The board’s role: building trust in a multi-stakeholder world

Maria Castañón Moats is Leader, Paul DeNicola is Principal, and Matt DiGuiseppe is Managing Director at the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver to All Stakeholders? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto Tallarita; Stakeholder Capitalism in the Time of Covid (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.

Trust matters

Expectations of the business community have reached a new high. Amid social and economic disruption, the public increasingly sees corporations as agents of stability. In fact, business is the most trusted institution in America, according to the Edelman Trust Barometer. That puts corporations above NGOs, the government, and media when it comes to trust. But trust is tenuous—it’s hardwon and easily lost. To maintain trust, companies must be intentional when it comes to thinking through their stakeholder relationships.

Meanwhile, there’s a growing realization that companies must consider a broader group of constituencies in a different way than they may have in the past. Executives increasingly recognize that to effectively serve shareholders, they need to manage for “the benefit of all stakeholders” as the Business Roundtable has stated. To do this, boards and directors need to have not only a grasp on who those stakeholders are, but also to know what those stakeholders expect from the company and to acknowledge that keeping their trust matters.

Boards influence trust

The board’s role in creating trust is two-pronged. They must be intentional about understanding the needs of each group of stakeholders and take action to develop trust with each. But they also must understand how management is doing the same and ensure alignment. Recent survey results show that management may overestimate the level of trust when it comes to certain stakeholder groups. Trust is not easily measured nor is it immediately obvious when it begins to erode. Rather than treating trust-building as a discrete initiative, boards should consider the impact that all major strategic decisions have on stakeholders.

Trust supports shareholder returns

Building multi-stakeholder trust does not challenge or undermine boards’ obligation to serve shareholders. Rather, it reflects the growing understanding of how a multi-stakeholder view contributes to shareholder value creation.

Companies have long sought to balance stakeholder interests and competing timeframes to support long-term profitability. But many boards now recognize that establishing trust throughout the business cycle and across key parties can lend itself to sustainable shareholder returns.

Focusing on trust can guide decisions

Stakeholders’ interests often conflict. That’s to be expected. For example, shareholders’ desire to maximize earnings conflicts with employees’ calls for higher wages, at least in the short term. Regulators’ demand for more stringent environmental impact studies and the resulting increased costs or time could conflict with the community’s desire for the jobs that come with building a new manufacturing facility.

Boards and management teams won’t be able to resolve the inherent conflict among stakeholders. What boards can do is ensure that the strategies they— and their companies—implement for building trust with one group aren’t developed in a vacuum. Using a multi-stakeholder approach to understand and harmonize, where they can, these sometimes-conflicting needs can result in better outcomes overall.

Building trust with each stakeholder group

To guide boards’ thinking on how they can enhance trust with multi-stakeholder constituencies, we take a fresh look at each of the key stakeholder groups and discuss why trust matters, as well as how to build it and keep it.

Trust: more than an agenda item

Viewing trust as simply another item to add to the board’s already crowded agenda would be a mistake. Rather, trust is a theme and a strategic imperative that should shape all the board’s deliberations and serve as a beacon to guide management. Using our framework as a starting point, the board can assess the nuances of how these principles come to life in its industry.

Most companies accept and acknowledge that shareholder trust matters. Thinking through how trust with other stakeholders might affect returns and broader shareholder relationships is an extension of that concept. Identifying key stakeholders, evaluating relationships with them, and undertaking activities to build those relationships may take time and expense, but can be an investment in greater future stability.

Stakeholder trust is complex but paramount. The erosion of trust can undermine the company’s reputation and ability to deliver sustainable, long-term value for shareholders. Incorporating a trust lens into oversight responsibilities represents one of the powerful ways boards can strengthen their companies today.

Questions for your next board meeting

In addition to the questions posed in our multi-stakeholder framework, there are broader questions that boards need to ask about building trust, such as:

  • Has the management team clearly articulated the corporate purpose? What metrics can the board monitor to ensure that they are delivering on that purpose while being mindful of stakeholder interests?
  • What quantitative and qualitative tools can the board use to assess the company’s culture and whether it can engender trust across stakeholders?
  • More broadly, how can the board monitor trust across all stakeholders?
Both comments and trackbacks are currently closed.