A crisis of trust: How CEOs and boards can build trust through transparency
Being a CEO or board member today is not easy. You are under the microscope. Investors, customers, employees, regulators, communities where your company is located — they’re all scrutinizing your decisions and actions. And everyone has an opinion, which are often played out in the press and on social media. “It’s a new era for CEOs,” said Jim Cramer, host of Mad Money with Jim Cramer and co-anchor of “Squawk on the Street” on CNBC and founder of TheStreet, Inc., at The Deal’s Corporate Governance 2017 event that we recently attended.
In our roles as US Chairman and Senior Partner and Leader of our Governance Insights Center, we have the privilege of meeting regularly with CEOs and board members to talk about the issues facing companies today. And we hear a lot. We agree with Jim — we think it’s the hardest time ever to be a CEO or sit on a board. But we also think it’s the most exciting. So what does it take to lead a company? CEOs need to have a thick skin. They need to be comfortable with the idea that many stakeholders will take credit for success, but if something goes wrong, it’s the CEO’s fault. They need to embrace the concept that ideas and innovation can come from anywhere. And they need to have a good board in place that they leverage.
Most importantly, though, CEOs and boards need to recognize that there is a growing trust gap between society and business, one that is very real. And we believe that nearly every company will face a trust crisis in the next year. CEOs and boards should accept this and be prepared.
Trust takes shape in different ways: how people view your company’s pricing, diversity or worker practices, where you pay taxes or whether you’ve had any data privacy and cyber breaches. These are all examples of things that can build — or break — trust. Whatever it may be, something is coming. Here are three examples of what may trigger a trust crisis at your company.
Diversity — Most often, companies sell to diverse populations and have a diverse employee population. But what does your company look like? Are your CEO and other executives diverse? Do you have a wide pool of diverse talent to promote and groom for leadership positions? If not, you may find yourself under fire. The CEO needs to prioritize and embrace a culture of diversity and inclusion across the organization.
It’s not just about diversity in the C-suite and the leadership team. It’s also about diversity in the boardroom. Board composition is a big issue for shareholders today, and it’s also critical to the company’s strategy. You need people at the board table with skills and experience that will help the company succeed down the road. And you need people who aren’t afraid to ask questions. Given the digital transformation going on across industries today, you probably also need technology expertise on your board. Boards need to think about refreshment on a regular basis.
We at PwC are proud to be a founding member of the CEO Action for Diversity and Inclusion™ pledge. This pledge, which 150 Fortune 500 companies have signed, commits us to making our organizations trusting places for dialogue, pursuing and expanding unconscious bias education and sharing best and unsuccessful practices. Making this pledge is a powerful first step for the business community. We believe it will help improve diversity and inclusion inside and outside of the workplace, which in turn will help build a better society.
Technology — We live in a world that’s fully transparent, thanks in part to social media and the 24/7 news cycle. Jim asked how CEOs manage this era of fake news and cynicism. The answer is, it’s not easy. Social media can be difficult to manage, especially when something that’s being shared is just plain wrong. What if your company is the basis for the next negative tweet? Companies need to have a strategy in place to react and respond to social media. And the CEO and board need to understand it fully. It’s no different than having a strategy in place to deal with a hurricane at a data center. If you ignore a growing crisis, it will only get worse.
Cybersecurity is another issue facing companies today. Every company is under attack and the threat landscape continually gets scarier. Intellectual property, company and personal data are all at risk. CEOs and boards need to understand that cyber is far bigger than an IT issue. It’s a business issue. Because a breach has long-term effects on company revenue and reputation. Companies need to prepare for a breach and they need to be able to respond faster when something happens.
Megatrends — Besides what’s happening in business, CEOs today also have to think about environmental, social and governance (ESG) trends. From climate change to societal problems like what happens to our workforce as a result of technological disruption, these concepts are increasingly important to a variety of stakeholders. If your CEO and board aren’t paying attention to these trends, you will find yourself in trouble. Because to the next generation, these issues are front and center business issues. They will play a big role in whether people will want to work at your company.
Using communication to rebuild trust
Companies can take steps to get ahead of a trust crisis through transparency, understanding and listening. Transparency begins with communication. So it’s critical for companies — CEOs and the board included — to talk to stakeholders. Most companies do a pretty good job describing the things they are doing and planning to do. But they don’t always do a good job describing what they aren’t doing and why they aren’t doing it. This communication void can cause questions and concerns for investors and other stakeholders.
It’s important to have a clearly articulated communications strategy and stick to it when talking to your stakeholders — whether they be shareholders, customers, community members or employees. Outline how you’re living your company’s purpose and why you made decisions to do — or not do — certain things. Talk about what you believe is right and how it aligns with your company’s values. But also have the humility to listen to what your stakeholders have to say. What are they worried about? What do they think you’re doing wrong, and how do they think you can improve and make changes? Just listening can produce big returns. Opening the lines of communication and telling the same consistent story to all of your stakeholders can lead to greater transparency. And that transparency can help build trust and support from your stakeholders, which is especially helpful when things do go wrong.
Communicating with your stakeholders isn’t always easy. In fact, it’s often challenging. But we believe that the end goal is worth it. The time to make a commitment to communication is now — before there is a crisis. And despite our prediction, we still see a future that’s half-full. There are more opportunities today than ever before. If your company has a clearly articulated strategy, listens to your stakeholders and focuses on transparency, you will be in a better position to take full advantage of all the opportunities that come your way. And you will be able to start closing that trust gap.