The business case for trust

Ask any CEO whether trust is important for their business, and the answer will almost definitely be yes. Trust gives companies a licence to operate, and is a fundamental component in ensuring competitiveness.

But few businesses – particularly large mainstream ones – have been designed with the concept of trust at their core. As a result, business leaders often find it difficult to persuade their boards that trust is essential to success.

To demonstrate why a company should invest as much in building trust as it does in other areas, the World Economic Forum, in collaboration with PwC, launched the Leadership, Trust and Performance Equation Project. Through this project, we have identified five main areas that show how much companies can benefit from building the trust of all their stakeholders up and down the value chain.

1. Better business terms, processes and conditions

Companies that strengthen the trust their stakeholders have in them gain an edge over their competitors in business terms, processes and conditions. This can lead to more productive corporate ventures, better access to capital, and smoother and quicker project execution with fewer delays and hurdles.

According to a study by KPMG, 83% of all mergers and acquisitions fail to deliver value, with on average 50% of top executives leaving the acquired company within the first year after the deal. Other research has shown that building trust during a corporate venture can help reduce costs, increase staff retention and reduce problems in the execution. Integration of corporate cultures is one of the main challenges to successful mergers ‒ the same KPMG study found that 45% of Fortune 500 CFOs blamed post-merger and acquisitions failure on “unexpected people problems”.

Building trust also makes projects run more smoothly and faster. In global oil and gas projects, for example, non-technical or “above-ground” issues – which include partner/stakeholder relationships and environmental sensitivities– can account for up to 75% of cost and schedule failures. An analysis of 351 delayed or unfulfilled US energy projectsindicated that successful completion of all these projects would add $1.1 trillion to the economy and create 1.9 million jobs in the first year.

2. Enhanced innovation and entrepreneurship

In general, the more trust people have in the management of a company, the more innovative that company is. This reflects the fact that higher trust companies tend to foster a creative culture that supports innovation, entrepreneurship and intrapreneurship, which in turn boosts competitiveness.

The IBM Global CEO Study shows that more than half of CEOs are partnering extensively to drive innovation. Those companies that outperform the market are partnering for innovation more aggressively than their less successful peers. The PwC Global Innovation Survey found that the most innovative companies collaborate over three times more (34%) than the least innovative ones (10%). The GE Innovation Barometer shows that lack of trust in a partner company is one of the main reasons companies don’t collaborate with others.

3. More loyal, productive and engaged employees

Having dissatisfied and unfulfilled members of staff and a high turnover rate can be expensive for a company. This goes far beyond additional HR costs. The Fortune 100 Best Companies to Work For study shows that companies with higher employee trust are also more profitable. Moreover, organizations with engaged and involved employees are significantly more likely to retain key talent than organizations with less employee trust.

According to the Fortune study, two-thirds of each company’s score is based on the Trust Index survey. Top-ranked companies experience up to 50% less turnover in staff than their competitors. Looking at the results over the past 10 years, Trust Index scores and profits are correlated. Where the Trust Index survey rises by more than half, profits increase twelvefold.

4. Stronger external relationships across the value chain

Positive and trusting relationships with suppliers and customers are the lifeblood of any successful business. Most companies understand how building customer trust can impact their revenues. Fewer, though, focus as much on their suppliers. But supplier trust can have a significant effect on both the bottom line and the ease of doing business. When looking at consumers, the effects of trust-building on brand loyalty and repeat purchasing are substantial, with trust driving 22-44% of overall customer loyalty.

5. Greater resilience to withstand shocks and crises

In turbulent times, whether external economic shocks or company-specific crises, having a solid reputation significantly increases an organization’s ability to ride out the challenging conditions and move on. When a company is not trusted, 57% of the public will believe negative information after hearing it once or twice. Conversely, when a company is trusted, only 25% of the public will believe negative information heard the same number of times.

What company would not want to have better business terms, an innovative and loyal workforce, strong relationships with suppliers and customers, and be able to weather the inevitable shocks that will come? These five areas prove why it is essential to build trust into the core of a business.

How can businesses build trust?

Author: Yao Chen, Senior Community Manager, World Economic Forum

Image: A woman holding a parasol stands as passers-by walk past an electronic board showing Japan’s Nikkei average, outside a brokerage in Tokyo September 25, 2014. REUTERS/Toru Hanai