Strengthening Trust in Business at the Global Level

Speech by Greg Medcraft, Director for Financial and Enterprise Affairs, OECD

Book launch of Trust, Accountability and Purpose by Justin O'Brien, 7 August 2019

Ladies and gentlemen

It is a pleasure to join you today for the launch of Professor Justin O’Brien’s book Trust, Accountability and Purpose – The Regulation of Corporate Governance.

I’m here this morning to first, offer a few reflections on Justin’s book, and second, to discuss global developments in trust, particularly what the OECD is doing to strengthen trust in business.

Reflections on Trust, Accountability and Purpose

If we were to simplify the core messages of Trust, Accountability and Purpose into a few short lines, they would be:

• That for many citizens, business conduct is not meeting the expectations of the 21st century;
• That trust in business, and by extension the foundations of our economy, is at stake;
• And that these challenges demand new ways of thinking about corporate and market governance.

As we all know, trust in business – and indeed all institutions – was damaged significantly after the global financial crisis. It has rebounded in recent years, but is still below pre-crisis levels. This matters because trust is the grease in the engine of our economy – it underwrites our everyday commerce, the flow of credit and capital, and the long-term investments that drive productivity. Low trust makes us all worse off.

It also matters because trust is a much more important part of the business environment today than it was before the GFC.

Social media and the 24-hour news cycle have combined to harness and amplify the power of the crowd – the community of a business’s customers, employees, investors and other stakeholders. It is now easier than ever before for citizens to monitor business behaviour, and hold a company to account when it does the wrong thing.

So how should business respond?

In his book, Justin calls for an “alignment of corporate purpose to changed societal expectation”, and to “complement legal obligation with a defined social licence to operate”. On this point I completely agree.

The expectations of the crowd forms a business’s social license to operate – and this evolves much faster than legislation or regulation. Increasingly, this includes an expectation that companies define and articulate their purpose and value to society. Businesses must monitor these expectations constantly. If they fall short, their social license may be revoked and they may find themselves deserted by their customers, investors and staff.

In almost every instance of corporate conduct scandal, we see a disconnect between the stated values of a company the actions of its staff. This book’s focus on corporate governance as a remedy gets to the heart of this disconnect, because corporate governance drives corporate culture, and culture is the single most important factor in a company’s ability to do the right thing.

Trust needs to be a central consideration in corporate culture, and that means putting the customers’ interests at the heart of everything a business does. We have seen too many examples in this country recently where this has not been the case.

The good news is that countless empirical studies, including from the OECD, have shown that a company’s reputation and level of trust is positively linked to its capacity to generate long-term return on equity and assets.

In short: building trust is simply good for business.

What the OECD is doing to strengthen trust in business

The OECD holds some of the world’s leading standards on corporate behaviour and business conduct, including in corporate governance, anti-bribery and responsible business conduct in supply chains. But as Justin observes in his book, “technical measures alone cannot fix normative problems” – that is to say, government policies are not enough to address the threat to trust in business. 

This is why the OECD has launched its Trust in Business Initiative this year – to support policymakers and business alike to drive better business conduct that goes beyond laws and standards. The Trust in Business initiative focuses on the 5 core competencies of the OECD: research; standard-setting; convening; capacity building; and partnerships.

On research, we have dedicated our annual flagship publication, the OECD Business and Financial Outlook, to strengthening trust in business.

Its covers trust and:

• Financial markets;
• Financial institutions – like banks and pension funds;
• Company liability – that is, trust in companies to obey the law;
• The level playing field – on managing the rising importance of state owned enterprises and the associated conduct risks; and
• Online markets – which speaks to a rapidly rising concern in the eyes of citizens and governments alike.

This research underlines the importance of considering trust in policymaking: in market governance, financial sector supervision, law enforcement and business regulation – and it gives governments a framework to do that. The Business and Financial Outlook will be released early September.

On standards, I mentioned some of our key business conduct instruments earlier, and we are using Trust in Business as a platform to:

• Drive better implementation of standards worldwide.
• To better link a range of policy areas that have historically been considered separately by governments.
• To highlight these standards’ value to companies in meeting their social license to operate.

On convening, the OECD will host a Trust in Business Forum on 1-2 October in Paris, bringing together the private sector, academia, government and civil society to discuss many of today’s themes in a global setting.These include defining and measuring trust, addressing audit quality issues, and looking at the role of the board in driving corporate governance practices worthy of the public’s confidence.

On capacity building, we have a series of projects design to strengthen businesses’ ability to do the right thing, including:

• Compliance without Borders – which will create a programme of compliance expert secondments from the private sector to state-owned enterprises operating in challenging markets
• Trust Beyond Compliance – which will harness the OECD’s analytical power to better understand the challenges companies face in achieving responsible business conduct, and spread best practices for establishing a culture based on trust.

Finally, on partnerships, we are putting together a world-wide network of companies committed to trust to contribute to, support and benefit from this work. And if this sounds like your business, we want to hear from you.

Ladies and gentlemen, as Trust, Accountability and Purpose makes clear, strengthening trust is one of the defining challenges of our time. It is a challenge that demands action from governments and business alike.

The OECD is leading that action at the global level, to help ensure that business conduct meets the expectations of the 21st century.

Find out more

• OECD Trust in Business Initiative
• OECD Trust in Business Forum