Can an ethics-focused risk management process help you build trust?

22 Apr 2020 2:05 pm by Mark Dunn

In a time characterised by deteriorating trust in institutions worldwide, truthfulness and honesty seem to be an ever more important asset. And although the media industry and governments continue to perform below-average, the most recent Edelman Trust Barometer¹ once again displays a surge in trust in the private sector.

trust barometer

Amidst growing concerns over issues such as climate change and the rise of populism worldwide, Richard Edelman, the CEO of Edelman, recognises a shift in the private sector. He notes, “It’s no longer business as usual, with an exclusive focus on shareholder returns. Business now sees the need to play a positive role in global governance.”

Simultaneously, public awareness for corporate social responsibility has changed dramatically in the last decade. Consumers increasingly award companies with their trust based on two different considerations: competence and ethical behaviour. This constantly developing consciousness requires a proactive approach from corporate executives in order to mitigate third-party risk, capable of jeopardising a company’s reputation.

The Trust Paradox 

Exactly two decades after Edelman first introduced its Trust Barometer, it’s latest edition uncovers an alarming Trust Paradox among institutions. While business outperforms governmental institutions by an impressive 54-point gap when it comes to operational competence, governments are believed to be most competent concerning the protection of the environment and the fight against income inequality.

The bottom line is this: No institution is seen as both competent and ethical and no single organisation can stand up to the variety of complex challenges we face alone.  Therefore, it comes as no surprise that the 2020 Edelman Trust Barometer identifies four existential issues which will shape our society in the next decade:

  • Income inequality
  • Sustainability
  • Information quality
  • Artificial intelligence

These challenges will require a greater level of cooperation between these institutions, namely governments, NGOs and the private sector. Today nevertheless, neither of these institutions has achieved a sustainable level of trust according to the Edelman Trust Barometer, despite another year of positive global economic performance.

Trust: A Fundamental Asset for the Private Sector 

Recently, the private sector was stunned by a number of high-profile cases of risk management failures. Cases of financial misconduct and bribery such as Brazil’s Odebrecht scandal or allegations related to corruption and money laundering schemes surrounding the European aircraft manufacturer Airbus have prevailed in international headlines. Whether it is an FCPA investigation, a similar announcement from other respective authorities or media reports, uncovering methods including forced labour within a company’s supply chain operations, these headlines can cause substantial damage to a company’s and even an industry’s reputation. Coordinating enhanced due diligence and risk monitoring can support your company in reducing this potential threat, often originating in third party operations.

The Power of Purpose

Unsurprisingly, this year's Edelman Trust Barometer follows the trend of previous years by pointing to the fact that ethical behaviour is most likely to lead to a substantial comparative advantage. Being purpose-driven, honest, fair and having a vision have been identified to have the greatest impact on rebuilding trust and furthermore being good for business.

According to Edelman, an overwhelming figure of 81% of respondents state that trust is their top priority for purchase. Brands are therefore increasingly expected to reflect their consumers’ beliefs and values, employeesdemand purpose-giving jobs and a company’s success and operational health is measured to a greater extent through their sustainability and other ethical behaviours by investors and regulatory bodies.

Brands that have identified the necessity for a fundamental change towards purpose-driven operations not only profited themselves but also started to impact their competitors and even other industries. Take the Dutch chocolate company Tony’s Chocolonely² as an example. The self-declared impact companyhas set out to eradicate child slavery in the chocolate industry when it started 15 years ago and has since reached 20% of the market share in the Netherlands. Other competitors have started to follow suit and increased their actions against child labour and other important issues such as sustainable financing.

The Time for Action is Now 

Businesses around the world must take the lead on solving the imminent lack of trust. Studies such as the 2020 Edelman Trust Barometer emphasize the role the private sector plays on the path towards a more sustainable future for all. Here, authenticity is crucial. Neither investors nor consumers will be satisfied with a dishonest approach from a company.

Around the world, sustainable business initiatives are starting to gain leverage. Business for Inclusive Growth, a group of major international businesses, coordinated by the OECD, has pledged to promote diversity and tackle inequality. 15 years after its creation, the UN Global Compact has become one of the most influential private sector networks for sustainability. And according to Sustainable Brands, “there has never been a more open door for businesses committed to good governance and positive social and environmental impacts.”

Therefore, and in light of an increased diversification of third party operations around the world, increasing the possibility for regulatory misconduct and ethical misdemeanour, it is more important than ever to align your risk management process to the high expectations your investors and consumers have for your company.

What’s Next?

1.    Explore how risk management technology can help companies build trust.
2.    Discover how Nexis Diligence™ and Nexis® Entity Insight help companies reduce exposure to third-party risk.

Sources:

1. Edelman Trust Barometer 2020, Edelman.com

2. How Tony’s Chocolonely chocolate brand plans to end slavery, The Independent