A Culture of Trust Led by the Board

A pressing need

The need for companies to define and enforce an appropriate culture is clear and pressing. Culture drives behaviour and repeated patterns of behaviour create expectations and then trust.

Reduced trust in institutions, including businesses, threatens to undermine the foundations of economic prosperity. Boards are waking up to the realisation that this is not an issue created by impossibly impractical idealist; it has arisen from their repeated breeches of norms that society now holds to be fundamental tenets if not contractual rights. As corporate behaviour fails to reach acceptable standards customers, employees and other stakeholders withdraw support. Government legislation and regulations are not enough to win back trust: Businesses, and their boards, need to start listening and then to act on what they hear.

What the experts are saying

Some facts:

·     The Edelman Trust Barometer is an annual global survey of 33,000 consumers that measures public trust across four main types of institutions: business, government, non-government organisations and the media. In 2017, the barometer showed an overall decline in public trust across all types of institutions.

·     Origin Energy chief executive Frank Calabria told the annual survey of 52 top chief executives compiled by The Australian Financial Review’s Chanticleer columnists that “Many Australians believe neither government nor big business are listening to them”.

·     Louise Petschler of The Australian Institute of Company Directors wrote in the 2017 Essential Director Update that “The focus by regulators and legislators on corporate culture – including the role of the board in setting and monitoring culture – is partly a response to this trust deficit. This regulatory focus shows no signs of dissipating”.

·     A study by CultureIQ found that 86% of employees say there is a close relationship between a strong culture and leadership listening to employees. They found that 90% of employees in ‘winning cultures’ are confident in their leadership team.

·     James Kouzes and Barry Posner explain in their best-selling book Credibility why credibility is the cornerstone to leadership: leaders must "Say what you mean and mean what you say."

The view from the boardroom

Boards are not front-line troops; they should not be the corporate ‘canary in a coalmine’ but rather the ‘final filter’ or ultimate decision-maker on matters too sensitive or important for delegation to management. They are also above, rather than in, the chain of command, and ideally removed from the daily customer and community interfaces of the company.

When the trust deficit first emerged, it was considered by most boards as an issue for management and not the board. This view was reinforced by the lack of formal reporting on culture, net promotor scores, or trust in most boardrooms. What boards could see was a second or third order derivative of the trust issue, reflected in measures such decreasing effectiveness of advertising spend, falling revenue, increasingly contentious and protracted union bargaining processes, and creeping stifling regulation, rather than a clear statement of the underlying issue – community and customer mistrust of the company and its motives.

Yet at the 2017 AICD Essential Director Update, Graham Bradley, considered that rebuilding trust would be one of the most vital roles for boards in the coming year. The impost on business was large and the impact so potentially devastating that trust had become a key strategic issue. Leading boards are aware of the problem and starting to respond.

The board can, and should, be aware of and involved in formulating a response to, major strategic challenges.

Graham Bradley’s sentiments reflected those of Richard Edelman in the statement: “To rebuild trust and restore faith in the system, institutions must step outside of their traditional roles and work toward a new, more integrated operating model that puts people – and the addressing of their fears – at the centre of everything they do”.

Practical actions

If trust is a serious issue, it is imperative to take action. Deciding a course of action is difficult when the issue, and the environment are unfamiliar to board members. Boards need to move their focus from defending company rights to defending what is right, from protecting market share to protecting market conduct, and from rewarding winning to rewarding sharing. These are not simple matters.

For an issue to be well understood it must be clearly defined and this is a problem when approaching measures of trust. Surveys are still very much in their infancy and trust is reflected in myriad proxy measures rather than a few meaningful KPIs. Deciding which measures are most relevant for each particular board will require directors with unusually high levels of empathy and outstanding discernment as well as the fortitude to take hard decisions when trust is threatened.

Regulators are still talking about remuneration, conflict of interest and speed of breech reporting. Yet there are companies with excellent track records on all three of these measures that are still suffering from declining trust, both in the community and – more worrying – among their own staff. Kouzes and Posner defined integrity as ‘the first rule of management’ and ‘doing what you say you will do’. Holding management to account for any and every promise is a good first step in rebuilding trust.

Engaging beyond traditional boardroom reporting to hear firsthand the concerns of stakeholders is possibly an even better first step. But this will require redefining the role of the board and possibly setting new boundaries between board and management. That is, in itself, a potential source of mistrust. Rewriting the rules is unsettling for executives and directors who have learned to thrive in the status quo. It makes the boardroom a VUCA (volatile, uncertain, complex and ambiguous) environment when all previous governance efforts have aimed at standardisation and predictability.

‘Governance without boarders’ is demanding that directors get into their markets, customers, communities and products far enough to hear their real concerns and formulate ethical responses. It will draw directors out of the boardroom and into the managers arena. Good directors will develop skills to interact in this arena – listening, questioning and retrieving intelligence for board discussion and analysis when relevant.

As the world changes directors need to adapt. This is a risky process but, as is sometimes the case, failing to act is potentially the riskiest response of all.

About the author:

Julie Garland-McLellan is a company director and board adviser. She is also a public speaker and professional conference MC in demand for courses, seminars and conferences, combining personal anecdotes, humour, world-class expertise and extensive experience as a director to engage, stimulate and educate.

As the author of many books and training materials for company directors, Julie is an acknowledged expert on resolving a wide range of complex governance issues. Her newsletter 'The Director's Dilemma' reaches readers in 33 countries. Get your copy free at https://www.directorsdilemma.com/

 Photo Credits:

Stock photos in this paper are provided courtesy of Shutterstock.com

Author Photo ? Julie Garland-McLellan