World Economic Forum Annual Meeting 2009

  • Renewing Trust in Corporations

    Thursday 29th January 2009 - 12:30pm - 2:00pm

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  • Renewing Trust in Corporations

    • William J. Amelio • Ian E. Davis • Richard W. Edelman • Andrew Stern • Michael Tipsord


    Moderated by

    • Rakesh Khurana

     
    Thursday 29 January


    All is not well in relations between business and citizens. The erosion of the bonds of trust built up over many years could have dire consequences for the future of capitalism. The current financial crisis was described as the latest in a series of set-backs – from Enron and Parmalat to outrage over outsized compensation packages. Unless action is taken now to arrest and reverse the slide, the foundations of our system of social exchange could be called into question. Against this backdrop, the discussion focused on the nature of trust, the extent of the damage and, finally, what can be done about it.

    The nature of trust
    • Trust is the lubricant that makes social exchange possible; it creates predictability and lifts performance
    • Trust is hard to create and easy to destroy
    • Trust is a promise kept, commitments honoured over time
    • Absence of trust could lead to a Hobbesian scenario in which life is “nasty, brutish and short”
    • Not all trust is good; misplaced trust can be damaging (i.e. Bernie Madoff scandal)
    • Distinction should be made between trust in competence and trust in intentions (bankers’ untrustworthy intentions were okay as long as they were perceived as doing their job well)

    Extent of the damage
    • Downward spiral in trust in corporations mirrors decline in confidence in government and institutions (constraining public/private partnerships to fix the problem)
    • Trust in companies in the US is down to 38%, on par with ratings for outgoing US President George W. Bush
    • Business is perceived as unreliable guardians of the “social good”
    • Things are likely to get worse before they get better because everyone is looking for someone to blame
    • It is important to differentiate between trust in Wall Street and Main Street, with the former being the villain and the latter retaining respect

    What to do about it
    • Ensure justice: punishment for those who have broken the law, an apology from others
    • Broaden concept of shareholder value to embrace all elements of a strategy that will win stakeholder trust based on concrete actions to fulfil the mission and value statements that are too often ignored
    • Give employees a greater role in communicating about their companies
    • Align business goals with customers’ needs to ensure continual renewal of trust
    • Encourage governments to accept responsibility for setting rules at the international level
    • Move away from narrow focus on brand attributes to emphasize broader elements shaping a company’s reputation
    • Initiate the business equivalent of a Hippocratic oath against which to hold companies accountable
    • Hold managers responsible by including reputation-related indicators in performance assessment
    • Do your core business well and then go on the offensive to define your sense of purpose
    • Recognize that there is a systemic issue to address in addition to action at company level
    • Accept responsibility when things go wrong (for example, Bank Santander assuming responsibility for Madoff losses)
    • New approach to compensation at reasonable levels and through transparent processes
    • Come to closure and then start rebuilding trust by talking up wealth-creating role of corporations
    • Recognize that universal self-flagellation is not justified; 90% of companies are doing the right thing

     

Speakers

  • Richard W. Edelman Richard W. Edelman
    President and Chief Executive Officer, Edelman, USA

    BA and MBA, Harvard. Member of the Board: Ad Council; Atlantic Council; Children's Aid Society; Nati...

  • Andrew L. Stern Andrew L. Stern

  • Michael Tipsord Michael Tipsord
    Vice-Chairman and Chief Operating Officer, State Farm Insurance Companies, USA

    Bachelor's in Accounting, Illinois Wesleyan University; degree in Law, University of Illinois, Urban...

  • William J. Amelio William J. Amelio

  • Ian E. Davis Ian E. Davis
    Senior Partner, McKinsey & Company, United Kingdom

    Degree in Politics, Philosophy and Economics, University of Oxford. Experience with paper manufactur...

Moderated by

  • Rakesh Khurana Rakesh Khurana
    Professor, Harvard Business School, USA

    BSc, Cornell University; MA and PhD, Harvard University. 1998-2000, Faculty Member, MIT; since 2000,...