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Juukan Gorge rock shelters. Credit: AAP
Public trust in in has eroded globally.
In Australia, the 2022 Edelman Trust Barometer[1] showed that in the last 12 months Australians’ trust in government, media and business has experienced one of the biggest falls globally, dropping out of the top 10 countries of the trust index and being labelled one of the “biggest losers”.
While business in Australia also suffered a 5-point decline, it is seen by the public as the most competent and ethical of the three institutions, According to Edelman, business presents an effective driver of change to break the emerging cycle of distrust.
Not only are companies expected to be responding to issues in CEOs are expected to personally lead on influencing public policy and ensuring their company makes a positive contribution to society.
Increasingly employees want their CEOs to represent them by speaking out on political and social issues they consider important.
According to Edelman’s 2022 research, people want business leaders to engage on societal issues such as climate change, economic inequality, and workforce reskilling. They also want business to do better at being fair and treating everyone equally.
With the horrific Russian 22 February invasion of Ukraine, there has been a powerful example of impact of business aligning with Western public sentiment, or not. Yale School of Management produced a list of 330 who have existed or suspended operations in Russia since 22 February, and 80 companies who have scaled back their presence in Russia.[2] They also list 27 companies who are “digging in” despite public pressure to impose penalties on Russia. This resulted in penalties for these companies in the form of significant share price declines compared with Dow Jones, NASDAQ, and S&P 500 indices, some in the range of 15-30% share price drops.[3]
To retain and build trust, companies need not only to identify and adapt to (sometimes lead with) shifts in community sentiment, but they also need to do what they say they are going to do. Seems self-evident that to be trusted, you need to keep your promises.
Despite this, we see significant failures of organisational behaviour against the stated strategy, publicised value
s or committed action, creating organisational dissonance.
One clear example of this recently was Ali Fensome calling out the dissonance between what organisations presented in relation to gender equity and the reality of their pay equity performance. Using a bot, Fensome and @PayGapApp partner Francesca Lawrence responded to companies that tweeted on International Women’s Day with their female employee pay relative to their male co-workers, drawn from British government data. For many companies, espoused commitments in relation to gender equity significantly differed from actual delivery against these commitments.
What company leaders should avoid is value signalling or ethical grandstanding and not backing this up with real, measurable, and consistent action and progress on the issues that they deem are important.
Paul Polman, CEO of Unilever highly valued trust as a key element of financial health:
“Trust is our most important value driver. Unilever’s current market capitalisation is €130 billion – but our asset value is only €30 billion. The balance is made up by trust, or reputation – an extraordinarily asset, built by generations of Unilever people, by our values and by great products.”[4]
Further, Polman recently emphasised the importance of consistency in building and maintaining trust, and avoiding organisational dissonance:
“… these leaders understand the importance of doing it everywhere in all parts of their business models, in all brands, in all operations, and they need to be consistent. And increasingly, companies that are consistent build that trust that is needed to drive prosperity.
What do I mean by consistency? Not making one statement yourself and having a trade association advocate for something different. Not using money in politics to advance your own goals to the detriment of democracy." [5]
No doubt it is challenging for Boards and executives to keep their hands around what is changing in their environment and how to respond. In the context of a volatile, uncertain, complex and ambiguous world, trust is hard to build and easy to lose. The consequences of not managing trust can be devastating for communities, companies and their leaders. At a minimum, companies should ensure that they make promises that they can keep –consistently at all proof points, and that they connect into community sentiment wherever they operate to understand how they should adapt and potentially lead.
[1] https://www.edelman.com/trust/2022-trust-barometer [2] https://som.yale.edu/story/2022/over-400-companies-have-withdrawn-russia-some-remain [3] https://yale.app.box.com/s/keq5bviqcjf5lupzhgbu4s0fh54iy1v5 [4] https://www.unilever.com/news/news-search/2018/trust-the-key-that-will-unlock-progress/ [5] https://hbr.org/2021/11/former-unilever-ceo-paul-polman-says-aiming-for-sustainability-isnt-good-enough-the-goal-is-much-higher
Key Questions for Boards
· Insight
How are we tapping into influencers of and shifts in public sentiment? Impact of issues on investment community sentiment? Is our information non-partisan? Is it granular enough to understand local/national/international community changes? Is it early enough enable us to respond in a timely way?
· Agility
Are we set up to adapt, respond to and lead on issues as they emerge in community? What behaviours are our remuneration frameworks and structures rewarding? Do we have an agile culture? Have we got too many commitments to deliver on?
· Capability
Do we have the right capabilities on the Board and executive team to strategize, and deliver performance on issues that reflect what’s important to employees, shareholders, customers, and community?
· Delivery
Are we meeting the promises we make to the market, or are we just engaging in ethical grandstanding?
· Communication
Are we open and transparent in our communications? Are we receiving regular and reliable progress on commitments? Are we managing trust as a key metric?
· Leadership
Do we have a CEO whose values align with community values?
Case Study:
Rio Tinto and the Juukan Gorge Shelters
The case of Rio Tinto and blasting activity at Juukan Gorge shelters in May 2020, provides the most shocking case of organisational dissonance in our recent history. The Juukan Gorge Shelters are Australia’s most important and invaluable archaeological sites dating human habitation back 46,000 years.
The inquiry into the destruction of the shelters, Never Again[1], concluded that Rio Tinto understood the value of the site, and in fact had funded studies that had discovered 7,000 artefacts. The company understood the historical and cultural importance of the site to the traditional landowners - the Puutu Kunti Kurrama and Pinikura (PKKP) peoples of the Pilbara in Western Australia, and the devastation that would be felt by the PKKP peoples. Rio Tinto had options to blasting the site - but went ahead anyway. And this is despite having achieved the highest level of Reconciliation Action Plan (Elevate RAP). Beneath the shelters was an iron ore deposit valued at just over $100M.
Never Again raised serious concerns about the culture and practices inside Rio Tinto and highlighted a need for the internal reform of the company. One of the Standing Committee’s recommendations included that Rio Tinto commit to funding rebuilding the shelters and full remediation of the site.
Under investor pressure to resign, the CEO left at the end of 2020 and the head of the iron ore business, and the group executive for corporate relations, also left the company at the end of December.
In rationalizing the exit payouts, the Rio Tinto board argued in its 2020 Remuneration Report:
“In making the eligible leaver determination the Board fully recognised the gravity of the destruction at Juukan Gorge but was mindful that the three executives did not deliberately cause the events to happen, they did not do anything unlawful, nor did they engage in fraudulent or dishonest behaviour or wilfully neglect their duties. Without diminishing the significance of what occurred it was necessary to balance the findings of the Board Review, the malus adjustments that had been applied and the loss of employment for the three individuals, against the considerable achievements of those executives over many years, in making the final determination on their separation terms. In this context, the loss of employment was considered the greater sanction.”[2]
Reflecting the organisational dissonance with investors, Rio received a rare first strike 61% vote against Rio Tinto’s remuneration report it its AGM in May 2021.
Following the Juukan Cave disaster, Rio Tinto was for the first time rated the 8th most untrusted brands by Roy Morgan (Sept 2021) and continues to be in the top 10 most distrusted companies in 2022.
Earlier this year, Rio Tinto introduced a taskforce to understand its culture. The report found systemic bullying, sexual harassment, and racism in the company. The Company has committed to implementing all 26 recommendations made as part of review. Because of the review, the Company has recommended a reduction of only 5% to the total STIP payment for current Executive Committee members and an equivalent adjustment be made to the 2020 unvested Bonus Deferral Awards (BDA) held by former Executive Committee members.
The next AGM is on 5 May 2022.