A CRISIS OF TRUST: THE LEADERSHIP CHALLENGE Richard Edelman June 2009
As Business Leaders, Trust in us is at an historic low. We should be alarmed. We should use this as a wake-up call for reform. And we must embark upon an urgent journey to restore this diminished Trust in Business.
I believe Milton Friedman was wrong. The social responsibility of business is not just to make a profit. We have to add a social dimension to the economics of business. We have to think about the greater good. We should look to business leaders like Frank Riboud at Danone or Steve Reienemund, the former CEO of PepsiCo, and adopt a new way of thinking.
Make no mistake. Our business world is at a Turning and Learning Point. As I will explore, the tectonic plates have shifted. Some see this as merely a stewardship issue – re-discovering our compass to steer us right. But others recognise it as an issue of fundamental principles and courage.
The bottom line is that we, as Businesses, need to lead once again. We need to do this in partnership with Governments, NGOs, our customers and our employees.
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Trust lies at the very heart of our social, political and economic model and I have been an avid student of Trust since we first published the Edelman Trust Barometer ten years ago. That was in the wake of the infamous Battle of Seattle. This year’s findings demonstrate a new statistical trough. Globally, 62% of Informed Publics trust Business less than they did a year ago.
In the US alone, there has been a dramatic collapse in Trust in Business - from 58% to 38%. My UK colleagues tease me that ‘America is the new France’. The events of the past twelve months have cast serious doubts on the positive role of business in our society. The incredible decline of long-established centrepiece institutions such as GM, AIG and RBS has had a profound effect. We have rightly come to question the prevailing model of laissez-faire capitalism which has otherwise dominated our landscape for the best part of three decades. Our customers, employees, supply chain partners, regulators and the NGO community have come to question us, as business leaders, at the most fundamental of levels. It is our responsibility to answer these questions and to ensure repair and restoration, not fracture and fragmentation beyond reprieve.
There are, at least, some encouraging signs and a few (dare I say it) green shoots. The BRIC countries have not been damaged as much as the US or Europe. Trust in Business remains high (65%+ vs. global average of 45%) in China, Brazil, Mexico, India and Indonesia. German, Swedish and Canadian companies are universally trusted. The Tech sector remains the most trusted globally (76% of Informed Publics still trust Tech businesses). There is a new recognition of ‘Purpose’. 85% believe that a commitment to the greater public good builds trust.
Nonetheless, the tectonic plates have shifted. It is essential that we understand how we can lead in this new and challenging context.
At his inauguration, President Obama spoke of a ‘New Era of Citizenship and Responsibility’. Citizens and consumers expect a different relationship with companies and brands today. Accelerated by the democratising power of Digital, citizen-consumers have become an integral part of the conversation, whether on executive compensation or supply chain ethics. Activism is on the rise. Consumer Brands companies witness this through the rise of Consumer Politics. Boycotts, petitions and demands for product and behavioural change are commonplace. Elsewhere, there is a growing acceptance that this is now (in the West at least) a genuine stakeholder society. The shareholder-only mentality belongs in the past. We have moved from Shareholders to Stakeholders, for sure.
Behavioural Change is everywhere. Consumers increasingly accept that we are shifting from a society of wants to a society of needs. Businesses are waking up to the fact that they are no longer in control; that they need to let go; that their employees have – and need - a voice; and that the employee voice is often more powerful and more resonant than the voice of the CEO. (In fact, the Edelman Trust Barometer tells us that the credibility of the CEO as ‘trusted spokesperson’ has reached a new low: 29% globally; 20% here in the UK).
And, finally, New Influencers have emerged. The authority figures who sat at the top of crumbling pyramids have been usurped. Conversations with friends & peers and conversations with company employees (both at 40%) are now the trusted sources of information. Corporate or product advertising is at its lowest point in a decade (13% globally). An increasingly disparate and poorly-funded media struggles to make an impact. Search and Bloggers are increasingly central to both the Information and the Trust revolutions, as we have seen recently with the ‘Twitter revolution’ in Iran and beyond. Experts and Analysts remain both trusted and critical to a business’ License to Operate. The credibility of the NGOs continues its imperious rise through the decade. The NGO community has, without doubt, become the Fifth Estate in global governance.
Furthermore, we are witnessing a new appetite and consensus for Regulation. This is what the 2009 Edelman Trust Barometer tells us. 70% of Informed Publics no longer accept that Business can operate without government restraint. We are moving towards a modified Free Market approach. By a 2-1 margin, our Informed Publics want Government (over Business) to take the lead in addressing Climate Change, Energy Costs and, of course, the Financial Crisis. But, in 13 out of the 20 markets surveyed, Business remains more trusted than Government. Clearly, the door remains open for the possibility of a Business mandate to lead.
The emergence of a re-framed contract between Citizens, Business and Government thus calls into question the mandates of both Government and Business to lead unilaterally, as they have attempted to do in the past. The Leadership Challenge, in part, is to properly understand this dynamic, as we enter what is undoubtedly a period of increased regulation and, ironically, control. At Edelman, we are calling this shift from old Pyramids of Authority to new Spheres of Influence, as the age of Public Engagement.
What does Public Engagement – so critical for the restoration of Trust - look like in practice? I believe it has four central pillars.
The first of these is Private Sector Diplomacy. Business leaders can be the catalysts for new partnerships and coalitions – with governments, with the NGO community, with associations and, most fundamentally, with citizen-consumers and employees. (We must all now recognise employees as the first line of influence). The Leadership Challenge, in this context, is to treat all stakeholders within the Sphere of Influence equally. We must respect the role each plays, individually and collectively, in the way business is conducted and delivered.
The second pillar is Mutual Social Responsibility. I want to be very clear here. This is not about tick-box CSR or mandatory Annual Reporting. Nor is it a Green issue. Mutual Social Responsibility must sit at the heart of business today. We have to build sustainable thinking around social, economic and environmental issues. Business models will need to be re-thought (and occasionally completely re-built). They must benefit both the wider community/ society and the bottom line. Other stakeholders – employees and customers especially – must be invited to participate in a company’s Social Responsibility actions and decisions. The public at large must be kept regularly informed on progress towards measurable goals. Leadership companies – including Starbucks, Unilever and The Co-Op (some of whom are clients) - are already innovating in this space. We would be wise to adopt their Best Practices.
Third, we must embrace Shared Sacrifice. I spoke earlier about how there was a direct correlation between executive pay excess and a collapse in Business Trust. Reform must start here. At a time when employees are losing jobs and investors are seeing stock values plummet, voluntary executive pay cuts and forfeiting of bonus’ sends a powerful message. As business leaders, we have to be in tune with world reality. We must communicate with employees – openly and transparently – about the challenges we face. We must welcome their voices and work with them to find solutions. Detachment is not an option.
Finally, we have to communicate differently. We need to embark upon a Continuous Conversation. It may be tempting to hunker down and wait for the storm clouds to pass and green shoots to emerge. But now is the time to communicate differently. The Trust Barometer tells us that ‘honest, continuous conversation’ ranks as high as ‘offering value for money products’ as essential to better corporate reputation. Frequent interaction is a vital part of the
pathway to rebuilding Trust. 60% of respondents said they must hear information three to five times – and from multiple sources – before they believe it. These information sources, moreover, must be framed within the reality of a revolutionised media landscape. Dictating the conversation will lead us nowhere fast. Informing the conversation – becoming an active participant within it and accepting the dispersion of authority – will help re-build Trust.
So, we have seen how a new Public Engagement model – built on the four pillars on Private Sector Diplomacy, Mutual Social Responsibility, Shared Sacrifice and a Continuous Conversation – can begin to address the prevailing Crisis in Trust. Each one of us – as leaders – faces a challenge in bringing this thinking to our business models. We must do as we say, and say as we do. This is our first imperative.
But is it enough? I have been inspired by the words of Danone’s Frank Riboud. He speaks about how it is in the interests of the enterprise ‘to take care of the economic and social environment ... to create value for shareholders but also to create wealth for customers, employees and regions where the companies operate... because our company is an economic and social project’.
The Riboud thesis rightly rejects Friedman’s thinking of nearly forty years ago. This proper coupling of the economic and the social is essential if we are to regain and rebuild trust. That is what this new world order demands. It also begins to address the moral dimension of our thinking and our work. As Harvard Professor Michael Sandel has argued, we have spent the immediate past confusing consumer values with civic values. The former has undermined the latter and goes against the Common Good. Sandel calls for a courageous public discourse to question what a ‘good life’ should really look like – and the role that the market (and therefore business) should play within it. For me, this is the next stage of debate. But the first – and most urgent – priority – is to address the Crisis of Trust. To do that, we must embark upon a journey of active Public Engagement.