The consequences of declining trust in CEOs
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Two sets of findings, related to societal trust levels, in a report released last week at the World Economic Forum’s annual meeting in Davos, should be a cause of grave concern to all of us. Part of a study released by communications group Edelman, the survey of more than 33,000 people in 28 countries including India, recorded the largest-ever drop of trust in business, government, the media, and non-government organisations (NGOs).
Corporate chief executive officers (CEOs), whose credibility level dropped in each of the countries surveyed, were aggressively targeted with only 37% of people saying they trusted them.
The 12-point drop from the previous year is the all-time low since the survey began in 2001. This isn’t the first time the corporate sector has been reminded of declining people’s trust. Last January, Young & Rubicam BrandAsset Valuator revealed that consumers’ trust in well-known brands continues to fall.
Strangely, you would think that CEOs reputation for trust would have taken a hit from the work of the media. But that institution didn’t fare too well either with 43% of the respondents expressing trust in the press, down from 48% the year before.
So if people’s falling trust in company executives isn’t driven by the reports in traditional media, where is the angst coming from? Perhaps there’s a third force now that might be responsible for generating the ire and that’s the social media, the new watchdog for corporate wrongdoing.
Edelman CEO Richard Edelman, speaking at the WE, linked this to the sky-high compensation levels of top CEOs as well as the fact that employees were disappointed their leaders were not helping them deal with automation and the changing business environment. These changes have led to a rash of lay-offs in recent times with companies as diverse as Oracle Corp., Wal-Mart Stores Inc. and Microsoft Corp. trimming their work forces.
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In India, close on the heels of the controversy last year when several well-funded start-ups rolled back offers made to fresh graduates from engineering schools, comes the news this year of large scale sackings. Just this week, Girnar Software Pvt. Ltd, which runs a series of auto portals including CarDekho and is funded by such heavyweights as CapitalG (formerly Google Capital), Sequoia Capital, Hillhouse Capital and Ratan Tata, announced that it was axing 136 people.
Paradoxically, for all the efforts CEOs and top leaders make to build their image, it is the company’s rank and file that is viewed by the public as more trustworthy.
Indeed, twice as many respondents would have employees rather than CEOs communicate financial earnings and operational performance.
Why is trust important? Business analysts have frequently proved that there is a direct correlation between growth and trust.
American behavioural economist and psychiatrist Richard L. Peterson and sports consultant Frank Murtha noted in 2008 after the financial crisis: “Trust is the oil in the engine of capitalism, without it, the engine seizes up. Confidence is like the gasoline, without it the machine won’t move.”
Part of the reason for the increasing trust deficit is of course the overall culture of lower deference towards authority figures and institutions. But that isn’t all of it. In 2016, for instance, Volkswagen AG CEO Martin Winterkorn’s resigned following the emissions scandal, Fox News CEO Roger Ailes lost his job following a sexual harassment charge, Mylan CEO Heather Bresch became a public enemy when she trebled prices of life-saving injection EpiPen, and Wells Fargo CEO John Stumpf came under fire for refusing to take personal responsibility when his bank was caught creating two million fake accounts. Closer home, Vijay Mallya took employees, shareholders and bankers for a right royal ride before flying to the UK as creditors closed in on him.
The resulting trust deficit has had several disastrous consequences. Corporate loyalty is fast going the way of the dinosaur. As employees feel free to change jobs at will, this has led to mounting costs of hiring and training besides a struggle to build team spirit and group dynamics. Externally, there is a lower threshold level of tolerance for any slippage in corporate performance. One quarter of declining numbers and stakeholders start demanding changes either in terms of management or worse still, strategy.
Corporate trust deficit is a two-way street. It indicates that employees, customers, and company watchers have problems believing what its top executives say. But equally it also indicates that the company itself is in some kind of trouble.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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