Focus in Leadership

Corporate leaders today are measured by a new yardstick. The supreme test of a CEO and board of directors is now the value they create not just for shareholders, but for all stakeholders.

The shift to stakeholder capitalism creates pressure for corporate leaders to try to satisfy a wide range of constituencies with different, sometimes conflicting interests and perspectives. Earning their trust is key to navigating this tricky terrain.

Research shows that trust is the key to success. Yet growing distrust, cynicism and misinformation are eroding confidence in corporate impact and Environmental Social & Governance (ESG) claims.

To prosper in the age of stakeholder capitalism, companies must actively cultivate the trust of employees, investors, customers, regulators and corporate partners: developing strategies to understand these stakeholders more intimately, implementing deliberate trust-building actions, tracking their efforts over time, and communicating openly and effectively with key stakeholder groups.

We have entered the trust era: a time where (mis)information is omnipresent, individual perceptions reign supreme, and digital security and data privacy are constantly threatened. Now more than ever, stakeholders expect organizations to do the right things and do them well.

These expectations range from entrusting an organization to safeguard one’s private data to requiring a company to have a strong stance on Environmental Social & Governance (ESG) issues.

Trust also drives performance. When stakeholders trust an organization, their behaviors will reflect that trust can affect more traditional key performance indicators that directly affect financial performance. Trust elevates customer and brand loyalty, which can lead to revenue. It enhances levels of workforce engagement, which can result in increased productivity and retention. And the data confirms it.

Trustworthy companies outperform non-trustworthy companies by 2.5 times, and 88% of customers who highly trust a brand will buy again from that brand. Furthermore, employees’ Trust in their leaders improves job performance, job satisfaction, and commitment to the organization and its mission.

Despite the data, however, many leaders and organizations still view trust as an abstract concept. Trust should be managed proactively because, when trust is prioritized and acted upon, it can become a competitive advantage. An organization that positions trust as a strategic priority—managing, measuring, investing in, and acting upon it can ultimately build a critical asset.

No heroic leader can resolve the complex challenges we face today. To address the important issues of our time we need a fundamental change of perspective. We need to start questioning many of our taken-for-granted assumptions about our business and social environments.

Leaders serve as role models for their followers and demonstrate the behavioral boundaries set within an organization. The appropriate and desired behavior is enhanced through the culture and socialization process of the newcomers.

Employees learn about values from watching leaders in action.

The more the leader “walks the talk”, by translating internalized values into action, the higher level of trust and respect he generates from followers.

A good case study is Disney – it strives to design work environments that inspire optimism and drive innovation for all employees, at all levels. And because of this recognize that maintaining an inclusive, supportive workplace requires mindful attention and intention, we continually adapt to the evolving needs of its people. The company’s intention is to put the responsibility for an inclusive culture in the hands of its leaders and employees through comprehensive education and engagement efforts.

We all watched Walt Disney Company (DIS) shares soared last week after the company released its fiscal first-quarter 2024 earnings. The stock had its best day in over three years after the company made a flurry of announcements and markets got a sense that CEO Bob Iger’s turnaround plan has started to show results on the ground.

Since returning to Disney, Bob Iger has inspired hope among employees and investors that he could turn around the entertainment giant — and faced tough challenges, people were a large part of the strategy that gave rise to the changes in fortunes.

To help bridge the trust gap we recognise that organizations need to work with each other and with wider society to identify practicable, actionable steps that businesses can take to shape a new relationship with wider society: a new ‘settlement’ based on mutual understanding and a shared recognition of the positive role that business plays in people’s lives.

To create such a settlement, businesses need to see themselves as part of a diverse, interconnected, and interdependent ecosystem – one that involves government, regulators, individual citizens, and more. Trust within and across this ecosystem is key to its long-term sustainability and survival.

That’s why trust needs to be restored to the heart of the business world.

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