Contact

Home

Global Practices

Business Must Earn License To Lead

Business Must Earn License To Lead

Richard Edelman outlines the path forward for business - a mix of continuing to do the basics well while also adopting a broader, societal view.

by

Published

In 2008-2009, in the wake of a recession that saw large, global companies such as Lehman Brothers, General Motors, and AIG collapse, trust in business imploded. Government stepped in with bailouts and new regulations. But in 2011, government became paralyzed by the politics of extremism and endless haggling—and the public lost confidence.

The 2012 Edelman Trust Barometer sees an unprecedented nine-point global decline in trust in government. In thirteen countries, it trails business, media, and non-governmental organizations as the least trusted institution. This has pushed more countries into the distruster category (figure 1). Political brinksmanship on the debt ceiling in the U.S,, dysfunction on bailouts in the EU, corruption in Brazil and India, and a natural disaster in Japan drove the downward trend.

Business leaders should not be cheered by government’s ineptitude, especially as trust in the two institutions tend to move in sync. There is still a yawning trust gap for business, as evidenced by one half of the informed public respondents (49 percent) saying government does not regulate business enough. Yet what most stakeholders want from government – consumer protection (31 percent) and regulation ensuring responsible corporate behavior (25 percent) – are actions business can do on its own.

Business must move beyond license to operate to a higher aspiration of license to lead. To do so business cannot be seen as acting solely in self interest; it must adopt a broader, societal view, while executing on the fundamentals in the pursuit of profit. Here is the path to the license to lead:

  • Exercise principles-based leadership instead of rules-based strategy. Business should not go to the edge of what is legally permissible but rather stay focused on what is beneficial both to shareholders and society.
  • Recognize that the operational factors responsible for current trust in business won’t build future trust. Our research shows that consistent financial returns, top management, and innovative products are the primary factors on which current trust levels rely. However, societal and engagement factors such as treating employees well, putting customers ahead of profits, and transparency are vital to building future trust.
  • Practice radical transparency. Speak first to employees—whose credibility rose dramatically—enabling them to drive the continuing conversation with their peers. Establish operational and societal goals, then report regularly.
  • Shape the public discourse on issues like fracking and charging fees for financial services. Explain the advantages for customers. Business must exhibit its role as job creators, managers of responsible supply chains and community partners that help build infrastructure.

Business is a force for good. Yes, there are risks in bold decision-making, in telling hard truths, and in structuring business goals that serve investors and society. But the bigger risk for business is in waiting for government to act and some business leaders are clearly aware of that fact. In the Wall Street Journal, Paul Polman, CEO of Unilever (disclosure: Edelman client) recently said: “Our version of capitalism has reached its sell-by-date. Never has the opportunity for business to help shape a more equitable future been so great.”

[This essay appears in the 2012 Edelman Trust Barometer Executive Summary.]

Richard Edelman is the President & CEO at Edelman.

Contact us