By Susan Muldowney
Recent high-profile corporate scandals have seen trust in business take a further dive. How can this fragile commodity be restored?
When Matt Comyn steps into the top job at the embattled Commonwealth Bank of Australia on 9 April, his first challenge surely will be among his greatest: restoring trust.
With critics pointing to allegations of money laundering, unfair denial of life insurance claims and financial planning rip-offs, CBA’s culture, governance and accountability are in serious question. Polishing its tarnished reputation among customers and the broader community will be no easy task.
CBA may be the latest poster child for apparent corporate greed and unethical conduct in Australia. But it’s an example of a wider problem. Trust in business across the country – and much of the western world – was on the slide well before CBA’s alleged offences came to light.
The annual Trust Barometer report produced by global communications and marketing firm Edelman shows trust in business globally has fallen for the past five years. The latest data for Australia indicates a further fall of three points over 2017 to just 45%. This leaves the country’s level of trust in business well below the global average of 52% and lower than in the US, where trust in business currently sits at 48%.
New Zealand has seen a similar decline. Its business trust score was on a slow upward rise from 2012 and by 2016 was higher than Australia’s, at 53%. In 2017 it reversed, however, dropping to 47%, where it remained unchanged in the 2018 survey.
Trust is a fragile substance. While at times lost unfairly, it can also be misplaced or abused, a point that a number of business leaders have addressed in recent times.
In a letter to the CEOs of US public companies in January this year, Larry Fink, head of the world’s largest investment firm, BlackRock, warned that companies risked losing their “licence to operate” and called on them to consider how they managed the environment, diversity, technology and governance to create sustainable growth. The titan of Wall Street went on to state that business leaders were responsible not only for delivering profits but also for making “a positive contribution to society”.
Leaders in Australia have voiced similar views. In September last year, BHP’s head of external affairs and chief legal counsel, Geoff Healey, noted that the collapse of trust in industry had reached “a tipping point” and that many Australians perceived business across the board as “complacent, out of touch and untrustworthy”.
ANZ chairman David Gonski also issued a stern warning at the bank’s 2017 annual general meeting: “It is clear that in order to rebuild trust, business has to step outside our traditional role as solely shareholder-focused organisations and work in new ways that also put our customers and our communities at the centre of everything we do,” he stated.
What killed trust?
So what’s going on in the public mind? Why do so many people now believe that corporations rig the system against them? And what should business do to change it?
The sheer variety of answers suggests no one thing destroyed trust in business, and no one thing will fix it.
The global financial crisis (GFC)
In her 2017 book, Who can you trust: how technology brought us together and why it can drive us apart, corporate consultant Rachel Botsman points to the GFC, saying it ushered in a “nerve-shattering period where businesses ‘fell off a cliff’”. The cause, she says, was not found in “toxic financial instruments” but rather in the human failings that drive them – “reckless risk-taking, greed, incompetence, stupidity and a systemic breakdown in accountability and ethics”.
High CEO pay
At a time of stagnant wages, executive pay rises have not helped the cause. A review of more than 500 executives of Australia’s largest companies by corporate consultant Conrad Liveris found the average CEO remuneration in the 2016–17 financial year was A$4.75 million. This is 78 times more than that of the average Australian worker.
In the UK last year, a parliamentary committee argued for tougher rules on executive pay as a way to restore public trust in business. More surprisingly, the UK’s Institute of Directors called for better investor control over executive pay, also in the interests of trust.
Corporate strife and complaint
Corporations have been tied to a great deal of high-profile bad news. “I actually expected a further decline in business trust, given that we’ve had a lot of interesting business-related issues in Australia over the past year,” says Edelman Australia CEO Steven Spurr. “Money laundering, the energy debate … the closure of automotive manufacturers, tax avoidance and perceptions that businesses are not playing fair – I’m not surprised that these things seep into public consciousness and outweigh some of the great things that business has done.”
John Lydon, who runs elite management consultancy McKinsey & Co in Australia and New Zealand, sees the lack of trust as tied to perceptions of economic inequity. “We’ve had the famous 25 years of economic growth,” he says. “But if you look at income, there’s quite a lot of Australians who aren’t seeing growth at a time when housing prices and power prices are increasing. They’re looking around saying: ‘well, if we’ve got all this 25 years of economic growth, I’m not feeling it’.”
Adam Carrel, partner, climate change and sustainability services at EY, believes there’s more to it. He suggests the erosion of trust is a symptom of public concern with the extent of power in private hands and democratic government’s difficulty in dealing with commercial clout. “The global financial crisis advertised the extent to which large business wields a significant power – not just economic power but also a civic power – in Australia and around the world,” he says.
Carrel argues this concern is more than just “populism” or opposition to capitalism. “There is a general level of disappointment in the promise of big business,” he says. Looking back to the 1990s, he recalls “a period where people genuinely believed that growth was somehow eternal and that we were on a relatively persistent path of household wealth accumulation”. Now we are in an era of “disappointment”, where corporate returns have separated from household economic outcomes.
In many ways, banks (see breakout) are a distinct category when it comes to business trust and disappointment. Claire Payne co-authored the 2018 book A Matter of Trust: The practice of financial ethics, and she’s a fellow for ethics in banking and finance with The Ethics Centre. Banks play a special role in our lives, she suggests, because they let us borrow for a business or a home. “They are entwined in the quality of our lives … it’s a really big deal when things go wrong.”
Professor Paul Kofman, dean and Sidney Myer chair of commerce at the University of Melbourne’s Faculty of Business and Economics, was Payne’s collaborator on A Matter of Trust. He believes financial services conglomerates’ inevitable conflicts of interest make them a special case – and give them a special vulnerability. “They provide many different services to customers at the same time,” he says. “Not being able to control that, not being able to disclose those conflicts of interest or preventing them from occurring is really the Achilles heel of the financial services sector.”
Kofman also believes financial regulators are currently ill-equipped to curb unethical behaviour. They tend to be underfunded, he notes, and their brief is to ensure legal compliance, not ethical behaviour.
Less talk, more action
So how can business restore trust? Rachel Botsman says it’s the number one question companies ask – “and, with all due respect, I think it’s a terrible question”. Instead, as she told the Harvard Business Review magazine last year, “what you want to be saying is ‘how do we become more trustworthy?’”
McKinsey’s Lydon has a similar take: as a first step, corporations need to talk less about their corporate citizenship and instead do more to actually solve problems. “Business needs to get past just donating money to good causes to show their corporate social responsibility,” he says. “It needs to start connecting itself with society on some of our key problems and orienting itself to actually do something about it.”
Lydon believes this will require new ways of thinking about commerce. He points to the example of Unilever, which announced its Sustainable Living Plan in 2010 and introduced low-calorie versions of many of its products as a means of addressing health problems such as obesity.
“They changed the incentives for their managers,” explains Lydon. “Rather than just talking about it or just looking at revenue, they started looking at calories per dollar of revenue. I thought that was really smart because you’ve actually changed the way the company works and what it strives to do.
“We have to build prosperous and inclusive nations,” adds Lydon. “It’s unthinkable that we can do that without the business sector truly engaging and embracing and working with other stakeholders.”
The public appears to agree. Results of the Edelman report show that 77% of Australians look to business to do well in the community, as well as on the balance sheet. “There’s also a belief that businesses can fix social ills more than government can,” says Spurr. “I think the recent case of Tesla taking steps to address green energy solutions in South Australia is a classic example of this.” Botsman cites Tesla, too, arguing it has skilfully shown society why it is pursuing electric and self-driving car technology.
Speaking a new language
Self-regulation, says Kofman, is another key to rebuilding faith in business. In A Matter of Trust, Chartered Accountants ANZ is presented as a case study on how to champion and address ethics both within a member base and across the sector more broadly.
“If you look at what has happened over the past few years with the Big 4 [bank] CEOs required to come to Senate hearings and do a mea culpa, they’re facing up to bad practice because they are forced to and it’s not really helpful in restoring trust,” says Kofman. “Pre-empting it would make a world of difference, I’d say.”
If business is to restore trust, Carrel believes business must also change the way its leaders communicate with the public. “People have become quite allergic to the standard corporate affairs vocabulary,” she says. “It either agitates them or, more often, just switches them off. It is why corporate sustainability reporting, among other things, has practically no penetration in terms of addressing the trust deficit because people see it as legalese and not as an authentic dialogue around real issues.”
Is trust fixable?
Even fixing all these issues in the business sector may not be enough. Edelman’s data suggests the business trust crisis is part of a broader problem with institutions in Australia and many other countries.
More than 55% of Australians say government is the most broken institution, compared with just 6% who nominate business.
And just 31% of people trust the media, well below the 45% who trust business. Australia has the second lowest trust in media among the countries surveyed. Definitions matter here: traditional media saw their trust scores rise, but social media and search engine scores fell.
Perhaps unsurprisingly, 65% of Australians say they are no longer sure of what is true and what is not. It may be that the trust problem is unfixable because it’s a natural byproduct of our increasingly information-rich, high-transparency society. Clare Payne, for one, says greater access to information is driving today’s questioning and criticism of business practices.
“We are better equipped than ever to question who and what we should trust,” Payne says. It may be cold comfort for a besieged business community right now, but she believes this empowerment will eventually “lead to better outcomes for society”.
A new era?
There are signs some businesses are heeding advice to become more worthy of public trust. CBA’s Comyn commented in a media release in January that the bank must “demonstrate the highest levels of integrity and operational standards to earn stronger levels of trust within the community and regulators”. With the findings of the Australian Prudential Regulation Authority’s probe into CBA’s behaviour due for release in the weeks following Comyn’s ascension, let the demonstrations begin.
Susan Muldowney is a Melbourne-based business writer.
This article was originally published in the April 2018 issue of Acuity.