People don't easily forget a breach of trust. Recent reports from Wall Street and the world of high finance regarding Enron, WorldCom, and Arthur Anderson have generated a huge amount of talk, news, and indictments. Those of us resolutely residing in the bucolic simplicity of the Northwest aren't much affected by big-league shenanigans, except perhaps through our portfolios and 401(k)s.

But, as we get closer to home we find equal outrages of broken trust. The most compelling example is Montana Power, now (ironically) called Touch America. Many Montana citizens owned its stock -- it was promoted by the company for employees, widows, and other income-dependent souls. The original shareholders earned stock by setting poles or stringing power lines for Montana Power back in the '30s, and were counting on it for their retirements. Their plans have been totally destroyed by the decline in its share price. It went from a high of over $65 in early 2000 to less than a dollar now.

As with Enron and WorldCom, the people running Touch America have taken care of themselves, giving themselves huge bonuses. The Heartland Value Fund, a mutual fund that held nearly 5 percent of Touch America's stock, recently sold all its shares because of large payouts made to top executives. Despite a 95 percent decline in the stock's value over the last two years, the board of directors approved $5.4 million in special payments to top management. This is a flagrant breach of trust and fiduciary responsibility, offensive on both legal and moral grounds.

Even closer to home and involving traditional Montana economics, a high proportion of our farms, orchards, and ranches are now managed by professionals. About three-quarters of Montana ranch sales are to out-of-staters. These had been family enterprises where the owners were also the managers. Now, however, there's a strong trend for new owners to rely on professional managers. This is part of America's inevitable transition from an agrarian economy to one built on knowledge, technology, and sophisticated services.

Just as the CEOs and bosses of Touch America and Enron had opportunities to violate their trust, so too do these professional ag managers. The value of these professional managers is based on two things: technical competence (i.e., knowing about apples, cows, and grass and how to grow them long term) and trust. The former is relatively easy to verify, i.e., owners know if apples aren't picked or steers shipped. However, if these managers violate the trust vested in them, if they subtly operate to their advantage at the expense of the owners, it may take years for truth to emerge and burn through their good reputation.

All of these situations are classic examples of what's known in economics as the principal-agent problem. This arises anytime the manager of a firm is not also the owner. The problem is aligning the manager's incentives with the goals of the owner(s). The manager of an ag enterprise has many opportunities for self-dealing and, therefore, monitoring the manager is inherently difficult.

We would expect trust to decrease as the size of a company increases. Shareholders of publicly traded firms are unlikely to know senior management and direct monitoring of their actions is difficult. However, publicly traded firms have stock quotes and federal and state reporting requirements. Ag managers operate under far less formal arrangements -- and in practice trust trumps contracts.

In most cases violators are ultimately punished. At the large scale, Enron and WorldCom for example, executives lose money and respect, and may do jail time. The self-serving managers of mid-sized regional companies such as Touch America are discredited and may even require bodyguards to protect them from their neighbors, a sorry way to live. Managers of ag properties are of a much smaller scale -- but even they are not immune to the costs of breaching trust. Ultimately, word of fiduciary irresponsibility spreads and their client base erodes.

At every scale, the temptation to violate trust for self-gain is countered by the lessons of personal loss and shame. The evolutionary process of the market filters out both the incompetent and the violators of trust.