Trust: It’s a value we’re all familiar with in our relationships with family and friends, but is easy to overlook in the impersonal world of business. And yet trust in an organization, consciously or unconsciously, underlies every aspect of business. Trust is a social glue.
It’s no hyperbole to say that trust makes society possible—trust that our neighbors won’t steal from us, trust that the firefighters will arrive when called, trust that the bank will have money when we want to withdraw, trust that an hour in Uruguay or a meter in China are the same as the measurements here.
Trust is woven into a company’s relationships with investors, shareholders, employees, and clients alike. When an employee decides to join a company, when a customer buys a product, or when an institutional investor considers buying stocks in in a company, at some level they are all expressing their trust in that organization
Business strategy cannot get around the question, then: how do we build trust?
A business builds trust by acknowledging all of its stakeholders, and by honoring its commitment to them. Stakeholders may not have a formal relationship to a company. In fact, they frequently don’t. Take a company that wants to reduce its carbon footprint. This strategy acknowledges a network of stakeholders far beyond the sphere of formal business relationships (ultimately, the seven billion people on Earth), and offers a good faith accommodation to their needs (in this case, their need for climate stability). This commitment builds trust. If well-executed, this can translate to higher revenues, more generous investment, greater returns on stock, and employee and customer loyalty.
The Association of Corporate Counsel (ACC), which will focus on trust as the main theme of its upcoming 2020 Global GC Summit, and Edelman, curators of the annual Trust Barometer Survey, have studied trust for decades. Together, we’ve mapped trust across a variety of metrics, including board diversity (for gender, ethnicity, and experience); environmental, social and governance (ESG) policy; company culture; and employee activism.
Some of the findings are surprising. The 2020 ACC CLO Survey, for instance, found that a majority of CLOs worldwide thought that a priority for their organization over the next five years would be delivering value to customers, not necessarily maximizing profits. Similarly, the Edelman Trust Barometer Special Report: Institutional Investors found that 84 percent of investors agreed that commitments to all stakeholders should come before shareholder returns. These findings are further indicators of the ongoing evolution to what is driving business strategy.
Meanwhile, over 50 percent of institutional investors find that ESG measures build trust across a number of metrics, according to Edelman’s Trust Barometer. This is not surprising, given the recent pace of climate change. More remarkable is the investors’ interest: ESG is traditionally a function of the law department. (The 2019 ACC CLO Survey found that 55.5 percent of respondents had or planned to enact a corporate sustainability plan. Of those plans, 73.9 percent focused on the environment; 65.7 percent addressed corporate governance, and 64.6 percent community involvement.)
Both ACC and Edelman’s data also point to diversity as a critical component to building trust among stakeholders. More female board members, and more ethnic minority members, increase trust, but so does diversity in background. The less homogenous the career paths of a board’s members, the better. Age, too, makes a difference in trust: multigenerational boards rank more trustworthy than their homogenous counterparts.
This interest in diversity and stakeholder trust makes sense, in an era when diversity has become a household word and the #MeToo movement has shaken up the world of business, politics, and entertainment. CLOs, too, have activist watchwords like diversity and ESG on their radar – an important consideration, given their proximity to the employees themselves.
On the topic of employees, communication between leadership and employees is another important factor: the more, the better. This fits into a broader interest of corporate culture influencing trust, through such metrics as monitoring employee turnover, diversity rates, and anonymous rankings on social media sites like Glassdoor.com.
So, who is responsible for these commitments? Edelman’s research indicates that trust should be a board or c-suite priority. Only 23 percent of their respondents saw the general counsel as the main steward of trust.
From an outside perspective, that might make sense as CEOs and board members can often be high-visibility positions. But modern business operations and strategy are shifting in ways that outside investors may not immediately be able to see. All business decisions today are necessarily legal decisions. The responsibility for navigating complex regulations, for setting company culture, and for guiding the c-suite through a volatile business landscape are the everyday work of the modern CLO. CLOs are also the most versatile officers when it comes to managing stakeholders, since their repertoire and experience are so diverse. And of course, the consequences of low trust, like litigation for example, are also the responsibility of legal.
Edelman’s data point shows that there is still considerable room for improvement when it comes to CLOs’ role and visibility. It means that a c-suite that’s serious about trust needs a CLO with a seat at the executive table. According to ACC’s latest count, over 80 percent of CLOs worldwide now report to their CEO, positioned with a “seat at the table” that allows them to deal effectively and proactively with these key issues. A company looking to improve trust would be wise to start there, with their most trustworthy officer helping chart the course.
About the Author:
Veta T. Richardson is president and CEO of the Association of Corporate Counsel (ACC), a global legal association that promotes the common professional and business interests of in-house counsel who work for corporations, associations and other organisations through information, education, networking, and advocacy. With more than 45,000 members in 85 countries employed by over 10,000 organisations, ACC connects its members to the people and resources necessary for both personal and professional growth. By in-house counsel, for in-house counsel.® For more information, visit www.acc.com and follow ACC on Twitter: @ACCinhouse.