Opinion: Leading for Trust

OPINION - Leading for Trust
Why elevating organizational trust is important for your company and how to do it
Why elevating organizational trust is important for your company and how to do it.
By Barbara Brooks Kimmel
Introduction

Recently, I sat quietly as a Fortune 500 CEO told me there were no “trust issues” in his organization. After all, the company’s quarterly earnings were increasing, and international expansion was on target; what more could shareholders want? But I remained skeptical because I had done my homework. The company’s Glassdoor employee ratings were low: it scored significantly below average in Trust Across America’s FACTS® Framework compared to its peers, and the company had just paid a multi-million-dollar fine for bribery. In this age of growing transparency, how could this CEO believe, let alone say, that there were no trust issues? Organizational trustworthiness, core values, and simple workplace culture are nothing more than reflections of decisions made by leadership to drive not only shareholder, but also all stakeholder relationships—and the higher the trust, the stronger these relationships become.

For a small group of CEOs, awareness is growing around the idea that organizational trust is not a soft skill but rather a hard asset—an intentional business strategy that is both measurable and highly profitable. Trust becomes part of the corporate DNA and crosses all silos. Using the following definition of organizational trust clarifies the path forward:

The degree to which a company conducts business in a responsible manner

The first chart is a three-year audited performance measurement of the most trustworthy public companies in America, according to the FACTS® Framework. Correlation is high with CR Magazine’s 100 Best Corporate Citizens.

CR.JulyAug2016.Trust-Chart2

FACTS® Managed Accounts were independently audited from Feb.1, 2013-Jan.31., 2016. Prepared by FACTS Asset Management LLC FACTS® is our model of identifying America’s Most Trustworthy Companies by applying FACTS strategy parameters. The composite results translate to 50.09% for FACTS® and 28.1% for the S&P 500 cumulative percentage return shown above, or 16.7% average annualized for FACTS® vs. 9.5% for the S&P 500 over the same period. The audited Composite Performance results shown above may not be indicative of future results. Full audit documents available upon request. The composite performance records are based on all accounts managed using the FACTS strategy for a three year period, 2/1/13 to 1/31/16 and are not representative of the FACTS® Asset Management LLC program. Tax consequences are not reflected in the performance records. Past performance is not an indication of future return. There can be no guarantee that a new program will prove to be profitable in the future or that it will achieve performance results similar to those achieved in the past using the FACTS strategy parameters and you may lose money. The performance numbers reflect the reinvestment of dividends. The composite performance net of fees is calculated using a weighted average fee for the entire period because not all accounts were charged equal fees and some accounts were not charged fees. The S&P 500 is a widely recognized, market value-weighted index of 500 stocks designed to mimic the overall U.S. equity market’s industry weightings, and does reflect the reinvestment of dividends. Past results are not necessarily indicative of future results. FACTS® Asset Management LLC is a New Jersey registered Registered Investment Advisor

During the three-year period from February 2013 to February 2016, America’s most trustworthy public companies outperformed the S&P 500 by 1.8X. The composite results translate to 16.7 percent annualized for FACTS® vs. 9.5 percent for the S&P 500. If this were not surprising enough, here’s a look at the S&P 500 sector rank of corporate trust “worthiness” for 2015.

 

2015 FACTS® Rankings by Sector

CR.JulyAug2016.Trust-Chart1_CMYK

Surprised that finance is not at the far left? Industry is simply NOT destiny.

Trust works. High trust organizations are more profitable because, among other factors:

• Their employee engagement is higher and turnover is lower

• Their decision-making is faster and more inclusive

• Their innovation is greater

To most CEOs, this should make intuitive sense. A few more statistics may seal the case for elevating organizational trust:

• A 2013 study by Guiso, Sapienza and Zingales titled The Value of Corporate Culture finds that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, a firm’s performance is stronger.

• According to a 2011 Booz & Co. Study, The Global Innovation 1000: Why Culture is Key, companies Opinion with both highly-aligned cultures and highly aligned innovation strategies have 30 percent higher enterprise value growth and 17 percent higher profit growth than companies with low degrees of alignment.

• From Deutsche Bank: 100 percent concurrence on Lower Cost of Capital (“… academic studies agree that companies with high ratings for CSR (corporate social responsibility) and ESG (environment, social responsibility, governance) factors have a lower cost of capital in terms of debt (loans and bonds) and equity.”)

 

Organizations and their leaders become trustworthy once trust is earned

Trust-building can be implemented by combining the following leadership actions and initiatives:CR.JulyAug2016.Trust-Chart3

Vision and Values: A cross-silo initiative with input from the C-Suite identifies the organization’s principles and writes a meaningful credo Why does the organization exist, and what does it stand for?

Integrity: Practice and regularly communicate the moral principles and purpose of the leadership team and the organization. Hold training for employees in how to lead with trust in their behaviors and interactions. Lose the “sales scripts.”

Promises and Process: Ensure that leadership is held accountable to what they say they will do, and to regularly communicatin the vision, values, and promises to all stakeholders. Make this a daily function of the corporate responsibility team in collaboration with compliance and communications.

Implement ways of doing things that translate the principles above into organized group behavior. Internally, this includes the hiring and training of employees, the structure of meetings, transparency of/fair personnel policies, how decisions are made, and accessibility to leadership. With external stakeholders (vendors, customers, community, etc.), trust can be enhanced using quantitative measurement, benchmark, and screening “tools” like FACTS®.

 

Building trust is not about “falling backwards” exercises

It’s about doing business differently by putting trust, truth, and ALL stakeholders first—and profit second. This is an unconventional mindset, but it is increasingly being practiced at the most progressive companies. One of the most powerful byproducts of behaving this way is that profits end up higher, not lower. Leading for trust has its rewards. Remember, every company has the exact organizational trust program it intentionally chooses or that its leadership deserves.

Barbara Brooks Kimmel is the CEO and cofounder of Trust Across America-Trust Around the World whose mission is to help organizations build trust. Now in its seventh year, the program’s proprietary FACTS® Framework ranks and measures the trustworthiness of close to 2000 US public companies on five quantitative indicators of trustworthy business behavior. She is also the editor of the award-winning TRUST INC. book series and the executive editor of TRUST! Magazine.

 

Posted August 24, 2016 in Business Ethics