Boards and the trust agenda

By: Eric Landicho

WHILE the new year brings with it new concerns, priorities and strategies, there is one item from the previous year that I'm sure business leaders will continue to have on their plates in 2024: stakeholder trust. As the core of all human relationships, trust — building and maintaining it — is an ongoing concern for organizations invested in long-term viability and success.

As a critical agenda item, managing stakeholder trust is often the responsibility of the CEO. In a Deloitte survey of board directors and C-suite executives across 30 countries, 82 percent of respondents said the CEO was ultimately responsible for trust leadership in their companies. He/she is uniquely positioned to set the tone and outline clear expectations from the leadership team when it comes to managing and enhancing trust. But it is not a job for one person to handle. In fact, a bigger share of respondents — 95 percent — believe the board should play a key part in building and protecting stakeholder trust.

Unfortunately, in many organizations, trust is not a regular fixture in the board agenda. Only 20 percent of the respondents in Deloitte's survey said they discussed trust in board meetings quarterly or more frequently. For the majority — 53 percent — trust is only discussed at the board level when a major issue arises, at which point too much damage may have already been done to the organization's reputation or financial standing.

One of the key challenges to managing stakeholder trust is understanding what it actually means for the organization. Generally, organizational trust is built and nurtured when a company demonstrates competence, transparency, reliability, and humanity in its engagements with stakeholder groups. From Deloitte's perspective, meeting this requires embracing two principles: Every stakeholder counts, including vendors, the media, and the communities in which the company operates, and trust is demonstrated not through talk but through actions.

For boards looking to play a bigger part in nurturing and building trust among stakeholders, having open, in-depth discussions on the following topics is a good starting point:

Defining trust. What is your organization's working definition of trust in relation to your various stakeholders? In answering this question, it would also help to look at where trust matters most. In Deloitte's research, for example, 81 percent of respondents said trust directly affected business relationships, that is, the level of trust with stakeholders had the greatest impact on business relationships. This was followed by employee engagement (79 percent) and customer loyalty (76 percent). Having these insights will help directors prioritize focus areas as they work on having a more proactive approach to building trust.

Delineating the board's role in trust management. If the CEO takes the reins when it comes to trust leadership, what are the board's responsibilities? In some organizations, the CEO regularly reports to the board about the systems and processes for managing and enhancing trust so the board can provide effective oversight. One non-executive director Deloitte spoke with for its study talked about a more active approach to stakeholder management, wherein the board drives activities related to feedback, such as formal employee surveys and internal audit reports on cultural and behavioral issues. However an organization defines a board's role, it is important to have clear ownership of responsibilities when it comes to the trust agenda.

Measuring trust. What standards or factors are you using within your organization to measure stakeholder trust? If you are struggling with this question, you're not alone: 45 percent of respondents to Deloitte's study said their company did not measure trust. But it is important to quantify trust as a performance indicator to understand where your organization stands on stakeholder trust management. Some companies use 360-degree organizational assessments on areas such as product quality to see whether they are perceived as trustworthy by their different stakeholder groups. Other programs, such as a Net Promoter Score program or employee exit interviews, can also be mined for insights into an organization's trustworthiness.

Evaluating current priorities and anticipating shifts. A couple of years back, majority of organizations built stakeholder trust by focusing efforts on overcoming pandemic-related challenges. The uncertainty and volatility of the period made it imperative. But going into 2024, trust-building priorities have no doubt changed. Deloitte's study found that 61 percent of respondents pointed to ESG as a priority for the next three years. These business leaders, recognizing the growing number of stakeholders who see environmental and social sustainability as an inherent — rather than a nice-to-have — part of business, are looking to build trust by sharing their ESG journey backed up by robust data. What are your organization's trust-building priorities, and how do you see these evolving in the next few years?

Working on stakeholder trust is a continuous exercise that demands the attention not just of senior executives but of the entire board because of its importance and impact on performance. If you haven't already included stakeholder trust-building in your corporate governance strategy, consider making it one of your New Year's resolutions as we all prepare for the fresh challenges and opportunities of 2024.
 

As published in The Manila Times on 15 January 2024. The author is the Managing Partner & CEO of Deloitte Philippines.