Insight

This month’s highlights from our Governance Leadership Centre where we showcase research from around the world.

Trust in crisis – A global trend

The Australian Institute of Company Directors’ (AICD) Governance Leadership Centre (GLC) has reported on the findings of the 2017 Edelman Trust Barometer. The survey reveals the largest-ever drop in trust across the institutions of government, business, media and non-government organisations (NGOs) in the 17 years of the survey.

Directors grappling with the implications of a rising tide of populist sentiment will not be surprised by the findings, which the researchers describe as a “global implosion of trust.”

More than half of the respondents to the global survey – run across 28 countries, with more than 30,000 respondents, dividing the survey between “informed public” and “mass population” – believe that the current system has failed them and is unfair.

The survey also found that the credibility of leaders was at its lowest level – CEO credibility fell to an all-time low of 37 per cent globally, sitting even lower in Australia at 26 per cent.

Here are 10 key insights from the 2017 Edelman survey:

• Trust in crisis: Trust in the institutions of media, government, business and NGOs has dropped. In 20 of the 28 countries surveyed – including Australia – more than half of the mass population respondents distrust their institutions.
• Trust inequality: The gap in trust between the “informed public” and “mass population” groups is at its highest level in the survey’s 17-year history, at 15 points.
• A broken system: More than half of respondents globally believe the system is not working for them (50 per cent for Australia).
• Concerns and fears: Driving the embrace of populism are fears about corruption, eroding social values, globalisation, immigration and concern over the pace of change.
• Failing system + fear = action: Ten of the 28 countries surveyed – including Australia – combine an above average lack of belief that the system is working with multiple societal fears. In Australia, as in other places, this is leading a resurgence in populist political parties.
• The media echo chamber: People are almost four times as likely to ignore information that supports a position they don’t agree with, and are more likely to believe information from search engines over human editors. In Australia, the decline in trust in the media has been significant, dropping by 14 points to 40 per cent, and for the mass population group Australia’s trust in media at 32 per cent is among the world’s lowest.
• Peers highly credible: For the first time, “a person like yourself” is seen as at least as credible as an academic or technical expert.
• Business adds to fears: Globally, more than half of respondents feel the pace of change in business and industry is too fast. Concerns include automation, immigration, lack of training and skills, and offshoring. This is feeding support for anti-business policies – almost one in two respondents oppose free trade agreements and 72 per cent support protectionist trade policies, even if it slows economic growth.
• High expectations for business: The three most important attributes for building trust in companies are treating employees well, offering high quality products, and listening to customers. Employees are viewed as the most credible spokespeople for business, as trust in the c-suite and boardroom continues to decline.
• With the people: Edelman argues that the trust crisis demands a new operating model of listening to stakeholders and tapping into peers and employees to lead communication and advocacy.

Seventy-five per cent of global respondents agree that companies can both increase profits and improve economic and social conditions. The survey also outlines five actions that businesses must avoid to further damage trust:

• Paying bribes.
• Paying executives hundreds of times more than workers.
• Moving profits to other countries to avoid tax.
• Overcharging for essential products and services.
• Lowering costs by reducing quality of products.

In discussing the Australian results, Edelman notes that: “Business now has a clear opportunity to rebuild trust by recognising the need to do things differently. We need a holistic approach that puts people at the centre of engagement, not just as one more audience to be reached.”

About the Edelman Trust Barometer

The 2017 Edelman Trust Barometer is the firm’s 17th annual trust and credibility survey. The survey was done by research firm Edelman Intelligence and consisted of 25-minute online interviews conducted between 13 October-16 November 2016. The 2017 Trust Barometer online survey sampled more than 33,000 respondents consisting of 1,150 general population respondents aged 18 and over and 500 “informed public” respondents in the US and China and 200 informed public respondents in all other countries across 28 markets. All informed public met the following criteria: aged 25-64; college-educated; household income in the top quartile for their age in their country; read or watch business/news media at least several times a week.

Governance and performance – The role of trust

In 2015, Dr Robert Kay MAICD and Dr Chris Goldspink conducted research for the AICD’s GLC on the relationship between governance and performance. A total of 100 chairs were interviewed, and three key factors impacting the quality of decision-making were identified:

• Perspective – the ability to question and debate assumptions and decisions.
• Scale – the ability to appropriately frame and understand implications of decisions across different time periods, organisational level and operations.
• Prediction – the ability of the team to use information and experience as a basis for predicting plausible future scenarios and their implications for the organisation.

At a collective level, chairs identified trust as one of the key attributes necessary to support these outcomes. The theme of trust on the board, and its relationship with governance, was explored in a further research paper issued by the AICD’s Governance Leadership Centre in late 2016, The Role of Trust.

The report, available on the Governance Leadership Centre at the AICD website, examines the differences between board and executive decision-making, views on the role of trust, and the differences in approaching trust in a board context to minimise risk (adopting a control function) or maximising performance (advancing a strategic focus).