April 13, 2023

Edelman Trust Barometer depicts business as a trusted, potentially stabilizing, force

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Cooley LLP

Are there any institutions that we trust? According to an article from Edelman, which has just published the firm’s 23rd annual trust and credibility survey, while, as a society, we are still polarized and deeply distrustful, business was viewed as “the only trusted institution” at 62%. It’s sure not the ‘60s anymore! As the article recognizes, “[s]ome might have a hard time believing that today’s corporate leaders now stand as a stabilizing power in a fragile world.” As detailed in the new 2023 Edelman Trust Barometer, “business is now the sole institution seen as competent and ethical; government is viewed as unethical and incompetent. Business is under pressure to step into the void left by government.” From 2020 to 2023, international survey participants increased the ethics grade for business by 19 points. Edelman attributes the stunning increase to business’s response “to the social and economic consequences of COVID-19 and Russia’s attack on Ukraine—among other pressing issues,” during which many “corporate leaders put self-interest aside.” In the survey, government and media were viewed as neither competent nor ethical, driving a “cycle of distrust” as “sources of “misleading information,” particularly social media. To what does the barometer attribute these poor outcomes? In large part, to a sense of entrenched division and polarization that both arises out of a loss of faith in institutions and also generates it. Economic anxiety and income inequality are also seen as major forces in fueling polarization. “Given the unsettled state of the world,” Edelman asks, “can business remain a stabilizing force”?

The survey consisted of 30-minute online interviews conducted between November 1st and November 28th, 2022. The online survey sampled more than 32,000 respondents across 28 countries.

For the most part, survey participants wanted more societal engagement from business, especially on issues such as climate change, economic inequality, energy shortages and healthcare access, although they recognized the risk of politicization. Among participants, 48% thought it possible for a business to address societal issues without politicization, advocating that business be a trustworthy source of information (46%), base its actions on science (43%), avoid alignment with one political party (39%), be consistent on values over time (36%) and link actions to staying competitive (33%). In the survey, 89% expected CEOs to take a stand on treatment of employees, 82% on climate change, 80% on discrimination, 77% on the wealth gap and 72% on immigration. However, most thought that the best societal outcomes would result from business working in partnership with government.

SideBar

One social risk that has become particularly acute—as companies and CEOs increasingly make their positions publicly known on important social issues such as climate change, healthcare crises and racial injustice—is the potential for dissonance and conflict between those public statements and the company’s political contributions. When a conflict between action in the form of political spending and publicly announced core values is brought to light, companies face the social risk that they will be perceived to be merely virtue-signaling. As discussed in the newest report from the Center for Political Accountability, Conflicted Consequences, a number of third-party organizations direct donations “in ways that belie companies’ stated commitments to environmental sustainability, racial justice, and the dignity and safety of workers.” As a result, companies and their boards need to be aware of an “increasing risk…from their political spending. When corporations take a public stand on such issues as racial injustice or climate change, the money trail… can lead to their boardroom door. It can reflect a conflict with a company’s core values and positions” and lead to sometimes humiliating, and perhaps even toxic, unintended consequences. (See this PubCo post.)

A substantial percentage believe that CEOs have a role to play in improving “economic optimism,” including by paying a fair wage (84%), ensuring that their home communities are safe and thriving (79%), paying fair corporate taxes (78%) and retraining employees (78%).

A large proportion of participants believe that CEOs have obligations in terms of holding divisive forces accountable: 72% believe that CEOs should “defend facts and expose questionable science used to justify bad social policy”; 71% indicated that CEOs should “pull advertising money from platforms that spread misinformation”; and 64% said that business “could strengthen the social fabric if they support politicians and media that build consensus and cooperation.” In addition, 68% (63% in the US only) advocated that business fight division by helping to create a shared identity using the power of the company’s brands.

Edelman advocates that, as the most trusted institution, business must continue to lead; business “holds the mantle of greater expectation and responsibility. Leverage your comparative advantage to inform debate and deliver solutions across climate, diversity and inclusion, and skill training.” Business should also seek to build consensus and collaborate with government “on policies and standards to deliver results that push us toward a more just, secure, and thriving society.” Because “a grim economic view is both a driver and outcome of polarization,” Edelman advises that business should “invest in fair compensation, training, and local communities to address the mass-class divide and the cycle of polarization.” Finally, business should not ignore its “essential role…in the information ecosystem” and should be “a source of reliable information, promote civil discourse, and hold false information sources accountable through corrective messaging, reinvestment, and other action.”

In the article, Edelman suggests that, to retain its position as a trusted institution, business “can take steps to respond to today’s volatile world, such as pursuing rational policy and promoting civil discourse.” To that end, Edelman advocates that business:

“1 – Push back against polarization in pursuit of rational policies. It’s unrealistic for CEOs to not engage in public policy issues that affect their businesses. After all, business operates best in stable, functioning societies. If leaders want to achieve more rational public policy, they must engage and stand against political extremes. They should not try to assuage either side. The model of moderation, adherence to strategy, mindfulness of long-term trends—social, technological, economic, environmental—offer a powerful benefit to society.

2 – Work across institutions to forge pragmatic solutions. CEOs should use their convening power to bring NGOs, government leaders and others together to prompt rational dialogue and urge pragmatic solutions on issues like reskilling workers, combating climate change and addressing inequality. To effect meaningful change, all institutions must work collaboratively to find common ground and foster progress.

3 – Promote civil discourse by first engaging employees. CEOs should ignite a more balanced conversation, starting inside their own companies. Employees want to be heard, so involve them. Move beyond episodic employee surveys and create a continuous listening system to understand their sentiment on critical issues more fully. Make the workplace a safe place for employees to engage with leaders, and one another, to drive dialogue and better inform the company’s stance on societal issues.

4 – Distribute trustworthy information. Raise the integrity of your content by ensuring what you distribute is balanced, based on sound science and accurate facts. Business can also prevent the spread of disinformation by not using platforms that propagate misinformation and sow discord.”

SideBar

In this article from the WSJ, two business school professors gave us their views, based on interviews and research, on the right way and wrong way for CEOs to express activist views, especially given the risk that companies can, in some cases, face backlash from consumers and others.

The authors identify three instances when, in their view, it makes the most sense for a CEO to weigh in on a controversial issue:

First, when the CEO’s employees provide a “nudge” to the CEO to speak out on the issue. However, the authors caution, the CEO should be sure to assess the level of employee support and opposition, given that some positions may alienate some groups of employees and potentially “undermine organizational culture.” There have been notable instances when employee pressure has received substantial public attention and had a significant impact on corporate decisions.
Second, when the public statement won’t be viewed as hypocritical (in light of company practices) or a “cheap publicity stunt” (because of the strong connection to the CEO’s personal values and the company’s corporate values).
Third, when the issue is still hotly debated and the CEO’s voice can make a difference; remaining silent and waiting for a “safe” time to speak out can be interpreted as “an endorsement of the status quo.”

To make activist statements effectively and prepare for social risk, the authors recommend the following:

Plan ahead for the possibility that the CEO could be asked to express his or her view on a controversial topic by assembling a “team of employees, board members and even outside experts to map out how [the CEO] will—or won’t—respond to the next big political firestorm” and “war game” various scenarios.
Part of that planning should include anticipating the possibility of backlash from customers or employees, such as consumer boycotts or employee protests and walkouts. To that end, “[f]iguring out whether opponents or proponents will have a bigger impact on the issue at hand—and on your company’s reputation—is typically more art than science today. More detailed data on customers’ and employees’ beliefs and values would be needed to better predict responses to CEO activism.” CEOs should identify and monitor key performance indicators to continue to assess the impact of the statement.
Work with the corporate communications team, who can provide informative data and strategic advice, especially if the CEO lets the team know which issues are of most importance.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.