Australian directors are very aware of the importance of trust for their organisations’ future health – but practical steps to address issues of trust are proving harder to achieve.
The 2018 KPMG – AICD trust survey of 600 members of the Australian Institute of Company Directors launched today at the AICD’s Australian Governance Summit, in Melbourne, found 95 percent believed trust was important to the long-term sustainability of their organisation. This covered listed and private enterprise, public sector and not-for profit organisations. A majority, though not overwhelming 62 percent believed their board could adequately challenge management on how to respond to issues that could undermine trust in their organisation. Just over half, 54 percent, said they received reports on such issues.
This figure needs to be higher.
Other findings similarly suggested a need for improvement. Fewer than half (48 percent) felt their board had a proactive approach to building trust with the organisation’s most important stakeholders, and only 38 percent believe they have a proactive approach to building trust with all stakeholders
In an era where the Edelman Trust Barometer shows low levels of trust in business and institutions, just 23 percent believe they receive ‘meaningful’ metrics on trust in their organisations. The report found 42 percent of directors had pro-actively tried to uncover issues that had the potential to undermine trust in the business. But they need the right information to ask the pertinent questions of management.
Ahead of both customer satisfaction and the financial stability of the organisation, ‘internal culture and practices’ was regarded by directors as the biggest trust-related issue facing their organisations. Boards also see ‘clients or customers’ and ’employees’ as the two most critical stakeholders to maintain trust in an organisation ahead of government and investors.
The third is the local or regional community, followed closely by government and shareholders. This reflects increased understanding of social license to operate. We suspect that a few years ago the local community would not have ranked so high. This result acknowledges that the people who live and work around an organisation and its assets or operations – and therefore are most likely to be directly impacted by these operations – are key custodians of an organisation’s social licence.
Directors and executive management need to build on this momentum while responsive and responsible shareholders realise that although companies have to act in the interests of multiple stakeholders, there are still pockets of resistance from some to the societal changes which are taking place.
It is up to companies and their directors to educate these indifferent investors that their long-term interests are best served by engaging with, and taking note of, the concerns of the community, even if that means a short-term dip in profits or dividends.
Overall, our survey shows increasing awareness among directors of trust as a key issue with the loss of trust having the potential to damage organisations. What is concerning is that a sizeable minority of directors feel they are unable to satisfactorily challenge management on such issues, or indeed receive adequate reports on them. This represents a potential blind spot for boards. It is important that measurement of trust is embedded into regular management reports and board conversations, so progress can be monitored.
Given the well-documented loss of trust in business and institutions, often played out on a public stage and fuelled by social media, companies must become more pro-active in reshaping their procedures in addressing trust-related issues.