Foresight Series: Trust in the Business World
Untrustworthy companies should focus on putting their own house in order before considering their wider role in society.
Trust in business has apparently plummeted, with high executive pay and allegations of tax evasion among the more egregious causes, according to a Financial Times | IE Business School Corporate Learning Alliance panel discussion about trust in business.
Trust in institutions often seems like a fuzzy concept. But without it, the complex system of co-operation that underpins growth and prosperity collapses. Untrustworthy banks deter savings and investment. When officials are suspected of feathering their nests, citizens stop paying their taxes. If the finance ministry prints too much money (itself a measure of trust) the currency is devalued. It takes decades or even centuries to build trust in institutions—probably the hardest challenge for developing countries—and it can break down suddenly and with dangerous consequences. Developed economies are far from immune, as the recent rise in populism suggests.
These principles apply to companies too. When we buy tin of beans in a supermarket, we are trusting the brand of both the manufacturer and retailer to have our welfare in mind. Would you consume that same product sold in an unmarked container at a pop-up stall in an impoverished country? In the former Soviet Union, product quality was so inconsistent that worried shoppers wanted to know which specific factory had produced it. Such fears rendered the simple exchange of goods impossible, spreading poverty and disaffection. So when companies (or governments) play fast and loose with hard-earned trust, they are risking more than a bit of bad publicity.
How to win society’s trust
How do companies redress that sense of general mistrust? According to Alison Cottrell, CEO of the Banking Standards Board, and a panellist at the FT event, they need to focus on ‘honesty, reliability and competence.’ This is ‘a crisis of leadership’ of ‘skewed incentives rather than outright cheating.’ But others argue that companies must go further, establishing a social purpose beyond their commercial interests.
Some management thinkers have pushed a similar line. In 2011, Harvard Business School’s Michael Porter cooked up a new theory about business and society. ‘Companies are widely thought to be prospering at the expense of their communities. Trust in business has fallen to new lows,’ he wrote, and advocated a concept of ‘shared value’ in which companies ‘generate economic value in a way that also produces value for society by addressing its challenges.’
It wasn’t an entirely new idea. Quaker-run companies, such as Cadbury and Rowntree, had long placed ethics at the heart of their business ideals. During the interwar period, General Electric’s President, Gerard Swope believed strongly in the broader welfare of his employees, while in Europe shoemaker Bata was building a company town with free housing, hospitals and education for its workers and their families. Today, Unilever’s CEO Paul Polman carries the torch, insisting that investors buy into a ‘long-term value-creation model, which is equitable, which is shared, which is sustainable.’
‘Even companies that act with the highest levels of integrity, inevitably face unavoidable trade-offs.’
But is a heightened sense of social responsibility the way companies can regenerate trust? Who sets the social goals and decides which projects would achieve them? Well-meaning social investments can have unintended consequences, for example trapping poor communities in a dependent relationship and even undermining democratic accountability. Corporate charity is often superficial, amounting to little more than a PR exercise at best, and at worse a means to compensate for ‘bad’ behaviour elsewhere.
Even companies that act with the highest levels of integrity, inevitably face unavoidable trade-offs in business. A major foreign investor that raises local wages sucks talent away from local firms. A big investment might crowd out the supply of finance for other enterprises. Reshoring jobs may satisfy trade unions in the home market, but poorer foreign workers also have a moral claim to a job.
Calculating social impact
One answer lies not in trying to eliminate all conceivable harm but calculating the net social impact, both good and bad, of a company’s business operations. They might then find many reasons to celebrate. Recently, a board member of an international FMCG company found himself apologising to an audience of NGOs, government officials and journalists, not for any specific transgression, but just for being a big corporation. ‘We’re really not all bad’ he implored.
He might instead have referred to the quarter of a million workers that the company employs globally (and the families that depend on them), the local suppliers trained to international standards, the taxes paid that fund government spending, or the arts and sports teams that the company sponsors, to say nothing of the millions of customers who happily choose to spend their hard-earned cash on its products. And that’s before counting the pensioners who live off the company’s dividends. He might then have inquired who in the audience could match that for positive social impact.
There are, undoubtedly, too many unconscionable acts of corporate negligence, greed and poor leadership that must be addressed before the rot sets in. But companies shouldn’t lose perspective of the enormous benefits they provide consumers and citizens worldwide as a result of an unrelenting commitment to good management and long-term strategy. None of this is inevitable, and shouldn’t be taken for granted. Telling that story would go a long way to earning the trust that companies fear they may have lost.