Restoring Trust in Business: One Company at a Time
Trust in American business has declined but the benefits of a free-market system continue to flourish. The responsibility to rebuild trust lies not with business as an industry, but on the individual business owners who participate in the free market.
Edelman’s 2017 Trust Barometer reveals that a majority of people across the world are “distrusters” of the “mainstream institutions of business, government, media and NGOs.” The relative economic stagnation following the 2008 global financial crisis, combined with the rise in income inequality globally, have created a feeling that the “system is rigged.” Edelman’s report found that:
…the trust collapse has moved beyond a simple “class vs. mass” problem to a systemic threat. More than three-quarters of respondents among both informed and general populations agree that the system is biased against regular people and favors the rich and powerful.
However, the problem lies in thinking of business as an “institution” when an important distinction exists between the business community and the community of business leaders. Earning the trust of the American people does not belong on the entire private sector. Business is tough enough! Let me focus my business on, first, staying in business. As part of that effort, I will focus on earning trust in my business. That challenge I will gladly take on.
Earning the trust of the American people does not belong on the entire private sector. Business is tough enough! Let me focus my business on, first, staying in business. As part of that effort, I will focus on earning trust in business.
The mission of a business: take care of your own
At its core, a business model is rather simple: Make a product that competitively serves a market need and provide that product at a price that at least covers a cost of capital and at which, according to the market, equates to its value.
If a price is excessive, but demand doesn't attenuate, competitors will move in to provide a comparable product at a lower price. Eventually, a market equilibrium will be established between supply and demand.
In order for the business to be sustainable, the "price" of that product cannot simply reflect the cost of the product plus a margin. The price also must take into account such externalities as customer service, long-term employee benefits, and other aspects of corporate life that make a company more than just a sum total of its products sold.
A company employs people, contributes to civic life, and must retain earnings to grow and evolve as markets change. Those companies that simply milk a single product line but fail to evolve as markets change will go the way of Kodak or Polaroid. Great companies evolve and, in so doing, provide a living for more employees and shareholders. IBM used to be a computer hardware company. Apple started as a personal computer company.
Along the way, a company's "community" grows organically. More employees, more stockholders, more operations in different communities. To be a good steward of the resources entrusted to it by investors, a company should be a good corporate citizen and caring employer.
Customers will reward companies with a favorable profile, meaning they care for their employees, shareholders, customers, and their communities. Academic studies show that companies with a more expansive view of their obligations to stakeholders, not just stockholders, actually have better economic returns.
But that is where the obligation stops. To say that a company in one industry in one part of the country has an obligation to care for the reputation and the business ethics of another company in another industry in another geography reflects a naïveté about the essence of our capitalistic system.
Each company takes care of its own and those that don't will get crushed by the competition. In the end, the sustainable survive. The markets are efficient enough to inflict pain on the irresponsible. For people to condemn "business" as being non-trustworthy is to misplace responsibility in the first place.
For people to condemn "business" as being non-trustworthy is to misplace responsibility in the first place.
Now, don't get me wrong. There are limits to a free market “at all costs” attitude and government regulations do protect against ruthless operators capable of taking advantage of unsuspecting consumers or employees. But once the guardrails are established, regulators should let the markets do the policing from there. The market is a far better disciplinarian.
This system has delivered value, innovation, efficiency, and an increase in standard of living unmatched in human history. The low cost delivery of food, fuel and medicine has lifted billions out of poverty in the past 50 years. We should applaud and celebrate what alignment of incentives and a relatively free market have produced.
Business leaders vs. business community
All this said, the community of business leaders is an important voice. We saw that recently in the pronouncements against the Charlottesville white supremacists and the tepid reaction of President Trump. We saw that in the outpouring of support for the victims of Hurricane Harvey. The voices of business leaders like Jamie Dimon, Tim Cook, Michael Dell, and Jim "Mattress Mack" McIngvale have been important beyond measure.
These executives are taking on a role larger than simply running their companies. Similarly, great entrepreneurs like Reid Hoffman have applied their personal, philanthropic capital to organizations like the ACLU and the Union of Concerned Scientists, all to foster an agenda they consider important.
But note that Hoffman does not invest the capital of his company, LinkedIn. This is the difference between the leadership of the business community versus the voice of the corporate communications department within each company.
This is the difference between the leadership of the business community versus the voice of the corporate communications department within each company.
Of course, there are plenty of times when businesses themselves step forward to help communities, especially in times of need. A diverse set of companies such as Exxon/Mobil, Google, and Caterpillar all opened their wallets immediately to help victims of Hurricane Harvey. Be thankful they are not public utilities whose net income is a function of bureaucratic mandate.
Businesses that assist their communities understand that trust is an output of thousands of data points that reflect a company's culture. If companies lose touch or become abusive to their customers, suppliers, lenders, or shareholders, it is only a matter of time until the market punishes them or a new competitor emerges that does the job better.
If companies lose touch or become abusive to their customers, suppliers, lenders, or shareholders, it is only a matter of time until the market punishes them or a new competitor emerges that does the job better.
While many strong leaders build both successful businesses and public trust, there are many challenges to overcome. That’s in part because the trust deficit also stems from years of policymakers vilifying business at large when a few cause specific infractions. The private sector is the bulk of our vast economy and it does not nor should not be lumped as a single voice. Businesses reflect society, not the other way around.
While a sense of wholesale distrust has been fomented by populist rhetoric, the problem can actually be isolated to individual cases of leadership, or lack thereof. Our economy is made up of millions of businesses of all shapes and sizes. Those running small businesses that comprise most of our economy are leaders in their own right. They are hard-working Americans who lead by example every day, working hard to provide for their families and their employees while also helping the community, such as they did with Hurricane Harvey.
The private sector is the bulk of our vast economy and it does not nor should not be lumped as a single voice. Businesses reflect society, not the other way around.
Those acts of leadership will take place away from the camera and won't hit the next Edelman survey. I am proud to be a part of this economy as a participant and as a leader and I will work hard to do what is right. There is much to celebrate about the role that businesses play in improving our country, our communities, and our lives. The same is true for the quality of business leadership that exists across the economy. The system works if we let it. Grandstanding by populists who vilify business as being generally untrustworthy miss the point entirely. Let us recognize the quality of the system we have built to enhance the lives of so many.