To mark the launch of its new Corporate Governance Special Interest Group the ICAEW invited four leading thinkers to a ”rebuilding trust in business” discussion at Chartered Accountants Hall. David Craik reports on some of the main talking points that arose.
To begin proceedings, ICAEW chief executive Michael Izza explained that the new group would lead the discussion on best practice in corporate governance.
“The aspiration is to educate, inform and promote ethical behaviour,” he said. He added that corporate governance had a historical resonance with the ICAEW given that the Cadbury Code – which was published 25 years ago and set the standards for corporate governance – was actually written at Chartered Accountants Hall.
Robert Phillips, author of Trust Me PR Is Dead and co-founder of Jericho Chambers, was first speaker. He said that the search for more trust is a meaningless aim.
“Political and business leaders talk about trust incessantly,” said Phillips. “But they treat trust like a message and it isn’t. It is an outcome. What you do rather than what you say counts. If you want to be more trusted try behaving better.”
Phillips also said that the media had been culpable in eroding trust in business but that bosses themselves frequently misled their customers, workforce and shareholders.
“Truth and trust are two sides of the same coin. You need to speak the truth to rebuild trust,” he said. “But trust is fragile. It has to be hard fought and hard earned every day.”
Furthermore, Phillips argued that we should celebrate this fragility because of the “demands of transparency and accountability” it brings. “We need to focus not on trust but trustworthiness. Are you honest, competent and reliable? If not, you are not trustworthy,” he stressed. “Why should we trust Volkswagen after they misled us on emission tests? They erode trust by the way they behave. Withholding trust from companies who put shareholder value in front of human value is legitimate and powerful.”
He called upon chief executives to change their working principles, and to view their role as a chief social activist. “As well as making a profit you can make a difference in areas such as poverty and climate change,” he stated.
Phillips also urged chief executives to co-produce solutions with employees and other stakeholders. “This can make your company more open, creative and trusted,” he argued. “They should welcome risk and dissent and realise that they do not have all the answers. They should learn to say sorry.”
Trevor Phillips, the President of the John Lewis Partnership Council, stressed the importance of putting the customer first in building company trust. “When I am visiting the floor of a John Lewis store I often get left by the sardines for half an hour because the manager has left me to talk to a customer needing assistance,” he said. “Our partners understand that the most important person on the floor is the customer. We earn their trust because we put them before everything else and they know it.”
But it is not just customers who need to earn our trust – the partner, too, must be highly respected.
Phillips said that John Lewis’s first principle, set down by John Spedan Lewis in 1928, was to create a “satisfying and worthwhile employment in a successful business”.
He admitted that John Lewis was not “Nirvana” stressing that an employee owned business is tough on itself.
“Everyone owns a chunk but in a democracy, do you behave as workers or owners? We recently decided to give up many of the benefits of our defined benefit scheme. As a worker, you want to maintain it but as an owner you know it will sink your business,” he said. “Our Partnership Council voted for it. We were also transparent on whether to pay our partners a bigger bonus this year or to invest to help us compete in the savage retail environment. We chose the future over the present. We have chosen the approach of transparency and engagement to maintain trust.”
Daniel Finkelstein, associate editor of the Times, brought up the issue of human behaviour and trust. Oh, and vampire bats.
“Why do we co-operate with people who do not share our genes? The answer is that we have found it an effective strategy for survival. A vampire bat will regurgitate blood to the mouth of another unrelated bat if it believes it is on the point of death. The first bat expects that favour to be returned if it was in the same position,” he said. “Reciprocity works but what happens when you do a favour for someone and they don’t do it back? We have a fairness law. We look at markets and profits and think it is okay if it brings us a fair exchange. Only after the financial crisis did bankers bonuses become a big issue. It is the same with executive remuneration. Shareholders need to see it is proportionate.”
He said that trust had been one of the drivers of history as people sought other people to trade with and trust people “who they didn’t know or could not meet. It was one of the big economic leaps”.
This led to the development of information technologies designed to trust people and for people to trust us. He mentioned accounting, writing, printing and the rule of law. “We have created these systems because we don’t naturally trust. We are naturally suspicious,” he said. “To win trust we have to work very hard. It is not just about the processes but the output.”
Finkelstein added that the growth of technologies such as Twitter had led to control of information from the centre reducing. “There is a decline in respect for the banks and police. The centre has lost power to the edges and the ability to control information has now gone. Technology has redistributed that power.”
Angela Knight, chair of the office of Tax Simplification and formerly British Bankers’ Association, recounted that she had taken up the job at the BBA on April Fool’s Day 2007.
“I was asked to take the banks off the back pages and put them on the front pages.This was a few months before the run on Northern Rock!” she said. “But the loss of trust in the banks had started before. The banks communicated with their customers in words which did not resonate with them. They did not explain why branches were closing down. Pay also became an obsession and the new presence of US banks and pay benchmarking also added to the narrative of too large and too undeserved pay.”
Knight said the banks had also been guilty of bad-mouthing each other in adverts, to government and to regulators. “You can never be considered a good business if the whole sector is considered to be bad,” she said. “But banks also became a political football. We very rarely heard chief executives on the radio but the media had no desire to have fair and open interviews. It showed that there was a need to have a much better and informed debate or you end up with the wrong assumptions and changes being made.”
In conclusion, Knight warned that it takes a decade to regain lost trust. “You need to be competent and put yourself in your customer’s shoes,” she urged. “Involve your staff, be open and engage in debate.”
Corporate Governance, June 2017