06 Mar 2015

The Truth About Trust


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BRIAN KENNY: Today on the business Richard Edelman. Richard is the president and CEO of Edelman worldwide, the world's largest public relations firm. And he's a graduate of Harvard Business School. For the past 15 years, the Edelman Trust Barometer has tracked trust in the global institutions of business, government, media, and non-governmental organizations. Richard’s here to share the highlights and the insights of the 2015 report. Richard, thanks for being here.

RICHARD EDELMAN: Brian, thanks for having me.

BK: Allow me to set the tone here at the outset. The report opens with the claim that 2014 marked, and I quote, "the dissolution of confidence and the end of an era in which trust in business had been on a steady and upward trajectory since the end of the great recession.” End quote. Ouch! That's a tough way to start.

RE: Well, here's the thing. The peace dividend for business is over. We saw trust decline across all the institutions down to the level of 2009. We found for the first time a drop in trust in technology, consumer electronics and telecoms, and finally, we found a real problem in acceptance of innovation in that innovation, instead of being a boon, is actually a trust deterrent. Now we are into a next phase, when the expectations are higher, you know, people will only buy products from companies they trust and will only want to work at companies they trust. So it matters more now than ever before

BK: So just step back for a second and if you can, lay out for people who haven't seen the report and aren't familiar with it-- What are the details of the survey? How many countries are you surveying? How many people?

RE: So, we talked to 33,000 people in 27 countries. We've been doing it 15 years. We, actually, talk both to opinion elites as well as to the general population. Fascinating, Brian, that in the gen. pop., the mass audience, it's 10 points lower for trust in institutions, than among the elites. We’re now back to 2009 trust levels for the four institutions and that's really sad because we didn't have any great recession. We just had the year of the unimaginable, if you consider Sony being hacked by North Korea, or Ebola, or three major jet crashes, or Russia invading the Ukraine, or the foreign exchange scandal trading in the UK. All of these things, you know, happened in a way in which institutions didn't respond with such alacrity. So, people were disappointed in their institutions and scared, actually.

BK: It also changes depending on where you are in the world. I know that you break this down geographically and look at it from all different angles. Where there places in the world where the trust is higher and others where it's lower?

RE: Well, it's in part, where the economies are performing well. So, the United Arab Emirates, or China, or India, Indonesia. It's also partly related to where elections were held. But it's really quite low, not just in western Europe, on the continent, but also in Japan, as a relic of Fukushima, and in Korea.

BK: So the environment is driving a lot of the anxiety that's out there. It's just the sort of general climate of people being unsettled in the world. Do you account for significant differences? You know, we know that some governments are more corrupt than others around the world. We know that in some parts of the world there's more partisanship in the media. Is that something that you weight the differences on?

RE: Actually, Brian, we just reported as we get it. I think we leave it to your audience to decide the validity of any of the responses. But we do this as an online survey.

One thing I do want to tell you that I find fascinating is that women are substantially more skeptical about innovation, particularly in developed countries. So, in California, for instance, we found women 24% more skeptical about about g.m. [genetically modified] foods or fracking, etc. So, perhaps as the custodian or guardian of the family, the women are going to be looking for business to do even much more. It's not just about personal advantage, in their case, they want to be sure it's going to be good for society and good for their families.

BK: And businesses spend an awful lot of time talking about how innovation is core to what they do and innovation is this hot phrase that use all the time. But the study shows that innovation may actually be causing some of the anxiety. Can you talk a little bit about that?

RE: Well, actually, it amazed us the extent to which the pace of innovation is causing people to be anxious. They feel that it's going too quickly. They feel that the motive behind innovation is actually either business results or greed. By a three to one margin over improving society or improving my life. And that's just a bad construct. By five to one, they want more government regulation of these innovations. And by only one in five did they feel that government can actually do it. So, in a sense, business has to do it itself, and that is a core finding: that business has to create the construct in which you can innovate.

BK: And so another surprise, and you just alluded to it here, was that, of the big four, and I'll just revisit with those are- that's governments, non-governmental organizations, media, and business- government was the one area that actually showed some improvement, which surprised me. I would have thought that wouldn't be the case, but it’s specifically around this area of government setting policy that people are looking for, for them to play an important role.

RE: Well, actually, it was, to use Wall Street parlance, a little bit of a dead cat bounce. Government is so low. Remember that there's a 20-point gap between business and government in the United States. 50-point gap in South Africa. 40-points in Mexico and Brazil. So, governments are really in trouble in terms of the trust and confidence of the people. And I think government has to fundamentally change how it conducts itself. It has to stop having such silos and start organizing itself in a certain way to be as accountable as business. And also try to work with business as opposed to just oppose business.

BK: Let's talk a little bit about the media because you have a section in the report that talks about people’s opinions of the media. How did they fare overall?

RE: Well, media’s now distrusted in two-thirds of the countries we survey. And ‘search” is actually the first place people go for information and also to corroborate information, so it's no longer to mainstream media brands, whether television or print. It also implies the rise of the so-called ‘born digital’ Business Insider, courts, BuzzFeed, that are more search optimized, as well as the wire services. So people are skeptical about the media. They feel it's very opinionated. And they are nervous about what they're reading and whether it’s getting the straight story.

BK: And you've been doing this for 15 years so as you-you basically tracked along with the dawn of the Internet. What kind of a role do you think the Internet has played in either accelerating distrust or alleviating it? I mean, the Internet seems to be central to a lot of the things that you look at.

RE: We really can observe over these 15 years, a tremendous dispersion of authority. When you see that the least trusted spokespeople are CEOs and government officials. Who's most trusted? Well, it's an academic or it's a person like yourself. So, the new dynamic, Brian, is to have what I call "peer-to-peer,” or “horizontal” trust. You know, friends and family are the number one trusted source on social media. Well above celebrities, like, 3X celebrities. So, again, it is this move away from the very well organized world of three networks and the president saying and people believing. Or even the CEO. It now has to be done through employees and a sort of, more dispersed world of communities and others.

BK: That's a great segue into business now, because that's the fourth group that you look at. You talk about four factors that affect trust of business, so explain that for the business folks listening to the podcast.

RE: Well, you know, the first thing is what line of business you're in.Tech is continuing to be the highest trusted- financial services the lowest. But for the first time this year we saw trust in tech go backwards because of privacy and security issues. Second is your national homeland, what jersey you wear, if you’re German or Swiss or Swedish or Canadian you have a trust advantage. If you're from markets like China or Mexico or India or Brazil, you've got real trouble. You're down 40 points going particularly into developed markets. Third is what kind of leadership you have-what kind of CEO. And CEO trust, which was recovering somewhat from a low point [in] 2008 up to 2011 has gone backwards substantially, I think it's somewhat related to pay and pay disparity. And also that CEOs have disappeared. They don't believe it's their job necessarily to communicate to more than Wall Street. They have heads down making the numbers- that's a big mistake. And then lastly is, what kind of company you are. I'm very pleased to say that family businesses, like Edelman, are much more trusted than big business. And again I think it's partly because there's a sense of long-term and commitment to the employees and to the product.

BK: But if I'm a business leader listening to this, hope is not entirely lost for me, right? There’s still a chance that I can recoup some of the trust that I've lost. And you do talk about five attributes that you report that business leaders need to be thinking about for their organizations. Can you walk us through those?

RE: Well, you know, it starts with great products and services and that's core to any good business. But I think business has really focused excessively on operations. Operations is actually simply table stakes. Before 2008, it mattered tremendously, you know, ‘Did you make a lot of money?’ ‘Did you have a famous CEO?’ Uh-um. [no]. That doesn't matter anymore. Purpose, which all of us thought was the magic bullet, you know, CSR and all this. Again, we had high hopes for but it doesn't really change the markers that much. It's good, but not necessary. The things that really matter are engagement and integrity. And specifically, engagement- being transparent, showing what your study shows on a new product that's innovative. Sharing your data. And integrity-you know, putting your customers ahead of profits and treating your employees well and making sure your supply chain is good. Those are the key things: engagement and integrity.

BK: But, it's kind of a tough sell, do you think, for most customers to believe that the company is actually putting people ahead of profits? How many customers how many companies are actually doing that?

RE: I think any company that easily accept returns on a product that's not working-a company that offers you a much more detailed explanation of how it’s sourcing is working for you as a customer-why, for instance, milk that comes from America's dairy farms is perfectly safe. I just think we have to redefine the expectation of how much customers can and should know. And I particularly believe this around supply chain. I think customers actually want to know where the fish was caught, whether it was sustainable catch, whether the variety that you caught and are eating is going to be okay in the fish stocks. People really want to know the details and I think you can do this even through the QR codes on each product.

BK: And the notion that any company or any CEO can get away with doing this in anything but an authentic way is immediately dispelled, right? We see that all the time- people trying to appear as though they're being transparent and then get caught, sort of, in the act.

RE: Well, again, I think that the smart companies, PepsiCo, for example, Indra Nooyi, she puts out a much more thorough so-called ‘integrated’ financial report that includes not just her financial figures, but also 46 goals that she has with ‘performance with purpose’ on sourcing, on sustainability, on treatment of people. And I think that's the rounded kind of approach that's necessary for great corporations.

BK: Are there other examples of companies, in addition to Pepsi, that you think are doing this well?

RE: I think Howard Schultz at Starbucks is doing it brilliantly. The cover story in Time talks about what he's done for veterans, what he's now doing for race. His company is more than about the products it sells. It's about actually starting movements and being part of the society’s fabric. Similarly, I think that Paul Polman at Unilever has done a terrific job of stimulating employees and also associating each one of his brands with a cause. So, Dove, in terms of female self-image, is a perfect example of a campaign that does much more than sell soap. It also sells the confidence that the company cares deeply about its female consumers.

BK: I want to go back again to the fact that you've been doing this for, you know, a decade and a half. Is what you're seeing this year just part of a long, slow, steady decline? Or does it ebb and flow?

RE: Well, you know, Brian, it used to move trust between the segments. It used to be, for instance, business up/government down. Or NGOs rising as business fell. This year was across the board decline. What I'm hoping is that we have a gradual building back and it's actually led by business. Because right now, NGOs took up that trust that was lost by both business and government. And NGO trust now has peaked. It's actually ebbing a little bit. And I do think that there is an opportunity, particularly for business, and particularly in this area of innovation. You know, we've done such a poor job of explaining older innovations such as fracking or such as genetic modified foods- and the newer ones, e-health or e-wallets, or cloud computing, we can't afford to make the same mistakes. We have to tell people, not just what we're doing, but how and why. And that seems like a very simple proposition but it's counterintuitive to business people who want to, sort of, protect the secret formula. That's a mistake. Again, go and tell people and let them talk back to you and listen. This is something business has to learn.

BK: You were just in Davos. I'm sure you shared the findings of this report with a lot of business and government leaders there. What was the general response? Do you think it's resonating with people?

RE: Yeah, I led a panel on trust. And I would say there was a high degree of willingness to be more transparent. But there wasn't so much willingness to have limitations on pay or anything else that sort of restricted businesses so-called ‘license to operate’. And by the way, Brian, I just think ‘license to operate’ is such an anti-diluvian approach. I mean, we can not anymore rely on just a legal framework. Business has to aspire to actually lead the process of change. And if that's the case, then we have to have a different kind of trust level. It can't be just grudging. It actually has to be open arms. You know, that ‘business is actually bringing us things that we never could've imagined’ and ‘making our lives so much better and actually listening to us when we have some objections. And I think that Uber is a perfect example of a company that's gotten it in the last couple months. They’re not only creating jobs but they're also going to change how they interact with government and how they're going to check out their drivers and the kind of insurance are going to have. And lastly, they’re tied in with Mothers Against Drunk Driving because, you know, this is a big deal- getting kids who are inebriated not to drive. Great! That's all to social benefit, not just to their own.

BK: That's a great example and here's hoping that ten years from now, when we’re talking about the Trust Barometer at that time, this new generation, this digitally-native generation will have brought a new level of transparency and better communications skills to what they’re doing. Richard Edelman, thank you for joining us today. Really interesting.

RE: And Brian, by then, hopefully my daughter, Margot, Harvard Business School ’13, will have succeeded me in this chair. Thank you.

BK: Here's to it! Richard, just before we let you go, where can people find the report-it's on the Edelman website?

RE: Yes. Www.Edelman.com. So please come at it.

BK: Terrific. That is Richard Edelman, talking about the newest Edelman Trust Barometer.

We're looking forward to a springtime of great conversations and more surprising insights on “The Business.” Our next edition comes your way in two weeks’ time.

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