Trust lies at the heart of every deal whether it’s a global business-to-business deal, a credit card transaction or an online retail sale.
Fortunately trust in some key areas of business is on the rise. According to the CFA Institute 2018 survey The Next Generation of Trust, a global assessment of investors attitudes, trust in financial services is improving, while the technology sector is a standout winner in terms of trust when benchmarked by industry.
By country, trust in the financial services (reputation verses reality) finds China leading with its reputation rising to 70%, comfortably ahead of Canada (51)%, the US, Brazil (both on 48%) and Singapore (47%).
The survey of 829 institutional investors and 3127 retail investors found institutional trust is highest in technology (83%), above financial service (72%) and lowest in media (53%). Institutional investor trust within financial services is highest in real estate (74%) with private equity (72 %) and hedge funds 59%.
A boon for proponents of distributed ledger technology, and despite its roller coaster ride over the past months, 63% of investors believe blockchain has the potential to increase trust in institutional investment.
So how can a company gain the trust of investors. partners or even within its own supply chain? According to Tony Tan, CFA, co-head of ethics, standards and professional conduct at the CFA Institute, the way to do this is not to find out how to build trust, but rather how to be trustworthy.
“Warren Buffett’s record is second-to-none. He has demonstrated trustworthiness and transparency with Berkshire Hathaway, a company well known for its ethical practices,” said Tan highlighting the investment company is regarded as one of the most trusted global MNCs Using Buffett as an example certainly illustrates that individuals within an organisation are central to building trustworthiness.
“People do want to do the right thing but sometimes they just don’t know how to do it,” said Tan, who believes gaining trust comprises three key elements:
- Professional competence
- Ethical principles
- A caring nature
“Building trust means having skills and knowledge for the job, together with ethical principles. In other words, you do the right thing, even when no-one is looking, and you truly need to care about what you are doing for your client.”
Creating trust with retail clients is relatively simple. Tan thinks Amazon is a good example of company that consumers believe is trustworthy.
“When I buy from Amazon, and, for example, on the very rare occasion my order goes wrong, the company responds by offering me a refund. It does not question my claim or charge me. This demonstrates trust and that this company cares about me (their client),” said Tan.
But it's not so simple for the investment community where trust must to be earned. Part of the problem lies within large organisations and the fact that individual workers all have different personalities and differing attitudes to trust and risk. When investors lose trust in a company, it’s much harder to regain. Once trust is lost, any attempt at restitution needs to begin with changing individual attitudes from the ground up.
China takes the lead
Tan said those investing in Asia see corruption as the greatest reason for losing trust in a company or country, making the 2018 Edelman Trust Barometer, the annual global trust index, an interesting read.
This year, China reached the top spot on the index, leapfrogging ahead of India, Indonesia, the UAE and Singapore in leading global trustworthiness, mainly due to that nation’s government reforms and crackdown on corruption. Conversely more than 33,000 online respondents in 28 global markets gave the US its steepest trust decline ever recorded.
Behind technology, education and professional services, rated highly with investors. Financial services, consumer packaged goods and the automobile industry as the least trusted. Tan explained it’s not surprising that technology rates so highly as it’s an accepted part of our daily lives.
On the other hand, technology can, and does, suffer serious setbacks when it loses trust. According to Tan, Facebook’s recent fall from grace was primarily due to its disregard for the essential elements needed to build trust.
“I’m pretty certain Facebook had a high level of competancy. But its lack of ethical practices let it down. The company made money off data but investors assumed data would not be sold to a third party. That breach caused share prices to fall and Facebook lost revenue. From an investor’s point of view, it was an activity that led to investor distrust.”
“In other words, not caring about customers in pursuit of revenue, and its internal practices, [was where it went wrong],” said Tan.
Gaining trust can have long term benefits on a macro level. Tan said over the past half century, Singapore has built a reputation based on government policy for trustworthiness when doing business in Asia. It now ranks high in transparency indices and low in corruption. Investor confidence is clearly illustrated by the fact it has the second largest port in the world.
Vigilance, training and self regulation
CFA Institute members include investment management professionals within the asset management, wealth management and regulatory sectors. Given its recent survey highlighted a growing trust in financial services, it is interesting to see ethical practices still need work, given many recipients believe that a large section of investment professionals are only somewhat unethical.
CFA Institute would like to see ethics training radically changed, making it less of a corporate chore to be completed annually by employees, and more like a stimulating educational process of continuous learning.
“Forcing people to do a compulsory day or two every year is seen by those doing this training as a unwanted burden to be juggled with existing workloads. Instead, we should be moving to low intensity training, say 10 minutes every two weeks.”
Tan’s team are exploring creative ways to encourage members to keep thinking about ethics and build trust in their everyday roles and negotiations.
In order to foster continuous education as opposed to yearly updates, the latest ethics offering by CFA Institute includes an online decision making programme with interactive content to make it both relevant, challenging and fun for members. Its portability across platforms means users can drop in and out of training modules, even outside of working hours.
As companies like Berkshire Hathaway and Vanguard demonstrate, investors do value transparency, reliability and good stewardship, and react swiftly when trust is misplaced.
Apart from keeping investors informed, companies also need to comply with growing governance and regulation which is costly and time consuming. By instilling an ethical mindset in business operations, Tan believes it is possible for regulators to allow a certain degree of industry self regulation, given greater individual compliance. A move like this would help to reduce operating costs, cut red tape and boost the bottom line; a winning situation where trust has benefited both investors and the balance sheet.
For more details
More information about the global initiative in building trust and ethical practices is available on CFA Institute website. Alternatively, join some of Asia’s key leaders as they focus on the Future of Global Investing forum at the 71st CFA Institute Annual Conference, 13-16 May, 2018 at the Hong Kong Convention and Exhibition Centre, Hong Kong.