Contact

6 A.M.

Denial in the Corner Office

by

Published

I spoke this morning to a group of 100 executives organized by The Conference Board. Not surprisingly, my topic was trust in business. I said that it had been a tough year for business leaders and that there was a crisis of leadership. I cited the conviction of former McKinsey managing partner Rajat Gupta on passing inside information and the dismissal of Barclays CEO Bob Diamond on failure to spot the manipulation of LIBOR rates as indicative of the problem.

What was surprising, even shocking, was the opening remarks by The Conference Board CEO Jon Spector, who unveiled his group’s own study of CEOs in Asia, Europe and the U.S. The Conference Board found that CEOs rank human capital, operational excellence, innovation, customer relationships, global political risks and government regulation as the top challenges for 2013. Dead last in every region were corporate brand/reputation, sustainability and trust in business. Financial services was the only industry in which trust in business moved out of the cellar — it was ranked seventh by CEOs in that beleaguered sector.

The Conference Board said of the low ranking by CEOs of trust in business, “New regulations and their more consistent enforcement have created even greater transparency, which is the first step in restoring trust.” The study authors go on to say, “Many executives believe that business has done a poor job of telling its story and let hostile critics define it by the misdeeds and malfeasance of a minority of corrupt individuals.” In the U.S., government regulation is seen as the second most important challenge for business. The U.S. is the only region in the world where government regulation even ranks in the top five challenges. So here you have a demand for less regulation while CEOs suggest that enforcement of the new regulations has restored trust; this is a baffling logic problem.

The Conference Board findings directly contradict the data released by our firm in January that showed real suspicion of business, particularly in developed markets. You may recall that only 18 percent of respondents in the 2013 Edelman Trust Barometer trust a business leader to tell the truth in a complex situation. Forty-eight percent believe that excessive compensation and a culture of corruption are responsible for the problems in banking. Trust in the CEO as a spokesperson is half as much as for a technical expert, academic or person like you. And nearly two thirds believe that the bad behavior evident in financial services is now spreading to all industries.

My fellow panelist, Steve Paskoff, released his own survey results on attitudes of employees in the U.S., who find a generally inhospitable climate of trust in the workplace as a result of inconsistency, unprofessional conduct, dishonesty and an external focus by CEOs. Paskoff said, “Leaders have to model the values because trust is based on behavior – do you do what you say? Behavior matters, not just the numbers. You have to encourage workers to raise their concerns. You will get much more out of the human capital – better productivity, lower turnover, less chatter at the water cooler or online in blogs like Cafepharma.”

The move to split the jobs of chairman and chief executive officer in the U.S. and to limit compensation in the financial sector in Europe are warning signals for those of us in business. The problems of individual companies or a sector (financial services) are weighing down the reputation of the rest of business, a classic case of what the economists term an externality. The solution is to have a higher standard, the License to Lead, to replace License to Operate. It moves the goal posts from meeting the minimum legal standard to a higher objective of involvement in solutions for society’s problems as part of the mandate of business. It further requires radical transparency on performance, consistent communication with stakeholders and incentive compensation awarded on more than market share or stock price. Business as usual will not make the grade.

As Douglas Flint, HSBC’s* chairman, recently said at the St. Gallen Symposium, “I don’t think it matters what [we] bankers think about our reputation; it only matters what’s reflected back to us by society.”

And it’s a reflection that business should fix.

*Edelman Client

Richard Edelman is president and CEO.

  • Richard, you have just hit the nail on the head!!! Therein lies the problem and the solution to the dilemma in corporate leadership!!!

  • Trust is a commodity that has to be earned by doing the moral and ethical acts by which is expected of one in power. It is not an entitlement used and abused by those who are motivated to lie, cheat and steal all in the name of greed.

Contact us

Contact us

Edelman is interested in hearing from you. Please select your primary interest.