Warren Buffett famously said that ”Trust is like the air we breathe. When it’s present, nobody really notices. But when it’s absent, everybody notices.” Daniel Tisch concurs.
Business has always been about trust and relationships – but never more so than today. With non-physicial and non-financial assets now comprising the vast majority of most companies’ valuations, intangibles such as trust and reputation have become critical to long-term success.
The building and maintenance of trust has also taken on a new urgency. Not only is trust more essential, but it is in shorter supply. Many studies have shown a long-term decline of public trust in institutions, corporations, leaders, and sources of authority. According to research presented by PwC at an International Integrated Reporting Council conference in Madrid in September 2014, half of the 1 300 CEOs surveyed in 68 countries identified a lack of trust as a threat to their growth prospects, up from just 37% in 2013.
Moreover, trust is more fragile. While economic power has become more concentrated in corporations, communication power has become more diffused. As citizens, consumers or stakeholders, most of us now have global publishing power on our smartphones; this creates an instant, ubiquitous and unpredictable risk to corporate reputations, particularly when critics have individual or collective credibility. It’s little wonder that a recent IBM study showed that the average life expectancy of a company in the S&P 500 index has declined from 75 years in 1937 to just 15 years today.
Trust, therefore, has become a critical currency for a resilient business. This reality causes anxiety for many organisations, given the difficulty in measuring something so intangible, and correlating it to business value. The good news is that there is a growing body of knowledge guiding best practices in building trust and its fellow travellers – relationships and reputation.
THE DIMENSIONS OF TRUST
Research by Andrew Tucker of Mettle Consulting – also shared by PwC at the Madrid conference – found that organisations build trust through three constructs: competence, experience and values.
- Competence trust is the transactional relationship between an organisation and its stakeholders. It is about delivering the organisation’s promise to customers, employees or other stakeholders. It’s the measure of whether the organisation is able to deliver consistently and whether or not it “does what it says on the tin”.
- Experience trust is the iterative relationship between a stakeholder and an organisation. This type of trust is built through repeated interactions between an organisation and its stakeholders over time. While the relationship may ebb and flow, it is underpinned by proactive efforts on both sides to exhibit trustworthy behaviour. Experience trust can therefore measure the extent to which organisations can interact with stakeholders at a process level, even when they disagree at a strategic level.
- Values trust refers to the ongoing shared beliefs between an organisation and its stakeholders. Unlike experience trust, this relationship does not ebb and flow but is constant because the underlying beliefs on either side of the relationship seldom change. Values trust measures the extent to which organisations can rely on their stakeholders for support in a crisis. It also helps determine the extent to which organisations can be true to themselves. Trustworthiness is a value closely associated with integrity and values. In particular, demonstrating integrity can lead to the formation of trust.
LOSING TRUST MAKES CRISES WORSE; RESTORING IT CAN HELP REVERSE THE DAMAGE
Tucker’s three types of trust are often evident when an organisation experiences a crisis. In analysing 78 crises at large internationally listed companies between 2007 and 2012, the international law firm Freshfields categorised each crisis into one of four types: behavioural, operational, corporate and informational. Behavioural crises – involving reports of illegal or questionable conduct – had the largest impact on share price, correlating with an average drop of more than 50%.
Not only can a crisis affect trust, but this is also true of the organisation’s response to it. A paper by Knight and Pretty on organisational responses to catastrophes found that organisations that respond well to crises add value to their share prices compared with those perceived to respond poorly.2 The hallmarks of “responding well” are those that link to being a trustworthy company: having a track record of being trustworthy and also acting in line with stakeholders’ expectations.
TRUST ENABLES INNOVATION, COMPETITIVENESS
Research presented at the Madrid conference also noted the link between trust, innovation and competitiveness. The PwC Innovation Survey found the most innovative companies collaborate over three times more often (34%) than the least innovative ones (10%); GE’s Innovation barometer showed that a lack of trust in a partner organisation was one of the key barriers for not collaborating with other companies, with 47% of respondents citing this as a reason for not collaborating.
PR PROFESSION FINDS GREAT ORGANISATIONS SHOW CHARACTER, LISTENING AND RESPONSIBILITY
So, we know the benefits of trust; but how can organisations build and demonstrate that they are trustworthy? The public relations profession – the discipline devoted to building relationships between organisations and their publics – has some recommendations.
In 2012 the Global Alliance for Public Relations and Communication Management, the confederation of national and international professional institutes in public relations, engaged PR leaders in 30 countries in a year-long dialogue on the attributes and behaviours of trusted, reputable organisations. Their conclusions:
- Trusted, reputable organisations develop a clear sense of their own character and values, and then ensure it is understood and shared by its employees and reflected in the views of its stakeholders.
- Such organisations have sophisticated strategies for listening and engagement, which equip them to detect risks and seize opportunities to behave in line with stakeholder expectations.
- They have articulated and demonstrated a sense of responsibility at multiple levels – to their shareholders, stakeholders and society.
It is not surprising that the PR profession is joining the accounting profession in embracing integrated reporting as a way to demonstrate and evaluate the health of an organisation’s relationships and reputation: it is a way of not only giving providers of financial capital a more holistic sense of the organisation’s strategy, prospects and performance; it is also a way of earning and keeping trust – that critical currency that correlates so strongly with business resilience in the 21st century. ❐
- This article summarises a session Daniel Tisch chaired at the 2014 IIRC Pilot Programme Conference in Madrid featuring Helen Tuddenham and Helen Reeve Morris of PwC UK.
- Rory F Knight and Deborah J Pretty, The impact of catastrophes on shareholder value, Templeton College, University of Oxford, http://www.michaelsamonas.gr/resources/Impact%20of%20Catastophes%20on%20Shareholder%20Value.pdf.
Author: Daniel Tisch APR, FCPRS is CEO of Argyle Communications in Canada and a member of the working group that developed the International <IR> Framework