TRUST HAS TO BE WON, AND MAINTAINED

TRUST HAS TO BE WON, AND MAINTAINED

Transparency breeds transparencyHow do leaders build trust?

 

by Simona D’Agostino Reuter

We have to emphasize regularity, consistency and disclosure

When the market and the financial community verify that the company is right and ready to listen to concerns and expectations, then they trust the management and the company.

It sounds as a cliché, but transparency is about more than just publishing numbers, more than compliance, more than being seen to be doing the right thing. It is about sharing what a company is doing in a clear and broad way.

In the times of Environmental, social and governance (ESG) principles, the meaning of transparency is becoming even more deeper and powerful.

Companies are, even more than before, valued member of the communities in which we all are part of, and to make a positive contribution to society.

Transparency and reporting are critical so that stakeholders can judge performance but ultimately it comes down to the performance itself. It is essential that alongside transparent reporting, companies also put in place appropriate business strategies with clear governance, plans and targets to help them achieve their environmental, social and governance goals.


As we all know, one of the biggest IR mistake that may happen is management teams not wanting to deliver bad news. Certainly all CEOs and CFOs would like to have positive updates to share with their investors.

One of the solution in our view is to face the issue as soon as it becomes apparent. Investors know that things don’t always go according to plan. At times, plans need to be altered and adjusted to deal with unforeseen circumstances that arise. If a painful message has to be delivered, communicate it as quickly as possible. Don’t try to hide or deny that there is a problem. You don’t want your investors coming to a negative conclusion before you have had the time to tell them first. Articulate the problem in an honest and candid manner, and then explain to the investment community what the solution is going to be.

The importance of transparency in business— and how it positively affects the company, its brand, and ultimately the stock performance — is sometimes undervalued. Sometimes corporations prefer to share anything that’s not business-related; we live in a social world. Pretty much every single thing people think and feel can be made immediately available to the world.

 

Thanks to social media, audiences everywhere can take a look into the true nature of the brands, leaders, and influencers they follow. When those brands, leaders, and influencers stay quiet or secretive, they leave audiences in the dark — and an opportunity to build trust on the table.

Whether the audience includes financial markets players, potential clients, employees and partners, business transparency is essential to build lasting relationships.

Suggested steps to increase transparency and trust:

a) Consistency is key. Responding in different ways to different audience, or responding inconsistently over time undermines the organization credibility.

b) Communicate openly. Respond even when the message is tough for others to hear.

c) Discuss reasoning. Taking the time to outline the reasons behind decisions. 

d) Being open and receptive to feedback. Ask others for feedback, show you have heard it and act upon it in a tangible and obvious way.

e) Try not to be something different. People can tell when a leader is not being him/her self, and this puts more distance towards the audience.

f) Invest in the brand. A company’s brand and how it is presented shouldn’t be an afterthought, bu always a priority.

g) Focus on tutoring. Educate people means that a leader is capable of empower them to make their best choices.

Recognize the limits of transparency: all in all, sometimes complete transparency is not appropriate. There will be times when leaders are handling confidentiality or sensitive information that should not be shared widely. Knowing what not to share is also important when building trust

Aligning reporting standards

Certainly, a greater international convergence on ESG reporting standards is necessary for clearer and more meaningful transparency.

Reporting on ESG performance is not regulated in the same way as financial performance. Various frameworks and rating agencies have created multiple initiatives and performance outputs. Unfortunately often the numerous initiatives have added more rather than less complexity.

When multiple standard-making organisations, and also ratings agencies, request different variations of similar information, it is difficult (if not impossible) for companies to meet all the requests. More importantly, it is also challenging for users of the information to compare performance in a meaningful way. It is essential that such initiatives are joined with clear guidance and methodologies applicable to each sector.

At the same time, companies cannot be expected to report on everything. Instead, companies should focus on the ESG topics and metrics that are most relevant to their business activities, stakeholders and society at large.

Companies also need to prioritise their participation in the ESG-related initiatives such as ratings surveys to those that are most relevant to their activities and the demands from their investors and other stakeholders.

Further standardisation is critical. Mandating the TCFD methodology, for example as in the UK, could help to increase

alignment between requirements and expectations. The ISSB’s efforts to deliver a more-widely applied baseline of

sustainability-related disclosure standards is another step forward.

How do leaders build trust?

One characteristic that may help to focus on is transparency. In the words of Jack Welch, “Trust happens when leaders are transparent”.

Increasing transparency is an accessible first step for leaders to take in order to build trust. John Francis Welch Jr. (November 19, 1935 – March 1, 2020) was an American business executive, He was Chairman and CEO of General Electric (GE) between 1981 and 2001.

Leaders demonstrating that expressing honest opinions and being open is acceptable gives permission for others within their teams to do the same. In complex organizations, the lack of trust in the Chief Executive or the top management is critical, though quite frequent. Misbehaviour may impact a team significantly. In the same way that transparency is contagious, so is mistrust. 

Transparency can be thought of as being open and honest. When done consistently, transparency builds relationships. It allows the leader to be seen as approachable and builds respect.