Companies that behave well cannot always be trusted—at least not until you know more about their corporate culture.
Some set up elaborate websites to showcase their ethics and broader commitments to society and the environment. Others participate in the UN Global Compact, publish sustainability reports, implement complex and detailed sustainability scorecards, or adopt far-reaching mission statements. Most are undertaking numerous corporate social responsibility (CSR) initiatives, including carbon, energy, and water management and community involvement. Why not trust them?
Actions alone are simply not enough. In times of economic crisis, these initiatives are often dropped or cut back—a sign of fickle commitment. There is also a major lack of understanding by the companies regarding the true impact of their “socially responsible” activities on themselves and on others. Frequently they follow the latest sustainability trends simply because others do.
As a result, plenty of these initiatives soon fail, are ineffective or wasteful, cannot scale up, and even destroy shareholder wealth. Not surprisingly, companies that engage in such activities have received a mostly negative reaction by capital markets—often by consumers too. PepsiCo (PEP), for example, had to refocus attention on products that linked to obesity and diabetes risks, retreating from earlier promises to make health and wellness a priority. This was partly due to capital-market pressures to fix declining profitability and a flat share price.
However, as recent research (PDF not available) shows, in order to build trust a company needs to become sustainable not only environmentally, but also in the social and economic senses. Adopting a multi-dimensional commitment to sustainability, deeply embedding it into its corporate culture, and synergistically linking it to corporate strategy involves leadership and corporate governance, deep stakeholder engagement, strong employee commitment, transparent reporting and auditing practices, and truly long-term thinking. Significant financial benefits await companies that do establish such a culture.
Corporate cultures are not established overnight. They require time, effort, investment, and long-term commitment. It’s a transformational change that may take years. This means that during the period of change, companies may sometimes behave well and also misbehave, depending on how far along they are on the journey.
Therefore, in deciding whether to trust business, keep in mind two things. First, good behaviour alone is not enough to make a company trustworthy. Second, bad behaviour should not automatically lead to the loss of your trust. Ultimately, it’s crucial to understand the direction and speed of change that mark the company’s corporate culture.
This blog first appeared in Businessweek here