Today, we are facing a misalignment between business outcomes, economic outcomes, and social outcomes.
This may explain in part why the number of CEOs concerned about a lack of trust in business has been rising for six consecutive years.
In the past decade technology has increased transparency in companies and institutions, providing instant access to unprecedented levels of information. Armed with more knowledge the ‘haves’ are feeling like ‘have nots’ and too many people feel they are being left behind by a system that no longer promises a better life.
This trend towards distrust highlights community expectations, which is why every business needs to commit to a clear purpose. Sixty-eight percent of Australia’s CEOs strongly agree that it’s more important than ever to have a strong corporate purpose reflected in an organisation’s values, culture and behaviors. Further, 89% of Australia’s CEOs build trust with their workforce by being transparent about their values.
A purpose goes beyond financial goals to incorporate a broader set of shared values and behavioural expectations. Purpose defines ‘who’ a business is and why it exists; values and behaviours define a culture.
These act as vital principles and benchmarks for every important decision. From environmental footprints to social impacts to investor demands, businesses are scrutinised by an ever-wider array of stakeholders.
It is encouraging to see that when it comes to people strategy in the digital age 83% of Australia’s CEOs (and 82% of CEOs globally) agree they make decisions on automation of tasks and jobs primarily based on how best to deliver on their corporate purpose.
The most important job a CEO can do to contribute meaningfully to social progress as well as business results, is to commit to a common purpose, and a shared set of values and behaviours, then drive them through the organisation.
Australia’s CEOs understand this importance, with 61% (and 66% of CEOs globally) believing the world is moving towards measuring prosperity through multifaceted metrics, including quality-of-life indices, instead of solely through financial measures.
Meanwhile 30% of people feel companies are not delivering on the principles of fairness. At the same time, investor activism is on the rise and regulators are introducing more guidelines to meet the standards the community expects.
For example, with wage growth stagnant in Australia, negative sentiment in relation to executive pay is one of the issues hampering trust in business. There is a growing expectation that business should be playing a more significant role in tackling income equality and yet only 44% of Australian CEOs report seeking to build trust with their workforce by creating transparency in their compensation and benefits strategy.
As such, regulators are demanding more transparency regarding metrics that might give some insight as to whether or not organisations take the principle of fairness seriously. In both the US and UK large companies will soon be required to disclose the ratio of CEO pay to their average (UK) or median (US) worker pay.
The expectation is that the principle of fairness, particularly as it relates to pay will become more of a focus for Australian boards and businesses or they risk further regulation as has happened in other markets.
It’s not just community expectations to be mindful of, CEOs must balance other stakeholder interests including employees and customers while still aiming for growth for shareholders and investors. CEOs currently face increasing pressure to deliver business results under shorter timelines (67%), while also increased pressure to hold individual leaders accountable for any misconduct (73%) and taking social or political stances (57%).
Alarmingly, less than half of Australia’s CEOs (44%) highlight ‘potential ethical scandals’ as a threat to growth – despite the recent cases of organisations suffering reputational damage because of ethical lapses.
Another alarm bell is that, although CEOs recognise trust is declining in business generally, when asked about their own organisations 62% say that declining customer trust is not an issue for them.
How can Australia’s CEOs balance the competing forces of delivering to shareholders’ expectations as well as those of customers, employees and the general community?
By understanding their drivers of trust, organisations can create an asset which can be measured and managed.
Trust hasn’t disappeared, though it has shifted towards the different business models that have removed intermediaries by using platforms, AI and new technologies to create or connect markets (stand-out examples being Uber, Airbnb and Facebook).
This is a great opportunity for Australian CEOs as they consider changes to their own business models, to capitalise on the learnings of such businesses who have put the customer at the centre of everything they do.
In today’s market, those who are successful at restoring trust will be the organisations that adopt new business models to more effectively balance the needs of shareholders, customers, employees, and community.
They will define a clear purpose and a standard of behaviour aligned to community expectations, create new and exciting ways of working for their employees and become more human.
The higher frequency of crises and their widespread impact makes it inevitable that many organisations will face a crisis in future.
When a crisis hits, the core of an organisation is tested. Its purpose and values are scrutinised, and the level of trust in management is examined.
One in two (52%) of Australia’s CEOs (and 67% of CEOs globally) are concerned about their readiness to respond to a crisis – suggesting that organisations believe they are not crisis ready. Further, 90% of Australia’s CEOs said they are in charge when a crisis hits, but only 30% have a proactive approach to crisis planning. The concern is that, for many, the concept of ‘readiness’ is only ‘desktop ready’ and untested plans and responses may crumble should a crisis occur.
Experience shows there is a real divide between companies who are prepared with a crisis management plan (having gone through realistic and real-time simulations) and those who still think ‘it will never happen to me’.
International organisations are a little better than Australia’s in preparing because they acknowledge the likelihood of a crisis occurring. Many Australian organisations appear convinced that nothing bad will happen to them and, until recently, have been comfortable dealing on a reactionary, case-by-case basis. In an environment where there is constant pressure on performance and constraints on capital, it is easy to understand how preparing for an event which has a remote chance of happening is shuffled down the priority list. The prevailing attitude in Australia is still that prevention is not better than cure.
The key business threats to growth that have seen the highest rise in concern by CEOs include: geopolitical uncertainty, social instability, climate change and environmental damage, terrorism, cyber threats, volatile energy costs and supply chain disruptions. This echoes the sentiments of this year’s Global Risks Report, which outlines increased concern about these complex risks for CEOs globally.
Readiness: How well do you understand your threats and vulnerabilities? Is your response easy to use and understand? You need to be sure you can execute it.
People: Under extreme pressure, people act differently and the usual organisational roles may not apply. Building trust and capability in your team members is paramount.
Exercising: Rehearsing a simulated event effectively challenges the level of preparedness in your team and processes. It also builds confidence in your people’s capabilities to be prepared for the untested.
Research* shows that 30% of a company's value is at risk where trust is broken with the public and external stakeholders. Those CEOs who have a proactive approach to crisis planning view simulation training and drills as an investment. They also see it as a way to test and build the trust and confidence of their teams. It hones and develops leadership and communication skills, builds coherence and cross-functional support.
An effective crisis response starts long before the crisis occurs. In preparing for a crisis CEOs should understand what it will take to protect the reputation and brand of their organisation, and to reduce exposure to key threats and vulnerabilities. There are many examples of where a poor response to a crisis has resulted in trust being broken and the value of that organisation being eroded.
*Mckinsey & Company research in Connect: How companies succeed by engaging radically with society – 2015 - John Browne, Robin Nuttall, Tommy Stadlen
Partner, People and Organisation, PwC Australia
Tel: +61 (2) 8266 2420
Partner, PwC Australia
Tel: +61 3 8603 0642
National Thought Leadership Leader, PwC Australia
Tel: +61 2 8266 3229
National Thought Leadership Manager, PwC Australia
Tel: +61 (2) 8266 0252