Trust: Meaning and Measures

Among the “soft” characteristics that are often ignored, trust is critical to business operations—and with global communications facilitating radical transparency, it is rising in significance.


In the days and weeks after an Ethiopian Airlines plane crashed six minutes out of Addis Ababa killing everyone on board, an unsettling picture began to emerge. Despite a similar fatal crash five months earlier, as well as several near crashes that had been reported by pilots (although not to the public), Boeing had done little to warn of the possible danger with its Max series 737s—a runaway hit, with more than 5,000 on order by February 2019.

Trust in Boeing took a dive, along with its stock price—more than 10% in the first two days of trading after the accident. Starting with China, one by one, countries around the world grounded the Boeing planes. Norwegian Air demanded compensation for its 18 grounded planes. A temporary replacement plane costs around $250,000-$350,000 per month, and losses can be as much as $50,000 per plane per day. By March 25, Boeing’s biggest airline customers for the 737 Max—Southwest Airlines and American—were canceling more than 200 flights per day between them through the middle of April.

Meanwhile, reports emerged that the US Federal Aviation Administration (FAA) had allowed Boeing to do its own testing, certifying its own planes. Trust in the agency took a hit, too, and EU and Canadian authorities indicated they would do their own analyses of the crashes and of Boeing’s coming fixes to the aircraft.

Worse still for Boeing is the looming possibility that clients who took only partial delivery on outstanding orders—and that’s most of them—will seek to cancel future deliveries. Aeroflot CEO Vitaly Savelyev said on March 15 that the company would cancel its order for 20 Boeing 737 Max planes unless the manufacturer could “guarantee” their safety. “If there isn’t a 100% guarantee that the machine is safe,” Savelyev noted, “then no one will take it.” Indonesia’s Garuda, which had ordered 50 737 Max 8 jets for $4.9 billion in 2014 but has as yet taken delivery of only one, announced it had already contacted Boeing to cancel the rest. “Passengers always ask what type of plane they will fly, as they have lost trust and confidence in the Max 8 jet,” Garuda spokesperson Ikhsan Rosan told the Associated Press. “This would harm our business.”

What does this mean for Boeing? As of press time, the company worked on a software fix. Its stock price, at around $371, is lower than before the accidents. Yet it was far above the 12-month low of $294 and higher even than the $321 at the same time last year. While the loss of trust could potentially destroy the company, if Boeing makes the right moves it doesn’t have to.

Accenture, which has been researching trust, says other companies can learn from Boeing. “Virtually all companies will experience a trust incident at some point,” Accenture Managing Director for Strategy and Sustainability Jessica Long says. “It’s not a matter of whether it’s going to happen, but of when—and then how do I quantify it, and how do I react to it.” Think of Facebook, United Airlines and Volkswagen, each of which endured backlash from consumers for very different reasons—privacy violations, mistreatment of passengers, and unethical pollution, respectively.

“Trust is absolutely the new currency and can have a large impact on the bottom line,” says Kison Patel, CEO and founder of DealRoom, a virtual-data-room software company for M&A.

Part of the change stems from power of peer-to-peer communication on the internet. “Social media is a multiplier of all of the risks to trust,” says Lex Suvanto, global managing director of financial communications and capital markets at Edelman.

The Value Of Trust


Trust is critical oil for the smooth operation of business since time immemorial. “Virtually every commercial transaction has within itself an element of trust,” economist Kenneth Arrow wrote in 1972—the year he won the Nobel Memorial Prize in Economic Sciences. “It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence.” More recently, in the 1990s and early 2000s, researchers from diverse fields—sociology, political science and economics—showed that higher levels of trust can boost trade, financial development and economic growth.

More than half (54%) of the over 7,000 companies across 20 sectors ranked by Accenture Strategy in 2018 suffered a material drop in trust during the previous two and a half years. Hurt by a wrong promotional campaign, a defective new product, or unethical behavior, to name a few types of trust-busting issues, these companies lost on average two points on the Accenture Strategy Competitive Agility Index, which measures in equal thirds growth, profitability, and sustainability and trust. The index drop translated to a loss of least $180 billion dollars of future revenues.

The results also give weight to the old saying that a good reputation is hard to win but easy to lose: lost trust points damage the bottom line more than won trust points will raise it. “The impact of a loss in trust on a company’s overall competitiveness is disproportionately high,” Long notes.

Trust Across America, a consultancy, has developed a model, called the FACTS Framework, to measure the trustworthiness of public companies based on five indicators: financial stability, accounting conservativeness, corporate integrity, transparency and sustainability.

In 2018, only 49 US public companies on the Russell 1000 met all five criteria. “It is rare to find a company that scores above an 80% and even more rare to find one that scores above average on all five of our trust indicators,” says Barbara Brooks Kimmel, CEO and co-founder of Trust Across America. Yet the few companies that are trustworthy are also the most profitable, according to FACTS. On average, in each of the six years since the first annual FACTS report, it has shown that the “Top 10” most trustworthy US public companies have had a higher return than the S&P 500.

Nowhere is trust more important than in finance. On average across all sectors, a two-point loss in the competitiveness index results in an average 6% decline in revenue growth and a 10% loss in EBITDA growth; in the finance sector, it’s 21.8% of revenue growth and 6.2% of EBITDA. After a decade of malfeasance involving banks from all regions—Lehman Brothers, HSBC, Bankia, and more recently, Deutsche Bank, to name only a few—the sector lost a great deal of trust.

“Financial services are still suffering from the fallout from the mortgage crisis and the financial meltdown,” says David Bersoff, senior vice president and head of global thought leadership research at Edelman Intelligence. “They have never been entirely forgiven for that.”

Maybe that’s because the fallout never seems to end. Wells Fargo says it has eliminated the aggressive incentive policy that contributed to the fake-account scandal in 2016. But The New York Times reports that employees say the culture has not changed. Indeed, the bank has been fined or forced to pay legal settlements again and again: $480 million for fake accounts; $142 million for bogus fees, $1 billion to regulators. It sounds like a lot of money, except Wells Fargo made $11 billion last year.

In Australia, a series of high-profile scandals revealed by the Hayne Royal Commission has eroded trust in corporate ethics in banking and financial services for the third year in a row. The 2018 Australian Ethics Index fell six points to 35 from the year before, led by the banking sector, the Governance Institute of Australia says.

Ultimately, actions speak louder than words; and consumers, increasingly able to see divergence between words and actions, are more skeptical of corporate pronouncements from repeat offenders. Each time Facebook breaches users’ trust, it announces new measures. Most recently, CEO Mark Zuckerberg says he wants to make Facebook, WhatsApp and Messenger more private and encrypted. But given Facebook’s history, a lot of people simply don’t believe him. The Inclusive Internet Index 2019 commissioned by Facebook itself shows that 52% of respondents worldwide are not confident about their online privacy. Over the past five years, according to Edelman, the most trusted industries have been technology, automotive, entertainment, and food and beverages.

Changing From Within

Kimmel, of Trust Across America, says creating a trust culture takes time and starts from within, adding that some companies “skip the step of building trust from the inside out, applying their own definitions, and believing that there are shortcuts or work arounds.”

Yet many companies are starting to incorporate trust and ethics roles into management plans. Since 2010, tech companies such as Unisys, Cisco and Salesforce, created chief trust officer roles to take a holistic approach to compliance, security and privacy.

“Every company can improve its economic position by focusing on trust,” says Tom Patterson, chief trust officer at Unisys, one of the first large companies to establish such a role. He believes the components of trust are empathy (understanding the true needs of your client); logic (making sure what you offer is truly helpful); and authenticity (being transparent about how you price, support and deliver, and act on feedback). “If you can be good at these three things that are more measurable and understandable than trust, you can make a dramatic improvement in trust for a person, for a group or an entire organization.” Patterson, who previously held executive roles at Deloitte, KPMG and IBM, says a chief trust officer must have comprehensive executive experience. He works regularly with privacy, security and technology chiefs.

“Certainly, companies are advancing their initiatives and spending more time on this topic,” says Edelman’s Suvanto. Swiss drug maker Novartis, hit by ethics issues in China, South Korea and the United States, created a chief ethics and compliance officer in 2014. Then in 2018 the company added Risk to the ethics chief’s portfolio, linked salesforce bonuses to ethical performance listed “to build trust with society” among its “five strategic priorities.” Other companies created roles like chief purpose officers (PwC) and chief responsibility officers (MSCI, Dell) to reshape internal culture.

“When we start seeing people putting numbers to it, tying compensation, tying bonuses, and making it part of the job description of executives. I think this is where it gets interesting. It’s a huge shift,” Accenture’s Long says. “I personally think that’s something we’re going to see more of in the next couple of years.”

DealRoom CEO Patel says he promotes trust in every aspect of operations by empowering staff to own their responsibilities and to be transparent on key decisions. DealRoom also began utilizing chatbots to provide immediate feedback to clients.

The debate escalated to boardroom level. According to the Edelman Trust Barometer, 71% of employees say they want their CEO to take the lead on industry issues, political events and national crises. In June 2018, the UK Financial Reporting Council decided boards should make sure management takes “corrective action” to fix any “misalignment” between “behavior throughout the business [and] the company’s purpose.” Suvanto says boards got involved when they realized bad culture has a negative impact on valuation. Soft cultural factors can have hard impacts.

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