Trust in business: the panel
SIMON WALKER The issue of trust in business has been the topic of a great deal of discussion in the business community since the recession. The problems may have begun in the sub-prime market in the US, but in many of the public’s eyes, all companies are allocated a share of the blame for the job losses and decline in living standards that followed.
That loss of faith in Britain was exacerbated by the PPI mis-selling and Libor fixing scandals. Last year, a poll told us that two-thirds of the public didn’t trust business leaders to tell the truth. I’m afraid that was narrowly ahead of estate agents and politicians! Unfortunately, we can’t say it’s stopped. A year ago, nobody would have predicted the Volkswagen scandal – with emissions tests being faked on an industrial scale – or failures at TalkTalk and Thomas Cook.
The public is actually regaining its trust in business, but marginally. In January, Edelman produced its 2016 trust barometer, which suggested global trust in businesses is starting to increase. Mike Skapinker [Financial Times journalist] notes the gap between the ‘Elites’, who are educated, better off and benefiting from globalisation, and the ‘Disadvantaged’, who feel marginalised by globalisation and remain as sceptical as ever.
To get our discussion under way, I’ll hand over to co-host Alison Kay…
ALISON KAY The disruption we’re seeing in business is on a scale we’ve never experienced before. In my role [EY global vice chair, industries] I have the privilege of looking across industries around the world and it’s fair to say that disruption is stripping out boundaries between industries. Disruption means even among the largest and best-resourced companies in the world, one-third in every sector will be disrupted in the next two years.
So it’s clear to me that the world is changing – and at a pace and scale we never anticipated. It’s putting us in the midst of what’s being called the fourth industrial revolution. All revolutions produce winners and losers. My view is trust will be key in determining who the winners are because successful firms need to take their stakeholders with them on their journey through disruption.
WALKER With the disruptive economy and digitisation increasingly important, how can businesses improve levels of trust?
RONAN DUNNE I think the financial crisis amplified a trend that was already happening, which is that society and consumers’ relationship with brands and companies is changing. The basis of trust and transparency, in my view, is purpose and people – your employees and customers.
We [Telefónica] describe ourselves as a brand that operates a business, not a business operating a brand, and [we] have an exclusive ambition to bridge the gap between corporation reality and brand, and its ambition for engagement with its customers. We have 25.5 million customers as O2 and our platform/network has more than 30 million.
In 2001, when we started, the mobile phone industry had a lower reputation than estate agents, right at the bottom of the pile. Yet, in a survey we did recently about who you trust with your data, mobile operators came third after medical insurance providers and banks. Interestingly, this was associated with data, and [companies’] protection of it, as opposed to reputation of the entity.
For most people, their mobile phone is the remote control for their life. So an understanding of the role that you play is an essential ingredient in building and establishing a relationship with your customers. Most people thought that the reason for 18- or 24-month contracts in the mobile phone industry was to lock you in.
The reality is that people who want to buy an expensive consumer electronics device, don’t want to pay upfront, so they spread it over time. So what we [Telefónica] said is, ‘Fine, the principle you’re working on is we’re locking you in.’ So, we brought out the first ever sim-only contract. Our belief was that if you give people the freedom to leave, you actually give them the confidence to stay. So we changed the rules in our industry by changing the way we contract. By doing that, we ended up identifying that a brand needs to be trusted in order to succeed as a business.
INES WICHERT In crises, we have a great opportunity to build that trust. If something doesn’t go according to plan, then the organisation should go an extra mile to put that right. Then, I have confidence to go back to that organisation and I know that if something doesn’t work, this organisation will put that right for me.
One of the things we find at IBM is it’s actually about the employee. We can only really build a brand that can engage with customers if our own people have bought into that. To allow our employees to have trust in senior leadership, means they’re more likely to stay and collaborate – it makes them much more likely to go an extra mile for our customers.
MARK GOYDER The new chief executive of Volkswagen talked about their strategy going forward, [and] mentioned three elements, one of which was integrity. I thought to myself, this doesn’t smell right! Where was integrity before the new strategy? Trust is important because businesses thrive on relationships. Relationships can only thrive if there is a clear purpose and values. I just worry sometimes we treat trust and integrity as cosmetics.
But the history of long-lived companies tells us these things not only sit alongside the business, but underpin it… In Tomorrow’s Company’s Futures Project report published this year, we suggest that for companies to earn trust it’s much tougher when [they’re] a listed company… We don’t build trust in the short term. It’s much harder, in the context of quarterly reporting, to build that trust.
WALKER Charles, you’ve been involved in companies that have been disrupted. What’s your observation on [Mark’s] listed versus non-listed point?
LORD ALLEN I chair two private companies, a private equity company and a listed company, so I think that’s a good point. I think there is a lot of short-term pressure if you’re a listed company. But across my businesses in banking, media, food production and business services, the one common denominator is trust. What we sell is trust.
Moelis & Company [Allen is advisory chair] was set up by Ken Moelis in 2007 at the height of the banking crisis, because he and his colleagues were under pressure to deliver for the big banks, they were playing on both sides of the balance sheet, and so there was potential conflict. So he set up an old-school model, based on trust, which has been incredibly successful. He’s now listed the business and the challenge for us [Moelis & Company] is, as we grow, [sticking to] that basic thesis, selling trust. We will tell clients not to do a deal even if it works against us.
The food business [2 Sisters Food Group] is the largest provider of chickens in the country. Confidence in the product is crucial. We have external factors, like chickens with campylobacter [food-poisoning bug]. Properly cooked they’re quite safe; not properly cooked, very dangerous indeed. Then you have things like avian flu constantly hitting us. So we’re constantly preparing for how we recover that trust. At ISS [which Allen chairs], we provide facilities for catering, cleaning in hospitals and in businesses. We’re not selling caterers and cleaners because you can get them from a competitor more cheaply. We’re selling trust.
On every board agenda, we link trust to reputation, looking where weak spots would be. It could be one employee who lets us down, a disgruntled employee putting something into a food product, or it could be accidental.
A few years ago, accountants propagated the idea of putting trust on the balance sheet so we really focus on it. You could have all the rules you like, the best governance in the world, but if the culture isn’t right, that’ll damage the business. The [banking crisis] is a classic example. Clearly many people must have been aware, but turned a blind eye because they wanted to meet quarter-results.
CHARLOTTE WEST In the disruption context, there are no longer hierarchical relationships where businesses control everything and can say ‘Trust me, look, I’m doing all this wonderful stuff.’ From a responsible business perspective, it no longer cuts it to say, ‘Look at us being wonderfully ethical and involved in the community but then we’re actually going about our core business in a way that’s not offering value for money, undermining everything that we stand for.’ In the digital age, people want human relationships, they want to actually talk to companies, they want to be co-creating…
People now are used to being able to talk to brands online. There are examples such as Nike designing products online with customers, allowing them to customise products. People want to have much more of a say. No longer will people just be sold things. They’ll want an input into the design process.
WALKER But aren’t many companies too commoditised [for that]? I don’t want a relationship with my electricity company, do I?
GERALDINE HUSE Trust is a massive factor that can get over-commoditisation. At P&G, you could argue soap powder and shampoo are not commodities. But if people really trust it and the brand, then they will trade up to more expensive versions such as liquid tablets or Ariel instead of powder variants, and you can really drive value in the brand and category. We see that happening all the time. As we look at our value equation, we see trust as a massive part of that, so if consumers trust us, they’ll buy into us, trade up, trade across, [and] buy a regimen of premium products.
WALKER When you own a whole range of brands, as P&G does, what happens when one of them has a mishap?
HUSE It’s a massive challenge for a company like us with a broad portfolio. Should we drive the P&G name or should we drive Ariel, Gillette, Olay? What we’ve seen historically is the branded message, and many people in the street would not know that there’s one company that makes Pampers as well as Olay and Gillette. With the growth of online, everybody starts to know about these things so we make a big play about P&G as a whole company and how we integrate it more, because we feel it can help.
If people trust P&G, that will help build trust in all the brands. It’s beholden to us [executives] for the whole company to uphold the purpose and principles and values of the company because it could affect absolutely everything. We’re measured on that, as well as our business results. Sometimes, we’ll make a decision that’s right for the purpose/values of the company, which might lose us some short-term cases. That’s absolutely the right thing to do because trust is so critical for the long-term business.
Diversity of leadership [also] helps drive trust. There’s no doubt that if you’ve got diversity of leadership, you get a broader range of thoughts and ideas and come to better decisions, avoiding the trap of ‘group think’. If you think about some of the industries that have gone wrong, sometimes it’s a group thing, such as the banks, [which was] very male-dominated. If there’d been more diversity, you might not have got where we’ve got to, because you would have more ideas coming out that might have led to different conclusions.
WALKER Experience is important, but the fact that there are only four FTSE 100 company directors under the age of 40, seems an extraordinary imbalance. It
also means digital opportunities and disruptive potential would be missed. Is that fair?
HEATHER JACKSON Talent management is a big part of building trust. There’s no point us talking about performance and wanting more balanced teams if we’re not showing it happening. Trust comes from outside an organisation as well – we need the media and government on board. One minute we’re having HS2, the next minute we’re not. We all have to trust our government and media – it’s not one or the other. We’ve all got to work together on trust and understand it.
ALLEN The media aren’t blind to that. They make money out of building a rift between the relationship between customers and an organisation. [Some newspapers] pay people [journalists] to go into our factories, apply for jobs, break rules… What we try to do now is say, ‘Don’t pay to send somebody, have one of your people in our factories all the time’, because they’re basically trying to get that.
WALKER Not trusting the media is an interesting point. I might trust the Financial Times but can’t say I trust much of the rest of the media. Nor do I trust government particularly. I think that trust has fallen back for understandable reasons over recent years. Shouldn’t the private sector be setting higher standards?
LUCY CARVER The Edelman report contained some interesting insight in terms of an individual’s high-net and low-net worth. They looked at the most affluent versus non-affluent, and it was a total divergence in terms of trust in business and media. It also correlated directly with a lack of optimism and life opportunities going forwards.
When we talk about trust, it’s about opinion formers and employers, but it’s really about customers. The breakdown in trust is about a much wider societal issue [where] people feel the opportunities for them aren’t there anymore. The idea that business is separate to society is nonsense? Business is society, society is business.
WALKER If you’re a Scunthorpe steel worker, what are you meant to trust?
CARVER I think it’s that business is on your side, it’s not just there for the profit, it thinks about the longer term. One of the things we’ve [Sky’s Bigger Picture] been thinking about is ‘What do people in the UK care about?’ They care about their kids, skills and opportunities. There’s a real disparity between skills being built for young people and the skills they need to succeed in work. So we create a programme that builds those skills.
Yes, we do it for trust, but we also do it because we believe it’s the right thing to do. If you do something because you want to just
build trust, it’s inauthentic. You have to do it because you believe it’s the right thing to do, and that payoff will come. For me, trust is like reputation. It’s the flow
of what’s said when you leave the room. It’s not what you go out to build from the beginning.
GOYDER Two issues are high on our survey’s feedback on why people may not trust businesses – one is remuneration, the other taxation. The thing that large companies could most do to change trust is remuneration. I would like to see every board say, from now on, that the job of the remuneration committee is to focus not simply on the remuneration of people at the top, it’s to start with an understanding of what kind of culture we want to promote throughout this business, and how we’re going to measure/reward success for people across the business so we live up to our rhetoric about being one team all in it together.
On the taxation issue, the default position of many major companies is a duty to maximise returns and keep cost low for shareholders. I’m a customer of utility company SSE, which is the first FTSE 100 company to sign up to the Fair Tax Mark, which invites companies to make a commitment to say we want to pay our tax fairly and proportionate to where we have the economic activity.
This is something that’s going to grow and I think if companies want to be trusted, they’re going to engage with these issues. No amount of warm words in other areas are going to convince the untrusting if they see these big-elephants-in-the-room issues [remuneration and tax] neglected.
MICHAELA GOETZ Whatever your corporate social responsibility, brand promise or corporate positioning, I think you need to be seen in the market as following your words with appropriate actions. Trust, essentially, is built on that element of your brand promise and your words followed by actions. But [companies need to] make sure product experience is solid and consistent, so you can start building their sustainability over time, and remain relevant to your target audiences. The amount of data might be a risk, but also represents a unique opportunity – we can better understand our customers, make sure what we’re offering them responds to their needs. Protecting that information and making sure that you’ve got the right data security levels in place, as well to use the information to address customer needs, is critical to build the trust level.
DUNNE At the heart of Edelman and the media challenge is social mobility. A large part of this country’s population doesn’t believe social mobility is available to them. As such, we are reinforcing the ‘haves’ and ‘have-nots’. At the heart of the remunerations debates is if people believed that they had a fair and equal chance to aspire to success in whatever way they define it, then the benefits and rewards of success would be something that was open to everybody. The reality today is, in our society that’s not the case.
The opportunity is the digital economy because digital democratises access to information. The set of skills and the opportunities that the digital economy will create, built around digital confidence and trust, affords an opportunity to decentralise our economy and to democratise access to our economy.
GOYDER There’s one example of digital democratisation which may take 10 years, and that’s engaging with shareholders. Shareholders are our citizens. OK, they’re not that excluded 20 per cent who have no savings or pension, but we have all of these citizens who sit there, getting more angry when they read the Daily Mail about the latest remuneration issues thinking ‘Hang on a minute, I am an owner of these companies, by a number of links in the chain.’
In a digital age, companies have the potential to be accountable to them and there’s going to come a time when it will be as easy for people to choose an investment product that offers them stewardship of those businesses as it is to choose a brand of coffee that offers Fairtrade today. That’s the digital potential.
JACKSON It’s not just digital changing our businesses. I think part of trust is the procurement as well. We’ve got to represent the backbone of the UK, small and medium businesses. Trust has got to come from all aspects and as the purpose of large organisations should be to partly help those companies build and become better, rather than screw them down for the price.
You can see many companies’ procurement vision and brand on their website. Then, when you go through that negotiation process, if you’re a small company it’s not negotiation; it’s them telling you what’s going to happen. That knocks trust completely.
WALKER Thank you, all – it’s been a fascinating discussion. I’d like to ask Alison to sum up…
For Alison Kay’s summary (advertorial), click here