Need to know: Trust Issues

Organisations are looking to better respond to issues of trustworthiness. A new director survey by KPMG/AICD helps boards navigate the minefield.

Australia is not alone in facing a crisis of trust, and the breakdown in trust of institutions may be surprising, but it isn’t new, says Richard Boele, KPMG partner Human Rights and Social Impact Services.

In the early ’90s, Boele was in London protesting the activities of groups such as Anglo-Dutch oil giant Shell to the company’s treatment of local activists in Nigeria. At the same time, the world’s top-selling sportswear company, Nike, faced increasing protests at the sweatshop conditions of workers, which ultimately led to a global boycott of its products. The mining sector later faced accusations of poor social and environmental performance, which led to loss of social licence. It remains a significant issue, with Keystone XL Pipeline in the US and the public debate around Adani’s Carmichael coal mine closer to home. Nike and mining companies such as BHP are now among leading corporate practitioners of more transparent practices and communications with stakeholders.

Maintaining social licence

Boele now works inside the tent advising boards and management on maintaining their social licence, a reflection of how far the issue has shifted.

“The erosion of trust that an individual or small group of organisations catalyses can, through contagion, affect entire industries and institutions more broadly,” Boele wrote in the recent KPMG/AICD trust survey, Maintaining the social licence to operate. The survey of almost 600 directors, released in February shows that a change is happening in how stakeholder voices are heard and made sense of, Boele writes.

“In the past, businesses too often have ‘shot the messenger’ when they weren’t comfortable with the message or prepared to consider the impact of their actions or operations on people. I see an increasing openness and willingness to have a dialogue between an organisation and its critics. Even those who were instinctively labelled as ‘alternative’ or ‘radical’ are now seen as stakeholders worth engaging.”

Directors surveyed overwhelmingly agreed trust was important to the sustainability of their organisation. The survey covered directors from private business, NFPs, public sector and listed companies.

Less than half of directors surveyed felt their board took a proactive approach to building trust and only 23 per cent said their organisation had a meaningful metrics on trust. The community in which an organisation operates in rated third as a critical stakeholder to maintain trust, after customers and employees, above many other stakeholders.

The majority of directors surveyed (62 per cent) perceived that their board could adequately challenge management on how the organisation responds to issues that can undermine trust. A significant minority did not share this confidence. Comments from survey respondents indicate that some of the skills now needed to listen, engage and meaningfully connect with stakeholders are evolving beyond some boards’ comfort zones.

A significant minority felt some of their peers lacked the understanding and competence to address issues affecting trust, believing complacency and reluctance to engage meant companies risk taking [stakeholder] trust for granted. Directors said the most critical stakeholders for building and maintaining trust are customers and clients (82.3 per cent), employees (81.6 per cent), local regional community (35 per cent), shareholders (33.4 per cent) and media (7.7 per cent).

See also Australian Governance Summit coverage plus Robert Fitzgerald AM, “Good things will emerge if we listen,”. Company Director magazine will cover the KPMG/AICD survey in depth in our May issue.