This blog was initially seen in the Executive Summary.
The 2013 Edelman Trust Barometer demonstrates a serious crisis of confidence in leaders of both business and government. Less than one fifth of the general public believes business leaders and government officials will tell the truth when confronted with a difficult issue. There is also a growing trust gap between institutions and their leaders – globally, trust in business is 32 points higher than trust in business leaders to tell the truth; trust in government is 28 points higher than it is for government officials.
The continuing lack of faith in traditional leaders was reinforced by a series of highly publicized wrongdoings again last year. Former McKinsey managing partner Rajat Gupta was convicted of passing inside information. Bob Diamond resigned as CEO of Barclays after the revelation of rampant fixing of the Libor rate by traders. Bo Xilai was removed from the highest ranks of the Chinese government after exposure of personal corruption.
The research confirms the democratizing trend of recent years – the redistribution of influence from traditional authority figures such as CEOs and prime ministers toward employees, peers and people with credentials, including academics and technical experts. A professor or person like yourself is now trusted nearly twice as much as a chief executive or government official. The hierarchies of old are being replaced by more trusted peer-to-peer, horizontal networks of trust.
The shock of 2008, the subsequent recession and misdeeds by establishment figures have forced a reset in expectations of institutions and their leaders. What a company does as well as how it does it are now both dependent upon trust and credibility. Running a profitable business and having top-rated leadership no longer, alone, build long-term trust. In fact, these operational-based attributes have become an expectation. Today, business builds trust by treating employees well, exhibiting ethical and transparent practices and placing customers ahead of profits while also delivering quality products and services. Business must embrace a new mantra: move beyond earning the License to Operate – the minimum required standard – toward earning a License to Lead – in which business serves the needs of shareholders and broader stakeholders by being profitable and acting as a positive force in society.
Business must also change the way it engages stakeholders. We are in an era of skepticism; people need to see or hear something three to five times in different places before believing it, and learn equally from traditional and social channels. The traditional pyramid of authority, with elites driving communications top down to mass audiences, is now joined by an inverted pyramid of community – employees, action consumers and social activists involved in real-time, horizontal, constant peer-to-peer dialogue resulting in a new diamond of influence. Smart institutions will use vertical one-way communications while continually participating in the ongoing horizontal conversation.
Times call for Inclusive Management in which CEOs and government officials:
- Establish a vision and transparently share reasoning, purpose and results.
- Enlist a broader range of advocates, including employees, action consumers, social activists, academics and think tanks, seeking their input and reaction.
- Embrace all channels of communications, actively listening to new voices of influence and adapting.
- Shift from vision to implementation with transparent measures guided by continual engagement.
The times also demand that leaders behave differently. As Jeffrey Sonnenfeld, professor and dean at Yale University, notes: “Reliant, but sidetracked leaders have learned, they cannot rely on their prominent roles or ideas alone to win over key constituents. Grounded Leadership builds legitimacy in key constituent groups and is based in personal dynamism, empathy, authenticity, inspirational goals and courage.”
The financial services industry has a tremendous opportunity to be the litmus test for this new approach. With its issues of money laundering, bid-rigging and trading-desk-malfeasance and once again being the least-trusted business sector, industry leaders must explain their business model, have understandable and transparent metrics, engage in all channels of communications and prove the industry is working in the public interest. As Professor John Coffee of Columbia University said in a recent editorial in the Financial Times: “Global banks will need to compete not only over price and quality of services but over reputation.”
Tomorrow’s trusted leaders will authentically embrace Inclusive Management. As Ford CEO Alan Mulally has said: “You learn from everybody.”
Richard Edelman is president and CEO.