High trust generates significant shareholder value.
Customers prefer to deal with companies they trust, even if they have to pay more. In a survey I conducted, I found that customers are willing to pay a 29.6% premium to a company they trust.
Employees also benefit from working in high-trust environments. Compared with the average company, in high-trust companies, employees are 53% more energized, 38% more engaged, 25% more likely to stay with their company at least one more year, 44% more likely to recommend the company to their friends and family as a place to work, 28% more satisfied with their job and 35% more aligned with the company’s mission. They experience 37% less stress and 20% less burnout. As a result, employees in high-trust companies are ten times more willing to hold a constructive disagreement, leading to high creativity and productivity. When employees hold passionate yet constructive disagreements, their companies are 50-to-64% more innovative and productive.
Executives will find that their employees will be happier and more productive when they trust their bosses. In a 2018 survey asking about the most important quality people look for in their bosses, employees, peers, salespeople, government representatives and spouses, it was discovered that trustworthiness was the most important quality, but only in five out of the six relationships. Leaders valued the willingness to work hard (48%) more than trustworthiness (39%). It reminds me of the Henry Ford quote, “Why is it every time I ask for a pair of hands, they come with a brain attached?”
Operational and financial results follow trust. In high-trust companies, projects finish on time and on budget 45% more than in low-trust organizations. As a result, high-trust companies deliver 5 times higher profits and 286% higher shareholder returns.
What does that have to do with the board of directors? In this article, I will provide four ways the board can influence the level of trust in an organization, for better or worse.
Why Is Trust Important to Your Company?
Customers are exposed to unethical sales and marketing practices every day. Some are pure scams, intending to take their money, hijack their information and perform cybercrimes initiated in and outside the U.S. The Identity Theft Resource Center indicated that the number of data breaches went from 614 in 2013 to 1,529 in 2017. There were 2.2 billion individuals exposed to data breaches in 2018. According to Aite-Novarica, 47% of Americans experienced identity theft in 2020 alone, suffering $712.4 billion in losses, up 42% from just a year earlier. The numbers are staggering.
However, rather than trying to outright steal money from people, many companies are promising value that they don’t deliver, deploying “bait-and-switch” tactics, hiding behind the small print and providing bad customer service. Technology allows companies to bombard customers with sales pitches. Americans received over 54 billion spam calls and 55.4 billion spam texts in 2020.
In light of these numbers and trends, are you surprised that well-worn marketing and sales techniques are not working anymore?
Recent reports from the NACD indicate that shareholders and investors trust companies that promote diversity, equity and inclusion (DEI) as well as corporate social responsibility (CSR) practices. But is that enough? Will shareholders and investors trust a company that implements strong DEI and CSR practices but delivers no profit or experiences declining share prices? No.
When employees enjoy their jobs and trust both their company and their colleagues, they will be more creative, leading to stronger innovation and productivity. Combine that with customers’ tendency to buy from companies they trust and you get higher shareholder returns, making trust just as important to investors and shareholders as DEI and CSR practices.
The Four Roles of the Board in Building Trust
While it may seem that the board has no role in building trust and that trust-building is an internal management issue, there are four opportunities for the board to influence trust-building in the company.
Setting policy and direction. Even if management doesn’t see the importance of trust in the company, the board can make trust a priority and clearly communicate that to the CEO. The board should clarify that they are interested in building real trust, not the appearance of trust or the use of the word “trust” in internal and external communications.
Providing oversight. Communication from the CEO to the board often includes metrics. Those metrics are typically financial (profit, growth, share price, etc.). The board could request the addition of trust metrics. Trust is one of those vague, abstract constructs considered hard to measure. However, when treating trust as a “black box,” the existence of trust can be gauged through measuring the inputs (factors that affect trust and trustworthiness) and the outputs (symptoms of the existence, or lack thereof, of trust). The inputs would serve as leading indicators. When they exist, it would be safe to assume trust does as well. The outputs would serve as trailing indicators, and their existence would indicate the existence of trust. Those inputs and outputs are much more quantifiable and easy to measure than trust. The board should demand to review trust metrics regularly, establishing a baseline, setting goals and tracking improvement.
Communicating with the CEO. A lack of trust in the board/CEO relationship causes executive-level mismanagement on the part of the board. When the CEO is micromanaged, meetings with the board become “show-and-tell” performances, during which the CEO will show the board what the board wants to see, rather than what it needs to know. Trust between the board and the CEO must be two-sided. Just as the board must trust the CEO with autonomy, the CEO must trust the board enough to feel comfortable delivering bad news.
Inspiring good behavior. Behavior among board members, and between the board and senior executives, is emulated throughout the entire company. The board is the ultimate example-setter in the organization. When the board demonstrates high-trust behavior, so will others in the company, starting with the executive team and ending with the last customer-facing employee.
Trust on the Board Is Just Like Trust Anywhere Else
Trust is not absolute or static, but rather relative and dynamic. The existence of trust has a significant impact on your company’s success, profitability, shareholder returns, customer loyalty and employee well-being. As a board member, you can play a significant role in building trust in your company.
Yoram Solomon, Ph.D., is the author of The Book of Trust: Build Trust, Be Trusted, and Know Who to Trust and the Can I Trust You? book series. He is also host of the podcast The Trust Show, creator and facilitator of the Trust Habits workshop and founder of Innovation Culture Institute.