Trust is earned by saying what we will do, sharing why and delivering what we said we would — transparently. When things don’t work as expected (and every so often, they won’t), we explain and try again. This is certainly true for building trust with the stakeholders of a corporation. However, the information asymmetry that exists between management, the board and shareholders is unlike any other in business. Further, competitive, legal, confidentiality and other concerns often mean that the board cannot be as transparent as it would like. This makes establishing trust between the board and its key stakeholders a challenge.
Why is trust important?
By enhancing trust, corporations and their boards create positive stakeholder dynamics that enhance enterprise value. On the other hand, if the company and board lose stakeholder trust, they likely lose employees, customers and the benefit of the doubt of other critical stakeholders, like regulators.
However, there is a trust deficit in American society. Americans have lost a large measure of trust in institutions they once greatly respected—non-governmental institutions, media, government, and corporations to some extent. Although corporations suffer from this loss of trust, they continue to be trusted more than other institutions.
The fact that corporations are more trusted relative to other institutions presents them with an opportunity to do the work needed to reinforce and enhance trust. Many people believe that corporations have an affirmative responsibility to take actions needed to further increase trust levels.
Do boards know and have what it takes to increase trust?
Our research suggests that directors believe they can enhance stakeholder trust through enhanced transparency and accountability with shareholders.
Source: PwC, 2022 Annual Corporate Directors Survey, October 2022.
These responses suggest that directors are primarily focused on building trust with shareholders. Directors seem less convinced that boards can have an impact with other stakeholders.
By emphasizing investor trust over trust from other stakeholders, directors may be missing an opportunity to leverage the invaluable contribution that multi-stakeholder trust can make to enterprise success over the long term. Creating that success and capturing that value requires building trust with employees, recruits, suppliers and vendors, customers and a public that needs to grant the social license to operate.
What can boards do now? A few suggestions to take with you into the boardroom
- Reinforce in board and committee discussions that stakeholder trust is important to the company’s long-term success, and, therefore, important to the board. Communicate to management the rationale for elevating trust-building as a industry, and circumstances corporate imperative.
- Seek advice of counsel to ensure that the board understands any limitations (under applicable state law) of prioritizing the building of long-term stakeholder trust. In other words, do certain board decisions taken to enhance stakeholder trust and returns over the long term negatively impact the company’s short-term share or results?
- Press management to work with the board to identify meaningful actions and metrics based on the company’s purpose, values, industry and circumstances.
- Consider what investments in trust-building are needed. Discuss how those investments are incorporated into annual operating plans. For example, have funds and resources been designated for supplier workplace condition audits by third parties? Workforce compensation equity studies? Sustainability initiatives?
- Enhance shareholder engagement and enhance transparency into what is happening in the boardroom.
- Ask management how they factor the company's various stakeholders into the decision-making process — both in terms of consistency with company values and long-term value creation for the company. Request enhanced information on stakeholder trust in reports and discussions.
- When appropriate, incorporate those actions and metrics into executive evaluations and compensation decisions. Discuss those actions and metrics in the company’s Compensation Discussion and Analysis.
- Don’t think of trust-building as a standalone agenda topic. Rather, incorporate questions regarding trust into board and committee discussions on strategy, marketing, workplace safety, risk management, supply chain, talent development and management selection.
- Consider what changes can be made to make the proxy statement a more effective vehicle for communicating the board’s trust-building actions. In particular, consider what additional information can be included in the proxy statement to assist investors in their assessment of nominees.
… read more in the report
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