A MATTER OF TRUST
IN THE WAKE OF THE BANKING ROYAL COMMISSION, FAKE NEWS AND LARGESCALE PRIVACY BREACHES, CONSUMERS ARE LOOKING FOR ORGANISATIONS THEY CAN GENUINELY TRUST. BUT, ASKS ALISON BOLEYN, IS TRUST SOMETHING A COMPANY CAN BUILD?
There was laughter around the room but no mirth from the man in the witness box at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on 26 November in Melbourne. Asked what such public scrutiny taught him about internal governance, “We’ve got to get this right,” replied Andrew Thorburn, then NAB’s chief executive. “We surely can’t have this every year.” After more than eight months of uncovering scandals across the financial sector, including fees for no service, billing the dead and misleading regulators, commissioner Kenneth Hayne submitted his final report in February. Refunds and remediation would amount to more than $400 million for ANZ alone but there were other hits on the banks far thornier to cost. A survey designed to measure customer confidence, the Deloitte Trust Index, found only one in three Australians now believed their bank had their best interests at heart and one in five thought that of banks in general. The survey’s author said it “highlights the depth of the crisis of trust” in the sector in Australia. But the banks are only one tip of an iceberg the whole world is looking sideways at. The widespread collapse of trust in once revered institutions has been linked to social-media misinformation, tax avoidance, the absence of wage growth and the upsurge in public lying – what Diana B. Henriques, author of The Wizard of Lies: Bernie Madoff and the Death of Trust, calls “our common diet” of “easily provable falsehoods”.
Philosopher Patrick Stokes has called trust a “fundamental condition for any kind of successful, lived community” – we pull up a chair, believing it won’t break; we eat a cheese roll, assuming it isn’t poisoned – and says its retrieval is a matter of moral urgency. Stokes mourned on the ABC “the valorisation of distrust” – the admiration, in an individualistic society, of the refusal to show a little faith: “We’ve turned mistrust or suspicion into a prudential virtue.” In a 2017 speech in Canberra, BHP’s chief of external affairs Geoff Healy said the disintegration of trust in industry had reached “a tipping point” and that many Australians perceived business as “complacent… and untrustworthy”. Yet there is hope. The 2019 Edelman Trust Barometer, a survey across institutions, industries and nations, shows Australians’ trust in business rose to 52 per cent, up from 45 per cent last year. And while that’s hardly reason to dance on boardroom tables around the country – Australians, after all, are less trusting than the rest of the world in this survey of 33,000 respondents across 27 countries – even our trust index of 48 per cent against a global average of 52 represents an eight-point hike from 2018. Australians’ trust increased in every sector in 2019. Most instructive is that, at 77 per cent, Australians have above-average trust in their own employer. (In comparison, Australians and the French are much less likely to trust social media than the rest of the planet – 26 per cent compared to the global average of 44 per cent.) The most profound shift revealed by Edelman’s 19th survey is that “my employer” emerged as the most trusted institution globally. “The past decade has seen a loss of faith in traditional authority figures and institutions,” said Richard Edelman, president and CEO of the communications and marketing firm. “More recently, people have lost confidence in the social platforms that fostered peer-to-peer trust. These forces have led people to shift their trust to the relationships within their control.” The Edelman survey also found a whopping 76 per cent of respondents globally wanted CEOs to “lead the fight for change” rather than wait for governments to act. This “new contract between employee and employer”, said Edelman, “is predicated on companies taking four actions: ‘Lead on Change’, establish an audacious goal that attracts socially minded employees and make it a core business objective; ‘Empower Employees’, keep employees directly informed on the issues of the day and give them a voice on your channels; ‘Start Locally,’ make a positive impact in the communities in which you operate; and ‘CEO Leadership’, CEOs must speak up directly on issues of the day.”
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In hIs annual letter to chief executives in 2019, BlackRock chair and CEO Larry Fink, who leads the richest investment firm in the world with US$6.44 trillion of assets under management, called for companies to find their social purpose. “Profits are in no way inconsistent with purpose,” he wrote. “In fact, profits and purpose are inextricably linked.” Fink, whose estimated personal wealth exceeds US$1 billion, had urged businesses to identify their purpose in his 2018 letter, rather than “succumb to short-term pressures to distribute earnings”. But this year, as “trust in multilateralism and official institutions is crumbling”, he took it a step further. “Stakeholders are pushing companies to wade into sensitive social and political issues – especially as they see governments failing to do so effectively,” he wrote. “The world needs your leadership.” Keith Tuffley grants it’s “risky”. The Australianborn investment banker says CEOs are “not trained to be advocates and suddenly they’re taking a bold stance. Politicians, who are trained to be advocates, can attack.” But the former CEO of The B Team, a global group of business leaders advocating for environmental, social and corporate change, thinks standing up “is good for your company, good for your employees and good for the world”. Tuffley advises chief executives to work together, citing the We Are Still In initiative, in which more than 3600 entities including Apple, Nestlé US and Netflix advocated honouring the Paris Agreement on climate change in the face of President Donald Trump’s withdrawal. The call on business to take the political lead departs from the longstanding Milton Friedman doctrine of shareholder primacy. The Nobel Prizewinning economist wrote in 1962: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” Yet last year Lego released its first biodegradable pieces – interlocking leaves and trees made of a plastic derived from sugarcane – as part of the company’s aim to implement sustainable products and packaging
by 2030. (The Danish toymaker had already reduced packaging and invested in wind farming.) Microsoft launched a five-year, US$25 million program called AI for Accessibility to improve capability for people with disabilities, investing in ideas developed by or with the disabled. Lego and Microsoft, whose social-responsibility efforts are embedded in their products, are in the top 10 of the Reputation Institute’s Global RepTrak rankings for 2018. “Today, companies are more widely scrutinised based on their alignment with social causes, how they behave, their enterprise-wide values and the internal culture they create,” said Stephen Hahn-Griffiths, the institute’s chief reputation officer. “They are not solely measured on what they make.” Indeed, when Roy Morgan released a survey last year identifying Australia’s top 10 most trusted brands, The Australian Financial Review put the success of Bunnings (second on the list between Aldi and Qantas) down to “arguably the most successful corporate-sponsored community engagement in Australia” – the sausage sizzle – which raised $37.9 million for 42,000 charities and local groups in 2018. “Why should the citizens of this world keep companies around whose sole purpose is the enrichment of a few people?” asked Unilever CEO Paul Polman before retiring last year. During his 10-year tenure, he was appointed to the UN panel to develop sustainable development goals, while Unilever initiatives included a sanitation partnership with UNICEF in the developing world. The company reported that its model of sustainable growth delivered a total shareholder return of 290 per cent. But political scientist Jeff Collin, of the Global Health Policy Unit at the University of Edinburgh, has warned of the “big burden” society places on corporations, who are legally bound to maximise revenue. “We expect them to be engines of growth, we expect them to generate government revenue, we expect them to generate employment,” the professor told the ABC in November. “But when you’re talking about businesses that are fundamentally reliant on profitability from products that are unambiguously health-damaging then the scope… for companies themselves to define the ways in which they will respond to public-health crises seems really naive.” Alison Martin, group chief risk officer of Zurich Insurance, recommends companies embed the United Nations’ sustainable development goals in their business strategy because “it doesn’t matter whether you believe climate change is going to happen or not, or whose fault it is, because all that matters is what’s perception going to do? Are we going to see changes in consumer sentiment? Are we going to see dramatic policy shifts happen? That is a real risk to your business model.” a 2018 survey by KPMG and the Australian Institute of Company Directors (AICD) found that while 94 per cent of directors identified trust as a key issue for their organisation’s sustainability, fewer than half felt their board was being proactive about building it. KPMG chair Alison Kitchen said less than a quarter of AICD directors thought they received meaningful trust metrics from their CEOs: “It’s important that the issue of trust is embedded into regular management reports and board conversations so progress can be monitored.” How can an organisation build trust? Historian Niall Ferguson dismisses bids for extra layers of compliance; for him the belief that heavy regulation will ensure decency is “illusionary” and only reduces competition for players big enough to afford the compliance departments. Even then, “until there is institutionalised appetite” for regtech – which helps companies comply with global regulations – “banks find it easier to focus on remediation and mopping up,” Lisa Schutz, a director at The RegTech Association, told The Australian Financial Review. Charles H. Green, co-author of The Trusted Advisor, cautions against the “vicious paradox of trust”: the more either party tries to control risk, the less trust results. Trust occurs “when one party is willing to trust another and the other proves to be trustworthy. And then the roles reverse. Both parties must be trustworthy but both also must be willing to trust. The systematic eradication of risk therefore reduces the ability to trust another.” Equating compliance programs and risk mitigation with
trust, says the founder and CEO of Trusted Advisor Associates, means “depersonalising and mechanising what is, at the end of the day, a personal relationship. We may ‘trust’ a company’s policies but only in the weakest sense of the word.” A rise in wages and return of the belief that living standards will improve would do much to win back the community’s faith in business, Philip Lowe, the governor of the Reserve Bank of Australia, has argued. The Committee for Economic Development of Australia found that after 26 years of continual economic growth, 74 per cent of Australians polled believe large corporations had gained a lot while just five per cent said they themselves had gained a lot. Financial ethicist Clare Payne, chief of global strategy at Tobacco Free Portfolios, told Acuity that companies seeking trust need to clean up their language and ditch the acronyms, jargon and abstract terms – for example, “economically active children” meaning child labour – that distance a speaker from the moral implications of their work. Sue Unerman, the chief transformation officer at MediaCom and co-author of Tell the Truth, says, “The art of spin is dead.” She has pointed out that any customer with a smartphone “can easily find out how your product is made and how ethical your business is” in seconds. Unerman also notes the “blemished sell”, where businesses acknowledge weaknesses in a bid for customer confidence. Despite an awful 2017 marked by Galaxy Note7 fires and the jailing of company heir Lee Jae-yong for corruption, electronics giant Samsung leapt 44 spots to 26th in the 2018 RepTrak results, the fastest rise in reputation of the companies measured. Their secret to regaining customer confidence? Humble, complete public apologies. Lost trust can be regained, says crisis-management expert Tony Jaques, but “not by clever PR campaigns”. Citing the decades-long redemption of Nike, which overhauled labour practices after its 1990s sweatshop scandals, Jaques says, “Trust can only be regained by consistent performance over time and by executive teams who demonstrate they deserve it.”
Commentator Rachel Botsman says that asking how to build trust is “the wrong question”. The author of Who Can You Trust? popularised the term “distributed trust” after noticing the decline of faith in traditional institutions and a drift towards person-to-person networks such as Airbnb, Uber and eBay (and later to populist “outsider” leaders, decentralised systems such as blockchain and anti-establishment grenades such as Brexit and vaccination refusal). Botsman believes we’re now in a perfect storm: “a lack of faith in leadership – the trustworthiness of the people – and how well the systems work”. The solution, she says, lies not in building trust but in being trustworthy. Botsman identifies four trustworthiness traits for both individuals and businesses: competence, reliability, empathy, integrity. “Do my words align with my actions and are my intentions aligned with yours? So much of trust breaks down around a misalignment of intentions.” That was vividly illustrated at the Hayne royal commission when NAB’s Thorburn said, “We were sort of working off a technical grounding, not the spirit of what’s right here for the customer.” Perhaps it boils down to six simple ideas outlined in commissioner Hayne’s final report: “Obey the law. Do not mislead or deceive. Act fairly. Provide services that are fit for purpose. Deliver services with reasonable care and skill. When acting for another, act in the best interests of that other.” Or as Graeme Samuel, tasked by the government to review the Australian Prudential Regulation Authority, put it, “Adopt the ‘Should I do this?’ test rather than a ‘Can I do this?’”