BusinessCorporate FinanceCompany health: it’s a matter of trust

Company health: it's a matter of trust

Low levels of trust in your company can significantly affect your financial integrity and the balance sheet. Here are some tips on regaining employee confidence

Executive vice president of ABB, Michel Demaré, who played a major role as
CFO in the beleaguered Swiss-Swedish electrical engineering group turnaround,
recently claimed that a rebuilt climate of trust had been key to the company’s

Transparency, he said, had not always been a feature of ABB. A reputation for
opacity and unpleasant surprises, on the other hand, had.

Regulators too have detected a specific potential benefit of corporate
transparency ­ lower cost of capital. As Christian Leuz, professor of accounting
at the University of Chicago Graduate School of Business, recently said: ‘If
investors have very little information on which to base their portfolio
decisions, they will require a higher return on investment and hence impose a
risk premium before investing in a firm.’

Trustworthiness, it would appear, pays ­ and dubious trustworthiness
continues to cost dear. The US options backdating scandal has seen some 140
firms investigated and 16 executives charged. In March, UnitedHealth Group
restated its profits down by $1.55bn over a 12-year period. Low trustworthiness
still shows up in balance sheets – even if the letter of the law has been

Is our organisation trustworthy? It’s an issue increasingly keeping those
responsible for the financial integrity of companies awake at night ­ at least
in developed economies.
Employee feelings may be far from the CFO’s mind, and they’re hardly the domain
of auditors ­ but perhaps they should be.

Certainly, a new European survey conducted by Krauthammer on behalf of a
research team across seven universities (Amsterdam University, Free University
of Amsterdam, Brunel University, Coventry University, the Open University, the
University of Warwick, the University of Zürich) is calling for a shift in
attitude to organisational trustworthiness.

The research findings suggest employee perceptions of organisational
trustworthiness can, and should be defined in terms of organisational key values
­ as much as measures of brand equity.

The report sets out five foundations for a solid trustbuilding architecture:

Security: The more sure employees are of getting a constructive response when
they sound an alarm, the more likely they will press the red button ­ behaving
like a human security system.

Innovation: When operating parameters are clear and people believe the
engineering is solid, they will feel supported, protected from crossing the line
and more inclined to ‘go create’.

Partnerships: Beating commoditisation means adding value – cultivating
embedded relationships with clients. And embeddedness implies vulnerability. The
willingness of clients to take the risk depends upon trust. And the same can be
said of suppliers and other collaborating partners.

Output: Paranoia, speculation, and gossip are fairly inevitable in any social
system. In low-trust environments, they are widespread. Minimise the distraction
and time-wasting they cause, and morale and productivity will benefit.

Talent: Staff retention and trustworthiness should go hand-in-hand. Employees
are more likely to resist the siren call of the headhunter if they believe their
organisation has their best interests at heart.

So what do employees actually think about how their employers currently fare?
The survey examined six key building blocks of organisational trustworthiness:
HR systems/ training and development; communication; control mechanisms;
organisational prestige; senior management; and external regulation.

Feedback from respondents highlights serious weaknesses. Particularly
pressing are those areas linked to regulation. According to one UK respondent:
‘The organisation is extremely trustworthy but some individuals bend values and
standards to their requirements’.

Another respondent added: ‘A board member who expressed his disagreement on
the way things were managed has been subjected to harassment ever since.’
‘In my previous company, executives lied to top management ­ in front of employ
ees who knew the truth. As a result we saw resignations, absenteeism and
demotivation,’ added another.

Potentially critical for financial leaders is the fact that, when it comes to
effective internal rules and regulations, only 25% of people believe the
procedures are in place.
Written rules are neither universal (only 45% say they are present) nor adhered
to (34% say they are), and the consequences of infraction vague (only 25% say
rules are strictly enforced).

Unwritten rules are even more rarely followed (just 26% agree that they are)
and peer pressure to uphold values and principles is only present in one in five
organisations. External regulations fare better. Yet only 54% believe procedures
are in place to deal with them. And only 22% totally agree their organisation is
governed by them.

Organisations are under increasing pressure to scrutinise and secure the
integrity of their trustbuilding architecture. Yet all too many are relying on
the goodwill of their employees.

Trust is the currency that enables a human system to work. This research
gives us a methodology to grow it. The challenge is to speed up the process. But
for trust to be built, commitment from the top is needed.

This is not something we can delegate. It should be owned by the whole
system. Our biggest mistake is to blame others ­ but trustworthiness really does
begin at home.

How to keep trust withiin your organisation

  • Ensure managers grasp the difference between consultation and information,
    and the importance of both
  • Check the human security system of your organisation – support employees in
    sounding alarms
  • Check the follow-up of goals
  • Have an inventory of written and unwritten rules and regulations (both
    internal and external) and check how well people understand and apply them
  • Check how far organisational values and principles are upheld by positive
    peer pressure from managers or sponsors of self-governing teams
  • Check your brand claims and to what extent your employees believe and uphold
  • Analyse your ethical values – and the extent to which your employees believe
    and uphold them
  • Urge senior management to examine the quality of its moral and ethical
  • If your organisation believes itself to be benevolent towards its employees,
    check how far those promises are delivered upon

Steffi Gande is a researcher at international training and coaching
company Krauthammer

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