Why trust is important

We have a very good understanding of the effects that trust, or lack of trust, can have on an organization. Low stakeholder trust can significantly increase the costs of operation and limit the rate of development. It can result in high levels of external and internal controls, including increased regulatory involvement. It also makes it more difficult for organizations to recruit and retain staff.

Conversely, trusted organizations enjoy the benefits of good stakeholder relations, a lower cost of doing business and higher reputational value.  Also staff are more motivated, enjoy more freedom to be creative and effective and require less supervision and control. Motivation, productivity and job-satisfaction are all higher.

...and why now?

Trust in business had been decreasing for a number of years and reached an all time low in the 2009 Edelman Trust Barometer (www.edelman.com). The current level of trust in CEO’s is also extremely low and businesses are struggling to articulate a strategy for restoring trust.

As the economy comes out of recession, organisations will need to adapt, re-design and re-build many aspects of their business as protection against future economic downturn. Investing now in building and maintaining high levels of trust with all their stakeholders, especially their staff, will make them more resilient and could give them a significant strategic advantage.

 
The business case for building trust

As a key ingredient for recovery:
Trust has been identified as one of the underlying causes of the current economic downturn and as one of the key components necessary for a recovery.

As protection against future economic downturns and accidents:
During economic crises people usually turn to brands they trust. Organizations that survive this downturn should look to improving their level of trust as a mitigating strategy against future downturns.

Organizations with high levels of trust are more resilient when subject to an accident or breakdown in trust. When subject to a crisis, stakeholders are more likely to support organizations that are trusted and are more likely to remove support from organizations that they do not trust.

As a means of improving innovation, learning and building global brands:
Trust between organizations is seen as an enabler for innovation

Increasing the level of internal trust ensures sharing of information which in turn improves organizational learning. This is particularly important for international organizations where a high level of internal trust is seen as a necessary foundation for building global brands.

As a means of lowering operational cost:
Trust building lowers operational costs by:

• increasing the ability to recruit and maintain high quality staff

• improving motivation, creativity, overall job satisfaction and loyalty

• enabling long term client relationships and lowering customer churn

• improving supply chain relationships

• improving regulator relationships

• improving shareholder confidence and lowering the cost of finance

• lowering the frequency of litigation

 Who is accountable for managing trust?

We see trust building as the responsibility of the Board, as ultimately they are accountable for the organizational attributes which are key to building and maintaining trust namely:

• Values

• Purpose

• Governance

Our view is supported by recent draft guidelines for corporate governance in South Africa (King 3) which state that core functions undertaken by the chairman should include building and maintaining stakeholders’ trust and confidence in the company. The Draft Code of Governance Principles for South Africa 2009 ,King Committee on Governance is available for download on the South African Chapter of the Institute of Directors http://www.iodsa.co.za