Years ago, I heard about an unusual doughnut vendor in New York City. During the morning rush, instead of calculating the correct change for every customer, he put a pile of coins on the counter of his pushcart and asked people to pay what they owed, and make change for themselves. That did two things: It enabled him to serve more doughnuts in less time and it told his customers that he trusted them to be honest. The customers, in turn, repaid that trust with their loyalty. This donut vendor found a way to "outbehave" his competitors by using trust to forge a deeper connection with his customers.

I wrote about the doughnut man in my book, "HOW: Why How We Do Anything Means Everything... In Business (and in Life)," and thought about him again recently when I saw this headline over a feature story in the New York Times: "Making Honesty a Policy in Indonesia Cafes".

The Times reported that Indonesia, a nation plagued by dishonest politicians, is "pressing ahead in its long-running anti-corruption drive by opening up cashier-free 'honesty cafes' across the archipelago."

"By shifting the responsibility of paying correctly to the patrons themselves, the cafes are meant to force people to think constantly about whether they are being honest and, presumably, make them feel guilty if they are not," the newspaper said. A dozen honesty cafes opened last month on the island of Borneo, and the government plans to have 1,000 opened by 2010.

More than 1,000 doughnut guys in Indonesia!

Companies have a lot to learn from the doughnut guy and the honesty cafes. One of the problems in business today is a lack of trust. At its core, that's what the credit crunch is all about. Lenders don't trust borrowers to pay them back. Even after the so-called "stress tests," regulators and investors don't fully trust that the banking system has recovered from last fall's financial crisis.

And Indonesia is not the only country — it was ranked 126th out of 180 nations in a recent corruption perception list compiled by Transparency International — or business trying to tackle endemic corruption, but its approach is unique.

What the honesty cafes and doughnut guys tell us is that the best way to rebuild trust is to extend trust to others. Think about a company that wants its employees to be honest when filling out their expense reports or dealing with vendors. One approach is to hire more auditors, but that's costly and not likely to be effective. A better idea is trust to people to do the right thing. Most will respond.

By giving away trust — prudently, of course — companies can build and win the loyalty of their customers, as well as their employees. Here are three examples:

• Nordstrom has a great reputation for customer service because, among other things, the department store trusts people who bring their purchases back to the store and gives them refunds.


• The rock band Radiohead agreed to let fans decide what they wanted to pay for their album "In Rainbows." The band's income from the 2007 release dwarfed all of its previous digital publishing income, according to Warner Chappell U.K.


• Google, FORTUNE's "best place to work," allows its engineers to spend one day a week on projects that interest them. Gmail, Google News, Orkut (a social network) and Adsense were all developed by Google workers who were trusted to do the right thing.

If, as an employer, you trust people to do their best, and accept the occasional failure, people will feel empowered to take risks, eager to invent new things and ready to contribute whatever they can.

So trust is not just a way to guard your reputation. It's a spur to innovation.

By extending trust, you've controlled for the downside — and inspired the upside.