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Tuesday
Jun192018

Sherman and Shah: Corporate America can lead after ‘Trust Crash’

According to the Edelman Trust Barometer, the United States suffered a “Trust Crash” in the past year, reflecting a 37 point loss of trust in four institutions (government, business, media, and NGOs), more than any of the other countries surveyed.

The fall was less precipitous for business, only 10 points, with many saying that CEOs need to take the lead on trust. One of the issues on which those surveyed expect CEOs to take the lead is the fight against corruption.

The results of the Edelman survey reinforce a developing consensus that business must engage in anti-corruption efforts as part of an overall strategy of promoting value-driven culture. This effort goes beyond simple compliance with the FCPA and other applicable laws and regulations. It is part of corporate social responsibility that promotes long-term sustainability.

In this age of instant communication, often frenzied social media attention and hyper sensitivity on social issues, businesses need to create a culture of integrity and social conscious. This is not anti-business or a drag on profits. Rather, it is a recognition of the importance of maintaining trust in the business, the products sold and the services provided.

A company can have a Code of Conduct, great “tone from the top” and a large compliance office, but encounter problems because it operates reactively and defensively. It can also maintain a culture which values financial performance only, discourages employees from speaking up or encourages bad behavior. Thus, trouble results not just because of a “bad actor."

(Volkswagon provides a case study of pressurizing employees to achieve a corporate goal, something for which the company has suffered mightily.)

There is no question that focusing on long-term sustainability is difficult for public companies subject to the pressures of the stock market. A recent study noted that:

[I]t is very difficult to demonstrate the business case for an integrity and compliance program because of a lack of tangible success stories.  The difficulties in measuring the impact of those programs on profitability further complicate its general acceptance.

Nonetheless, the Edelman Trust Barometer demonstrates that consumers care about ethical conduct and prefer to deal with companies that stand up for their communities, the environment, their employees, their partners and others and act transparently.

Blackrock’s CEO, Larry Fink, made the case in his annual letter to CEOs.  He said:

Society is demanding that companies, both public and private, serve a social purpose. . . . Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

In recognition of this growing demand, companies and business leaders are increasing becoming proactive on range of ethics and integrity issues.

  • Microsoft includes in its annual Corporate Social Responsibility Report links to details of its contributions through its corporate political action committee to individual state and federal candidates and other political action committees, as well as contributions to trade associations.
  • Kosmos Energy publishes annually payments made to governments for natural resource extraction at a project level, a requirement of the Extractive Industries Transparency Initiative (EITI), which the current Administration repudiated as one of its first acts.
  • In support of beneficial ownership transparency, Unilever publishes details of its legal structure and ownership on its website.
  • The Ford Motor company developed the Right Way mobile app -- a tool intended for its personnel and business partners to access quickly information to guide ethical decisions according to company policy.

In the long run, for brand differentiation and sustainability, it is critical that companies take steps to protect their reputation. Nothing erodes corporate trust among consumers, employees and investors like an ethics scandal. Ethical decision making by company may not be a panacea to eliminate the trust deficit but it will go a long way in improving the communities in which companies operate.

____

Laurie Sherman is a Policy Advisor for the Coalition for Integrity working on a volunteer basis. She worked in the DC and NY offices of Paul Weiss for a number of years. She was the Anti-Corruption Advisor at the Mission to Serbia of the Organization for Security and Cooperation in Europe and held various positions in the State Department, Office of the U. S. Trade Representative, and Federal Communications Commission.

Shruti Shah is a contributing editor of the FCPA Blog and the President and CEO of the Coalition for Integrity (formerly Transparency International-USA), where she leads the Coalition’s development and promotion of approaches to combat corruption in business and government.