Nissan Chairman Carlos Goshen is jailed for violating financial reporting laws. CBS CEO Les Moonves steps down amid accusations of widespread sexual harassment. Two former advisers to the President of the United States are found guilty of violating a range of tax laws, campaign finance laws, and obstruction of justice. Is it any surprise that Americans don’t have much trust in corporate leaders these days?
As if we needed proof, the closely-watched Edelman Trust Barometer revealed that the public’s overall level of trust in businesses and the government suffered its largest-ever-recorded drop last year. The decline was most pronounced in the U.S., which fell nine points, making it one of the lowest 28 countries surveyed, below Russia and South Africa.
This is a big problem. The growing distrust of leadership — both corporate and governmental — will impact profitability and productivity, creating a significant drag on economic growth. There’s only one solution: Transparency.
The problem of waning trust in corporate leadership is bigger than a public relations issue. It can be linked directly to profit and worker productivity. The advocacy group Trust Across America tracks the performance of America’s most trustworthy public companies and has found that the most trustworthy companies have outperformed the S&P 500.
Similarly, the Great Place to Work Institute, which compiles the annual “100 Best Companies to Work For” study, finds that trust between managers and employees is the primary defining characteristic of the very best workplaces. These companies beat the average annualized returns of the S&P 500 by a factor of three.
On the flip side, a lack of trust can create quantifiably bad financial results. Consider what happened to Facebook in the immediate aftermath of the Cambridge Analytica scandal. The scandal revealed that the social media company had allowed a market research firm to harvest as many as 87 million Facebook profiles. Facebook shares fell more than 24%, losing roughly $134 billion in market value in the week following the revelation.
With trust levels sinking so low across all categories of business, government, and media, reassurances from leaders are no longer enough. Those who really care about instilling trust in their organizations need to prove it by being transparent in their actions and policies for self-policing.
In one study where all organizations used the same transparent messaging in response to a crisis, participants judged the companies that had a reputation for transparency as more trustworthy than those that had seemed less transparent. Other research has found that transparency increases customers’ perceptions of the value of a good or service, their satisfaction of it, and their willingness to pay, irrespective of its quality.
For example, when travel websites provide a visual representation of the search effort being exerted on a customer’s behalf (such as posting the number of travel sites the algorithm is searching, enumerating how many results are found, and creating a visual image of “scrolling”), customers report higher perceptions of service value. Additional research has discovered that businesses that are the most transparent in the way they report results also achieve higher performance.
Unable to ignore the evidence, many companies have adopted software and processes that allow them to systematically disclose critical information to their employees, customers, governments and other stakeholders.
Nearly 90% of the world’s biggest companies are reporting on their sustainability performance, using metrics established by the Global Reporting Initiative. Likewise, 9,933 companies from 160 countries are members of the UN Global Compact — an initiative launched to align businesses’ strategy with social goals and to support sustainable development goals.
Social concerns in business are only going to become more pronounced as the millennial generation inherits control of the world’s largest companies. Consider the fact that 4 in 10 (40%) millennials polled by the Deloitte Millennial Survey 2018 believe the goal of businesses should be to “improve society.” Collectively, millennials will be the generation with the greatest spending power by 2020.
Getting to a point where the level of transparency that will be expected of large corporations becomes ingrained into best practices will take more than a commitment to honesty or pledges to do better. It will require software and information solutions that make it possible for complex multinational corporations to accurately track and report critical financial, legal, and risk and compliance information to key stakeholders. It will also take an acknowledgment on the part of corporate leaders that more is more when it comes to corporate reporting.
Photo: World Economic Forum, via Wikimedia Commons, CC BY-SA 2.0