Trust used to be considered a prerequisite for commercial success. In many ways, it still is, with the most successful companies often being those which inspire the highest regard among customers, employees and suppliers. Today, however, successive financial and corporate scandals have eroded trust in companies and their products. Instead, there is a growing scepticism towards businesses, felt not just by consumers but by a range of stakeholders. The problem is global and the consequences could be serious. But there are ways to overcome the trust deficit for those companies that are prepared to take the necessary action.​

MARKETS

 

MARKETS

Trust low down

According to Oliver Parry, head of corporate governance at the UK’s Institute of Directors: “If the EU referendum showed us anything, it was that people in Britain are sceptical of business.”

The facts speak for themselves. Thousands of businesses were in favour of Britain staying in the EU and said so publicly, yet a majority of voters rejected their arguments. Parry suggests this provides graphic evidence of the poor regard in which the corporate world is held.

“Trust in business is at an all-time low and, for many people, business is seen as being detached from the real world and part of the ‘London metropolitan elite’,” he says.

The Institute of Business Ethics (IBE), set up 30 years ago to encourage high standards of international business behaviour, echoes this view. A recent survey of attitudes towards business ethics showed that almost 40 per cent of the public still believe UK companies are behaving unethically. 

Global problem

Failing trust between business and the consumer is not a uniquely British problem. It confronts business leaders and politicians from Europe to China and the US. 

Edelman, the global communications marketing firm, conducts an annual Trust Barometer. Its 2016 report shows that trust in institutions is below 50 per cent in more than half of the 28 countries it covers. 

“Trust has barely moved since the global financial crisis. And the ‘trust deficit’ is particularly acute in the US, UK, France, India and Brazil,” says Edelman chief executive Richard Edelman. “Worldwide, people are significantly more likely to trust peers, friends, family and ‘regular employees’ than a chief executive or a government official.”

Unless this global trust deficit is addressed soon, say experts, there could be long-term consequences for business. Distrust damages relationships with suppliers, investors and customers; it affects staff relations, and it can add to the cost of finance and trade.

So a business that faces a trust deficit is not only at a competitive disadvantage to rivals but potentially faces serious financial harm.

Across the globe, scandals involving large corporates underline the financial and reputational damage that a dramatic loss of trust can cause. Nestlé, a company that learned the hard way about the importance of trust after its baby milk scandal of the 1970s, was last year embroiled in a media storm, this time over alleged safety issues in India. The Swiss company was pitted against India's safety regulator over whether its Maggi noodles, which hold a dominant market share in the Asian country, had unsafe levels of lead. Despite a host of independent bodies ruling that they were completely safe, Nestlé was forced to destroy 400 million packets of noodles and temporarily halt production. The noodles were taken off the shelves for five months and the product recall cost more than $65 million.

Nestlé chairman Peter Brabeck-Letmathe said at the time that the group had had to take dramatic action to stem the unfounded food-scare crisis, even though it hurt full-year performance. “If we had lost the trust of the consumers…we would not have lost the trust only in India, we would have lost it everywhere in the world – and this would have been a real problem. The rest is just annoyance.” 

Poor relations

Loss of trust affects not just a company’s interactions with consumers but its relationships with business stakeholders too. Tesco, Britain’s largest supermarket group, was plunged into chaos in 2014 when an accounting black hole uncovered a severe breakdown in its relationship with suppliers. Its heavy-handed treatment of smaller producers, in particular, led to Tesco being branded a bully. The management team was overhauled and the company has since introduced virtually a clean sweep of policies and payment terms for large and small suppliers.

BP’s Gulf of Mexico oil spill also revealed the damaging fallout from a sudden breakdown in trust between companies, with the oil giant and Transocean, its drilling supplier, both blaming each other for the disaster that cost 11 people their lives.​

Eckert took immediate responsibility, publicly apologised and quickly identified the source of the contamination to a factory in China. Suppliers that had failed to maintain standards were named and shamed, new suppliers were brought on board and closer collaborative partnerships were fostered between the toy maker and its suppliers, involving far more stringent testing of toy safety. Mattel’s subsequent internal surveys show that 75 per cent of the public believe it did a good job addressing the problem and today the toy manufacturer continues to score highly as a trustworthy company.

Kathryn Beiser, global chair of Edelman’s corporate practice, says that trust ultimately depends on a business culture that strives for longer-term value creation. 

“Business leaders can no longer just focus on short-term goals. The new-model chief executives are taking action by addressing the issues of our time, and taking a personal interest in the success of society. Stakeholders expect business to have a solid and steady focus on financial returns, but also on actions around key issues such as education, healthcare and the environment,” she says. 

Paul Polman, chief executive of Unilever, for example, has gained widespread inter­-national respect for his extremely vocal views on issues relating to the environment, while Howard Schultz of Starbucks and Cyrus Mistry of Tata in India have been equally outspoken on youth employment and education, respectively. Alongside using chief executives as role models, companies can also use internal policies and procedures and strict compliance functions to ensure that an ethical code infiltrates every part of their business.   

Fundamentally, there is no quick fix, particularly in a world where news, good or bad, can spread like wildfire on social media. As Edelman explains: “Trust in institutions is no longer automatic­ally granted on the basis of hierarchy or title. In today’s world that trust must be earned. And that means companies cannot take their eye off the ball when it comes to building and maintaining public confidence. Constant vigilance is the guiding principle.”​ 

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Business trustworthiness has three main characteristics: the ability to perform a task reliably; demonstration of benign motives; and integrity underpinned by a code of ethical principles”​

Enterprises headquartered in Canada, Sweden, Switzerland and Germany are among the most trusted worldwide and even trust in financial services is growing again as the sector recovers”​

The issues that cause most concern among consumers are corporate tax avoidance, executive pay, exploitative labour, whistle-blower protection and discrimination”

According to Oliver Parry, head of corporate governance at the UK’s Institute of Directors: “If the EU referendum showed us anything, it was that people in Britain are sceptical of business.”

The facts speak for themselves. Thousands of businesses were in favour of Britain staying in the EU and said so publicly, yet a majority of voters rejected their arguments. Parry suggests this provides graphic evidence of the poor regard in which the corporate world is held.

“Trust in business is at an all-time low and, for many people, business is seen as being detached from the real world and part of the ‘London metropolitan elite’,” he says.

The Institute of Business Ethics (IBE), set up 30 years ago to encourage high standards of international business behaviour, echoes this view. A recent survey of attitudes towards business ethics showed that almost 40 per cent of the public still believe UK companies are behaving unethically. 

Global problem

Failing trust between business and the consumer is not a uniquely British problem. It confronts business leaders and politicians from Europe to China and the US. 

Edelman, the global communications marketing firm, conducts an annual Trust Barometer. Its 2016 report shows that trust in institutions is below 50 per cent in more than half of the 28 countries it covers. 

“Trust has barely moved since the global financial crisis. And the ‘trust deficit’ is particularly acute in the US, UK, France, India and Brazil,” says Edelman chief executive Richard Edelman. “Worldwide, people are significantly more likely to trust peers, friends, family and ‘regular employees’ than a chief executive or a government official.”

Unless this global trust deficit is addressed soon, say experts, there could be long-term consequences for business. Distrust damages relationships with suppliers, investors and customers; it affects staff relations, and it can add to the cost of finance and trade.

So a business that faces a trust deficit is not only at a competitive disadvantage to rivals but potentially faces serious financial harm.

Across the globe, scandals involving large corporates underline the financial and reputational damage that a dramatic loss of trust can cause. Nestlé, a company that learned the hard way about the importance of trust after its baby milk scandal of the 1970s, was last year embroiled in a media storm, this time over alleged safety issues in India. The Swiss company was pitted against India's safety regulator over whether its Maggi noodles, which hold a dominant market share in the Asian country, had unsafe levels of lead. Despite a host of independent bodies ruling that they were completely safe, Nestlé was forced to destroy 400 million packets of noodles and temporarily halt production. The noodles were taken off the shelves for five months and the product recall cost more than $65 million.

Nestlé chairman Peter Brabeck-Letmathe said at the time that the group had had to take dramatic action to stem the unfounded food-scare crisis, even though it hurt full-year performance. “If we had lost the trust of the consumers…we would not have lost the trust only in India, we would have lost it everywhere in the world – and this would have been a real problem. The rest is just annoyance.”

Poor relations 

Loss of trust affects not just a company’s interactions with consumers but its relationships with business stakeholders too. Tesco, Britain’s largest supermarket group, was plunged into chaos in 2014 when an accounting black hole uncovered a severe breakdown in its relationship with suppliers. Its heavy-handed treatment of smaller producers, in particular, led to Tesco being branded a bully. The management team was overhauled and the company has since introduced virtually a clean sweep of policies and payment terms for large and small suppliers.

BP’s Gulf of Mexico oil spill also revealed the damaging fallout from a sudden breakdown in trust between companies, with the oil giant and Transocean, its drilling supplier, both blaming each other for the disaster that cost 11 people their lives.​

The issues that cause most concern among consumers are corporate tax avoidance, executive pay, exploitative labour, whistle-blower protection and discrimination”​

Business trustworthiness has three main characteristics: the ability to perform a task reliably; demonstration of benign motives; and integrity underpinned by a code of ethical principles”​​

Course of action

Conversely, companies that inspire or regain trust can reap considerable benefits. So what should business do to overcome the pervasive trust deficit?

The IBE says companies and their leaders must first understand the main causes of distrust. The non-profit organisation reveals that the business issues that cause most concern among consumers are corporate tax avoidance, executive pay, exploitative labour, whistle-blower protection and discrimination. Opinion is also influenced by companies’ environmental responsibility, their advertising and marketing practices, the reliability of products and services and their responsiveness in a moment of disaster or crisis.

“Business is moving into a new era where the mantra ‘trust me to do the right thing’ has given way to the ‘prove it to me’ era,” says director Philippa Foster Back.

But there are ways of overcoming the current scepticism felt towards both the private and public sector. 
“Companies have the best opportunity to bridge the trust chasm because they are still more trusted than most governments, and even some non-governmental organisations,” she says.  

On the up

Encouragingly too, Edelman’s 2016 Trust Barometer found that, although trust in business is at a low ebb, sentiment is improving. Globally, trust improved by five percentage points to 53 per cent, the largest annual gain in years. Family-owned businesses remain the most trusted companies, followed by public and then state-owned companies. Enterprises headquartered in Canada, Sweden, Switzerland and Germany are among the most trusted worldwide and even trust in financial services is growing again, as the sector recovers from the recession.

The late Dr Graham Dietz, a senior lecturer at Durham Business School, co-authored a report on building and restoring organisational trust. He said that business trustworthiness has three main characteristics: the ability to perform a task reliably; demonstration of benign motives; and integrity underpinned by a code of ethical principles based on fairness and honesty. 

“Display these three attributes consistently and credibly, and you will be trusted by all but the most paranoid. Get any of them wrong and your reputation will suffer. Trust is remade – strengthened or undermined – in every encounter,” said Dietz.

Hosts of companies exemplify how to do this effectively. In the UK, department store John Lewis owes its success in no small part to consumer trust. Customers believe that if they buy something from John Lewis it will not only be of good quality but will also have been produced ethically.

Bridgepoint-backed Pret a Manger has also gained a strong reputation among its customers. They trust the food retail chain to provide consistent quality, while treating staff fairly, sourcing ethically and responding effectively to changing tastes – from providing porridge at breakfast to opening meat-free outlets. 

Further afield, Tupperware Brands has won a large following for the quality of its products, its financial performance and its reputation for improving economic and social conditions in the communities in which it operates. Today Tupperware has a global sales force of almost 3.1 million women in countries including China, India, Indonesia and South Africa, helping to drive sales revenue for the company while earning much-needed income from selling the products. 

Valuing goodwill

Foster Back suggests that companies have to deliver quality of service consistently to build a rapport with stakeholders. 

“This means that even when a business has a bad day, which is inevitable, there will be so much goodwill built up that they will be forgiven. However, if that well of trust is empty, there is nothing to draw on, and that is when customers will walk away. You may have your corporate and ethical values plastered all over your walls, but how stakeholders respond to you will come down to whether they feel they have been treated honestly and with respect,” she says.

This is particularly true in a crisis. When US toy company Mattel faced a massive product recall in 2007 over concerns of lead paint levels, chief executive Bob Eckert moved so quickly to restore trust among suppliers, customers and Mattel’s own staff that the crisis has become a case study in many business schools.​

Course of action

Conversely, companies that inspire or regain trust can reap considerable benefits. So what should business do to overcome the pervasive trust deficit?

The IBE says companies and their leaders must first understand the main causes of distrust. The non-profit organisation reveals that the business issues that cause most concern among consumers are corporate tax avoidance, executive pay, exploitative labour, whistle-blower protection and discrimination. Opinion is also influenced by companies’ environmental responsibility, their advertising and marketing practices, the reliability of products and services and their responsiveness in a moment of disaster or crisis.

“Business is moving into a new era where the mantra ‘trust me to do the right thing’ has given way to the ‘prove it to me’ era,” says director Philippa Foster Back.

But there are ways of overcoming the current scepticism felt towards both the private and public sector. 
“Companies have the best opportunity to bridge the trust chasm because they are still more trusted than most governments, and even some non-governmental organisations,” she says.  

On the up

Encouragingly too, Edelman’s 2016 Trust Barometer found that, although trust in business is at a low ebb, sentiment is improving. Globally, trust improved by five percentage points to 53 per cent, the largest annual gain in years. Family-owned businesses remain the most trusted companies, followed by public and then state-owned companies. Enterprises headquartered in Canada, Sweden, Switzerland and Germany are among the most trusted worldwide and even trust in financial services is growing again, as the sector recovers from the recession. 

The late Dr Graham Dietz, a senior lecturer at Durham Business School, co-authored a report on building and restoring organisational trust. He said that business trustworthiness has three main characteristics: the ability to perform a task reliably; demonstration of benign motives; and integrity underpinned by a code of ethical principles based on fairness and honesty. 

“Display these three attributes consistently and credibly, and you will be trusted by all but the most paranoid. Get any of them wrong and your reputation will suffer. Trust is remade – strengthened or undermined – in every encounter,” said Dietz.

Hosts of companies exemplify how to do this effectively. In the UK, department store John Lewis owes its success in no small part to consumer trust. Customers believe that if they buy something from John Lewis it will not only be of good quality but will also have been produced ethically.

Bridgepoint-backed Pret a Manger has also gained a strong reputation among its customers. They trust the food retail chain to provide consistent quality, while treating staff fairly, sourcing ethically and responding effectively to changing tastes – from providing porridge at breakfast to opening meat-free outlets. 

Further afield, Tupperware Brands has won a large following for the quality of its products, its financial performance and its reputation for improving economic and social conditions in the communities in which it operates. Today Tupperware has a global sales force of almost 3.1 million women in countries including China, India, Indonesia and South Africa, helping to drive sales revenue for the company while earning much-needed income from selling the products. 

Valuing goodwill

Foster Back suggests that companies have to deliver quality of service consistently to build a rapport with stakeholders. 

“This means that even when a business has a bad day, which is inevitable, there will be so much goodwill built up that they will be forgiven. However, if that well of trust is empty, there is nothing to draw on, and that is when customers will walk away. You may have your corporate and ethical values plastered all over your walls, but how stakeholders respond to you will come down to whether they feel they have been treated honestly and with respect,” she says.

This is particularly true in a crisis. When US toy company Mattel faced a massive product recall in 2007 over concerns of lead paint levels, chief executive Bob Eckert moved so quickly to restore trust among suppliers, customers and Mattel’s own staff that the crisis has become a case study in many business schools.​

People are significantly more likely to trust peers, friends, family and ‘regular employees’ than a chief executive or a government official”​

People are significantly more likely to trust peers, friends, family and ‘regular employees’ than a chief executive or a government official”​​

Enterprises headquartered in Canada, Sweden, Switzerland and Germany are among the most trusted worldwide and even trust in financial services is growing again as the sector recovers”​​

Eckert took immediate responsibility, publicly apologised and quickly identified the source of the contamination to a factory in China. Suppliers that had failed to maintain standards were named and shamed, new suppliers were brought on board and closer collaborative partnerships were fostered between the toy maker and its suppliers, involving far more stringent testing of toy safety. Mattel’s subsequent internal surveys show that 75 per cent of the public believe it did a good job addressing the problem and today the toy manufacturer continues to score highly as a trustworthy company.

Kathryn Beiser, global chair of Edelman’s corporate practice, says that trust ultimately depends on a business culture that strives for longer-term value creation. 

“Business leaders can no longer just focus on short-term goals. The new-model chief executives are taking action by addressing the issues of our time, and taking a personal interest in the success of society. Stakeholders expect business to have a solid and steady focus on financial returns, but also on actions around key issues such as education, healthcare and the environment,” she says. 

Paul Polman, chief executive of Unilever, for example, has gained widespread inter­-national respect for his extremely vocal views on issues relating to the environment, while Howard Schultz of Starbucks and Cyrus Mistry of Tata in India have been equally outspoken on youth employment and education, respectively. Alongside using chief executives as role models, companies can also use internal policies and procedures and strict compliance functions to ensure that an ethical code infiltrates every part of their business.   

Fundamentally, there is no quick fix, particularly in a world where news, good or bad, can spread like wildfire on social media. As Edelman explains: “Trust in institutions is no longer automatic­ally granted on the basis of hierarchy or title. In today’s world that trust must be earned. And that means companies cannot take their eye off the ball when it comes to building and maintaining public confidence. Constant vigilance is the guiding principle.”​ 

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Bridgepoint  |  The Point  |  November 2016  |  Issue 30