Competence and Reliability are Nothing Without Trust

There’s much debate over what the most valuable commodity for  businesses will be in the 21st century. Oil? Water? Carbon?

I would argue it is trust. If there’s one thing we’ve learnt over the last 12 months it’s that if you’re a powerful figure and you’re not doing what you say you’re doing, you’re going to be found out.  From Giggs to Gadaffi, Murdoch to MPs expenses, a world of Twitter and Wikileaks means money and power can no longer buy you control of message. 

These are exciting times.  But worrying times for big businesses, many of whom are suffering a crisis of trust following the perceived failure of the capitalist system in recent times.  One of the more interesting ways this loss of trust in big business is manifesting itself is in the rapid growth of online peer-to-peer platforms that are forcing their way into the traditional business of businesses: think ebay rather than highstreets, Zopa rather than bank loans, blogs rather than newspapers, carshares, skillswops etc etc.  It suggests people are happier to trade with their peers rather than businesses because they don’t trust these brands as much as they do their fellow men.   

Trust in business matters.  As Matthew Bishop and Michael Green eloquently argue in The Road From Ruin, hitting out at businesses and the capitalist system may seem an easy and tempting option at the moment, but it will only hamper our recovery.  The less the public trust big business, the more they blame them, the angrier they get and the greater the pressure on government to regulate in ways that hamper financial growth.  I would agree with this: I say we don’t need to regulate, restrict growth or reign in bonuses.  We need to rebuild trust.

The standard response to this from business is to ‘build stronger, more trustworthy brands’.  In practice, normally this means the marketing department using Twitter more so they appear ‘more human’. 

But this cultural shift is far too important to be left to the marketing teams.  It has to fundamentally change the entire way a company behaves.  They have to open themselves up.  They can no longer hide behind brands they’ve built.  They have to be judged by the product or the service they offer AND the way they operate as a business.

This isn’t just an appeal for an end to greenwashing.  I hope that’s a conversation that’s no longer needed.  It’s more fundamental than that.  It’s about an open, frank and mature dialogue with consumers on what it means to be a business: what the goals of a business are and what challenges they face in trying to achieve these goals. 

It’s about us all understanding that generating long-term wealth and handsomely rewarding those that deliver this isn’t wrong.  It’s also about us all understanding that no business is in the business of causing social harm.  Most just haven’t figured out how to avoid doing so in a profitable way.  Most of the social or environmental harm – pollution, carbon emissions, waste, supplier or staff mistreatment – is simply caused because the business considers these externalities that would be costly to internalise. 

This applies even for those businesses that you might think are in inherently bad industries.  Shell aren’t in the business of creating pollution any more than McDonalds are in the business of making people fat.  They just haven’t found ways of delivering energy and tasty fast food in maximally profitable ways that don’t cause social harm in the process.  Which sounds to me like a challenge and an opportunity more than a failure… 

 

More transparency and more trust between businesses and the public should also create a shared interest in highlighting the instances where it genuinely is a case of individuals focusing on personal, short-term profit and risking the long-term sustainability of the company and society.  The businesses and individuals that adopt genuinely unethical business practices can and should be exposed and held to account.

Could the next big social media movement be one of leaders of big business and members of the public on the same side? Pushing for fundamental changes to the system that benefit both of them…

What’s this got to do with shared value and social entrepreneurs?  Well, firstly it’s about social entrepreneurs being unashamed about generating profit – for themselves and their investors – whilst creating social and financial value.  Secondly, it’s about social entrepreneurs having found innovative ways to actually do this – to internalise and monetise things that big businesses consider externalities and expense.  

But it’s the combination of these two that I feel gives social entrepreneurs the real competitive advantage. They have trust.  Trust with consumers, trust with staff, trust with government.  The kind of trust big business can’t buy right now. CSR, by contrast, is seen by many as a tacit acknowledgement by the company in question that what it does is inherently bad.  I’m thinking McDonalds sponsoring School Sports, Shell sponsoring Wildlife Photography.   Not a way to build trust, I’d argue.   

There’s an interesting article by Barry Quirk in the new RSA Journal. He suggests (public) service users look for ‘competence, reliability and trustworthiness’ in service providers and highlights that local enterprises might gain a competitive advantage

“from their local knowledge, experience and connections with networks in the community. They may have developed high levels of trust among their employees and may have been able to drive higher levels of trust in their products and services as a result.”

But he cautions that this alone is not enough.  Big businesses certainly have clear advantages in competence and reliability if not necessarily in trustworthiness.  Social businesses, particularly those routed in local communities, on the other hand, have the trust but still need support to genuinely build the other two. 

Mr Quirk concludes saying that councils such as his

“need to encourage enterprises to seek markets not just in state service provision but also in the private economy. It is imperative that local enterprises are economically viable and financially independent. While councils may provide financial support to new enterprises in the form of grants and short-term contracts, these organisations must not underestimate the continuing demands of capital.”  

Quite.  I believe social businesses can help make big businesses more trustworthy – and big businesses can make social businesses more reliable and sustainable.   Working together they offers the hope of a genuine new kind of capitalism and a new pact between business, government and the public – built on trust and shared value. 

Raising the Bar on CSR | Philanthrocapitalism

Can and should companies be in the business of doing good? This long-running debate was graced earlier this year by a new contribution from Michael Porter, one of the world’s leading management gurus, and his sometime sidekick, philanthropy consultant Mark Kramer. In a headline article in the Harvard Business Review they both took a swipe at traditional corporate social responsibility and proposed a new framework, which they called ‘shared value’. Get the do-gooding out of your PR departments and corporate foundations, they cried, and instead mobilise the whole of your business to find the win-win where what is good for society is also good for the bottom line.

This offering was greeted with enthusiasm in some quarters, such as the World Economic Forum in Davos, yet also encountered some scepticism, both on the grounds that the idea is not particularly novel and that it may not mean anything. So it was with interest that we read a feature in the current edition of the always excellent Stanford Social Innovation Review in which Mr Kramer engaged in what was billed as a “candid” discussion of shared value with the representatives of ten major global corporations.

Do businesses recognise shared value as the next big idea? Well, the corporate folk gathered by Mr Kramer seemed to be lapping it up. Executives from a diverse range of businesses from money transfer giant Western Union to IT powerhouse Cisco happily described how their do-gooding slotted into the shared value worldview. And why not? It’s always nice to be part of the newest big idea.

Yet amid this love-in for shared value there was one jarring note. “I’m probably the only person at the table who’s not part of a corporate affairs organization or a foundation”, observed Beth Schmitt, the director of recycling for North America at metals behemoth Alcoa. Well spotted. That shared value, which is supposed to be at the heart of the business and at odds with traditional CSR, was being celebrated largely by CSR and PR people rather than core business executives strikes us as somewhat contradictory. 

This matters because tough questions do need to be asked about the role of business in society. Take the iconic mega-bank Goldman Sachs, for example, which hosted the roundtable discussion and showcased its 10,000 women project and 10,000 businesses initiative (for which Mr Porter co-chairs the advisory board, alongside Warren Buffett ad Goldman CEO Lloyd Blankfein) at the meeting. These are, in our view, good examples of smart, high-leverage corporate philanthropy. Yet, as we argued recently, such projects remain at the margin of Goldman’s business and do nothing to address bigger questions about whether Goldman’s core activity is actually socially useful.

Was the selection of participants at the roundtable actually a tacit admission that even those firms which most fervently champion shared value are really not doing much that wouldn’t qualify as traditional CSR?

“The vast majority of acivity in this area [CSR] is seen as separate from the business,” Mr Porter told a meeting of the Committee for Encouraging Corporate Philanthropy last year, as he mused on why so much corporate giving achieves so little impact: “I firmly believe that now we have to raise the bar”. We agree. But if shared value is going to be about anything more than the status quo, there need to be different people at the table.

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