Trust in institutions is in serious decline, writes commentator Sebastian Mallaby.

It's a trend that only began in the noughties, says Mallaby. Trust in Government started declining from the time of the invasion of Iraq, trust in corporations went down after Enron and WorldCom led a parade of scandals. It's a story of wasted opportunities from the abuse of trust:

"The boom of the 1990s boosted trust in business; the 2001 terrorist attacks boosted trust in government. But CEOs and politicians abused these gifts with scandals and incompetence. Such is the cost of corporate malfeasance and the iraq war: Precious social capital is destroyed by leaders' avarice and hubris."

Sarbanes-Oxley was designed as an attempt to rebuild trust in corporations. And since the law was passed four years ago, trust has gone backwards. There might be a reason for that - a new study suggests that legislating to rebuild trust could have the opposite effect.



The paper Papering over the cracks? - rules, regulation and real trust prepared by the British research group The Work Foundation finds that regulated trust undermines real trust by turning it into a box ticking exercise. Regulation of business has the same relationship to corporate integrity, the report says, as the threat of taking children into state care has on the cultivation of good parenting.

"No set of rules can be comprehensive enough. Pushing a rules-based approach encourages firms - and their auditors - to suspend their own judgements about right and wrong ... All law represents failure. In this case, the need for laws imposing standards of reporting and behaviour on firms represents the failure of people to live up to reasonable moral standards, the failure of people to hold each other properly to account and the failure of the market adequately to squeeze out bad behaviour.''

What that means is that laws are only one part of the solution, and that on their own, they are counter-productive. To restore trust, corporations have to turn ethics into a core competency. Don't expect the law to do it for you.