bottled milk

9 because they're afraid that it's going to be somehow

10 polluted. So the vendors bring the cow to the front

11 door and milk it right then and there so that you

12 can see it's not been diluted. So there's extreme

13 distrust of people's honesty.

14 And I think we can trace it in different

15 countries and how long it takes to establish trust

16 there I don't know, but I'm sure it's time bound.

17 MR. GARBER: Michael.

18 MR. DARBY: I wanted to talk a little

19 bit about banking and trust there. We had the power

20 example, and people are upset when their power

21 company fails, but it's even more upsetting, as some

22 of us in the West have been living through recently,

23 when there's a systemic failure, when the failure of
68

1 one company leads to the failure of a bunch of other

2 companies, and we have a large geographic area

3 without power.

4 And we see this same sort of thing in

5 banking. Sometimes one fails. In the Depression we

6 had many failing. The Panic of 1907 led to the

7 creation of the Fed. so that that wouldn't happen,

8 and then the Fed. didn't do its job.

9 In the '80s, we had the thrift

10 institutions failing not because they invested in

11 each other, but from a common cause of the rise in

12 interest rates, so that their liabilities fell in

13 value faster than their -- excuse me -- the value of

14 their assets fell faster than their liabilities. So

15 they were generally going bankrupt.

16 That crisis led to a drop in confidence.

17 In terms of the question about banks and financial

18 institutions and GSS, the '72 to '82 average, 34.9

19 percent had a great deal of confidence. By '83 to

20 '87, and only 12.5 had hardly any. By '83-'87, that

21 was down to 25.9 and up to 15.2. By '88 to '91, it

22 was down to 19.4 and up to 22.7.

23 So it's coming back now. By '96, we
69

1 were a little over 25 percent and back down to 16.8

2 on the hardly any side. So there is rebuilding.

3 But the fears among central bankers of

4 systemic collapse of the system are real. I

5 happened to be in a position in 1987. I was

6 Assistant Secretary of the Treasury for Economic

7 Policy, and during the October '87 crisis, I was in

8 charge of the derivative markets for the Treasury

9 because I was the only one who had ever invested in

10 them or understood them.

11 (Laughter.)

12 MR. DARBY: There are a few of us left

13 who weren't going shooting in Sweden.

14 And it was sort of interesting because

15 here you had all of these financial groups setting

16 up, you know, anticipating, if you will, failure.

17 So they set up lines of credit, five billion, $12

18 billion line of credit so that they have offsetting

19 positions. They're making $6 billion over here, and

20 they're losing $6 billion over there. So their net

21 worth really isn't affected as long as all of the

22 transactions actually come through, and eventually

23 they all did come through.
70

1 But first there was a mismatch of

2 timing. So they needed to come up with $6 billion

3 margin two hours before they were going to be paid

4 $6 billion margin on another exchange. So that was

5 one issue.

6 And then there was the issue for the

7 banks of whether or not they should actually fulfill

8 their commitments under the line of credit. Should

9 they advance the $6 billion without which the

10 Chicago Mercantile Exchange might fail?

11 And so they had, you know -- they were

12 talking to officials like me, and I was saying,

13 "Yes, Brokerage X, all famous, is good for it."

14 Now, I wasn't authorized to give the full faith and

15 credit. If they went against my house, it wasn't

16 going to help much, but they bought it, and they

17 delivered, and you know, we were going through about

18 12, 14 anxious hours as to whether or not we were

19 actually going to complete these transactions. As

20 long as they were completed, everybody was okay, but

21 if somebody got cold feet and said, "Well, I just

22 want to make sure that you're still meeting the

23 covenants and restrictions before I advance these
71

1 funds," then we went down the tubes.

2 So anyway, that's the reason that we

3 still have these systemic concerns today, I think,

4 among central bankers. Having lived through that

5 period, as Alan Greenspan did, we're all left

6 feeling that it's not as perfect as it looks, and we

7 want the public to think it is.

8 MR. GARBER: I think before we break

9 we'll hear from Roy, and then we'll take a short

10 break, and we'll continue on with the discussion

11 because I think we're getting into other issues than

12 just the first question. So I'm very comfortable

13 with where we are on the agenda.

14 So, roy.

15 MR. LEWICKI: I just want to pick up on

16 something that Bob said, and I hear it in some of

17 the comments Michael made before. I think there's a

18 difference. Bob said the quest is for sort of

19 what's the cause or who did it, and as I tried to

20 say in the little introductory piece that I wrote, I

21 think there's a fundamental attribution question

22 that gets raised when we ask that question.

23 And the way I see it is whether the
72

1 failure was controllable or not controllable because

2 I think the emotional response is very different.

3 To go back to Bob's example, which was

4 the other night I was sitting at the computer, and

5 the power went out, and the whole street went out,

6 and I lost what I had been working on for about

7 three hours. Now, if I'd been sitting in Eastern

8 Europe, I would have been backing that up every 15

9 minutes, okay, because my experience in Eastern

10 Europe is that that's a regular event, and in

11 Columbus, Ohio, it's not a regular event for the

12 power to go out.

13 So in the first place, it shapes my

14 expectations. The second is that when I expect it

15 to perform and it doesn't perform and my attribution

16 is this is management incompetence or they don't

17 know how to run a simple power company and keep the

18 power going through the grid, my response is anger,

19 and when my response is anger, okay, it affects my

20 trust level.

21 On the other hand, if this is an act of

22 God, if this is sort of an uncontrollable

23 circumstance, my response is fear, and I think that
73

1 affects my distrust level.

2 And so I think how we decide or how we

3 account for what's going on in terms of whether it's

4 controllable or uncontrollable and my own emotional

5 response, anger, fear or perhaps a mixture of the

6 two, has a lot to do then with what drives the trust

7 and the distrust dynamics.

8 And as we get into this, I hope we could

9 begin to maybe think about those two alternative

10 scenarios and maybe look at the consequences of

11 exploring each.

12 MR. GARBER: Okay. Well, it's time for

13 our break, but before we do, I would like to

14 recognize Paul Kleindorfer, who joined us from the

15 University of Pennsylvania.

16 Paul, if you want to give a brief 20

17 second introduction to your --

18 MR. KLEINDORFER: Critical

19 infrastructure failed me this morning. Our train

20 was --

21 (Laughter.)

22 MR. KLEINDORFER: -- was held for an

23 hour in 30th Street station, and I guess the only
74

1 other thing I'll say is that when I told my wife

2 what I was going to, she said, "You know, the last

3 thing I need on this planet is for the telephone or

4 the electric power to start criticizing me when I

5 turn it on."

6 (Laughter.)

7 PARTICIPANT: That sounds like it's

8 grounded in fear.

9 CHAIR CULNAN: But also you've got

10 different backgrounds here. You might point out

11 your background is in risk management.

12 MR. KLEINDORFER: I've spent most of my

13 adult life studying utilities and managerial

14 economics and regulatory issues. I've most recently

15 been dealing with catastrophic risk and their

16 consequences for risk bearing capabilities.

17 Californians are quite interested in this,

18 Floridians, and so forth, but there's obviously an

19 intersection between those that is of interest to

20 this group.

21 MR. GARBER: Okay. With that, let's

22 take 15 minutes. About ten to 11 if we could

23 reassemble.
75

1 (Whereupon, the foregoing matter went

2 off the record at 10:35 a.m. and went

3 back on the record at 10:57 a.m.)

4 MR. GARBER: If we could resume please,

5 as we drive along toward our lunch break and

6 whatnot.

7 I think we had a great discussion before

8 the break, and I don't want to lose that momentum

9 that we had. Bob, I think you probably were the --

10 MR. BIES: No, I think actually Nancy.

11 MR. GARBER: Well, Nancy took her sign

12 down. So I didn't know whether that meant she

13 wanted to eat or wait or whatever it was.

14 MR. BIES: Well, I'll make it brief. In

15 response to Joe's question, he said does trust have

16 a time frame. Again, I'd like to frame it

17 differently. Does distrust have a time frame,

18 again, getting back into this sort of failure frame?

19 And I think for some it probably does.

20 I mean, if I have a really bad event, I won't touch

21 the system anymore, but there's a couple of things

22 that remind me that maybe we overreact, that

23 distrust is really short-lived.
76

1 We recently had James Varney, the

2 founder of AOL, come here, commencement speaker, and

3 he talked about their 18 and a half hour outage, and

4 that now they have more subscribers to AOL than they

5 had before. He didn't recommend it as a marketing

6 strategy.

7 (Laughter.)

8 MR. BIES: But he had more subscribers.

9 A plane crashes. There is a drop in

10 confidence. Okay? Insurance sales go up, but

11 people go back and fly.

12 So I think that there's ways you can buy

13 people back. You can create incentives to get

14 people back to play the system, but also one of the

15 things that struck me in Roy's example is he had no

16 other choice, I mean, dealing with the electrical

17 company in Columbus. It's a dependency-power thing.

18

19 If I have choices, I may act out my

20 distrust, but if there's only one game in town, what

21 am I going to do? I may be distrustful and build in

22 ways to protect myself, but I have no choice. I

23 have no choice at all.
77

1 So I think that's part of the game. If

2 we have some alternative carriers, then maybe I can

3 play the game out.

4 CHAIR CULNAN: Right. I mean how many

5 people are flying Value Jet still?

6 (Laughter.)

7 MR. BIES: How many people flew Value

8 Jet before?

9 CHAIR CULNAN: Right.

10 MR. BIES: There's no baseline data

11 here.

12 MR. MOORCONES: I have some data. My

13 daughter just flew Value Jet to come up to

14 Washington, and her analysis was, "My God, if they

15 got them back up again, it must be the safest

16 airline in the world."

17 MR. GARBER: Well, I had the same

18 opinion with U.S. Air, a little bit more established

19 airline that had some disasters and whatnot, and my

20 opinion was -- my travel agent said, when I said,

21 "Hey, I'd like a U.S. Air flight," they said, "Well,

22 you know, you're the only one that's asked for that

23 recently."
78

1 And I said, "Well, you know, they

2 probably are being far more careful at this stage in

3 checking their maintenance and their operations than

4 probably some of these other folks who may not have

5 stepped their business up to the level that they

6 have to because one more time, we get to the

7 elasticity issue and there are choices there."

8 And one more disaster, you know, could

9 doom the airline, as it did, you know, some

10 predecessors. Allegheny Airline, which some of you

11 may recall around here, had a series of disasters,

12 and essentially, you know, that became U.S. Air, but

13 they had to change their name and change the brand

14 and buy Piedmont and everything else to do that, but

15 it was quite a deal.

16 MS. GRABER: Would you go back to your

17 broker after he lost all of your money for you? I

18 think it depends.

19 MR. GARBER: I think it depends. I

20 guess a different thing is do you sell your mutual

21 fund after it goes down for a year, and it's a

22 question of, well, you know, it's done. Now where

23 do I think it's going to go now, which is the same
79

1 airplane thing. I mean, the crash is done, and

2 what's my expectation of what's going to happen on

3 the next flight? And if I think the next flight is

4 going to be safer or the next year, because of the

5 niche that the fund or stock invests in or the

6 broker is expert in is going to be the hot issue, if

7 that's my expectation, which goes back to some of

8 the other discussion here in the room, I think I

9 would stick with it.

10 I mean I have done that, and sometimes

11 it works and sometime sit doesn't.

12 MS. GRABER: Well, isn't it a question

13 of achievable competence? If you figure that there

14 was a slip-up and somebody was incompetent like on

15 an air craft, but now, you know, the government is

16 going to check and make sure that all of the

17 standards are met, so it's going to be okay, on the

18 one hand. Yet, you know, my broker example, if the

19 guy's just dumb, he can't do it, and I can't trust

20 the guy or he's dishonest or whatever, and so I

21 think, I mean, there is a difference in whether or

22 not there's a recovery in something where there's a

23 choice.
80

1 When you have no choice, if it's just

2 one carrier, there's nothing you can do, and then I

3 think you tend to think it's probably trustworthy

4 because it's very uncomfortable to think I'm flying

5 on this airline, and you know, it's very likely to

6 crash. It gives you stomach cramps.

7 MR. GARBER: Ray.

8 MR. HIEBERT: I want to come back to a

9 different point that Doris made earlier about

10 culture because I think culture is a very strong

11 component to both trust and distrust.

12 Having spent the last six years going to

13 Eastern Europe very often, I found a whole culture

14 there that has no trust whatsoever in anything,

15 especially government, even the former or even the

16 current government, and no trust in the new business

17 enterprises, as well, no trust in the telephone, as

18 David mentioned.

19 Earlier I spent a lot of time over a 15-

20 year period in Africa, and another place where the

21 level of trust is nearly zero on the part of people

22 in any institution whatsoever, and in both places

23 even on a personal level, not very much trust.
81

1 So that leads me to wonder what it is

2 about the larger society that creates these kinds of

3 environments. I think in the case of both African

4 and communist countries the dominance of one

5 particular party or the dominance of the government

6 over all public dialogue and public exchange certain

7 didn't build confidence and trust in those

8 societies. It destroyed it.

9 That leads me to think that another

10 thing that's come out a little bit here is the fact

11 that options and choices and competition actually

12 help trust, help develop trust in society because we

13 can make choices between what we think is good and

14 what isn't.

15 Another thing is shared perceptions

16 about the world. Looking around this table, I would

17 say that all of us pretty much share the same

18 perceptions about where we are and who we are, what

19 our society is all about, but increasingly those

20 kinds of perceptions are not shared by a lot of

21 people in our own society.

22 We're becoming increasingly a multi23 cultural society, and large parts of what we call
82

1 America have completely different perceptions from

2 those of us who are sitting around this table.

3 Maybe some of you saw this morning's

4 Washington Post article on the front page of the

5 Style section about a lawyer, professor of law, G.W.

6 here in Washington, a black lawyer, a very

7 accomplished black lawyer, graduate of Yale, Harvard

8 Law School, former federal prosecutor in Washington,

9 now a professor of law, who is opening espousing the

10 fact that black juries should free black people on

11 trial, that because the system is wrong, because the

12 perception of blacks about the justice system in

13 this country is completely different from the

14 perception of justice by the rest of us sitting

15 around this table and those cultures that we

16 represent.

17 It's a real cross-cultural problem that

18 I think is going to only become greater in our

19 society, and I think that what we need are people

20 who understand the problems of communicating across

21 cultures, bringing cultures together, but also

22 interpreting one culture to another, and this is

23 where I think public relations can come to play, but
83

1 that's another aspect of what I want to talk about,

2 and I'll save that for later.

3 MR. GARBER: Paul.

4 MR. KLEINDORFER: Just to follow up

5 briefly on some thoughts raised in addition to the

6 perspectives of anthropology, cultural anthropology

7 and sociology, those of economics, and perhaps point

8 to my own favorite biases in this direction relative

9 to trust, but certainly building on, I think, the

10 shared comments about these are beliefs or confident

11 beliefs, that is, trust is, that you can expect some

12 behavior of an institution or another individual. I

13 think that forms the core of what we've heard here

14 this morning.

15 What, in fact, makes trust so

16 fascinating from an economic perspective is, indeed,

17 that it does clearly intersect very strongly with

18 social and cultural foundations of society. We

19 take, for example, the works of Max Weber on the

20 Protestant ethic and what really gave rise to the

21 success of Protestantism. In other societies that

22 he looked at he had similar conclusions that these

23 shared values and shared experiences were extremely
84

1 important in allowing people to have expectations

2 mutually about what their colleagues were going to

3 do in certain situations.

4 And that view assisted them in not

5 having to write what we would perhaps consider to be

6 Jesuit order blanks or what economists call

7 neoclassical contracts that account for all possible

8 contingencies. If you had to do that, all society

9 would stop.

10 So it's very interesting. Georg Simmel,

11 for example, talking about one of the most important

12 institutions of modern society, "goeut" (phonetic),

13 money, brought clearly the issue of trust to the

14 fore and indicated that without this, without the

15 trust that, in fact, you know, these little pieces

16 of paper that we carry around and so forth are going

17 to be -- in Michael's interesting story about

18 banking and derivatives, of course, there was a

19 little bit of a counterparty risk -- but money has

20 got counterparty risk, too, and someone we manage as

21 a society to trust that this institution, and

22 extremely important institutions, that the monetary

23 system will work.
85

1 We can go through a number of others,

2 but I think that core suggests that this is a very

3 interesting and multi-disciplinary undertaking to

4 understand this.

5 Now, if we focus on infrastructure,

6 which is an area I've thought a lot about over the

7 years, perhaps the most important economic

8 characteristic associated with trust -- and as Doris

9 was explaining -- confident expectation that you're

10 going to see one or another outcome, is that certain

11 investments are made in lifestyles, habits are

12 formed, and so forth, and they're formed on the

13 basis of those, and even if you take a narrow

14 economic perspective, these have very distinct

15 economic costs.

16 So if I do not expect my electric power

17 system to work very reliably, and it's important to

18 me that it does work reliably, that I have reliable

19 power, voltage, frequency, whatever, I will, in

20 fact, install at cost, at some cost to myself,

21 certain additional capital investments that are

22 required.

23 Similarly, the same is true with respect
86

1 to all other infrastructures. We not only have

2 expectations about what they will do, but we

3 actually, as was indicated in several earlier

4 comments, we actually undertake behavior as real

5 economic consequences based on this.

6 And so I think the most important thing

7 about trust from an economic perspective and

8 critical infrastructure and, let's say, disruptions

9 that might arise from various acts of God or other

10 acts, other disruptions in the system, is to take

11 this two-phase or perhaps three-phase model into

12 account and say that these expectations cause

13 economic actions to be undertaken both individually

14 and in groups.

15 But then, secondly, we see that people

16 on the event, when certain events occur, will, in

17 fact, undertake other actions immediately upon those

18 events occurring, and they will do this based on

19 their understanding and their expectations about the

20 principled behavior, the prudent behavior, what's

21 likely going on out there in the infrastructure.

22 They will do that, and they may be wrong. They may

23 have confident misperceptions about these matters.
87

1 And then after the fact, there will be

2 blame or there will be responsibility attributed,

3 and people will adjust their beliefs.

4 And so, for example, you take certain

5 airline accidents. People quickly get over them.

6 They say, "Ah, yes, it was, you know, like the

7 Denver accident. A triple failure in all of the

8 systems. It's been explained. I can understand

9 this. I can see how it could have happened. Act of

10 God. No reason not to fly, you know, United again,"

11 right?

12 But the Value Jet case there were

13 certain things uncovered as part of that that

14 suggested a more sinister underpinning to that

15 particular accident, and therefore the ex post, the

16 third stage of this gave rise to other issues.

17 I think what we see -- just generally

18 I'm looking forward to exploring this over the

19 course of the day and perhaps following up on the

20 issues that were just raised -- is that trust and

21 critical infrastructure have different implications

22 depending on where one is.

23 I'll just provide a two-dimensional grid
88

1 based on listening to what I've heard here. On one

2 dimension, one can think of decisions that are

3 primarily private decisions all the way to results

4 that are primarily public. Think of this as the

5 character of the good that's being provided.

6 Now, in electric power, for example, the

7 normal thing is a private good, but reliability and

8 the reliability of the system and the integrity of

9 the system becomes more of a public good. It's not

10 quite a public good, but it is more of a public

11 good.

12 You get into issues associated with

13 defense as a part of the infrastructure, and it's

14 almost a pure public good. You cannot provide it to

15 anyone without providing it to all. So that's one

16 axis.

17 And on the other axis, the issue that

18 Ray was just indicating: how easy is it to

19 establish and monitor trust, and what are the

20 drivers of that ease? Let's call it the social

21 clarity of the trust relationship.

22 And if there's competition, if it's a

23 very simple issue that you're dealing with, you
89

1 know, postal services, we think we understand what

2 it means to put a stamp on, collect the mail, get

3 sent somewhere. That's a different matter than,

4 let's say, nuclear power or something of this sort,

5 but what is the ease with which?

6 Now, where we really have problems in

7 critical infrastructure in terms of the economic

8 decisions are in those areas in which you move to

9 the far right in that two-dimensional picture I hope

10 I've evoked for your eye. It's those areas where

11 it's difficult to monitor, to establish and monitor,

12 trust because even the phenomenon is complicated or

13 for other reasons that social psychologists or

14 others may put on the table before us and where it's

15 primarily a public good.

16 If it's private and it's clear, then we

17 say, "Hey, that's your responsibility. If you don't

18 like what you're getting, go out and get something

19 else. I mean it's your personal responsibility to

20 assure that you're getting what it is that you

21 want." It's a private good. You're getting the

22 value that you're paying for it. You understand it.

23 It's simple enough to establish and maintain trust.
90

1 A lot of competitive alternatives out there; pick

2 one. Don't come complaining to me, right, the

3 President's Commission on this matter. We want to

4 worry about things which are more difficult.

5 So I think if you think about the

6 economic consequences in this way, you'll see that

7 they really are primarily in that right-hand

8 coordinate where things are more difficult to

9 establish and maintain and where they have more of a

10 public character to them.

11 And what that is, we could perhaps take

12 up in the course of the discussion.

13 MR. GARBER: Thanks.

14 Tom.

15 MR. TRIPP: When I think about the time

16 frame of trust and especially distrust, and I was

17 thinking about some of the cultural implications,

18 the word "expect" or "expectations" confuses me, and

19 when I think of I trust someone, I expect them to do

20 something. That can mean one of at least two

21 different things. Either I predict that you will or

22 I demand that you do, which can be very different.

23 One tends to be normative in terms of
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1 making sure that people follow social norms, and the

2 other tends to be sheer prediction.

3 With that distinction I can think of it

4 would be possible to say that if I'm talking about

5 prediction, I can fully trust a Machiavellian. This

6 person is simply out for his or her own interest,

7 but, you know, they're pretty simple in character.

8 They're reliable. I can predict what they're going

9 to do. Does that mean that I trust them?

10 Okay. Most people would say, "No,

11 that's not what I mean by trust." So there's sort

12 of this normative component to trust, and what that

13 raises for me then when we're talking about building

14 trust, we're talking about building predictability,

15 simply building reliability so people can plan their

16 lives, or are we talking about making sure that

17 people follow norms?

18 Now, on the infrastructures, how do

19 these norms develop? We've talked a little bit

20 about predictability, but how do the norms develop?

21 And I think about the Internet and

22 computers, and part of this is a power issue because

23 we still have choice, but why are the norms so much
92

1 different for that industry, which is horribly

2 unreliable. I mean, we wouldn't tolerate these

3 number of failures from virtually any other

4 industry, but we do in the computing industry.

5 We expect, yeah, my computer is going to

6 crash once a day, you know, and deal with that.

7 Now, part of that, supposedly I have choice.

8 Typical industry is kind of the same, so I may not,

9 but you know, as the Internet develops and it

10 becomes less archaic and the regulation starts

11 getting involved, then how do we manage those types

12 of norms, and exactly what are we talking about?

13 I don't know if I have a clear question

14 or a clear answer, but that distinction or the lack

15 of that distinction confuses me.

16 MR. MITCHELL: I think Tom anticipated a

17 comment I was going to make, but I'm having an

18 awfully good time taking some of the observations

19 that are being made around the table and thinking

20 about them in terms of the two charges that were

21 given the Commission.

22 One is to assess threats to and

23 vulnerabilities of the critical infrastructures to
93

1 physical problems or physical attack, and the other

2 on the cyber side, cyber vulnerabilities and cyber

3 threats, and when you talk about things like our

4 shared perception of the world and the expectations

5 that we have of, say, infrastructure services, I

6 can't help but think that there are some very real

7 differences between the expectations we have with

8 respect to physical resiliency of our

9 infrastructures and cyber resiliency of our

10 infrastructures, perhaps directly related to the

11 much wider variety of expectation we have with

12 respect to their cyber resiliency.

13 There are information haves and have

14 nots. There are widely differing expectations of

15 the reliability of certain security measures, for

16 example, and so while our expectations differ, the

17 degree to which those expectations are being met

18 also differs, which makes in a sense the whole issue

19 of trust and confidence on the cyber side somewhat

20 more fickle and somewhat more prone to wild

21 fluctuation than the common expectations we share on

22 the physical side.

23 After all, we can look at a piece of
94

1 planking or a deck and make some common observations

2 about the relative strength of that, and we can make

3 some observations about the chances of someone

4 wheeling up a truck bomb to our place of business on

5 any particular morning, but those aren't necessarily

6 the sorts of shared views that we would have with

7 respect to the security of our computer networks or

8 the strength of our firewalls that protect our data.

9 And so, well, I'm having a good time

10 playing through those issues.

11 MR. KLEINDORFER: Just one little

12 footnote to that comment is certain parts of the

13 cyber resiliency I'm not concerned about, even

14 though they are, in fact, as pointed out here quite

15 unreliable because there are all sorts of incentives

16 for the economic agents involved to get things right

17 eventually and for consumers to, in fact, make the

18 right choices.

19 If they don't, you know, that's not a

20 problem that I think we're concerned with, but on

21 the other hand, take the banking industry. We heard

22 Alice Rivlin recently discuss some of the issues on

23 credit payments, credit card payments and so on. If
95

1 there is a threat to that, to the security of that,

2 there's no "there" on there anymore in respect to,

3 you know, where you're signing things and so forth.

4 There we would have a public good,

5 really the quality and cyber resilience of that

6 network which, in fact, could have immense

7 consequences.

8 You know, just to take that as an

9 example of some aspects of cyber resiliency and so

10 on, you know, are going to get fixed by the market,

11 but some others are extremely important focal

12 points, I think, for the Commission.

13 MR. GARBER: Brian.

14 MR. HOEY: Just to follow up on

15 something Steve said, one of the central concerns of

16 the Commission is to determine what the role of

17 government should be related to the issue of

18 infrastructure protection, and I would take that

19 another step by saying what's the impact of third

20 parties, i.e., a government body or an industry

21 association, let's say, and forging trust,

22 maintaining it or building it among or between these

23 infrastructures.
96

1 And clearly in this country we have a

2 sufficient body of regulation where that helps

3 preserve trust. My own experience in Bosnia showed

4 me that without such a framework, you run the risk

5 of bringing in third parties that can fail or

6 succeed. Specifically the U.N. came in, had nothing

7 but a mandate to keep warring factions apart, and

8 wound up being despised by most of the people.

9 NATO came in under the auspices of a

10 Dayton agreement with an articulated strategy, set

11 of objectives, and was very well respected both in

12 terms of the framework it had to work from and its

13 institutional framework.

14 I don't know if anyone else has ideas

15 about the role of third parties, but I think it

16 would be useful.

17 CHAIR CULNAN: We want to hit that

18 especially after lunch because that's one of the

19 take-aways that a number of us on the Commission

20 think we need to elicit from this group. So thanks

21 for reminding us of that.

22 MR. GARBER: Michael.

23 MR. DARBY: That reminds me that most of
97

1 what economists have worked on in terms of trust has

2 to do not with you were saying basically an

3 expectation that norms will be fulfilled, but

4 comments would be more likely to say an expectation

5 that contracts would be fulfilled even if they

6 really were norms. That's just part of the implicit

7 contract.

8 But I think a lot of the or the bulk of

9 the work has been instead on the issue of trusting

10 someone's judgment where you're really trusting an

11 agent to make a decision for you that you won't have

12 the information to make, you're trusting Ford to

13 design the Pinto, making the cost-benefit

14 calculations you would make if you had that expert

15 knowledge and position. You're trusting the banker

16 to be a prudent investor, not imprudent in the sense

17 of avoiding all risk and not imprudent in terms of

18 taking inappropriate levels of risk.

19 So that it seems to me that besides the

20 sort of fulfilling expectations, there's another

21 aspect of trust there. Do you trust somebody to

22 take your proxy and do with it properly? And that

23 seems to me to be an important aspect of the
98

1 commercial transactions, too.

2 MR. GARBER: Tom.

3 MR. TYLER: Well, I think that a lot of

4 our discussion has focused on trust and

5 infrastructure in a more technological way, but I'd

6 also like to make a plug for what I would call trust

7 in the sense of confidence in public authorities or

8 trust in the motives of authorities as a very

9 important form of trust and important form of what's

10 often called social capital.

11 And the reason that I would want to

12 emphasize that is that the research that's been done

13 suggests that the most crucial issue when citizens

14 are responding to government authorities and

15 deciding whether to essentially voluntarily defer to

16 those authorities, obey laws, accept decisions is

17 those citizens' judgments of whether they trust the

18 motives of the authorities or institutions that

19 they're dealing with, so that there's a tremendous

20 gain in discretionary capability on the part of

21 government authorities if they are trusted by

22 citizens.

23 It's very costly and ineffective for
99

1 government to try to gain compliance through, for

2 example, threatening people, rewarding people. It's

3 much easier for government to function if it can

4 basically expect citizens to defer to its decisions.

5 And in all of the studies that have been

6 done, we find that the most important factor that

7 people are considering when they're making that

8 decision about deference is trust, and that leads me

9 to what I think it is a second important point,

10 which I think should be highlighted, and that is

11 that there's a lot of public opinion research that

12 suggests that trust in government is quite low and

13 has been declining for decades.

14 So that we started out with an actually

15 kind of optimistic view of trust, but I think that's

16 because we're conceptualizing trust as trust in the

17 phone company, but what if it's trust in the

18 government?

19 Trust in the government and the motives

20 of government officials and institutions is actually

21 quite low and has been steadily declining for

22 decades. So I think we should highlight that as an

23 important problem to be concerned about.
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1 The final thing I would want to suggest

2 is that we also have a broader conception of why

3 that trust might be declining. One argument that's

4 implied by some of what we've been hearing is that

5 it's related to feelings that problems aren't being

6 solved. Expectations aren't being met, yet a lot of

7 the research that's been done suggests that that's

8 not the only or even the crucial factor.

9 For example, if you ask the question,

10 are politicians competent to solve problems, and you

11 compare it to whether you think politicians have

12 integrity, it's integrity that predicts trust, not

13 competence, or if you ask the question, how are

14 feelings of obligation to accept and obey government

15 decisions affected by the actions of Congress or

16 other government bodies, it's not that people think

17 that the solutions, the policies are good policies

18 or bad policies. It's judgments about how those

19 policies are being made, which are then linked to

20 trust in the integrity and motives of Congressmen,

21 of Congress.

22 So that I think as Tom was mentioning

23 when he talked about norms, people have a very moral
101

1 orientation towards government and government

2 officials, and I think that a lot of the distrust

3 and suspicion is linked to a feeling of a lack of

4 morality or moral integrity, more than to a sense

5 that individuals won't perform in a certain way or

6 won't meet expectations for performance.

7 So I think we need to also have that

8 social or interpersonal component, the feeling of a

9 lack of trust in the motives or character of leaders

10 and institutions as an additional issue to consider.

11 MR. GARBER: An appropriately current

12 issue.

13 MR. TYLER: Absolutely, yes.

14 MR. GARBER: Around this town.

15 MR. TYLER: Yes.

16 MR. GARBER: Just to manage expectations

17 here, I've got Rod, Nancy, Dan, David, Doris, and

18 Ray, in that order, as we continue on just so you'll

19 kind of know what the pecking order is here.

20 Rod.

21 MR. KRAMER: Well, I was actually going

22 to defer, but I'd say real quickly in response to

23 Steve's points and questions about resiliency, I've
102

1 also been interested in the issue of sort of the

2 resilience or fragility of trust in social systems,

3 and I just wanted to very quickly comment on a piece

4 that might be relevant to this Commission, if you're

5 not already familiar with it, and that is, you know,

6 there's often an appeal in terms of approaching

7 these problems to seek large-scale interventions or

8 solutions because they're large-scale problems.

9 But Karl Weick a number of years ago

10 wrote a very wonderful paper called "Small Wins,"

11 and argued that for a lot of social problems like

12 the prevention of nuclear war and violence and other

13 things and civil unrest, that we should seek small

14 win solutions and interventions.

15 And the example he gave in a paper which

16 I always really liked because I worked in the

17 library as an undergraduate was that when people

18 were first trying to deal with the problem in

19 American culture of homophobia and fear of

20 homosexuality and these kinds of things, that one of

21 the things that gay activists did in terms of

22 breaking that down into a decomposable problem is

23 have homosexuality reclassified from the HQ section,
103

1 if I remember right, which was sexual deviations and

2 abnormalities and aberrations, all of these horrible

3 labels, to alternative life style.

4 So that means that any time a young

5 person would go into the library to find out about

6 homosexuality, they would not have to go to the

7 sexual deviation, aberration section of the library,

8 which was usually, by the way, a locked case section

9 of the library and you have to go to and ask for it,

10 but you could go -- and I worked in the locked case

11 section, and that's how I know.

12 (Laughter.)

13 MR. KRAMER: That's where all the juicy

14 stuff was.

15 But instead privately go to the

16 alternative life style section, and he argued that

17 was a wonderful, small win in terms of social

18 change.

19 And a lot of these problems of creating

20 trust in infrastructures might be solvable partly by

21 seeking constantly over the long haul small wins,

22 redesigning confidence building acts and systems and

23 demonstrations that people can slowly build trust,
104

1 and that cumulatively might lead to resilience, much

2 more than some large-scale experiment that might

3 fail dramatically and, therefore, undermine trust.

4 MR. GARBER: Nancy?

5 MS. WONG: Well, actually I have a

6 question, and so I'm going to throw it out and then

7 as people think of perhaps a good response to it,

8 they can just bring it up.

9 My question was related to the

10 difference and the distinction between confidence

11 and trust, and what are the characterizations that

12 distinguish between those two? And then what would

13 be the differences in the consequences, if any, in

14 terms of loss of trust or loss of confidence?

15 MR. GARBER: Does anybody want to make

16 an immediate response? You can jump to the head of

17 the line.

18 MS. GRABER: Okay. Well, thanks.

19 Actually I was going to address this

20 issue because I think we've been talking a lot in

21 sort of a cognitive kind of way, that you have trust

22 because certain things are happening. Yet as we

23 talk we keep on saying feelings of trust, and I
105

1 think we have ignored the emotional part, and I

2 think that is, as I see it, the difference between,

3 you know, just having confidence in something, that

4 something is going to happen, and trust as such,

5 which involves the emotional component.

6 And when Tom Tyler was talking about the

7 trust in government is going down, it sort of

8 reminded me that while, on the one hand, we do not

9 trust our public officials, in some ways we trust

10 the United States, the country, you know. There are

11 still feelings of patriotism and again, feelings of

12 patriotism. You see the flag. You can appeal to

13 people. This is your duty as a citizen, which again

14 becomes at least to a large extent an emotional

15 component.

16 And I think when we talk about trust and

17 the restoring of trust, somehow tapping into that

18 emotional component is important.

19 There's another thing that demonstrates

20 this. We talk about people not trusting

21 politicians. On the other hands, surveys show when

22 you talk of government services in general, when you

23 talk about their interrelationships with a
106

1 particular government official or their reaction to

2 a particular service like, you know, welfare

3 service, et cetera, there's much more trust there,

4 and I think it is because of the closer

5 interpersonal level which allows that emotional

6 component to become involved, and it's not just the

7 cold confidence, the calculating aspects, but the

8 emotional component.

9 MR. GARBER: Thanks.

10 Dan.

11 MR. McALLISTER: I've heard a lot of

12 discussion about trust in kind of implicit targets,

13 and I just wanted to explore or not explore, but

14 kind of craft out a bit of the terrain of trust for

15 what and trust in what.

16 When you look at trust in systems,

17 something tells me that systems and infrastructures

18 don't exist to be trusted in and of themselves

19 because they are virtuous, because we're better off

20 with a virtuous system, but rather, systems exist as

21 a skeleton, a framework within which people relate

22 and which there is social activity going on.

23 Two observations that were interesting
107

1 that I noted, between 30 years ago and now we are so

2 much closer to being able to bridge time and space

3 by communication technologies.

4 The other, a statistic that's

5 interesting from Robert Putnam is that the

6 percentage of people participating in community

7 organizations, voluntary organizations, any of a

8 number of ways of participating in society is at an

9 all time low, and I don't think we want to create a

10 causal connection there.

11 But we want to say how can our

12 infrastructures nurture society, and when you think

13 of confidence and trust, and we don't necessarily

14 want to think about trust in the system, although

15 that's important, how do I frame it? What are the

16 ways that people relate to each other?

17 They relate to each other in commerce,

18 doing transactions, call it market transactions.

19 They relate to each other in terms of authority

20 relations. They relate to each other in terms of

21 communal sharing and rapport.

22 And I think those are three dimensions

23 that you could think of as types of relationships
108

1 that people have. At an interpersonal level they

2 can be compartmentalized. When you think of the

3 relation to the system, it's less clear that they

4 can be compartmentalized.

5 The importance is trust persists as long

6 as the number of disappointments is kept low, and if

7 we create an infrastructure that allows people to

8 relate to each other one on one, this is kind of an

9 architecture within which transactions take place.

10 Over the Internet, for instance,

11 transactions take place. People meet, and communal

12 sharing relationships take place, and authority is

13 expanded, and the arms of authority can be mobilized

14 towards ends.

15 If in any of these three different

16 domains of relationships disappointments emerge,

17 relationships at a personal level, who know the sort

18 of people that you can meet on the Net? If the

19 technology is used as an instrument of domination

20 and control and power, you can see that the trust

21 within or trust among people utilizing the system

22 has to be maintained if the integrity of the trust

23 of the system is to be maintained itself.
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1 I like to think of it as a little three2 by-two matrix of trust in the system and trust among

3 people within the system, and then look at that

4 communal sharing, that market transactions, and that

5 authority relationships dimension.

6 And almost in order to have trust in the

7 system, the architecture, the infrastructure that

8 we're concerned about, we're almost responsible for

9 being good parents and nurturing people so that they

10 can develop rapport, all of those things that people

11 do within the system and nurture society.

12 Just wanting to promote that as a way of

13 thinking about the broader scope of the domains

14 where trust has to emerge and the sort of things

15 that it functions for.

16 MR. GARBER: David.

17 MR. GEDDES: I just want to see if I

18 could lead Tom Tyler to take the next leap, which is

19 most of the critical infrastructures we're talking

20 about are privately owned, and confidence in

21 government is going down, but to have our

22 electricity system work, we rely on the electric

23 company whose management and executives are
110

1 invisible to us and, if anything, see themselves as

2 beholden to their shareholders.

3 How does that play into what's known

4 about that? Can we go a step beyond your comments

5 on government to confidence in the leaders of

6 private organizations?

7 MR. TYLER: Well, there is research on

8 business leaders and confidence in business leaders,

9 and my impression is that it suggests that, in

10 general, confidence in business leaders is declining

11 as well, and in fact, confidence in most leaders of

12 organizations, religious leaders, the mass media, is

13 declining, and it's actually an interesting

14 phenomenon in our society that essentially

15 confidence in leaders of all major kinds of

16 institutions is declining.

17 So I don't think that we would

18 necessarily think that public/private is going to be

19 a crucial distinction.

20 MR. GARBER: Ray.

21 MR. HIEBERT: Since surveys on trust

22 have been raised, I thought I'd just share with you

23 the survey that the Washington Post published
111

1 earlier this month just so we can put it on the

2 table. There are a lot of these surveys, and a lot

3 of them get into the media, but this one asked

4 Americans in whom they have a lot of trust, and only

5 24 percent said local television. Twenty-two

6 percent said their local daily newspapers. Fourteen

7 percent said their local government. Only nine

8 percent said their state government, and only six

9 percent the federal government, which sort of

10 reinforces what's been said.

11 But at the same time, as Doris has

12 indicated, the level of confidence in the President

13 of this country, in spite of all the problems he's

14 been having, is at a remarkably high level.

15 One of the things that all of this makes

16 me think is that by the mass media continuing to

17 publish surveys on how little we trust the

18 government, I wonder if they don't actually inspire

19 a lot of distrust.

20 One of the areas that I've been very

21 concerned with has been the effect of television,

22 and a lot of studies show that the more television

23 you watch, the more you think you're going to be a
112

1 victim of violent crime. The more television you

2 watch, the less you trust the institutions in your

3 own community.

4 So there is some kind of relationship,

5 and I think we ought to be concerned with that as

6 well.

7 MR. GARBER: And we want to get into

8 that even in more detail here with this group

9 probably after lunch, but thanks for bringing up the

10 point, and I think it's something we need to

11 investigate as we go around and continue this

12 discussion.

13 Michael.

14 MR. DARBY: I wanted to follow up on Tom

15 Tyler's comment and also something provoked by Ray's

16 comment before last, which is the trust in

17 government, trust in the private/public.

18 You were remarking on the trust in the

19 communist countries, trust in Africa. There is an

20 article on, you know, can Africa flourish like Asia

21 in the last Sunday Times, and the last three

22 paragraphs were as a little joke. The African

23 official was visiting his Asian friend and admiring
113

1 the lavish lifestyle and said, "How do you do it?"

2 And the Asian referred to the cut. "See

3 the highway out there? Fifteen percent."

4 And so then the Asian visited the

5 African official in his home, again the lavish

6 lifestyle. "How do you do it?"

7 "See the highway outside the door?"

8 The Asian official looked in vain, and

9 the African said, "A hundred percent."

10 And the level of corruption is

11 important, and you know, unfortunately you take

12 surveys of business officials, as people do, and the

13 U.S. and Japan are about on a par in the middle in

14 terms of as we like to say transparency as a

15 euphemism for the inverse of corruption, which is

16 sort of the idea of, well, why should I voluntarily

17 accept a decision if I think the decision was made

18 in return for 20,000 or 50,000 or whatever the

19 current price is.

20 And in private businesses, you know, you

21 can say Machiavellian, and you expect them to profit

22 maximize, but you know, sort of Adam Smith's genius

23 was showing that in general, where you have private
114

1 goods and a few other conditions, self-interest

2 leads to the public good.

3 So there is a sense in which it's a lot

4 easier to trust the decisions of private individuals

5 that they're maximizing in their business and,

6 therefore, they're treating you fairly than it is to

7 trust that this government official is maximizing

8 his personal take and, therefore, he's making a wise

9 decision.

10 There is a difference in ownership. So

11 maybe that is a basis for a difference in private

12 and public trust in private and public institutions,

13 regardless of even if you think the motivations of

14 the officials are similar.

15 MR. GARBER: Let's see. I've got Bob,

16 then Paul, then Lynne.

17 MR. BIES: I want to respond to Nancy's

18 question and say a couple of things.

19 I think part of your question is

20 answered by what Tom said about the predictability

21 expectation and, you know, to be reliable, but also

22 more important, the enormity of peace which

23 distinguishes trust from confidence.
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1 Confidence you can get it done versus

2 trust that you will get it done. Take care of my

3 interests. Look out for me. There's this sort of

4 moral expectations, and I think that's part of any

5 transaction that comes in, that you'll do no harm to

6 me. You'll have my best interest at heart.

7 I think that's part of the thing that

8 makes it very fascinating when that gets violated.

9 Some of the work that Tom and I have done on the

10 revenge stuff says that people really sensitive to

11 exchanges, and when the trust is violated, it sort

12 of comes in two categories.

13 One is there's this sense of a damaged

14 civic order in the sense that there's rules and

15 procedures about how a system ought to operate.

16 When those are violated, we get angry, but also in

17 that sort of civic order, there's a sort of honor, a

18 code of honor, how you should behave vis-a-vis other

19 people, and if you lie, you cheat, you know, betray

20 confidences, we get really upset with that because

21 that's that sort of normative stuff that's

22 independent of just you've got a performance

23 failure.
116

1 But the other part that we find that

2 people get upset about is that when they feel that

3 their reputation or who they are is misrepresented,

4 and that's going to be an important issue for the

5 infrastructure. Whatever is encoded or shared

6 across things is not an accurate representation of

7 who I am. Where do I go back? What economic

8 calculus can I get that will restore my reputation,

9 particularly in a world that says we're going to

10 start putting clamps on punitive damages for those

11 sorts of things? I mean, where do I go? How do I

12 get it back?

13 So those sort of issues about the civil

14 order and social identity are important, but one of

15 the things that was striking to me and, I think, is

16 important for the infrastructure was if you believe

17 that the violators are not punished, you cease to

18 have any confidence either morally or performance19 wise that the system can operate. You become that

20 Third World corrupt or a lot like Washington, D.C.

21 You have that sort of -- I mean, Washington, D.C.,

22 is a Third World country in terms of its operation.

23 You no longer trust them.
117

1 MR. DARBY: You mean the city

2 government.

3 MR. BIES: The city government, right.

4 Well, actually --

5 (Laughter.)

6 MR. BIES: We can generalize.

7 But the notion of punishment, and I

8 think the punishment issue is important because we

9 too often think of punishment in terms of

10 deterrence, punishment to correct these bad people,

11 but what we miss is the importance that when you

12 punish, you are also signaling that the norms and

13 values governing the system are important.

14 There is an expressive we are upholding

15 the values. Yeah, we might deter somebody, put them

16 in jail, and they'll correct and rehabilitate, but

17 there's this other piece that we too often -- so if

18 you only characterize the debate in terms of

19 deterrence and rehabilitation, you're missing a very

20 important point of how people experience it.

21 So you have to punish some people to

22 remind people that the system still is -- because if

23 you don't, the community, the morality, it breaks
118

1 down.

2 MS. WONG: So you're saying that just to

3 make the distinction as confidence is not -- doesn't

4 elicit as -- loss of public confidence doesn't

5 elicit as strong a reaction from the public --

6 MR. BIES: Right.

7 MS. WONG: -- as loss of trust.

8 MR. BIES: Right. That's what our data

9 says, that when -- it's performance. You may be

10 frustrated and angry in the short term, but it's

11 those lingering, deeper resentments, is the

12 violation of trust.

13 I mean those can be more intense, and

14 richer, and can lead you to sort of paranoid and set

15 in how I got screwed and that sort of thing. It's

16 that trust piece that really generates the strong

17 negative.

18 MS. WONG: And then the consequences to

19 the public good in terms of if you don't trust, then

20 certain things don't happen versus if you don't have

21 public confidence, there's still recovery time. I

22 mean, there is -- it's easier to recover from.

23 MR. BIES: Yeah. You can recover on the
119

1 confidence piece, yeah. That would be -- yeah.

2 MS. WONG: And so really trust is the

3 foundation block here.

4 MR. BIES: Yeah.

5 MR. GARBER: Roy.

6 MR. LEWICKI: A quick point on that.

7 For me it's not do I worry about whether TWA-800

8 blew up because of an issue in the -- or Value Jet,

9 when it blew up, why it blew up, but their failure

10 or unwillingness to put in smoke detectors for me is

11 as critical, is much more critical to my long-term

12 trust of that. It built off the resentment. It's

13 not why it blew it. It's also will they do anything

14 to try to fix or remedy that and do something to

15 change my perception, and their unwillingness to do

16 that really undercuts my long-term trust of that

17 environment, that context.

18 MR. BIES: Can I just -- I just have

19 this one, and I apologize, but to what Michael was

20 saying.

21 The public/private authorities, private

22 decision makers because they're motivated by self23 interest, maximizing the value, all that sort of
120

1 stuff that we write about; we allow them to be

2 greedy, but when we really get upset is exploitation

3 and pigging out.

4 If we believe they're taking advantage

5 of their situation, then we get really angry, but we

6 don't mind people making lots of money. So there is

7 a normative dimension, and we allow you to be more

8 self-interested than maybe public officials are, but

9 it's when we perceive you're pigging out, there's a

10 dimension out there that we say, "Oh, that's just

11 too much, you know."

12 So I think if we just think about those

13 terms also, even in the private sector. I think the

14 procedures, the norms, the values still are

15 important.

16 MS. WONG: Yeah, I'm curious about how

17 that translates into consequence, say, for the

18 private sector or for the government.

19 MR. BIES: Well, it has consequences

20 that a consumer has choices. If I don't have

21 choice, if I can't exit, then probably I'll just do

22 -- maybe I'll put pressure on government to invoke a

23 third party. That becomes a pressure. That becomes
121

1 a pressure, and maybe if the media runs a couple of

2 good news stories that are half true, you know, then

3 maybe that'll increase the pressure. Maybe someone

4 will put something on the Internet.

5 So you have those sort of social

6 collective movements to make something happen, but

7 if there's market choices, then I can exit.

8 MS. WONG: Well, then that really just

9 rang a bell because what happens is if you're anger

10 is so high, you start looking for those choices

11 where choices were not there before.

12 MR. BIES: Right.

13 MS. WONG: In fact, you will drive

14 somebody to create choices or the marketplace will

15 create choices because now there's a demand where

16 there was not a demand before.

17 MR. BIES: Yeah.

18 MS. WONG: That's a very important point

19 for private industry. Right now utility companies

20 in the electric industries are understanding that

21 fact.

22 MR. GARBER: Paul?

23 MR. KLEINDORFER: Well, I wanted to
122

1 build on something that Dan raised, and the issue is

2 what is -- he provided, I think, a very helpful

3 comment about keeping the number of disappointments

4 low or trust in some ways is reflected over time as

5 a low incidence of disappointments.

6 If someone gets into that a little bit

7 and starts thinking about what gives rise to those

8 disappointments, then the particular point that I

9 would like to raise both on the choice issue, but

10 the public/private debate that we've raised, is the

11 issue of responsibility and self-reliance.

12 I'm very heavy on this particular matter

13 as an economist when there are choices. It's an

14 extremely important matter, but frequently it's

15 misjudged. So if you go through and you see that

16 people have a particular expectation about what they

17 expect their infrastructure or some other

18 institution to do, what gives rise to their

19 mistrust, growing mistrust, is a disappointment

20 triggered by an expectation that's not met.

21 And you start examining why that

22 expectation was not met, and you see two or three

23 different things that have been a part of the
123

1 discussion here. One is that they have the wrong

2 idea, as it turns out, about how much responsibility

3 they should have themselves as consumers or

4 citizens. So they expected the government

5 to do it all. The government didn't do it all.

6 They're disappointed, right?

7 Another is that they believe that the

8 decision was arbitrary or capricious or violated

9 fundamental rules of fairness, the issues that Bob

10 was just raising, and there you can have two

11 different kinds of fairness that a number of people

12 here much more expert than I am at this, but

13 procedural. Somehow or other this thing was just

14 drawn out of the hat and it disadvantaged me or I

15 just didn't like the way the process worked, our

16 outcome fairness. I mean, I see somebody making,

17 you know, $100 million in bonuses for a particular

18 year. I don't give a damn where they come from.

19 Nobody, no human being ought to get that much money,

20 as it were, in one year, you know, for whatever

21 reason.

22 Now, I'll just mention two examples of

23 this just to hone in on this very briefly. One is
124

1 the U.K. deregulation experience, both telecom. and

2 electric power, water, and other areas. I've worked

3 very extensively with them, and I can tell you that

4 this has worked very well from an economist point of

5 view. If you look at total benefits generated, they

6 have been very significant.

7 It just turns out that most of the early

8 benefits went to the industrial firms that were

9 associated with this, and very foolishly, in spite

10 of my good advice to hide the money, these people

11 actually lavishly spent it on their directors'

12 salaries and so on.

13 This gave rise to very significant

14 repercussions in the last round, the last two years

15 of adjustments in the regulatory side of price caps

16 and other issues. Just think of those as very

17 strong repercussions.

18 It also arguably gave rise to Mr.

19 Blair's recent stunning success. It wasn't that he

20 was successful, was not so stunning, but how

21 successful and where. That was interesting.

22 So that's an example of where people

23 have a number of disappointments in this particular
125

1 case based on what they viewed as distributional

2 unfairness of something that they had reason to

3 believe. It worked very well, I can tell you, as an

4 economist. This worked wonderfully well. It just

5 did not stay within the bounds that people were

6 expecting with respect to distributional equity and

7 fairness.

8 And as a second issue on the risk

9 management side on responsibility, we have seen and

10 tracked through the National Hurricane Center

11 various earthquake areas and so forth. We've seen

12 both counties drinking from the inexhaustible soup

13 bowls of FEMA and private individuals drinking from

14 subsidized, if you will, insurance rates.

15 We've seen them locate time and again in

16 harm's way. In fact, it's along the lines you can

17 take pictures of, you know, portions of South

18 Carolina or the Florida coast, and you see, you

19 know, $150,000 on average homes, and five years

20 later it's $500,000 on average homes, and then five

21 years later, you know, after Andrew, it's $1 million

22 on average homes.

23 Well, where are they getting the money?
126

1 Well, it's just leveraging on up out of subsidized

2 insurance payments obviously.

3 This is manifestly unfair from the point

4 of view of consumers, let's say, in north Florida or

5 elsewhere who are actually paying these areas. From

6 the businesses involved it's manifestly unfair, and

7 when it comes to light, this will also -- when it

8 comes to light, if it comes to light, I perhaps

9 should say -- it will also be viewed as manifestly

10 unfair because here we are seeing people who are

11 acting in an unprincipled way, violating fundamental

12 principles of fairness and integrity.

13 Now, those two stories though indicate

14 that between all of these drinks from the cup, you

15 know, there are lots of different ways in which

16 people get information about whether they're going

17 to be disappointed or not and whether their

18 anticipatory set, psychologically speaking, is going

19 to be satisfied or not.

20 But I really like this number of

21 disappointments. Where do they come from? If you

22 start to explore that, you get into, I think, some

23 of the issues there.
127

1 MR. DARBY: A two-handed follow-up to

2 that point. I used to have until it was stolen from

3 the office at the Treasury a statue of Calvin

4 Coolidge --

5 (Laughter.)

6 MR. DARBY: -- because as an economist I

7 greatly admired him as the last President to veto a

8 flood relief bill on the grounds that it would

9 encourage people to move into the flood plain.

10 So while I tend to agree with you

11 professionally, I also have to note that he was the

12 last President to do that.

13 MR. KLEINDORFER: He had certain other

14 characteristics.

15 MR. DARBY: But, you know, we're from

16 California. We've just passed a law sort of so that

17 FEMA will have to bear it all, nearly all of our

18 losses come the next earthquake. You know, where

19 are the rest of you outraged taxpayers?

20 MR. KLEINDORFER: Wait till it happens,

21 right?

22 MS. ZUCKER: Then it would be too late,

23 unfortunately.
128

1 MR. GARBER: Lynne, you may continue.

2 MS. ZUCKER: Okay. I have three points

3 to make based on a bunch of the discussion that's

4 gone on.

5 First of all is that it's not really

6 just a contrast between either having a competitive

7 system where you have choices, so therefore you

8 don't have to worry really about repairing trust;

9 you just switch to another provider, and there's

10 kind of a competitive system, and on the other hand,

11 government.

12 Another way of repairing trust that I

13 think we should note is providing better

14 information, usually buying better information. So

15 one consequence of the banking crisis was the

16 development of a number of businesses that provided

17 detailed information on the financial soundness of

18 particular banks.

19 So before, where we took it for granted

20 that, you know, most of these banks would do fairly

21 well, people who really need to depend on a bank

22 coming through now buy information from these rating

23 services.
129

1 MR. KLEINDORFER: The same is true with

2 insurance.

3 MS. ZUCKER: Right. So, I mean, you can

4 look at this in two ways. One, it's a failure of

5 the system, and so therefore, you have to shore it

6 up, and the other is it's more jobs, and you know,

7 since we seem to always glorify that, hey, you know,

8 you're employing a lot of people that weren't

9 employed.

10 So the second point is that I want to be

11 very careful about these global assessments of

12 public confidence and trust, either one, and as an

13 example, I want to look at schools and, you know,

14 public evaluation of schools.

15 And what's really interesting, although

16 the general overall public evaluation is not

17 necessarily that strong and in some cases has been

18 declining, parents universally rate the school their

19 child they're going to very, very high and the

20 teachers very high and, you know, very supportive.

21 So there's a large literature in sociology of

22 education which looks at these rates, and at least

23 John Meyer, who is a sociologist, marvels at how
130

1 they can possibly be that high given how poor we say

2 schools are. Okay?

3 So is it really performance? And if so,

4 in what dimension? I think we need to be

5 extraordinarily careful because maybe it's keeping

6 the kids happy, having them in a good, supportive

7 environment, you know.

8 I'm not quite sure, and I haven't looked

9 into this at all, but in not the actual specifics of

10 the training.

11 Another way we might look at our

12 assessment of failure of schools is it's kind of a

13 muck-raking opportunity. So, in fact, it's been

14 greatly overwritten, and I'm inclined to think

15 that's true, but IQ plays such a big role, and we

16 don't really want to admit that for a number of

17 reasons. So instead we'd rather blame the schools.

18 And the reason I feel so strongly that

19 way is the discontinuity in the U.S. system. If you

20 compare Japan and the U.S. in terms of their

21 educational system, we always say, well, Japan has

22 this absolutely superb educational system, and the

23 U.S. is a failure, but what is actually factually
131

1 correct is that their education through high school

2 is extremely rigorous.

3 Now, I don't know how parents rate it.

4 I would love to know because it's not particularly

5 supportive, and they need the cram schools and all

6 of that. So it may not get rated very high.

7 In the U.S., our high school and below

8 is judged a failure, and yet our university systems

9 out-compete every time. There's no university

10 system in Japan that competes with our best

11 university systems in the U.S.

12 Well, how can we have that

13 discontinuity? What happened? Where are all of

14 those uneducated kids suddenly getting the ability

15 to out-compete these Japanese kids that have been

16 trained so well?

17 Well, it just doesn't fit. So something

18 else is going on.

19 That brings me to my third point, which

20 is that I'm a little uneasy with the distinction

21 between public confidence and trust. I don't quite

22 know what that distinction is, and I'm not sure the

23 way we measure them in these surveys is really
132

1 something that makes me trust the results or have

2 confidence in the results.

3 And I think that we need to think about

4 what the anchor is to the judgment. You know, for

5 most of these judgments, I mean, I can go ahead and

6 rank. I can go ahead and rank this university.

7 We're sitting right here in the library, you know.

8 What is my level of confidence in this university?

9 And I would come up with some -- you

10 know, I could check off on a scale, but it would

11 have almost no meaning because I don't know very

12 much about this university. You know, I was

13 commenting this is the first time I've ever been on

14 the campus. You know, it's kind of a neat place to

15 be, but you know, I really don't know very much.

16 And so I think a lot of the ratings are

17 really made with almost no information about what

18 you're rating. You have some kind of global effect.

19 I don't trust the ratings particularly

20 of people for that same reason because, you know,

21 how much are people really reading? What do they

22 know? What evidence are they using?

23 And I think that one aspect is, for
133

1 example, how much do you depend on that institution

2 or that person, and once you ask that question and

3 then you get those people that are heavily dependent

4 on it to actually rate it, they have a big stake in

5 gaining enough information.

6 Michael and I have written quite a bit

7 on costly information and the fact that you really

8 have to have a reason to want to get it be able to

9 want to spend the resources acquiring it. So, you

10 know, if you want to ask the questions, we really

11 have to think about who they should be asked to.

12 The general social survey, which we were

13 quoting on the banking issues, you know, it's good

14 in terms of kind of general, how do you build

15 confidence back up in the general public, but that's

16 a very different question from, well, what about

17 other banks, banks that are dealing with other

18 banks, for example. They're not going to be swayed

19 by these public polls.

20 So I think that that's extremely

21 important. The normative component which a number

22 of people have also brought out really relates to

23 this because, to the extent the survey you're
134

1 proposing is going to be done just in this country,

2 you're missing an awful lot of what would be

3 different across countries because there's a big

4 component to fairness, decisions about what's fair

5 in different normative systems.

6 Just to give a quick example, in a

7 recent comparison of how much people in different

8 societies thought it was equitable to pay very high

9 occupations compare to very low, like one times

10 equal to, one times as much, two times as much,

11 three times as much. What was found was there were

12 huge differences in what different -- societies

13 almost always agreed about what was right for the

14 low level, but not the degree to which the two

15 levels should be separated.

16 Poland and Hungary -- Poland was the

17 lowest in terms of thinking that salaries should be

18 almost equal. Hungary was next to that, and I can't

19 remember what the top ones were. U.S. was not the

20 top, and Australia and so on were in there.

21 So there was an enormous range of

22 response to that question. So I wanted to raise

23 that issue, too, because since this is just within
135

1 the country, a lot of the basic issues of legitimacy

2 are really going to be missed since the legitimacy

3 will vary much more between countries.

4 CHAIR CULNAN: I want to sort of toss

5 something out and hopefully people can, given we've

6 got a lot of expertise on this, weave this into some

7 of the comments that come later, but about the role

8 of procedural fairness, especially transparency and

9 voice in influencing people's views about

10 infrastructures and how this affects the elasticity

11 of either their confidence or their trust, whichever

12 you want to call it.

13 For example, you know, a lot of the

14 research says if procedures are fair, people are

15 more tolerant of negative outcomes because, you

16 know, this happened, but basically I understand the

17 system, and how do you apply this to

18 infrastructures? Is it press releases? Is it

19 newsletters? Is it the media? Do they play a role

20 in this? Citizen boards? I mean, how do you

21 incorporate this in a non-sort of workplace

22 situation?

23 And there's one paper that's in the blue
136

1 folder. It's not in the spiral bound, that suggests

2 that, in fact this will apply. It's a paper by Paul

3 Slovic, and he did a study in the nuclear power

4 industry and the one thing that was the most trust

5 increasing when you fed people a lot of different

6 scenarios was that there was a local board that had

7 the finger on the button, you know, that could

8 basically shut the plant down if it wasn't safe.

9 And you see what percolates up out of

10 his research is, you know, it's fairness; it's

11 trust; it's, you know, transparency, voice, all of

12 that kind of stuff. So I would be interested in

13 hearing what people have to say about that, and

14 especially, you know, can you have too much

15 transparency.

16 You know, there are stories about

17 hackers attempting to break into something. Does

18 that, in fact, then reduce trust when it was an

19 unsuccessful attempt versus you tell people

20 something happens and you lose your customers? You

21 have choices, et cetera.

22 Yeah, Paul.

23 MR. KLEINDORFER: Just a brief comment
137

1 on this issue in the public utility area. We've

2 seen for years that procedural fairness is extremely

3 important. It's been instituted in a number of ways

4 with public advocates and so forth both with respect

5 to reliability complaints and the other issues.

6 In a competitive market, the entire move

7 to guarantee, service guarantees and so forth that

8 we've seen over the past five years. Ways of

9 adjudicating paying and so forth for any perceived

10 disappointment that you might have has become an

11 extremely important part of business, of customer

12 call service. Perhaps the largest growth area in

13 the service sector in recent times has been in

14 customer call centers, customer service issues, and

15 so forth.

16 So procedural fairness is an extremely

17 important element of that. Now, the critical issue

18 in public utility sides though, whether in

19 telephone, gas, water, whatever, is this business of

20 getting the expectations correct in the first place,

21 and so there is where, especially with respect to,

22 let's say, very rare events, low probability, high

23 consequence events, whether it's anticipated nuclear
138

1 power difficulties or whether it's power outages or

2 what; it's to get clear what would a prudent,

3 reasonably principled person of integrity guiding

4 such-and-such an institution, what should they do?

5 And can we have that discussion before the fact?

6 Now, there is where citizen

7 participation, if you can get them to do it, is

8 very, very useful in legitimating that this has gone

9 through that process, but the history of public

10 utilities and elsewhere has been extremely

11 difficult, especially in low probability and high

12 consequence events to get a reasonable cross-section

13 of the community actually involved in that kind of

14 discussion.

15 After the fact, you can get them

16 involved, but that's no long any good if you wanted

17 to legitimate that you have been reasonable,

18 prudent, fair, principled, and so forth, before the

19 fact, you see.

20 So I'll just say that the history in the

21 public utilities area and all the things you come

22 across if you've ever got any testimony in any of

23 the commissions up here, you know, the Postal Rate
139

1 Commission or others, procedural fairness is the

2 foundation of what goes on, but it's really

3 balancing the ex post and the ex ante that turns out

4 to be very difficult, and especially in those areas

5 that we're talking about here, critical

6 infrastructure vulnerabilities in which the very

7 vulnerability you see is something that people don't

8 necessarily want to get involved in spending, let's

9 say, two years of their life going down and saying,

10 "Yes, we as a community believe that you will do X."

11 It's very difficult to get them involved

12 before the fact.

13 MR. GARBER: Doris?

14 MS. GRABER: I want to talk about what

15 I consider one of the more spectacular drops in the

16 confidence as an example, and that is in the medical

17 field. You used to trust your doctor, and now very

18 widely people have lost trust in the doctor and the

19 health system, with or without justification.

20 And as I see it, one I think is the

21 thing that was brought out before, which is sort of

22 the sense that the profits are too high, that people

23 are just in it for the money. I think that's sort
140

1 of a big thing in a lot of these things, where you

2 expected them to be interested in rendering you a

3 service, and now they're just interested in the

4 money.

5 The second thing I see in this, and I

6 think it's been pervasive in many fields, and that

7 is there in between this basic decision maker and

8 the client, you've introduced a whole bunch of

9 intervening institutions, in this case the HMOs and

10 the insurance companies, et cetera, and to address

11 Mary's concerns, I mean, first of all, the rules and

12 regulations, the understanding of the procedures is

13 very difficult for the average person. If you don't

14 understand the procedures, you cannot judge the

15 justification of the procedures.

16 On the other hand, I think even where

17 the justifications for the procedures are clear,

18 when people are terribly much involved in it as they

19 are in something like the medical field, where it's

20 your life or death, procedural fairness is not going

21 to cut it. It's got to be what seems like outcome

22 fairness.

23 So while I think that in many things in
141

1 which you're less involved, procedural fairness is

2 very important as a criterion that your things are

3 done in the right way by which one judges whether or

4 not one should trust.

5 When it really cuts to the core of your

6 very personal experiences, even that will not do

7 even when the procedural fairness is there.

8 MR. TYLER: If I could just make a quick

9 comment, actually what's interesting is that there

10 have been studies in this area that suggest that

11 procedural fairness works really well. For example,

12 if you're asking the question when a patient sue

13 their doctor, it turns out that the extent of their

14 injury or even the degree of bad practice or

15 malpractice or whatever is not the issue. It's

16 their judgment of how they're treated by their

17 doctor.

18 If their doctor treats them with

19 respect, listens to them, seems to be or is actually

20 concerned about trying to deal with this issue,

21 people don't sue.

22 Similarly, research on when do employees

23 sue companies that fire them, it's really whether
142

1 the company seems to be following a procedure that

2 they see is fair. If they think the procedure is

3 fair and they're fired, they don't sue.

4 So I think that there is a lot of

5 suggestion that procedural justice has legs. I mean

6 it can be robust in situations where there's a lot

7 at stake and where there are real issues that are

8 important.

9 The trick is -- and I think your

10 comment, Mary, brought this out -- the issue of

11 legitimacy. When you take something like the oil

12 companies, which is a constant problem in

13 California, well, people don't believe in the oil

14 companies anyway. They're not legitimate; they're

15 not respected; they're not believed.

16 So when they enact procedures, right

17 away there's a problem, and it's the same interplay

18 that we see in government. If people think the

19 institution is legitimate, they're more willing to

20 defer to its procedure. They're more willing to

21 believe the procedure is fair, which, again,

22 reinforces legitimacy, but if legitimacy is low,

23 procedures are suspect. Fair procedure doesn't have
143

1 as much of an effect.

2 So what institutions need to do is they

3 need to build their basic legitimacy, and as that

4 builds, then the power of procedural mechanisms will

5 go up.

6 MR. GARBER: Joe.

7 MR. MOORCONES: I wanted to go back to

8 infrastructures for just a moment because I've been

9 listening, and it seems the thing that destroys

10 trust and confidence is failures. Okay? And

11 without failures, trust and confidence may -- given

12 that it somehow got established, and my question

13 would be do we have to wait to have an

14 infrastructure failure before we're going to do

15 something about it or if something needs to get

16 done, or are there examples that you've seen where,

17 by looking at, observing the institution or the

18 infrastructures, the behaviors, the procedures, the

19 investments, the practices have resulted in public

20 confidence waning in that without a failure?

21 An example I might give, I think the

22 number of failures were talked about. Yet everyone

23 said computer failures are acceptable. Hard disk
144

1 crashes, whatever, all the time, yet all of our

2 infrastructures are becoming more and more dependent

3 on these computers.

4 Another comment was, well, you have

5 choices. So maybe choices come in to give you

6 resiliency, but in many cases in computers and

7 communication, your choices are between different

8 marketing agents, not fundamental infrastructure

9 differences.

10 So my question is: are there examples

11 or have you seen examples where the procedures, the

12 way an industry, institution has gone has led the

13 public to say, "I'm losing my trust for certain in

14 this," as opposed to waiting until there were actual

15 failures where they were impacted directly?

16 If I did okay with that question.

17 MR. KLEINDORFER: One can mention a

18 number of reasons for the erosion of trust in

19 business leaders, and that has to do I think less

20 with failures and more with what is believed to be

21 distributional or scandalously out of line profits

22 or salaries or whatever.

23 So you could say that if you were
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1 looking at that driver of mistrust, but let's say we

2 were looking at something that had to do with the

3 vulnerability of a system that would actually affect

4 you, you know, other than, let's say, the character

5 or the profit taking ability of the CEO. There

6 there are what people look at when they look at,

7 let's say, any business enterprise, but certainly in

8 the utility industry. They would look at a number

9 of characteristics that indicate whether this

10 industry seems to be concerned about prudent

11 engineering principles, about systems integrity, and

12 so forth.

13 And you see this begin to permeate both

14 through the press, public advocate, and other areas.

15 It begins to take on a notion of its own, so that

16 even a failure that isn't in this particular system

17 you're looking at -- suppose I'm looking at the East

18 or Northeast or something, and there's a failure in

19 Indonesia or something like this or, you know, a

20 tanker runs aground that is licensed under the

21 Liberian flag or something. Even those remote

22 failures that appear to have nothing to do with this

23 system, when coupled with other driving factors that
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1 undermine confidence, if you will, in the leadership

2 of a company have had very deleterious effects.

3 You can see it immediately in the

4 hearings that follow in these areas, and so there

5 are areas, but usually what you would see is some

6 correlates, something that suggests that the people

7 involved in the enterprise or institution you're

8 looking at are not being prudent, are not acting in

9 a way that somehow it reflects what people in your

10 view ostensibly act.

11 Then another triggering event, socially

12 amplified, comes to roost, and that's what

13 eventually ends up being the trigger. I think you

14 need a trigger, but it doesn't have to be in the

15 area itself.

16 MR. GARBER: Is there any other direct

17 follow-up here?

18 MR. LEWICKI: Please. Yeah, I did a

19 number of informal interviews before coming here to

20 talk to people about what affected them and their

21 ability to trust infrastructure, and I think it

22 builds on what points we were just raising.

23 They said three things to me:
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1 reliability, accessibility, and voice, and

2 reliability was that it performs as I expect it to

3 perform, which is back to the expectations issue. I

4 have expectations, and it does as I expected, and a

5 lot of that was a management related problem. Do I

6 see these people as competent in running this

7 operation and providing it to me?

8 Accessibility goes back to the

9 procedural question, and it's interesting. I was

10 surprised how many people said I trust that not only

11 they provide it to me, but that they provide it to

12 everyone; that it wasn't just me who could benefit

13 from it because I could pay the bills, but I trust

14 it because it's provided broadly. It's

15 encompassing. Anyone who is qualified can get

16 access to it, and they saw it very much as a justice

17 issue, as a fairness question.

18 And the third was sort of like voice

19 appeal. If it doesn't work, I can get it fixed. I

20 have an opportunity to talk to someone who is going

21 to be responsive to my concerns, and that they will

22 fulfill their commitment.

23 And I think those are three things that
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1 management very heavily can control and influence.

2 To the extent that I see the management of an

3 infrastructure worried about those issues, I'm much

4 more likely to increase my trust of that operation

5 and what it provides than if it doesn't.

6 So that management controls a lot of the

7 procedural dynamics that we can provide them in this

8 service.

9 I also want to just briefly tag

10 something you said, Lynne, and I can't remember

11 exactly how you were phrasing it or talking about

12 it, but I said to Rod that there are conditions

13 under which you trust because you have no choice,

14 and trust is almost a dissonance reduction

15 mechanism.

16 I'm in a situation where I have no

17 choice. I have no options. I don't know whether I

18 should trust or not, but I trust because I almost

19 have to trust and to not trust is to create more

20 problems for myself than I can handle, and this is a

21 slant on trust I've never heard anybody sort of

22 argue before. It's like we talk about trust as very

23 rational, calculative, weighing cost and benefit,
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1 shaping expectations, and so forth.

2 But we assume that there's choice

3 available to us. In no choice situations around

4 infrastructure, I almost have to choose because I

5 don't know where my options would be or how I would

6 make different choices or whatever, and that strikes

7 me as a different dynamic. I'd like to unpack that.

8 MS. ZUCKER: If I can just add to that,

9 I think that you're right, that it can lead to

10 trusting. Otherwise you really wouldn't because of

11 the dissonance, but I think it also can lead to

12 complete disaffection and kind of dropping out.

13 Certainly we see that in some of the

14 African countries, for example. So, you know, you

15 can't do anything about it. You only have one place

16 to go. So you just don't do anything.

17 MR. LEWICKI: Right, and I'd love to

18 come back to that when we talk about media issues

19 because I see media as specializing in distrust, in

20 other words, that the story is not in the trust.

21 The story is in the distrust, and I'm left with

22 increasing information about how the system isn't as

23 good as I want it to be, and I have no idea what I
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1 do with that in terms of my responses. Now how am I

2 supposed to feel?

3 I thought I trusted Fidelity, and now

4 they have a cover story in Fortune this week about

5 is Fidelity coming back or going down the tubes, and

6 that's where my funds are, right. So I mean, what

7 do I do about that, you know, and how do I respond

8 to that?

9 MR. KLEINDORFER: Religion is important

10 here.

11 MR. LEWICKI: You're right. I'm married

12 to a theologian which helps me a lot. That's when I

13 go to her for advice.

14 MS. GRABER: The big historical issue,

15 why did we, in the period before World War II, keep

16 on trusting Hitler when he said, "This is the last

17 country that I'm going to invade"?

18 We just had no choice. What are you

19 going to do?

20 MR. KRAMER: What's a failure is highly

21 subjective, and of course, it can be framed real

22 easily, and one of the things that worries me is the

23 difference between private and public agencies in
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1 terms of what's a failure.

2 We have a lot higher expectations for

3 public agencies and agents than we do for private

4 agencies, and so while it might take a ship running

5 aground or some sort of really disastrous event for

6 us to make us question our trust in a private

7 agency, it can be much smaller that makes us

8 question our trust in a public agency, and I think

9 part of that is they're just sort of held to higher

10 standards. They're held to more values.

11 Michael was talking earlier about sort

12 of private versus public in terms of, well, we

13 expect private firms to be self-interested, but we

14 expect public agents to act as agents and not just

15 be self-interested. So they're held to higher

16 standards, and we've set up a lot of procedures in

17 government to try and help insure that.

18 And one of the things I think about when

19 I think about procedural justice is that the more

20 procedures that are in place, also the more

21 procedures there are for somebody to trip over and

22 for the media to catch it.

23 And so what happens then is when the
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1 media starts reporting this, you know, the average

2 TV watcher or newspaper reader sort of samples the

3 events that are going on. It's a lot higher in the

4 public than it is in the private, and so it seems

5 that whatever solutions you've got through a public

6 agency, it's going to be a lot harder because people

7 are going to be much more likely to perceive

8 failures, and the press is going to assist that.

9 MR. GARBER: Bob.

10 MR. BIES: Actually let me defer to Rod.

11 Then I'll follow Rod. So I'll defer to my

12 colleague.

13 MR. KRAMER: Bob, you have the floor.

14 MR. GARBER: You all work this out.

15 (Laughter.)

16 CHAIR CULNAN: This is holding up lunch.

17 MR. BIES: I think another way of

18 thinking about the failure piece is really we're

19 talking about the management of bad news. You're

20 anticipating bad news to occur, and one of the

21 things I find from my research on bad news is that

22 there's really three phases to the delivery of bad

23 news.
153

1 There is a phase of preparation where

2 you sort of get people ready for the possibility,

3 and that goes to some of the stuff you're talking

4 about, Paul, you know, inoculating people, giving

5 them knowledge, or in the procedural justice sense

6 giving advanced warning notification, which we find

7 the layoff literature to be very important in how

8 people react to layoffs.

9 And then there's the actual delivery

10 phase, how you actually communicate it, and we often

11 focus in on that. In a procedural justice sense, do

12 I give a justification? Do I treat them with

13 respect and dignity?

14 In the layoff research that I've done

15 with other colleagues, people are really sensitive

16 to how it was delivered, when it was delivered.

17 It's the whole salt on the wound. Yeah, they're

18 upset they're losing their trust. Trust me, but

19 what they remember is how they were handled or

20 treated.

21 So there are those sort of issues, and

22 then there's sort of a follow-up stage. What

23 happens after that? How do you manage it after the
154

1 fact?

2 Also, another procedural justice

3 principle I talk about, the privacy and

4 confidentiality. People are really sensitive to

5 that, particularly in these high information laden

6 infrastructure issues. Will that information

7 somehow expose me? Either if I'm a criminal I don't

8 want it exposed or if I'm just a human being, some

9 personal information about me is important.

10 The other one I want to add is maybe we

11 shouldn't talk so much about failures in terms of

12 zero defects because repeaters have problems, but

13 what we really ought to talk about if you're

14 managing it from a bad new perspective, it's

15 continuous improvement, rapid response.

16 We know that it's not perfect, but it's

17 better than what we were. So it's not good to talk

18 about computers as being perfect because they're

19 not. So the focus that we talk about, we're going

20 to be rapid response. It will occasionally be

21 technological failures we have no control over, but

22 judge us by not the technology, which we're always

23 searching for better technology, but how we respond
155

1 and whether we're improving, and that's what I

2 judge.

3 CHAIR CULNAN: Small wins.

4 MR. BIES: And that becomes a small win.

5 One last thing, Rod, to say with you.

6 It's not just enough to have the small wins, but

7 communicating the small wins. I mean that's one of

8 the things that politicians in this town discover.

9 It's not enough to do a lot of neat things behind

10 closed doors, but you've got to let people know.

11 PARTICIPANT: And the media does much

12 more with that.

13 MR. BIES: Yeah, and to tie that to the

14 media. Bad new sells. You don't see very many

15 stories about mail was delivered. The mail was

16 delivered on time today. There's no story to that.

17 CHAIR CULNAN: Oh, that is a story

18 though.

19 (Laughter.)

20 MR. BIES: In this town, anyway, but the

21 bad news sells. So we're looking for those sort of

22 exceptions.

23 MR. KRAMER: Actually I don't want to
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1 hold people up for lunch.

2 MR. GARBER: No, no, you have time.

3 MR. KRAMER: But actually this comment

4 actually is in response to Joe's original question

5 about failure, but it actually, I think, responds

6 also to Tom and Bob's point about failure and the

7 perception of failure.

8 Lyndon Johnson had a very interesting

9 observation when he looked at public response to the

10 perceived failure of the Great Society, and he

11 thought, you know, it was so interesting that people

12 were so tolerant of slow learning and a lot of

13 failure in the race to the moon, a technological

14 failure; that that's what hard science is all about,

15 trial and error, but when it came to an experiment

16 in society, people had very little tolerance with

17 failure; that educational experiments were supposed

18 to work.

19 And I think that's very interesting to

20 think about in terms of trust and the erosion of

21 trust in infrastructures. Why is it that we're so

22 tolerant of failure and hit and miss and trial and

23 error in the hard sciences, but we're so hard on
157

1 ourselves when things fail in the social sciences,

2 as if it's a dramatic failure?

3 That's just a comment that struck me

4 about Lyndon Johnson that posed this dilemma, but

5 the more interesting thing, I think, in terms of

6 organizational theory, what it has to say about

7 response to failure, and that is that I think the

8 evidence from organizational research is that

9 institutional and organizational responses to events

10 that are perceived as setbacks or failures are

11 enormously consequential in terms of subsequent

12 trust in the organization, and a good example of

13 that, I think, is the success of Tylenol at managing

14 the public confidence in it as an institution. It

15 was actually relatively untarnished by its crisis,

16 in contrast to Exxon in response to its dismal

17 response to the oil spill in Alaska.

18 And there's a large literature that we

19 should turn to in terms of understanding why

20 organizations handle these things well or poorly in

21 terms of the loss of trust subsequently in them.

22 And then also in response to Joe's

23 point, I wanted to mention that there's an
158

1 interesting strategy that some corporations,

2 recognizing this evidence, have adopted an extra

3 strategy of building what they think of as trust

4 banks or reservoirs of trust, and McDonald's is a

5 good example.

6 McDonald's has taken a very proactive

7 strategy of building community trust by doing things

8 like these little child care place centers and all

9 of these things and advertising so that then when

10 they have even an uncontrollable or unexpected

11 catastrophe happen, such as the person who went in

12 and killed some people on a McDonald's site,

13 community will is not really lost or eroded because

14 they don't blame the institution because they've

15 built trust, and McDonald's has called that a trust

16 bank. I think it's a nice notion.

17 And then a third concept for the

18 organizational science is related to this, is the

19 need to sort of proactively experiment with small

20 losses and failures and set-backs, and that

21 organizations themselves can do this as a way of

22 finding out what happens when setbacks occur and

23 learning from those small, relatively low cost
159

1 losses.

2 And Jerry Salancik had a nice expression

3 for this. He called them field stimulations. We

4 ought to stimulate our organizations and see what

5 happens for small losses.

6 PARTICIPANT: Turn off the electric

7 power in the town.

8 MR. KRAMER: Right, for a few minutes

9 and see, and you learn a lot.

10 (Laughter.)

11 MR. KRAMER: Hopefully, hopefully.

12 Anyway, sorry for the length of those, but three

13 different observations.

14 MR. KLEINDORFER: Just a very small

15 comment. I found the list of what we believe are

16 appropriate trust, confidence and answers,

17 reliability, accessibility, voice very interesting.

18 Just to add what is floating around here as the

19 fourth, which is legitimacy of purpose, or

20 legitimacy of coherence.

21 To come back to your point, Joe, that's

22 what really -- when you nick away at that, when you

23 see somebody that's supposed to be running a bank
160

1 and doing some prudent things there and they're off

2 playing derivatives markets in a very irresponsible

3 fashion or when you see somebody that's supposed to

4 be doing, let's say, utilities and they're off

5 running information systems and software and doing a

6 number of things that also turn out to lose them

7 money, you know, and I could go through a number of

8 other companies, it's because their legitimacy and

9 their coherence of purpose is just not being viewed

10 as being in line. Their behavior is not in line

11 with that.

12 So I think absent that, one also sees,

13 just to add to this I think very helpful list of

14 what --

15 MR. LEWICKI: Is that in typewriting or

16 is that --

17 MR. KLEINDORFER: -- be disappointed.

18 MR. LEWICKI: Is that integrity? Is

19 that different from integrity?

20 MR. KLEINDORFER: I think it's

21 different. You see, I think integrity perhaps

22 contributes to legitimacy, but I put under

23 legitimacy of purpose that people looking at an
161

1 organization or institution say, "You know, those

2 guys, those folks over there, they're an electric

3 power company. They seem to be doing electric

4 power," but, you know, when they do what, you know,

5 NGC and National Grid Company and others have done,

6 which is they generate lots of cash and then they

7 start investing in all sorts of things that have got

8 nothing to do with their underlying competence, then

9 people say, "Why don't I have a little bit of that

10 in a bill reduction? What are those guys doing?"

11 And then you see no failures, but you

12 see an erosion of trust and confidence and all sorts

13 of repercussions that stem from this not being a

14 legitimate enterprise.

15 MR. GARBER: Ray.

16 MR. HIEBERT: I just want to get on the

17 agenda for after lunch.

18 MR. GARBER: You've got it.

19 CHAIR CULNAN: Put him first up.

20 (Laughter.)

21 MR. GARBER: All right. Well, in terms

22 of confidence, then I have some confidence that

23 there's food out in the hallway, and so we'll just
162

1 go and see if that's fulfilled or not.

2 So we're adjourned for at least 30

3 minutes, and we'll reassemble at one o'clock.

4 (Whereupon, at 12:32 p.m., the workshop

5 was recessed for lunch, to reconvene at 1:00 p.m.,

6 the same day.)

7
163

1 AFTERNOON SESSION

2 (1:21 p.m.)

3 MR. GARBER: There are three things I

4 would like to try to get to here in the time that's

5 remaining. The discussion this morning was great,

6 and it went in a lot of different directions, which

7 is good, and I think the first four points, the

8 first four questions, I think we addressed to some

9 degree or another to the point where unless someone

10 has a particular point they'd like to make about

11 those, I would suggest the three things we ought to

12 look at is:

13 One is the elasticity of public

14 confidence and infrastructures. In other words, how

15 bad does bad have to be before people begin to lose

16 confidence?

17 The second thing that we want to get to

18 is the role of the media because there's been

19 several comments about that from around the table,

20 and we want to discuss that a little bit and kind of

21 talk about the kind of --

22 CHAIR CULNAN: And also the role the

23 media plays in helping people make risk assessments
164

1 also because I think that plays into that, or if it

2 doesn't, we would like to know that, too.

3 Excuse me.

4 MR. GARBER: Yeah, sure.

5 And the last point and probably a key

6 question for the members of the Commission here, and

7 that is what should the role of government be in

8 maintaining public confidence in the critical

9 infrastructures.

10 And I will artificially move to that

11 question about, oh, 20 to 30 minutes before we are

12 going to wind up here because that's the critical

13 one as far as I think the Commission is concerned

14 that we would not want to leave unaddressed.

15 So perhaps we can move to the question

16 of how elastic or resilient is public confidence in

17 various infrastructures. Is there someone who might

18 do me the favor and whatnot of leading off on a

19 discussion of this?

20 CHAIR CULNAN: Or even what's the

21 endpoint? Does anybody even want to hazard a guess

22 of at what point do, you know, people defect if they

23 have choices or, you know, demand government action
165

1 if they don't have choices or whatever?

2 MR. GARBER: When do people holler

3 "uncle"?

4 CHAIR CULNAN: Yeah.

5 MS. ZUCKER: I was going to say I'm not

6 quite sure the question is phrased right. Maybe

7 that's the problem because I think it's like how big

8 a loss would it be -- say that you don't have

9 confidence in it. How much is it going to cost you?

10 Because that's going to have a lot to do with both

11 when you feel you lose confidence and how salient

12 that is to you.

13 So it's that same issue we were

14 addressing before about, well, how much is trust

15 worth. What are you willing to pay? You know, how

16 much is it worth to you, either time, money,

17 whatever, some resource?

18 MR. KLEINDORFER: If I were running, you

19 know, as a multi-dimensional logit study or

20 something, you know, based on the survey instrument,

21 then what I would try to do is to have some outcome

22 variables that would be levels of trust or

23 confidence, some predictor variables that would have
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1 to do both with demographics as well as recent

2 experience, and perhaps some confounder variables

3 that might experience correlations across them.

4 Then I'd try to carefully determine on

5 the basis of appropriately placed risk questions

6 what were the determinants for those parts of the

7 population that did express a strong level of trust

8 or confidence in the government, in the

9 infrastructure that would be different, you know,

10 levels there. What was, in fact, driving that? For

11 those who didn't, what would drive that?

12 But I don't have any data. Does anybody

13 have any data already that they would say about

14 this? I agree with your comment, Lynne, that you'd

15 have to be a lot more specific about what you mean

16 by "elasticity."

17 I think of it in terms of what factors

18 actually drive people to have increased confidence

19 or lower confidence or whatever, but that may just

20 be my data driven aim to life.

21 MS. ZUCKER: I think no one has got it

22 down very closely, but what Michael was presenting

23 before about the banks, at least you've got some
167

1 evidence that, gee, the level changes over time, you

2 know. This is just very general. It's a public

3 random survey.

4 MR. GARBER: Doris.

5 MS. GRABER: I think from the standpoint

6 of the Commission and the country, in general, it's

7 important not so much when the individual loses

8 confidence, but when it becomes a mass phenomenon,

9 and I think in that it becomes a level of activity

10 or level of analysis problem in the sense if you

11 have, let's say, a local company or a local bank or

12 whatever, it's very word of mouth that spreads the

13 story that this company isn't trustworthy.

14 On the other hand, I think in terms of

15 the large-scale defections, if it's at the larger

16 level, like you take something like the Tylenol

17 situation, I think that is generally media driven.

18 When the driven come out and then you'll hold a

19 number of people and then that becomes reinforced by

20 interpersonal conversations, you know, that there's

21 something wrong with this particular product, and I

22 think this is where the media can do at times a

23 great deal of harm when they exaggerate what is
168

1 really wrong.

2 On the other hand, if they handle it

3 right, they can also do a good job in pointing out

4 that this is an isolated incident and it's not

5 likely to occur.

6 But sort of in terms of elasticity, if

7 it's just your own, you know, individual thing that

8 you have lost trust and you don't communicate that

9 to others, a lot of individual things can happen, an

10 when nobody finds out about it, it doesn't matter.

11 They tell a story about an attorney in

12 Chicago who got involved in malpractice and was all

13 over the major Chicago papers about, you know, what

14 he had done, and somebody asked him and said, you

15 know, "There must be two million readers here who've

16 read this. What are you going to do now in terms of

17 your practice?"

18 And he said, "Well, I'll practice for

19 the five million who didn't read the story."

20 (Laughter.)

21 MS. GRABER: So this is what I mean by

22 media driven. If the media get it all over and it

23 then moves on, and that takes a while for that to
169

1 happen, then I think you lose your resilience.

2 On the other hand, somebody else hears

3 the Tylenol example, and there it's been amazing to

4 me really how quickly Tylenol in the end did come

5 back, and the thing that I felt restored the

6 confidence so much, they somehow into their

7 advertising worked something that this is the pain

8 killer that hospitals use most, and so you got a

9 transference from the concept of hospital as a place

10 we trust to Tylenol after a while.

11 So I think the elasticity is both ways.

12 I mean, for a while sales really dropped like a

13 rock, but then they came up very fast, again. So it

14 can be quite buoyant.

15 MR. BIES: Just a quick follow-up to

16 that. As you think about elasticity, the socially

17 constructed reality is socially constructed in the

18 sense that it's just not the media giving one slant.

19 I mean I do a lot of work under the type of

20 explanations and accounts and excuses, just the

21 cases people give as part of the rapid response.

22 If your identity is attacked and you've

23 got bad news performance, I'm going to be out front
170

1 maybe hiring one of those high, fancy, information

2 public relations legal type firms.

3 (Laughter.)

4 PARTICIPANT: Who's he talking about?

5 MR. BIES: Yeah, yeah. Because that

6 sort of spin in terms of giving another -- and I

7 don't use "spin" in a negative sense -- I mean

8 giving an impression because there was often

9 uncertainty about what actually happened.

10 So the whole notion of rapid response to

11 attacks on identity is going to shape this debate,

12 too, and it's going to be back and forth.

13 So if the media comes out with a bad

14 story, I immediately respond with something. Okay?

15 So I think you have to look at how the managers of

16 the infrastructures are going to defend their own

17 identity, and that will affect the elasticity as

18 well.

19 MR. GARBER: I'm sorry. Was there

20 something? Yes, sir.

21 MR. DARBY: One thing that Tylenol did

22 right, first I'm sure they helped get across the

23 perception that, "Look, you know. Nobody before had
171

1 ever thought of capsules as having this danger. It

2 was an act of God, and look. Now our product will

3 be sold only in tablets and these sealed caplets.

4 We've come up with a technological innovation to do

5 it."

6 But they also handled the media

7 certainly very well, and I notice that the schools

8 for executives, you know -- how are you going to

9 deal with the media, right? The first thing they

10 show you to convince you that you really should pay

11 attention is like the Bhopal press conference

12 afterwards or the Exxon after the Valdes.

13 And so there is sort of at least a

14 private sector. A lot of executives are learning

15 that they've got to be prepared, that they could go

16 around the corner and there would be 12, 15

17 reporters with cameras and microphones.

18 So I think that's a changing

19 responsiveness.

20 MR. GARBER: There was also in the case

21 of Tylenol, having had a little insight into that,

22 not first hand, but about second, is, you know, the

23 company's reaction of pulling all their product off
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1 the shelves, and that was kind of decided in a

2 rather rapid fashion among several different folks

3 who kind of said, you know, "What should we do?"

4 And on the one hand, the attorneys were

5 saying, "Well, we may be liable for lawsuits if kind

6 of admit this," and then you had the comptroller who

7 was concerned about how much money the company was

8 going to lose by doing that, and they really sort of

9 came back down in that particular case at Johnson &

10 Johnson to say, "What are we all about?"

11 And the one thing that they felt they

12 could not lose is what this seminar or what this

13 workshop is all about, and that's trust, and that

14 was sort of the defining factor that ruled the day,

15 and it wasn't like it just happened automatically

16 because in board rooms, as all of you know, that

17 decision does not come easily, despite the fact as

18 we sit here in the library of Georgetown University

19 it seems obvious, but it's not always obvious, and

20 so it kind of came down to what do we as a company

21 stand for, and that kind of led to, "Well, we have

22 no choice. It's got to go," despite tremendous risk

23 an expense to the company.
173

1 But in this particular case, combined

2 with other things that Doris talked about, the

3 company certainly is one of the most prestigious

4 firms in the world today.

5 So, anyway, let's see. Ray?

6 MR. HIEBERT: Well, I think we've moved

7 from elasticity to media.

8 MR. GARBER: Well, we almost did.

9 MR. HIEBERT: I want to say a couple of

10 things about bad news because that's come up

11 already. There's a real difference between bad news

12 and inaccurate news or bad news and exaggerated

13 news, and I don't think that good news is

14 necessarily any guarantor of public confidence.

15 The best example, again going back to my

16 own experience, is the Soviet Union where everything

17 was always good about what they were doing, and yet

18 nobody had any confidence in that government

19 whatsoever, and everything was bad about what

20 America was doing, and yet nobody had any ill will

21 toward America.

22 As a matter of fact, when I go to

23 Eastern Europe, kids there when they want to say
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1 what's really cool, they say, "That's real America,"

2 because even in spite of 40 years of hearing that

3 America was evil, the evil empire, nobody trusted

4 what they heard.

5 So it's easy to always blame the

6 messenger for the bad news, but remember that the

7 media didn't do the evil things. They're just

8 reporting on it, and I'm quite happy or I feel a

9 whole lot better when I can get access to

10 information about the fact that my mutual fund is

11 not performing well from Forbes or the Wall Street

12 Journal. If I had to trust my mutual fund for that

13 information, I probably wouldn't invest in the

14 mutual fund because I wouldn't believe them.

15 So I think that actually the media

16 providing bad news and tough news when it is

17 accurate and not exaggerated plays an important role

18 in building public confidence, in building public

19 trust in our institutions rather than making the

20 people lose confidence.

21 I think in the case of the fact of

22 people who watch a lot of television are most apt to

23 think of themselves as victims of violent crime, the
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1 problem is that television really does exaggerate

2 violent crime in society. So the media can be

3 excessive, and just the fact that we have free media

4 is also no guarantor that we're going to get the

5 truth.

6 But I think that the bottom line here

7 for both the media and for public institutions is

8 the word "credibility." If the institution doesn't

9 have credibility, the media don't have credibility,

10 then we're going to lose confidence.

11 I think public relations plays a big

12 role in credibility and the way we think of

13 institutions as credible. Unfortunately, a lot of

14 what the public perceives when they hear the word

15 "public relations" is what David talked about when

16 he talked about the con game, and Bob has talked

17 about the spin doctors and the hype meisters. They

18 are not necessarily what public relations is all

19 about because if public relations does its job well,

20 then I think it does what it did at the Tylenol

21 company, and it doesn't do what they did at Exxon.

22 In Tylenol, they insisted, the public

23 relations people at Tylenol insisted that the
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1 company be public, be open with what was going on,

2 call in the press, answer all the questions as

3 truthfully and factually as they could.

4 Exxon did just the opposite in the

5 Valdes episode.

6 I think what we're talking about also

7 when we talk about spin and hype is the role of

8 language and how language can be corrupted, and when

9 language gets corrupted, it seems to me that we are

10 going to have a problem in credibility, if not

11 immediately, over the long haul.

12 A lot of people, a lot of the spin

13 doctors and hype meisters get away with corrupting

14 the language for some quick fixes or some short-term

15 gains, but in the long run it does harm to public

16 perception when people find out that the spin had

17 been corrupted.

18 Just a couple of examples. I think to

19 take the term "homosexuality" and show that we're

20 talking about alternative life styles instead of

21 sexual deviation might not be immediately accepted

22 by a lot of people, but, on the other hand, it

23 provides a lot of insight into something that can
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1 open people's eyes, and in time may change

2 perceptions.

3 But to use another kind of way of

4 corrupting language or reusing language, during the

5 Gulf War when the government talked about smart

6 bombs, it was a quick fix, and it told people

7 quickly that, boy, we're just hitting military

8 targets, and we're really doing our job, and we're

9 not hurting civilians at all, and people believed it

10 in the short term. We all thought that that's the

11 way it was working.

12 In the long term, we found out that the

13 smart bombs weren't nearly as smart as we were told

14 they were, and now I understand the figures that are

15 widely accepted is that hundreds of thousands of

16 Iraqi civilians and children were badly maimed and

17 killed by the so-called smart bombs.

18 As that information begins to seep into

19 our understanding, we begin to lose trust, and so

20 what we have here is a corruption of language that

21 ultimately destroys our confidence. That, I think,

22 is what we ought to try to avoid and emphasize

23 accurate news instead of the corruption of language.
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1 MR. GARBER: Bob.

2 MR. BIES: If I can sort of build on

3 that, Dick Morris had a great saying. He who

4 defines first defines last. I just thought I'd just

5 throw that out. That's an important point to

6 remember in any of this discussion, defines first.

7 That's also good, maximum public relations, being

8 the first out there.

9 The thing that puzzles me from the media

10 because I'm not an expert on it, but as one who has

11 listened to some talks about how certain

12 controversies are handled in the media, take the

13 Dow-Corning breast implant issue. Okay? What do

14 most people think about the Dow-Corning breast

15 implant issue? Dow-Corning made these fraudulent

16 products that cause all of these bad things to

17 women.

18 The fact of the matter is all of the

19 scientific evidence is in, and it's not true. Okay?

20 So two things come out about that for me -- well,

21 three things.

22 One is that in order to make judgments

23 about what caused something, it may take time to do
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1 that analysis. Look at our impatience with TWA

2 flight. It takes time, and we want instant answers.

3 So we want instant sort of sound bite answers.

4 So the media needs to present that, and

5 that's part of their job, but also their inability

6 to communicate complex scientific type data, and I

7 mean, I've been interviewed by reporters, and the

8 media plays a very important role. The newspapers,

9 but their inability to think in more complicated --

10 they're not scientists. Okay?

11 What's a sound bite of your research on

12 revenge? You know, well, it's more complicated than

13 that. So their inability to communicate.

14 CHAIR CULNAN: That's why there's no

15 press on critical infrastructure protection.

16 (Laughter.)

17 MR. BIES: But the media feels, and

18 rightly so, feels compelled to get something out

19 there, but they may not be able to give a complete

20 story. So it becomes inaccurate, and we end up

21 believing it.

22 I mean you end up believing. There's a

23 new book out about a woman from the journal of New
180

1 England medicine. The editor wrote it and said,

2 "Look at the evidence," but you know, it's hard for

3 us to understand that. So it takes time to get it.

4 MR. DARBY: Think about being

5 interviewed on the Federal Reserve quarter point

6 rate hike. Well, what does this mean to the average

7 guy on the street? What does this mean to Joe Six8 pack?

9 MR. BIES: It's a little more complex.

10 MS. GRABER: But the media, they have to

11 deal with the readers, and even if they understand

12 it, which they very often don't, they still have to

13 put it down to the point where somebody with an

14 eighth grade education can understand it.

15 MR. KLEINDORFER: If you really give

16 them an answer to that, Mike, they say, "Boring."

17 MS. ZUCKER: Well, wait a minute. Don't

18 be too harsh on them because remember we're writing

19 college textbooks now that are being used at

20 Stanford and UCLA and Harvard that are aimed at

21 junior college students. The target market of

22 textbook publishers now is junior college level

23 understanding. So I mean should we be so tough on
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1 the media?

2 MR. LEWICKI: I'd like to hear some

3 thoughts from some of the journalism people here and

4 so forth about -- I made a statement before about

5 distrust sells or bad news sells, and I guess I

6 think that to the extent that we use the media as a

7 vehicle for understanding infrastructure and we

8 judge how much we should trust or distrust the

9 infrastructure based on the way it gets represented

10 through the media, on the one hand, the media has a

11 tremendous responsibility then either to give a

12 balanced perspective or even give us a perspective

13 that maybe we should trust the infrastructure, but

14 that may not be newsworthy.

15 So for those of you who understand the

16 way the media operates, I mean, do they talk about

17 these issues? Do they debate back and forth sort of

18 what sells papers versus what responsibilities they

19 have to communicate?

20 And it's not accurately. It's more the

21 role that they have for representing other

22 complicated parts of our society to the general

23 public.
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1 MR. HIEBERT: The public also has a

2 responsibility to select the media that will give

3 them the full and accurate information, and I'd like

4 to have a choice available in my life where I can

5 choose those media that I think are doing a good job

6 and stay away from those that aren't.

7 But there are a lot of factors that are

8 mitigating against really good journalism these

9 days, and I think this is widely communicated within

10 the media and academic circles where we're concerned

11 about the media.

12 There is a growing corporate journalism

13 that's placing the emphasis on profitability rather

14 than public service. That's a problem. There is a

15 -- it's easy to abuse information when you have to

16 reduce it to a sound bite or a photo op. on

17 television, and of course that's a problem.

18 It's harder and harder for journalists

19 to get full and accurate information from those

20 institutions that don't want to give full and

21 accurate information. That's a problem, too.

22 So I think it's something we all share.

23 It's not an adequate answer, I think, just to blame
183

1 the media for these failures, but they certainly are

2 failing in a lot of ways.

3 MR. GARBER: Doris.

4 MS. GRABER: I've done a lot of content

5 analyses myself, and I think I've seen literally

6 hundreds of analyses of media coverage on certain

7 topics. Most of them are done on major newspapers,

8 like The New York Times, Los Angeles Times, et

9 cetera, and one of the things that has always struck

10 me is that if you're trying to talk about, you know,

11 bad comments, good comments, and neutral comments,

12 the vast majority of all commentary about things

13 that happened is neutral. You rarely see that

14 reported in scientific journals because the neutral

15 isn't terribly interesting. So they cut out the

16 neutral, and they just look at how much positive and

17 how much negative, and there very often the negative

18 prevails because after all, as somebody pointed out

19 earlier, you know, if the trains run on time or

20 something like that, that's not news. It's only

21 news if it's something that's errant in terms of

22 what one really expects. So there is a balance

23 towards bad news.
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1 The thing that strikes many of us now is

2 our local news, and I'm talking now television, that

3 that's all full of crime, which again is true and

4 there are people that do pay attention to that.

5 That's also an economic decision in terms of, you

6 know, it's cheap to go to the police station. You

7 always find something new. You get the police

8 blotters. So you put that on. You know you're

9 going to have an audience for that for which you're

10 going to get some rating.

11 So those are some of the systematic

12 things that assist them.

13 The other part, I think, that is

14 important to understand is that negative information

15 is processed in a different part of the brain than

16 positive information. It goes more into the limbic

17 system, which deals with emotions, et cetera, which

18 gets the hormones involved and then becomes more

19 imprinted, and you have much better memory

20 structure.

21 So compared when you hear good news and

22 bad news, one tends to remember the bad news, and

23 that's part of the human survival process because,
185

1 you know, we've got to be alert to bad, threatening

2 news and so that becomes more imprinted on our

3 brains.

4 So even in terms of consumption, we tend

5 to in our own reading of things and listening to

6 things single out the things that are negative and

7 have an impression more of the threatening things

8 that we need to be aware of than the things that we

9 can just sort of pass over. "Okay. That's

10 happening. Fine. You know, it doesn't bother me."

11 So I think everything points in the

12 direction of paying attention to negative news and

13 partially featuring negative news, but the realities

14 are if you really look at the media, that there's

15 not nearly as much as we think.

16 MR. GARBER: Dan.

17 MR. McALLISTER: I want to build off of

18 Doris' comment, but bring it back to the question of

19 trust and distrust and its prevalence. It seems

20 that institutions of accountability are critical to

21 the protection of trust. Bob's comment that you've

22 got to have legitimate sanctions in place to make

23 general belief that trust is protected in some
186

1 senses.

2 And then I think about kind of how do

3 you preserve trust and how do you stop distrust from

4 filtering and just pervading. The answer is you

5 create institutions, groups, the roles that are

6 specifically designed with distrust in mind. Call

7 them police. Call them certain types of agents.

8 Call them the CIA or organizations like that, but

9 there's also the media, which somehow fills an

10 institutionally informing role.

11 And Doris' comment is that while there's

12 a good element of neutrality, the emphasis and the

13 way it's read is that the negativity comes through.

14 So the comment is it's all the more important that

15 we understand the role of that negative because it's

16 what's read, and it drives the distrust if

17 anything's present.

18 The question is: what sort of

19 arrangements can we have whereby we can distrust

20 without it pervading and limiting our ability to

21 trust in the process?

22 MR. GARBER: Paul.

23 MR. KLEINDORFER: I want to perhaps
187

1 reflect on the importance of both mistrust and trust

2 with respect to the media and when it's important in

3 the infrastructure area.

4 In those areas, if we take, let's say,

5 purely private goods like electric power and to a

6 certain extent telecommunications, I would say there

7 whatever the media wants to do, let them do it. If

8 they're selling newspapers and they're writing great

9 fantasy stories, let them be held accountable

10 eventually. They shouldn't print rank nonsense or

11 untruths, subject to the libel laws and the rest,

12 but I don't have a problem with whatever it is that

13 they do.

14 These are private choices that citizens

15 make as to what it is that they want to purchase,

16 how much they want to induce their utility to

17 provide them with various kinds of services.

18 They've got increasingly choices available to them.

19 Let me switch choices. That's no problem.

20 So in those private areas where trust is

21 easily monitored and reinforced through choice, no

22 problem with the media.

23 When you start moving out to areas where
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1 trust is important in terms of the choices that

2 people make, real economic of lifestyle choices they

3 make before the fact, or where it is really public

4 good that only is going to be provided by a private

5 provider, but it's primarily a public good that's in

6 question, whether it be defense or education or the

7 security of the telecommunications system for

8 financial transactions. Those are fundamentally

9 affected by public characteristics.

10 There mistrust can have profound

11 implications on the economic choices that are made

12 to provide a secure existence against what one

13 believes might be realistic and potential

14 vulnerabilities that one faces in one's personal

15 life.

16 So I would distinguish ends of the sale

17 in which, you know, I would be very concerned if I

18 were a government agency to distinguish, as this

19 Presidential Commission is, what are the really

20 strategic vulnerabilities, but also what are the

21 strategic vulnerabilities which we cannot and should

22 not count on the average citizen to be self-reliant

23 and with their choices to be able to be responsible
189

1 and responsive in those choices.

2 In those areas, I believe that we should

3 not play a patriarchal role in any way, not this

4 Commission, nor anyone else. Let the market of

5 ideas take place, but in other areas, I think that's

6 where the public area and where trust can profoundly

7 affect the choices that people make before the fact

8 as to what they do with their lives, what their

9 assets and what their investments and so forth are.

10 There is an area where I would say we

11 have to be very concerned about working with the

12 media to make sure that the right picture, the right

13 information, whatever that may be, gets out. I

14 would be a lot more careful about that area of the

15 spectrum.

16 MR. GARBER: Any other media comments on

17 the role of the media?

18 MS. GRABER: I have just a question.

19 What are you talking about? Censorship?

20 MR. KLEINDORFER: No, I'm talking about,

21 for example, in this Presidential Commission what

22 one would be interested in providing, I believe, are

23 some guidelines, some standardization, and so on,
190

1 for determining what really are the vulnerabilities,

2 let's say, in respect to the number of blackouts,

3 the probability of blackouts in particular areas.

4 I would be mildly in favor of that in

5 order to provide citizens in this very important

6 area, which is almost a public good, namely, the

7 reliability of their power system; I'd be in favor

8 of having an independent assessment of that.

9 I don't necessarily think this

10 Commission would do it, but they should suggest that

11 the industry, for example, through Electric Power

12 Research Institute or through the U.S. Telephone

13 Association or other industry associations, that

14 they would get accredited, monitored, attested

15 reports that for various regions of the country

16 would say, "Here's how vulnerable you are to

17 earthquakes, to catastrophic hazards of various

18 sorts. Here's what will happen. Here's what

19 emergency response methods are in place."

20 Now, you see, that information is

21 something I wouldn't like the media to somehow be

22 given full responsibility to uncover and just report

23 what from the point of view of good journalism might
191

1 be the part they'd like to report. I'd like to see

2 government and the emergency response agencies, in

3 fact, be deeply involved in crafting the nature of

4 that message, but that would be what I was referring

5 to.

6 MS. GRABER: Well, just a quick response

7 on that. There was much concern about misleading

8 advertising during elections, and so in the last

9 couple of years, the last two elections actually, we

10 had this thing called ad watches appearing in

11 newspapers, with the idea being that, you know, the

12 media were independent, and they were going to look

13 at this and really point out what some of the

14 misleading things were.

15 And I think it has had, on the whole,

16 some influence on the advertisers up to a point. On

17 the other hand, audience studies show that the

18 audiences, those who did read this sort of thing,

19 and it was a relatively small percentage, what it

20 did actually for them was reinforce the misleading

21 aspects of the message.

22 They were reading that part, and some

23 people who hadn't heard the ad, this was their way
192

1 of hearing the ad.

2 So, you know, while I certainly can see

3 what you're saying, there's some real difficulties

4 in doing this sort of thing and getting the right

5 kind of result.

6 MR. GARBER: Ray, you're next, but let's

7 go ahead and continue, I mean, after Ray or maybe as

8 part of your presentation what Paul kind of began to

9 lead us into the last, final, main question here,

10 and that is the role of government.

11 So, I mean, Ray, you go in any direction

12 you want, but let's kind of move in that direction

13 either with you or after you comments.

14 MR. HIEBERT: One quick question of my

15 own, and that is: should the media have the burden

16 of making the people feel confident about

17 institutions or should the institutions themselves

18 have the burden of making sure they're doing what's

19 in the public interest and thus will earn public

20 trust?

21 And I'll just use this platform to get

22 into government. I think that I'm a little worried

23 about Big Brother, as the government, because of my
193

1 own experience, I suppose, but clearly, it seems to

2 me that government also has to be trustworthy; that

3 government, as the policeman of the trustworthiness

4 of the rest of the private sector, might be going

5 too far, but I think government has to be

6 trustworthy, and I don't know who's going to police

7 that if the media don't.

8 MR. KLEINDORFER: We, the people.

9 MR. HIEBERT: Well, if the people are

10 misled.

11 MR. KLEINDORFER: It's a problem, isn't

12 it?

13 MR. HIEBERT: It is.

14 MR. GARBER: Please.

15 MS. ZUCKER: I guess Michael and I in

16 our statement wrote a bit about this, and I don't

17 want to take -- I want to try to take explicitly a

18 nonpolitical, you know, way of dealing with this,

19 and so that kind of limits examples I can use.

20 But I think it's extremely important to

21 look at the kinds of problems that government was

22 supposed to be solving and, you know, our rationale,

23 kind of the academic rationale anyway, for
194

1 understanding why we have government providing it in

2 the first place. It's for activities that otherwise

3 wouldn't be in individual self-interest, but are in

4 the interest of the collective.

5 And it seems to me that as government

6 has grown, that that has somewhat been lost sight

7 of, and so we need to think very carefully and

8 hopefully without ideology, I mean, you know,

9 without thinking, "Well, the government must do

10 this," or, "I personally think this is important.

11 So, therefore, the government should be in it," but

12 rather, really think about added value.

13 You know, what is the added value of

14 having government in each of these specific areas,

15 and then say: Okay. What would be the best

16 strategy? Is it regulations so that you still have

17 a competitive private sector operating, but you

18 regulate it? And if so, what is your idea about

19 what regulations should accomplish?

20 Is the regulation, in fact, meeting the

21 standards of procedural justice? Because what we

22 often see, in fact, as we look at the details of the

23 regulation is that it nowhere comes close to meeting
195

1 procedural justice. There are so many exceptions,

2 and most of them are politically advantageous to

3 make.

4 And so you get a system which actually

5 is very corrupt, although on the surface it looks

6 like, well, here, the regulations are in place, and

7 this is the system, you know, kind of how it's

8 written, but how it's actually enacted is something

9 very, very different from how it's written.

10 The general feeling of unease that

11 people might have or maybe their perception of kind

12 of a lower confidence in government may not be the

13 really major threat to the system because in most

14 cases, that doesn't directly impinge on their

15 activities. It's not something that is critical to

16 them.

17 I think where these institutions impinge

18 most on activities of other organizations and

19 individuals is where these kinds of problems really

20 have very dramatic effect.

21 So that actually by kind of looking at a

22 general overall decline in public confidence, we

23 really minimize the seriousness of problems we have
196

1 in some areas, and we exaggerate problems we have in

2 other areas. In other words, we don't really have a

3 good calibration of what the problems are. We just

4 tend to see them, okay, globally. Here you go.

5 These are sort of in decline, and you know, what's

6 wrong with our public institutions?

7 But actually it's extremely uneven. So

8 there are some places where we have, you know,

9 relatively good systems, and I think, you know, FDA

10 is an example of a fairly transparent agency which

11 actually does a reasonably good job. The drug

12 industry will scream. I mean there are problems

13 because sometimes it's very slow, and I guess the

14 privatization, partial privatization of it with the

15 idea that the -- I'm sorry. It's more of the Patent

16 Office to deal with similar problems, might also be

17 applied eventually to FDA.

18 But I'm not saying privatization is

19 always the solution. I'm not trying to not take a

20 particular political point of view, or what can be

21 taken as a political point of view. I'm really

22 trying to say that each -- each case has to be

23 looked at individually. You have to see what the
197

1 rational is and then ask ourselves, you know, what

2 is the best solution for this particular problem.

3 But to identify the problem takes really

4 careful measurement of the stakeholders that

5 actually involved in it, not just the public opinion

6 survey.

7 MR. KRAMER: All right. I was just

8 going to say, that from my stand point, in terms of

9 thinking about what should be the role of the

10 government and public institutions in maintaining

11 public confidence, if this was a wish list

12 commission, in the sense, I mean, I sometimes think

13 we take a long enough and deep enough prospective on

14 these kinds of questions.

15 I mean, a lot of the concerns that have

16 surfaced today, I think, are about how to trust and

17 distrust wisely or prudently. Under what

18 circumstances should we trust and under what

19 circumstances should we worry?

20 And those are skills. Those are

21 cognitive behavioral skills. I don't know if any of

22 you saw "20/20" last night. Paul Eckman was on

23 talking about his research on lying detection and
198

1 the detection of deception, which a learnable skill

2 and a useful skill. I teach it to the MBA's.

3 (Laughter.)

4 (Simultaneous conversation.)

5 MR. KRAMER: It depends on which course

6 it is.

7 (Laughter.)

8 MR. McAllISTER: But, you know, what's

9 apparent to a person that is involved in education,

10 I think in lots of ways it really a shame we don't

11 teach these fundamental social skills earlier in

12 life.

13 You know, we try to teach leadership to

14 government students and MBA's and adults when it's

15 really to late, not to be cynical or pessimistic,

16 but in a sense it's to late. You should be teaching

17 children about issues of trust and what it means to

18 have public confidence and wariness about

19 institutions.

20 I'm surprised, you know, we resist so

21 much bringing this into the curriculum of our

22 education of the young. We always wait until it's

23 to late. And when I grew up there was a feeling, I
199

1 think, in society, that this should be left to

2 parents, that this is a parental prerogative.

3 But I think now there is a feeling that

4 parental prerogatives have kind of failed in a lot

5 of domains, and I think if you look at the popular

6 book write now, On Emotional Intelligence by Dan

7 Goldman, I think the real message from a lot of that

8 research that he talks about in that book is that

9 these social, emotional skills are very teachable

10 and learnable, and we have a good understanding of

11 who's good at it and who's not good at it, and it is

12 a shame we don't get some of this into our

13 curriculum.

14 So I would like to say if this was a

15 wish list, it would be nice to get some these issues

16 introduced into our educational institutions earlier

17 so that people really can learn to think about these

18 issues as they grow.

19 MR. HIEBERT: Just one addition to that,

20 Dan, is I think we should all teach children media

21 literacy --

22 MR. McALLISTER: Yes.

23 MR. HIEBERT: -- so that they will know
200

1 how to separate out the exaggerations from the

2 realities.

3 MR. KRAMER: Yeah, trust them to be

4 sophisticated consumers.

5 MR. HIEBERT: The messages they get.

6 MR. KRAMER: Yeah, I think that's

7 exactly right.

8 MR. DARBY: What you were saying is also

9 saying that the government should be concerned when

10 there is a lack of distrust in institutions that

11 have earned distrust, or that at least we as

12 citizens should be because it is a valuable skill,

13 the distrust.

14 MR. KRAMER: That's right. Democracy

15 was founded on the mutual distrust of the systems,

16 checks and balances. It is a system of distrust.

17 MR. GARBER: Paul.

18 MR. KLEINDORFER: I want to raise

19 another issue with respect to the boundary of

20 government and private -- what should the government

21 do, and perhaps what they shouldn't do.

22 With just the anecdote that I reflect on

23 also in the little note that I produced based on
201

1 some research that we've been under taking at my

2 center on the environmental side, and this is a area

3 in which, you know, the framework that I've been

4 using to think through this private actions/public

5 actions required -- they're both public and private

6 actions. The public acts here are set of

7 standards and perhaps measurement and perhaps

8 publishing of information. The private actions of

9 individuals and companies, and so on, have a very

10 undeniable effect on the quality of the environment.

11

12 Now here is an example, just to evoke

13 something in our mind about the role of government.

14 In the ozone area, ground level ozone, we've seen

15 some communities successfully -- Tulsa is an example

16 of this -- implement episodic voluntary ozone

17 control, so-called EVOC.

18 Now what these do is they have citizens

19 and businesses on those few days of the year in

20 which ground level ozone is going to be a very

21 significant problem, a dangerous problem, arguably,

22 undertake voluntary actions. There is a whole list

23 of such actions.
202

1 And the role of government in this

2 respect is to attempt to get a validated model and

3 monitoring systems for what ground level ozone is in

4 various parts of that region, or any other region,

5 any other airshed; to monitor that and to

6 demonstrate what those are so that one has reliable

7 readings. You're not exercise -- involved in an

8 exercise sympathetic magic when you go through these

9 voluntary ozone controls. You are really responding

10 to a real danger.

11 But in the process we see not just

12 volunteerism, but a sense of a public duty as really

13 a part of this.

14 What trust has to do this, this is a

15 fundamental part, I would argue, of the

16 environmental infrastructure. It sees the meshing

17 of individual actions and government action in a

18 certain way, not command and control, which would be

19 extremely or much more expensive in this particular

20 area, to cause everybody, everyday of the year to

21 put in investments in, to reduce the ozone drivers,

22 NOX and volatile organics.

23 That would be not very smart if, in
203

1 fact, you can do this in a much better way,

2 essentially relying on the self-reliance and self3 sufficiency of people who understand that it is

4 their problem.

5 Now, I could go on about the

6 difficulties of this respect, you know, because if

7 not everybody involves themselves, if the businesses

8 do this willy-nilly, if you do not have a sense of

9 trust generated that everybody is baring their fair

10 share in doing these voluntary controls, this is

11 going to be a real problem, and some cities have had

12 that.

13 But I do want to just with this

14 illustration point to the fact that it's an

15 interesting joining or coupling of individual

16 action, and government in this case providing

17 standards and information that in some instances can

18 be an important play delineating where the

19 government could and should be properly involved.

20 MR. GARBER: Is that an old single, Rod,

21 there? That's okay.

22 What else about government's role?

23 Joe. I'm sorry, did I miss you?
204

1 MR. MOORCONES: Yeah.

2 MR. GARBER: Look at that. He's

3 sitting right there. Holy cow. He's too close to

4 me.

5 MR. MOORCONES: I was just thinking that

6 the example of the FDA was a case, I gauss, where

7 the government sets up something that assures

8 adequate testing is done before products are allowed

9 for people to cure themselves or feel better or

10 whatever it might be.

11 You might say that the Defense

12 Department, putting my former hat on, the NSA,

13 provides assurance that we don't have foreign troops

14 come on our soil, and we're not threaten, and we

15 trust them to do that. It's sort of a preventative

16 role.

17 What role, if any, does the government

18 have or what role, if any, do infrastructure owners

19 have to prevent themselves from coming under what

20 we'll call cyber attacks? Should there be standards

21 for that? Should there be some degree of -- I can't

22 remember who mentions discovering of

23 vulnerabilities. It might have been Paul.
205

1 There might be some need for people to

2 do the assessment, look at themselves, and he was

3 referring to natural disasters. And they probably

4 do a good job at that, I think, from what we've been

5 able to find. But what about those

6 attacks or those penetrations that may active, done

7 by knowing and learning human beings? Okay? Trying

8 to cause some sort of damage against infrastructures

9 that are publicly owned that we all depend on, for

10 both defense, for both financial transactions, for

11 medical records.

12 Is there a responsibility here for the

13 public or private sector? I mean what might that

14 division be for that particular one?

15 MR. DARBY: I was thinking about the

16 financial system, and of course, it's hard to

17 recover if it goes down, and the federal

18 government's the ultimate Derringer, and that's sort

19 of part of the problem of whenever we use government

20 guarantees to create trust.

21 But to what extent do things like the

22 service guarantees in utilities where you have to,

23 you know, provide or pay up, and that provides an
206

1 incentive to protect yourself successfully against

2 cyber attack?

3 To what extent is there not a similar

4 incentive in the financial markets? I think there

5 is a lot there as long as the capital standards are

6 adequate, that the financial institutions will bear

7 the cost of being unsuccessful at that system.

8 We're talking during lunch about how

9 often do they actually get penetrated and what are

10 the losses. I suppose the question is, you know, to

11 what risk or what risk are they going protect

12 themselves? Presumably only the ones they expect.

13 So it's only to the extent there is a

14 realistic -- they see a realistic threat of a more

15 concentrated, maybe coordinated, threat that they

16 would try to protect against it.

17 MR. MOORCONES: If you're done with the

18 question, if you looked at a bad act as being

19 something that might be perpetrated using the

20 network, how does the public/private responsibility

21 roles fall out, given that their private networks,

22 the public needs, their private networks that the

23 government needs to even provide securance, and they
207

1 might view what's being attacked?

2 To what role do the owners and

3 operators, the equipment suppliers who provide

4 products that are put into these networks, how does

5 that balance come out or what should it be? Should

6 somebody set standards? Should somebody do some

7 studies, set some norms so that we have some

8 understanding of what our weaknesses might be?

9 We certainly don't allow the Defense

10 Department to. We would expect them to keep any

11 missile from ever hitting our soil or any foreign

12 soldier. They have a standard of zero tolerance

13 and --

14 MR. DARBY: That way we have no defenses

15 against --

16 MR. MOORCONES: Huh?

17 MR. DARBY: You know, we have no

18 defenses against --

19 MR. MOORCONES: Well, that's the

20 question. Look into the future. Is there a role

21 here? That's what I'm saying. Because if you look

22 into the future, is there a role here for this

23 vital part that we're all dependent on? And how
208

1 might that break up between private ownership, which

2 is truly where it ought to be? Okay?

3 You don't want public systems because

4 they don't work as well. They're not as robust;

5 they're as not technologically advanced; and they

6 may not provide us a competitive edge.

7 So how do balance protecting those

8 important --

9 CHAIR CULNAN: And at what price, if it

10 means you have to trade off your --

11 MR. MOORCONES: Yeah.

12 CHAIR CULNAN: -- civil liberties for

13 sort of zero invasion or, you know, 100 percent

14 protection in the electronic world?

15 See, because these are some of these

16 things that we are trying to grapple with and --

17 MR. BIES: Well, if it's framed in the

18 national interest, does it then not become at some

19 point a governmental issue, whether it's an agency

20 or some regulation, if it's in the national

21 interest?

22 CHAIR CULNAN: Oh, but there are

23 examples of -- I mean, just to talk about when I was
209

1 looking at the encryption debate where the

2 government's arguing it is in the national interest;

3 that basically if you are using encryption we have

4 to be able to get the key and de-crypt your messages

5 if you are a bad guy, and basically everybody and

6 even a lot of the people in the government privately

7 is backing away saying, "Forget it."

8 I mean, part of it is compounded by the

9 fact that we're also in a global economy. and it's

10 fine for the United States to say something, but

11 that once you leave our borders or our jurisdiction,

12 hey, you know, we're France. We don't care.

13 MR. DARBY: In point of fact, we

14 appreciate eliminating the American competition.

15 It's not that they don't care.

16 (Laughter.)

17 MR. DARBY: They encourage it.

18 CHAIR CULNAN: Right, right, yeah.

19 MR. BIES: Can I ask the commission?

20 CHAIR CULNAN: Yeah.

21 MR. BIES: I mean, you've obviously

22 grappled with this.

23 CHAIR CULNAN: We are grappling. Yes.
210

1 MR. BIES: What are the issues? What

2 are the alternatives?

3 I mean, you guys must have some sort of

4 staking out possibilities, states of the world. May

5 we react to those?

6 CHAIR CULNAN: Yeah. We are just moving

7 into that phase right now. We've been primarily

8 doing a lot of data intake, and as you -- we've

9 talked to a lot of different stakeholders, not to

10 much to the general public, but we've been doing a

11 lot of data gathering from business, in particular,

12 and local governments who are again all

13 infrastructure owners and operators and users to get

14 a sense of what their sense of the problem is, how

15 they framed it, what they think the government's

16 role should be or not be, and just what are the

17 problems.

18 MR. BIES: I think what is going to

19 happen here is the prevailing political climate in

20 this country is less governmental involvement, okay,

21 until there is a failure. It's like the definition

22 of a conservative is a liberal who is mugged the

23 night before.
211

1 I mean, you could be a civil libertarian

2 until you're mugged. Okay? And I think social

3 psychologically it's going to be a hard case for

4 much governmental interference.

5 I mean, I've met Dick Morris and Frank

6 Rizzo in the same day. That's pretty good.

7 (Laughter.)

8 MR. BIES: But the whole point being you

9 can have very different effort -- huge failures can

10 be a very different climate.

11 CHAIR CULNAN: Yeah.

12 MR. BIES: If you talk to people who

13 live in the projects of Chicago, you know, the Henry

14 Horner Homes, et cetera, they have no problem having

15 police there, cameras there, checking people for

16 guns because they're worried about their basic life

17 thing.

18 Now, the ACLU goes ballistic, but if you

19 live in that world, it makes sense because life is

20 more important then whether or not you're checked

21 on. So I think the issue about should

22 government be involved or not, it's going to depend

23 on failure experience to really define the debate.
212

1 Right now the debate will be defined: the

2 government's bad, the private enterprise is good.

3 CHAIR CULNAN: And how -- and the size

4 of the failure also.

5 MR. BIES: Yeah.

6 CHAIR CULNAN: I think.

7 MR. MOORCONES: But I think an example

8 here though that you used and people who are living

9 in as environment that's already turned very bad in

10 there --

11 MR. BIES: Right.

12 MR. MOORCONES: -- the question is

13 should we have made or someone have made an

14 investment so that that environment couldn't have

15 happened because the cameras may not be solving it?

16

17 And it's sort of this whole idea this,

18 this dimension of information and communications,

19 this global marketized. Who should be looking to

20 the future? Who should be trying to identify the

21 boundaries or set them or guide, okay, the way these

22 things are evolving to minimize, okay, cases like

23 that happening?
213

1 So that if things do go bad, all of a

2 sudden since we all depend on if it's national

3 security, it's finance, it's whatever, we'll all

4 need cameras, and there aren't enough cameras.

5 MR. BIES: Why not be a joint

6 cooperative government private industry watchdog

7 group? Why does it have to be private organization?

8 MR. MOORCONES: No, no, no.

9 MR. BIES: That's why I looked inside of

10 here. It says a cooperative effort between private

11 industry and government. I mean, why not have that?

12 Because I can't trust corporations alone

13 because they'll try to cut costs and -- but on the

14 other hand, government could be -- they have their

15 own agenda. Okay? Everybody has their own agenda.

16 Why not cooperative?

17 MR. LEWICKI: That comes back to what

18 Rod was saying a few minutes ago, and I mentioned

19 that the notion of balance is very powerful, which

20 is that it's not either/or because we have reasons

21 to distrust one or the other, but to the extent that

22 there's a check and balance in the system, we're

23 more likely to see the system in constant dialogue.
214

1 The problem with balance is that there's

2 a lot of room for diffusion of responsibility and

3 stuff falling through the cracks, and it also makes

4 it difficult to sort of figure out who screwed up

5 when it doesn't work.

6 But I agree with you. I don't think it

7 has to be either/or.

8 CHAIR CULNAN: But who watches the

9 watchdogs? Ultimately at some point somebody is not

10 being watched.

11 PARTICIPANT: The press.

12 CHAIR CULNAN: Right, the press.

13 (Laughter.)

14 MS. ZUCKER: Just compare Los Angeles

15 and San Francisco in how quick the earthquake damage

16 was repaired, and look at the two systems of

17 procuring bids for the work that needed to be done,

18 and then ask yourself what you want to end up with.

19 MR. HIEBERT: Can you explain what the

20 problem was?

21 MR. DARBY: In Los Angeles, it was an

22 emergency, and they quickly got out the bids before

23 any sort of "well, you know, since we're going to
215

1 have to rebuild anyway, let's redesign. Let's do a

2 little social engineering. Let's consider

3 alternative." They just went out with the bids,

4 went out on incentive contracts where the faster you

5 got it done, the more you made, and most of the

6 projects were done under time and essentially it was

7 rebuilt in a year.

8 In San Francisco, they're just about to

9 start letting out the bids on rebuilding some of the

10 freeways, and that was an earthquake in what, '89

11 versus '94.

12 MR. HIEBERT: Well, what happened in San

13 Francisco that they're so slow?

14 MR. DARBY: Well, you know, the

15 government had to decide what to do, and you know,

16 there was probably going to be --

17 MS. ZUCKER: Set up standards for the

18 bids and then --

19 MR. DARBY: -- the usual political horse

20 trading or whatever trading, and so nothing got

21 done.

22 MS. ZUCKER: So, you know, a few things

23 got fixed right away, but imagine Los Angeles, where
216

1 we had major freeways that, you know, were cut.

2 MR. DARBY: But so did San Francisco.

3 MS. ZUCKER: Yeah, but San Francisco

4 still has -- they just repaired one of them now, and

5 they just finished like a few weeks ago with one of

6 the major ones that, you know, was hampering traffic

7 for everybody, for the entire time the connector was

8 down.

9 MR. DARBY: Years.

10 MR. McALLISTER: I was thinking of a

11 little example, too, and I didn't know whether it

12 fit with infrastructure, but right now in the

13 Dakotas dikes around cities are seen as a good deal,

14 and Duff Roblin (phonetic) in Winnepeg, with his

15 nice little floodway around the city, is seen as a

16 hero, and he die it seven years ago.

17 But the thing is minimizing the number

18 of disappointments tells me it doesn't matter whose

19 responsibility or who's blamed. In the process

20 you've had one or two disappointments. Something

21 gets done, and there's action, and maybe it takes

22 one or two major cyber space type failures, and

23 government steps in, and it's appreciated for it. I
217

1 don't know.

2 Everyone should practice safe computing,

3 but beyond that --

4 (Laughter.)

5 MS. ZUCKER: But that doesn't really fit

6 the San Francisco-Los Angeles comparison.

7 MR. McALLISTER: No, it doesn't.

8 MS. ZUCKER: And in that case it was

9 kind of the courage to take action, to set

10 deadlines, and to say, you know, "If you're not done

11 by this date," you know, and to create incentives

12 for these contractors to really throw out every

13 person they could on the job to finish before and to

14 make extra money.

15 So, you know, what I think isn't being

16 thought through still is the incentive system that

17 you set up (a) to make the decision in a timely way.

18 I mean this is an example. You know, why should

19 you have to make the decision? Maybe you don't even

20 have to have a committee to make it because there's

21 no pressure; there's no incentive; there's nothing

22 pushing you to make the decision.

23 It doesn't have to be a problem. It
218

1 could also be a big incentive, you know. Someone

2 who comes up with a solution, they can win a huge

3 contract. Someone who comes up, you know, there'll

4 be some benefit to putting energy into it.

5 MR. KRAMER: I think in Los Angeles

6 though you have to move very fast anyway because

7 there's only months between natural disasters

8 anyway. So you can't let them stack up, between the

9 fires and the floods and the earthquakes.

10 MS. ZUCKER: Yeah. Well, you can say

11 that about San Francisco, too. What about the

12 flooding that everyone had?

13 MR. KRAMER: We have a problem in San

14 Francisco.

15 MS. ZUCKER: Yeah. There's been a whole

16 series of problems, too.

17 MR. TYLER: To defend San Francisco,

18 being from Berkeley --

19 (Laughter.)

20 MR. TYLER: -- there's two sides to this

21 because look at the Oakland fire. We had the

22 Oakland fire. People were saying, "Well, wait a

23 minute. We should have commissions to discuss
219

1 this," and everyone said no. So immediately they

2 said, "We won't make any changes," and now they're

3 pretty much rebuilt the Oakland Hills. They didn't

4 widen the streets, although a major problem was the

5 fire trucks couldn't get up the hills. They didn't

6 ban roofs that are made out of wood, even though a

7 major reason the fire spread is that people build

8 flammable roofs.

9 So what they did there is they said in

10 order to make this happen fast, we won't consider

11 any changes, and you might say, well, maybe

12 sometimes considering change is a good idea, and

13 just to redo the old immediately isn't the only

14 obvious good.

15 I think it's complicated.

16 MS. ZUCKER: You know, it's funny

17 because insurers in Los Angeles won't insure you in

18 areas close to the any of the fire vulnerable areas

19 if you have shake roof, for example. You just can't

20 get insurance.

21 CHAIR CULNAN: So maybe go ahead and

22 build your house, but if you build your house with a

23 shake roof, even though the government will let you,
220

1 you can't get private insurance, and so, again,

2 there's a lot of competing kind of tensions to get

3 people to behave in a socially desirable way.

4 It doesn't solve the fire truck problem

5 though. That goes to sort of the public interest

6 versus the private good that Paul was talking about.

7 MS. ZUCKER: We need to make skinny fire

8 trucks.

9 CHAIR CULNAN: Skinny fire trucks.

10 (Laughter.)

11 MR. DARBY: You know, I was thinking

12 about government's role, and one place where we have

13 a lot of this sort of experience is in the financial

14 area. We have lots of regulations there, and

15 they're very similar sorts of threats. Indeed, a

16 lot of the cyber threats are just the same old

17 financial scams done with a different technology.

18 One thing we had, we used to have sort

19 of capital standards that were sort of set by a

20 schedule, and then we got the idea, well, a

21 sovereign government can't default, and so

22 government officials in the '70s thought, well, you

23 know, a wonderful way to promote development is to
221

1 get American banks to lend to foreigners, and as

2 long as we spread our risk, you know, they lend to

3 Brazil, they lend to Mexico, they lend to Chile,

4 there'd be a lot of diversity there.

5 (Laughter.)

6 MR. DARBY: Well, anyway, so that kind

7 of led to a bad test about government setting

8 standards for financial safety, and sort of now the

9 international standard, at least for the major

10 banks, the ones that are big enough to know what

11 they're doing -- and they may be a good proxy for at

12 least major utilities -- is you guys have to decide,

13 given the risk and given what you're investing in,

14 what's adequate capital. You have to show us your

15 risk model, how you're assessing how these risks are

16 correlated, and then we're going to audit how when

17 prices change in the markets when things happen, if

18 you will, the shocks. Was your risk model adequate?

19 And as long as your risk model seems to

20 be adequate and you're under that risk model

21 maintaining adequate capital there, I mean, there is

22 a standard in terms of how many sigmas you have to

23 be able to survive, but, you know, it's very audit
222

1 based. It's market based. It doesn't give you the

2 incentive to, "Well, okay, here's the government's

3 capital requirements. So how are we going to game

4 them?" which is what the old system did. Basically

5 you maximized your risk subject to these capital

6 requirements, and there is always going to be some

7 area where the government didn't see the risk. So

8 that's where you put all your assets.

9 So now the financial institutions, at

10 least the wholesale ones, are forced to adequately

11 assess their risk, and that's what they're being

12 judged on. A different role.

13 MR. GARBER: Ray.

14 MR. HIEBERT: There are two things that

15 I think haven't been mentioned yet that probably

16 ought to at least be mentioned that can be done, I

17 think, on this whole problem of public confidence,

18 and one is developing crisis management systems

19 within institutions that will allow you to deal with

20 the problems when they become public and when they

21 rise.

22 And the second one is to develop early

23 warning systems so that you track public confidence,
223

1 levels of public confidence, and can begin to do

2 something when you see that people are losing

3 confidence in your institution.

4 And I think both of those are roles that

5 public relations can play for institutions.

6 MR. KRAMER: Can I just raise a question

7 about that, Ray? Again, this is some sort of

8 deviance, but do you think when you do things like

9 that with organizations, is there a tendency for

10 them to suffer from the very kinds of corruption you

11 were talking about, language and stuff, where what

12 ultimately ends up being the focus of concern is

13 effective crisis management from the standpoint of

14 spin control and identity protection and so forth

15 and defensive kinds of responses, as opposed to

16 really solving the problem?

17 And I'm just asking that as an empirical

18 question. I don't know what the answer is, but I

19 worry that these systems then get corrupted, and you

20 have a situation where the focus is on protecting

21 the institution.

22 MR. GARBER: I can kind of address that

23 a little bit because we do a fair amount of crisis
224

1 communications work, preparedness, both after the

2 fact and before the fact, and of course, the

3 recommended way to do this thing is to get your

4 ducks in a row ahead of time.

5 And in doing that it's much more of a

6 careful analysis of what the requirements might be

7 in order for you, while you are addressing the

8 problem, to keep it from being more of a crisis than

9 it actually is by the injection of this element that

10 comes into play in a large situation that's

11 represented by the media.

12 I mean, you know, the thing that

13 oftentimes makes things the real crisis when, you

14 know, the world gets involved is when the media

15 comes in. I mean the media didn't do it, as Ray

16 said earlier. I mean you had the problem. You

17 spilled the oil or you released the gas or whatever

18 it was that you did, and all of a sudden though the

19 thing that really kind of tweaks you a little bit

20 and your board of directors and everybody else is

21 when all of a sudden it's on the front page of the

22 morning paper.

23 And so every time we go into a company
225

1 ahead of time, as we try to get all of our clients

2 to do if they'll listen to us is it's a matter of

3 setting down your procedures about how you're going

4 to insure that the correct, the accurate, the

5 correct information is given out to the public in a

6 timely fashion.

7 And the thing that you totally focus on

8 preventing is what I might call the inadvertent

9 release of misinformation. I mean, you know, the

10 president of the company may be well versed in what

11 the issue may be and have the big picture and be

12 able to come out and articulate it, but what about

13 the telephone operator, the receptionist who's the

14 first person that the reporter is going to call for?

15 You know, the reporter calls and said,

16 "Can I speak to Mr. So-and-so?"

17 "Well, he's busy right now."

18 And he says, "Well, what's going on

19 around there?"

20 "Well, I don't know what's going on, but

21 I can tell you there's a big fire out back here.

22 You know, there are people running around, and I saw

23 the ambulance coming."
226

1 (Laughter.)

2 MR. GARBER: And so a lot of the things

3 that we do, you know, when you come in is, you know,

4 yeah, we want to control it. We want everybody to

5 know their role so that kind of thing doesn't

6 happen, and we invariably find that companies feel

7 after we go through a one-day crisis drill that they

8 are just amazed at what they haven't prepared

9 themselves for.

10 In other words, I mean, you know, where

11 is the hazardous materials team if you need them,

12 and if it's a food thing, you know, where are the

13 FDA representative and the various other

14 governmental agencies that you have to notify and

15 keep informed?

16 Because all of these people are

17 potential communicators and will be sought by the

18 media to explain what's going on, and the critical

19 thing is that what gets explained is no worse than

20 what's going on. I mean, it's almost that simple.

21 And I would tel you that if we could

22 ever get people just to kind of think through this

23 beforehand so that when something happens, that
227

1 there is a team of knowledgeable operators that get

2 together with the spokesperson in the war room, so

3 to speak, to grasp the problem and keep the public

4 informed while addressing the issue and keeping

5 their employees informed and all of that kind of

6 thing.

7 If you'll just go through those steps in

8 a non-crisis situation, you're far ahead. I mean,

9 in my view, it seldom gets to spin doctoring. I

10 mean, it's far more basic than that, and I mean, we

11 wouldn't suggest that one should come out and talk a

12 half truth or an untruth because the fact is that,

13 you know, in a crisis Norm Augustine, the outgoing

14 Chairman, what did he say? Tell the truth and tell

15 it fast.

16 MR. DARBY: Right.

17 MR. GARBER: You know, pretty darn good

18 advice, but you've got to be sure that what goes out

19 to the media, to the public, is, in fact, you know,

20 what the situation is because I can assure you there

21 are probably 15 different people that can corrupt

22 the information that's released, and once it goes

23 out remember all the newspapers -- we've talked a
228

1 bit about the media and I've kind of not said a lot

2 about it -- but I don't think reporters inherently

3 publish things that are untrue. But if you tell a

4 reporter something, the reporter has the right to

5 report what you said, and if what you said was wrong

6 or if you're the telephone operator that really

7 doesn't know and nobody has told you, "Oh, by the

8 way, listen. Get somebody who does know," then the

9 reporter is not to blame and he hasn't not done his

10 job, or her, and they've not been dishonest.

11 MR. BIES: Let me ask you go, to go on

12 the incentive. Take the incentive argument. What's

13 the incentive for the firms that are part of this

14 critical infrastructure to engage in the civil

15 defense preparedness training? I mean, how are we

16 going to "incent" them to do this?

17 What you're talking about is the

18 symbolic management, symbolic implications of

19 whatever happened, but then there's the incentive

20 how do you get them to try to address the technical

21 problems of Joe. I mean how do you create

22 incentives to do that unless there's failure?

23 MR. DARBY: Survival is the same?
229

1 MR. BIES: Yeah, but they don't see it

2 in those terms. I mean, is everybody hiring your

3 services or Hill & Knowlton or whoever the

4 variation -- I mean, is very firm hiring crisis

5 prepare -- I mean --

6 MR. GARBER: I wouldn't say every person

7 is, but you know, some do, some don't, and there's

8 not a particular type of firm that does or doesn't.

9 It, again, oftentimes comes back to the issue of

10 what's the cost and is a concern and we should spend

11 the time, not just the money. It's the time because

12 when we come into a firm, I mean, it may take two

13 days to do a drill, and when you take the top

14 management of a company and all the operators who

15 may have a role to play and take them off the job

16 for two days, that's a lot of money.

17 MR. BIES: Well, how does it become a

18 priority on an agenda item for a firm in the

19 critical infrastructure? Don't you need it for all

20 the firms? You've got this interdependence.

21 I'm just asking you. I don't know the

22 answer.

23 MR. GARBER: Well, the simple answer to
230

1 your question is every firm in the country, to

2 include governmental agencies, ought to have the

3 crisis management and crisis communications plan.

4 Every one should have that.

5 MR. BIES: But a government could

6 mandate it or a government -- I'm trying to get to

7 the sense of how do you get --

8 CHAIR CULNAN: I mean, one of the things

9 that they will do, and Nancy ought to respond to

10 this also since she's in the risk management

11 business, but the sense we get is companies respond

12 they will manage the risks they know about, and so

13 one of the issues is: what's their risk model?

14 And if their risk model suggests to them

15 something could happen and if it happens it's

16 catastrophic and, you know, this probability,

17 expected value, then they'll bring in Bill and his

18 team, and then they'll say we need to manage this,

19 and this is one way to do it, and it's worth the

20 time and the money.

21 If they don't, if it doesn't fit into

22 their risk model, they're not going to do it because

23 it's a waste of money and time in their best
231

1 judgment, and they could be wrong.

2 And so one of the issues for us is: do

3 the companies, the infrastructure owners' risk

4 models need to be updated? And does the government

5 need to provide them information saying there are

6 new risks and you should address them? And to maybe

7 take the chain a little further, this is one way to

8 address it. Maybe it's something.

9 But that's a good point.

10 MR. BIES: It's a bully pulpit.

11 CHAIR CULNAN: That's a good question.

12 Yeah, or just it comes down to money. You know,

13 what's the risk of this happening? What's it going

14 to cost us if it happens? Measure those together,

15 and if the risk is very low and the cost is very

16 high, maybe it's not in our -- you know, maybe it

17 doesn't make good sense as a business to do this or

18 maybe it does, unless somebody comes in and says you

19 have to do it because the risks are so great to the

20 public good.

21 MS. WONG: Ultimately it comes down to

22 what is important to the business.

23 Number one, to stay in business and
232

1 survive.

2 Number two, does it create a competitive

3 advantage?

4 And, number there, is there a return for

5 the investment you're going to make either in

6 reduced costs because you may have to address the

7 consequences of not paying attention to a threat, or

8 that you're going to save money by doing that?

9 MS. ZUCKER: Part of the question is how

10 do nonprofit or governmental organizations respond,

11 and I'm wondering. I don't know the answer to this,

12 but I'm wondering what universities did after all

13 the revelations about Stanford and its fund

14 management problems and what the reaction was to

15 that in terms of actions, kind of preventative or

16 clean-up, whatever, actions that other universities

17 took to not be in the same situation.

18 It might be a way to understand how

19 these risks are managed.

20 CHAIR CULNAN: How are we doing on time?

21 MR. GARBER: It's 20 to three.

22 Any other comments?

23 CHAIR CULNAN: We could go around.
233

1 MR. GARBER: Ray, is your sign up there

2 or was that an old sign?

3 CHAIR CULNAN: Well, we could also go

4 around, too.

5 MR. GARBER: Yeah, I was going to say --

6 yes, Nancy.

7 MS. WONG: I'd like to ask a question,

8 and that is getting back to one of the original

9 questions, and that was: what do you think of

10 government's role in enhancing or supporting or

11 maintaining public confidence? What do you think it

12 can do or cannot do?

13 CHAIR CULNAN: Or should not do.

14 MS. WONG: Or should not do, as it

15 relates to public confidence or trust, because what

16 I'm hearing, what I've heard today is that there are

17 things; there are actions that any organization can

18 take to manage trust and to manage public confidence

19 because your trust in something can survive or your

20 trust or confidence can survive an incident if it

21 has been properly developed and enhanced over time.

22 So given that understanding and that set

23 of principles, what might the government's role be
234

1 as it relates to our critical infrastructures?

2 MR. HIEBERT: Upholding laws, and I

3 think one of the laws that I think really ought to

4 be upheld is the monopoly laws because the more we

5 have monopolies -- and I think this does impact on

6 public utilities which we've been talking about a

7 lot today -- but rate structures and that sort of

8 thing. I think government can play a real role in

9 that sense.

10 But it seems to me it has to be legal.

11 My experience in post-communist countries is that

12 the heavier hand the government had, the less

13 confidence people had in their institutions in

14 general.

15 MR. TYLER: I think government itself

16 has a problem, and that's something we've discussed

17 throughout this. I mean, in a sense, government

18 needs to get its own credibility in order before it

19 can act as an honest broker in these other

20 situations, and so I think that's one obvious thing

21 for government to do, is to create and enhance its

22 own legitimacy, and once it's done that, then it's

23 in a position to act more like a referee or an
235

1 honest broker in these efforts to manage business.

2 MR. LEWICKI: Yeah, I guess I'm

3 compelled to say what whoever said it, this is trust

4 in a particular individual as opposed to trust in

5 the systems. I think that was very accurate, which

6 means in part, to the extent that you want to do

7 that, some individuals representing government are

8 probably better than the government speaking as a

9 faceless bureaucracy so to speak.

10 I mean, you know, sort of finding your

11 most trustworthy spokesperson may be one of the more

12 critical things you can do rather than trying to get

13 the institutions themselves to broadly try to manage

14 or moderate that.

15 But I mean I was stuck on the question

16 because I don't trust government. So if you can

17 what can government do, then I would say, you know,

18 stay out of it. At some point the less they tried

19 to do without enhancing their own trust first, the

20 better the impact they would have.

21 MR. BIES: But even with the current

22 government structure, isn't the intelligence that

23 can be gathered and shared, to share with
236

1 corporations, to highlight potential -- I mean

2 there's -- you could say just government should do

3 its job better, what's all on the books, but there's

4 some intelligence things. How would corporations

5 know unless they have their own intelligence?

6 So government could play that role of

7 information.

8 MR. GARBER: It's probably a two-way

9 street, don't you think?

10 MR. BIES: Yeah, probably.

11 MS. ZUCKER: I was going to say I wonder

12 if government isn't behind right now on

13 intelligence. My guess would be that right now

14 industry is ahead of government because of the

15 changing nature of the risk and who's involved in

16 espionage activities. Just a guess.

17 MR. MOORCONES: I would just disagree

18 about it.

19 (Laughter.)

20 MR. GARBER: Well, listen. Let me

21 suggest as a close, let's just kind of go around

22 starting with David there, and if you have any

23 closing thoughts, wisdom, comments to share with the
237

1 group, things you've been waiting to say all day

2 that you haven't gotten a chance to say, let's kind

3 of hit that, and then I'll call on Mary to kind of

4 close the session.

5 MR. GEDDES: I'll put in a word or two.

6 Talking at the break, and this

7 reiterates just what Nancy said a moment ago about

8 what are businesses really interested in in the

9 private sector is they look at how to keep

10 customers, retain customers, maintain competitive

11 advantage, and have a long-term revenue stream to

12 keep in business.

13 Companies also -- I believe there's

14 probably a vast amount of information, probably at a

15 slightly more micro level than we're talking about

16 today -- that private businesses do know. They

17 don't use the word "trust," but it is very linked to

18 this on what they can do to build relationships.

19 It should be a vast amount of

20 information to tap into and coordinate, if they can

21 be properly accessed, but the real dilemma that we

22 face is what about things that require a little more

23 communication and coordination and facilitation that
238

1 we don't get because companies are focused on their

2 own business success and not looking at areas where

3 they interact and interface.

4 And this is a very big dilemma because

5 the critical infrastructures we've all listed are

6 either still regulated in the midst of deregulation

7 or have been relatively recently deregulated, and in

8 the deregulated areas we know there are problems.

9 In the regulated areas, we sure know there are

10 problems, and there's got to be a better solution to

11 it all.

12 MR. McALLISTER: My mind is spinning,

13 and I don't know that I can cogently put things

14 together, but one strong sentiment or feeling that I

15 have coming from this is the distinction between

16 managing the impressions of trust and managing the

17 substance of trustworthiness, which underscores that

18 from the difficulty of maintaining that impression,

19 if the substance isn't there.

20 And I guess the concern is that we move

21 our thinking from the question of how do we maintain

22 the presentation and the spin of trustworthiness to

23 how do we minimize the disappointments which are
239

1 sure to stay with us much longer than the candy

2 coating that covers copying with the disappointment

3 that in the short run took place.

4 Those are my thoughts.

5 MR. KRAMER: Actually I don't think I

6 have any. My head is spinning probably, too, and I

7 don't think I have any specific observations other

8 than to thank Mary and Bill and Joe and everyone

9 else for organizing this. This really is a

10 terrifically, enlightening, sort of interesting

11 discussion. I really enjoyed it, especially as an

12 academic thinking about trust in one perspective.

13 It's really great to hear other perspectives and

14 also think about the real world which is out there

15 occasionally.

16 MR. LEWICKI: I would just add to Rod I

17 have lots of different thoughts. I think one of the

18 things that struck me, too, and it sort of picks up

19 a little bit on what Dan said, and that is that I'm

20 still trying to struggle with trusting the

21 institutions, the structure itself, versus trusting

22 all of the mediating institutions and vehicles that

23 communicate and manipulate or spin, or whatever the
240

1 right word is, that trust, and it's so easy to

2 displace the second one on top of the first one, and

3 I think it's going to be really hard to try to part,

4 but important, to untangle and try to make some

5 sense out of it.

6 I'm going to have to run. Thank you.

7 MR. TRIPP: In the surveys that you're

8 going to do, I guess one of the components that

9 would be really important to do is just sort of

10 measure people's expectations of what it is that

11 they want from particular infrastructures, what they

12 predict, and what they think should be there, and at

13 the same time measure their knowledge of the

14 particular infrastructure, going back to an earlier

15 comment, and there'll probably be some research

16 coming out on this, that people may have strong

17 public opinions but know absolutely nothing about

18 the topic, and so studies that measure what the

19 opinions are and then also test them on knowledge of

20 various things often fail the knowledge tests. So

21 you qualify their results somehow.

22 CHAIR CULNAN: There was a related study

23 about problems in public opinion surveys that
241

1 measure people's concern, and if you just ask

2 people, people are concerned about everything, and

3 they actually put in a public health problem that

4 didn't exist, and people were just -- whatever this

5 made up thing was, people were incredibly concerned,

6 and so the idea is you not only have to ask them

7 have they heard anything about it, are they

8 concerned about; if they're concerned, how concerned

9 they are. So that's an important point.

10 Thanks, Tom.

11 MR. TRIPP: Thanks.

12 MR. GARBER: Betsy.

13 MS. HARRISON: One of the ideas that I

14 remember well, and I think may be useful for us, is

15 your point about small wins. I think the government

16 hopefully can achieve some of those with some of the

17 ideas we're considering now. Among them are

18 certainly sharing information, the values in

19 education and training and the areas we're looking

20 into.

21 And then as sort of a counterpoint to

22 that, I remember very early in my time at the

23 Commission after this whole situation that we're
242

1 studying and looking into was presented to him, the

2 staff director of a major committee said, "Well,

3 we'll just have to wait for a couple of blackouts, a

4 few bad events, and then we'll react to it." He

5 said, "We aren't going to do anything before then."

6 Congress is basically a reactive

7 institution, as I think we all know, and that's the

8 usual cynical response, but I think there are

9 probably good, preventive things that government can

10 do, and that's what we're trying to achieve.

11 MS. BANKER: I think just building on

12 that point about small wins, I think the advice

13 that the group's giving about the government kind of

14 cleaning up its own act and the public perception as

15 a first step is good advice, and I just thank the

16 group for coming together and talking about this

17 issue.

18 MS. WONG: And I want to thank all of

19 the people, everyone here. It's been a very

20 enlightening and thought provoking session. I feel

21 it's also been extremely productive.

22 As some of you have noticed, I've taken

23 reams of notes, and it's generated a lot of thoughts
243

1 on my part in terms of risks and how we're going to

2 manage it, what the possibilities are, and what we

3 can't do about it, which is, I think, more

4 practical.

5 So I thank you all.

6 MR. TYLER: Well, I would just join Rod

7 in thanking all of you. I think we also learned a

8 lot. This was a very interesting discussion.

9 MR. MITCHELL: I think one of the very

10 things that we will see come out of today, out of

11 our observations, is to energize the academic

12 community and perhaps even the private sector and

13 government around these issues and open up fertile

14 new areas of research, and for that reason I was

15 really looking forward to addressing the last

16 question on our list today, which is if we were

17 chairs of this Commission, what research questions

18 would we like to see addressed, understanding that

19 the Commission would only be able to address a

20 finite number of them.

21 But let me tell you about one of the

22 ways in which I came upon issues of public trust and

23 confidence with respect to infrastructure is by
244

1 virtue of my own background as a computer crime

2 prosecutor, computer crime, someone who engages in

3 computer crime investigations.

4 My own experience has been that computer

5 crime, unauthorized computer intrusions, computer

6 related crime, seems qualitatively different from

7 other types of crime because of an extreme

8 reluctance of victims to report and to enlist

9 assistance of the government.

10 And it led me to ask: well, why is

11 that? Can we imagine a world where, say, a large

12 percentage, if not a majority, of victims of violent

13 crime wouldn't come to report those criminal

14 incidents to the government?

15 And what I'm coming around to, and this

16 will perhaps invigorate some criminology research

17 out there is that maybe public trust and confidence

18 serves in sort of a pivotal role in making those

19 types of determinations.

20 I can envision, for example, where the

21 private sector, a victim of a computer related

22 offense, would say that, on one hand, there are

23 expectations placed upon them, expectations to
245

1 participate as a good citizen in criminal

2 investigation, expectations to find who the bad buys

3 are and who is doing damage to the business, and, on

4 the other hand, there are a whole set of dangers

5 associated with reporting criminal violations,

6 criminal penetrations of computer systems, dangers

7 relating to having to air vulnerabilities, having to

8 alert the public to the possibility of

9 vulnerabilities, and the resultant loss of public

10 trust and confidence that could result from those

11 disclosures.

12 And so in a sense there is a calculus

13 there that I think is really deserving of some

14 further study, and I would certainly look forward to

15 seeing some of that work done.

16 MR. DARBY: That sounds very

17 interesting.

18 I was very pleased to be here. There

19 was certainly free trade in ideas. I hope that on

20 my part at least there was some fair trade.

21 MS. ZUCKER: This is my favorite topic

22 for a Presidential Commission.

23 MR. HIEBERT: I think blind trust or
246

1 absolute trust in our public institutions is not

2 good for democracy. I think healthy skepticism is.

3 The problem occurs when skepticism becomes cynicism

4 and people stop acting and stop believing.

5 And so I hope that out of this kind of

6 Commission effort we will not discourage skepticism,

7 but find ways to prevent cynicism.

8 MR. BIES: To build on that, two things.

9 The Russian proverb that Reagan translated when

10 Gorbachev came here: trust, but verify. A certain

11 skeptical attitude is held, which is what

12 universities should do, is encourage skepticism, not

13 cynicism, before you make decisions to take action.

14 The second thing, with all of this

15 discussion about risk and probability, I'm still

16 unsatisfied for this reason. I mean, who's going to

17 be looking out for me? Okay?

18 With that aside, it's an interesting

19 discussion. The thing that government can do and

20 ought to think about is when the outcome does occur,

21 where there's some critical infrastructure failure,

22 and there will be because the mean time between

23 surprises and the expected time between surprises is
247

1 going to get smaller and smaller and crazier and

2 crazier; government's role is part of the clean-up.

3 So there has to be some sort of FEMA

4 equivalent or maybe it will be under FEMA to sort of

5 pick up. I mean government has got to do that. I

6 mean, are the corporations going to pick that up? I

7 think government can play a role when the outcome

8 occurs.

9 MR. MOORCONES: I thank everybody who

10 came. I certainly learned a lot, and after thinking

11 about my response to Lynne saying I don't agree with

12 you, maybe since this was focused on public

13 confidence and trust, probably what I should have

14 said: well, if that is the case, then it seems that

15 we should be having a loss of public confidence in

16 the government's ability to understand what's

17 happening in the world, and that is something it is

18 supposed to do to protect us, and we should mold,

19 okay, the public through either getting its

20 confidence to drop or its trust, to motivate the

21 government to get back in front.

22 So thank you for your observations.

23 CHAIR CULNAN: Bill, do you have any
248

1 parting shots?

2 MR. GARBER: Oh, gee, no. It's just

3 been great fun, and obviously my focus is on less

4 the sociology and the psychology of it and more on

5 the what do you do about it either before you have

6 the problem or afterwards from the standpoint of the

7 media.

8 But it's very enlightening to me because

9 a number of the things that have been discussed in

10 terms of why things happen and why the particular

11 thing that we heard about people remembering bad

12 news, not that it's necessarily more bad news in the

13 paper, but the fact is that there's an actual

14 scientific reason why we remember bad news rather

15 than good news I found very interesting and

16 something I'll use also.

17 CHAIR CULNAN: I want to thank you all

18 again for coming. We really appreciated this. I

19 learned a lot today, plus it was just a real treat

20 to spend the day not only with my colleagues from

21 the Commission, who I see very day, but also with my

22 academic colleagues whose research I read, and to

23 see you all face to face has been terrific.
249

1 Now that you know more about what we're

2 up to, if you have papers, other things that you

3 have written, you've got my address and my E-mail.

4 Please send them to me. We will read them. We will

5 add them to our archive. We will be really pleased

6 to have whatever you can send our way.

7 Steve talked a little bit about

8 outreach, and again, that was another purpose of

9 having this workshop. We hope this will perhaps

10 spur some research in infrastructure issues, trust,

11 confidence, whatever you want to do, and that maybe

12 you'll go back and talk to your colleagues about

13 what we're doing here in Washington and get some of

14 them interested.

15 And then finally just on a personal

16 note, I mean, this is a tremendous opportunity for

17 me. It fell out of the sky to do this, and I would

18 just encourage any of the academics who have a

19 chance to do something like this, you should seize

20 it and do whatever it takes to make it happen for

21 yourself because there's nothing like it.

22 So thank you all, and I'll let you know

23 when the transcript is up so you can check the Web
250

1 and see how we misrepresented your views.

2 MR. GARBER: And although we didn't go

3 into them in any depth, also I thank all of you who

4 sent forward the papers ahead of time, and we hope

5 that you will take the grouping of them back and

6 perhaps peruse them on your flight back or your ride

7 back or whatever the case may be, but they were a

8 great help and will be absolutely an official part

9 of this proceeding.

10 CHAIR CULNAN: Yes. Thank you.

11 And thank you also to Fleishman-Hillard

12 for the arrangements for this. I think we had a

13 terrific day and everybody appreciated the food and

14 the conviviality and your moderating skills, Bill.

15 MR. GARBER: My pleasure.

16 CHAIR CULNAN: And Kristin.

17 (Whereupon, at 3:00 p.m., the workshop

18 was concluded.)