Snakes and fakes: the value of trust
Benjamin Franklin famously wrote that in this world “nothing can be said to be certain, except death and taxes” He should perhaps have added corporate scandals to this list.
To take just a few recent examples: in 2015 Volkswagen was caught falsifying its car emissions test results; in 2013 the UK’s biggest supermarkets became embroiled in a scandal when it transpired that horse meat was being substituted for more expensive and popular meat in a wide range of products; in 2018 senior staff at Oxfam were found to have used prostitutes when officially delivering aid to Haiti in 2011; in 2014 GlaxoSmithKIine was fined for bribery in China; in 2016 employees at several leading banks were caught manipulating the interbank lending rate (LIBOR); and at the time of going to press, energy supplier Ovo is being investigated for serious billing errors and a failure to repay all their overcharged customers or to report their problems to the regulator. Meanwhile, an NHS Trust in Kent has become the latest to be investigated for failings in its maternity unit that have led to the deaths of babies. We can be sure that these scandals will not be the last.
Trust is pivotal to an organisation’s survival. It’s an old adage that reputations take time to build, but a moment to destroy, and as customers become increasingly distant from the organisations they patronise, both physically and geographically, trust is an ever-more important part of corporate value. The more we buy online, the less we interact with physical shops and salespeople – and the easier we find it to switch our allegiance to another supplier. Unhappy customers can vent their ire via social media and publish their stories to the world. And, as organisations become more global and more complex, stakeholders rely ever more on the probity of the financial and other information they report.
Corporate governance is a vital element in building and maintaining the trust of investors and other stakeholders, and internal audit has a key role to play here, but the continued stream of news stories about companies that fail to live up to their reputations shows that no organisation can afford to be complacent. Examples range from the exposure of lies and falsified documents, fraudulent products, suppression of important information, toxic cultures that allow damaging or unethical behaviour to continue unchecked, abuses in the supply chain and bribery and corruption, among others.
The way in which an organisation deals with problems once they hit the headlines is often as important as the reasons why they happened in the first place. In the case of Oxfam, for example, the charity’s deputy CEO, Penny Lawrence, quickly admitted responsibility and resigned once the scandal broke. The CEO, Mark Goldring, took longer to fall on his sword and initially tried to downplay the charity’s culpability (as well as his own responsibility). In the immediate aftermath, the charity lost several high-profile corporate sponsors and celebrity supporters.
However, in the longer term, the underlying reasons for the problem – and the reasons why it was not spotted earlier – often come to light either via internal investigations or through legal or regulators’ inquiries. The horse meat fraud had apparently gone unchecked partly because regulatory oversight and food standards controls had been cut, while cross-border supply chains had lengthened. The current inquiry into the tragic fire at Grenfell Tower is attempting to track culpability through a number of organisations and individuals, all of whom seem to be trying to fix the blame elsewhere.
Such investigations can further erode trust, both in the organisations that are directly involved and in the sector as a whole. As we have seen in damaging criticisms of politicians and our democratic structures, once people start feeling betrayed and lied to, it can be hard even for innocent parties to rebuild trust. At a time when there is increasingly clear evidence of a fake news industry, people are right to be suspicious. Yet, if people no longer believe what you say, how can you prove you are trustworthy?
Trusted sources
The issue of trust embodies several important concepts – chief among them being accountability, integrity, honesty, responsibility, transparency and leadership. Every board knows that trust has a price-tag: erode it and you damage the organisation’s bottom line.
Research by internet analysts Search Engine Watch has found that companies risk losing 22 per cent of their business if potential customers find just one negative article on the first page of their internet search results. This soars to 70 per cent if four or more negative stories are found on the same page. And despite the increased number of incidences of “fake news” – particularly on the internet and social media – evidence suggests that two-thirds of people trust online reviews and user comments.
If retaining trust is crucial to your business’s survival, who is responsible for this? Ultimately, this is the responsibility of the board, but internal audit has a key role in ensuring that management takes the issue seriously.
Kerry Jarred, managing director at Ignium, a leadership management and change consultancy, says that instilling a strong sense of trust is down to proper executive leadership and a strong “tone from the top”. “Trust comes from the top – if no one believes a word the board says, you’re sunk,” she says. “Executives set the example for how the company does business and what behaviours and conduct it will and will not tolerate. If a company is untrustworthy, it’s down to the board. Internal audit therefore needs to challenge management about how seriously it takes the issue.”
This challenge is particularly important because responsibility for trust is a two-edged sword. Tim Prizeman, director at PR firm Kelso Consulting, agrees that “trust is ultimately a cultural matter that is driven from the top”, but he adds that “the reality is that most businesses lose trust through their own culture and behaviours, driven from those at the top.”
There is therefore little point preaching the value of trust and integrity in the boardroom, if the organisation as a whole has an overly aggressive strategy or attitude to work. “If a business has, for instance, a blame and bullying culture then it is always going to struggle to maintain trust when problems inevitably occur as it will naturally lapse into cover-up and denial rather than fixing the problem,” Prizeman says.
This has been an important issue in many scandals at NHS Trusts. Former health minister Jeremy Hunt recently told the BBC that problems will continue to be covered up, rather than openly investigated and put right, while the NHS has to pay compensation only when culpability is proved. Remove the direct link between compensation and proven guilt and you remove the incentive to focus on blame rather than improvements.
The UK’s corporate governance regulator, the Financial Reporting Council (FRC), also believes that boards need to take the lead on corporate culture to improve public trust in business. But the regulator admits it has been disappointed in the progress made so far.
In its annual review published in January, the FRC found “insufficient consideration” of the views of stakeholders or the importance of culture and strategy, even though it published guidance on the topic, called “Corporate Culture and the Role of Boards”, in 2016. The FRC said that it was “disappointing” that only a small number of boards disclosed that they receive reports on culture to aid discussions, and that only a few reported that they had a specific agenda item on alignment of culture with values and strategy. It also found that most organisations reported only “limited discussion of assessing and monitoring culture”, other than measuring how many employee engagement surveys had been completed.
Commit, communicate and benchmark
Despite this slow progress, however, there are better ways to assess whether organisations are retaining trust – and some of these are comparatively simple.
To start with, organisations need to state their business values, ethical goals and expected standards of behaviour clearly, so they can benchmark their performance and delivery against these. They then need to communicate them externally to customers, suppliers and other stakeholders, and internally to employees.
At its simplest, trust can then be assessed and measured against how well organisations meet these stated goals. Simple metrics that internal audit could review include monitoring how many assignments/contracts were completed without fault or incident, the number of customer complaints made (and the number remediated satisfactorily), the number of regulatory sanctions, staff turnover levels and frequency, recruitment costs to find talent (the lower the figure, the better), as well as the number of positive and negative mentions online and across social media.
It is also important to publicise whistleblowing procedures and to monitor both the number of calls made to hotlines and the responses to these (plus, of course, any consequences or outcomes). Senior managers should be kept informed and should be aware that a lack of calls does not necessarily indicate that all is rosy, but can instead indicate a cultural reluctance to blow the whistle.
“The foundation of trust is measuring the delivery of a product or service against what was committed – basically, did you do what you said you were going to do,” says Roz Sheldon, head of client services at Igniyte, an online reputation management company. “Whether this is sticking to service level agreements on a customer service policy, standing by your corporate social responsibility aims or by your company’s values – it’s about keeping your promises and being transparent.”
Transparency is particularly important when things go wrong. Trusted organisations demonstrate that they welcome negative feedback, deal with complaints and remediate problems quickly, says Ian Moyse, EMEA director at cloud telephony company Natterbox. “Companies should encourage customer feedback, good and bad,” he says. “If they can show they deal with negative reviews in a sensible and appropriate way, prospective customers will be sure it will be the same for them. There is nothing wrong with making a small mistake – how you deal with it is key.”
Transparency and cooperation are equally important when it comes to creating trusted relationships with watchdogs and this is another area that internal audit could examine and question. Many regulators, such as the Financial Conduct Authority and the Information Commissioner’s Office, for example, have “regulatory sandboxes” to encourage firms to road-test their products and services to check they are compliant and treat customers fairly before they launch and market them.
Holding the faith
Establishing trust internally in the workplace is as important as marketing the organisation’s trustworthiness to customers and other external stakeholders. “There is clear evidence that organisations that have proven track records for acting ethically and sustainably are better at attracting and retaining talented and skilled employees,” says Kerry Jarred at Ignium.
“Employees are becoming increasingly choosy about the type of organisation they will work for,” she says. “They want assurances about how it operates, what it stands for, and how it treats stakeholders (especially workers). They also want to know that employees, managers and executives will be equally held to account for any actions that are contrary to these values, and that discipline is transparent, fair and proportionate.”
She also believes that a “positive culture” in the workplace is one that empowers employees to take greater control over their areas of work and have a greater say in decision-making that affects their own areas of work. “If workers are just told what to do, they become disengaged and feel uninvolved,” she says. “Empowered employees are more likely to get behind the company’s values and help it to achieve its goals because they feel they have a say in the process.”
A common problem for managers is that, while it is easy to say that maintaining trust is important, many feel they struggle to quantify it. Sheldon suggests that “boards often find it easier to see trust when it is indicated through a numerical value, as changes can be easily perceived”. Once a value is established it can then be continually monitored over time and compared to a baseline. Igniyte, like other reputation management firms, uses an “online reputation index” to assess a variety of sources and provide a weighting for each. The outcome is a reputation score weighted out of 100: the higher the score, the better the online reputation. This makes variations easy for boards to understand and may help them to accept the results.
Scandals will still happen and may prove disastrous, but for every example of a company that lost its trust and collapsed, there are plenty of others that have weathered severe storms and survived. BP is still a major force in the oil industry, despite the Deepwater Horizon disaster, while all of the UK supermarkets that sold products containing horse meat are still going strong.
One reason for their survival is that these companies had a strong financial position and a large market share. But most that survive also have strong leadership and crisis management plans. Survivors tend to accept responsibility quickly and to keep the public and regulators informed about the actions they take to resolve the problems and remediate the damage caused. Internal auditors need to check that their boards are capable of responding and rebuilding trust after a scandal quickly and effectively.
“Stakeholders – employees, customers, regulators, suppliers, investors – want assurances quickly that the company has accepted that there is a problem, that management is responsible for resolving it, and that it is being dealt with quickly and properly,” says Jarred. “Executives need to own the problem and shoulder the blame, and they need to be transparent and communicate fully about the steps they will take to resolve/remediate it. Boards should also bear in mind that it is not necessarily what you do, but how you do it, that chimes most with people.”
How internal audit can help improve and measure trust
1 Make sure the board understands the importance of trust and leads the efforts to maintain/improve the organisation’s trustworthiness.
2 Publish and communicate to all stakeholders the organisation’s corporate values, ethics and behavioural expectations.
3 Encourage feedback and complaints – positive and negative.
4 Investigate complaints and suspicious activity early and quickly.
5 Apologise for, and remediate, any wrongdoing quickly and publicise what steps have been taken – and will be taken – to prevent such mistakes occurring again.
6 Be transparent and prepared to co-operate with regulators or the law.
7 Instil a good workplace culture where concerns can be raised openly.
8 Develop a metric to measure success/failure in maintaining stakeholder trust..
This article was first published in March 2020.