Australia's directors are worried about the risks to business from crumbling community trust

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Trust is now a crucial issue to businesses in Australia, according to a survey of company directors.

However, fewer than half (48.4%) feel their board of directors has a proactive approach to building trust with the company’s most important stakeholders

And just 23% of directors believe they receive meaningful metrics on trust from their CEOs.

These are the findings of a survey of 600 (Australian Institute of Company Directors) AICD members to be released at the Australian Governance Summit in Melbourne on Thursday.

Directors are starting to ask questions about their organisation’s social licence, the active role that people and communities play in how companies, and industries, conduct their business.

They realise that trust must be earned and maintained. “Boards of all sectors are increasingly aware that fundamentally, trust is about relationships, not solely reputation,” according to the report by AICD and professional services firm KPMG.

Internal culture and practices are the biggest obstacle directors face in trying to improve the corporate culture in their organisations, according separate research by the AICD.

Recent history in corporate Australia shows how crumbling community trust can impact business. The big banks now face a total of 15 separate inquiries, including a royal commission.

The 2018 Edelman Trust Barometer, a global survey across 28 countries, shows each of Australia’s four key institutions — government, business in general, the media and not for profits — are now officially classified as “distrusted” for the first time since 2013.

Australia’s Trust Index at 40% is just 4 percentage points higher than the least trusting country, Russia, on 36%.

The latest report by KPMG and the AICD found that 41.6% of directors said they had pro-actively tried to uncover issues which had the potential to undermine trust.

Fewer than half (45.8%) said they had had to deal with such damaging issues in the past year.

In terms of the most critical factors for building trust, regular communication with stakeholders (82%) and transparency of business operations (78%) were the top two responses.

“Internal culture and practices” was regarded by directors as the biggest trust-related challenge facing their companies, ahead of both customer satisfaction and the financial stability of the organisation.

The majority of directors see trust as a critical issue:

Source: AICD

In listing the most critical stakeholders to maintain trust in the organisation, “the local community in which we operate” came third, ahead of government and investors.

“Our survey shows increasing awareness among directors of trust as a key issue with the potential to damage organisations,” says Alison Kitchen, KPMG Australia Chairman.`

“But it is concerning that a sizeable minority of directors feel they are unable to satisfactorily challenge management on such issues, or indeed receive adequate reports on them.

“The fact that less than a quarter of respondents receive adequate performance metrics on trust in their organisations represents a potential blind spot for boards.

“It is important that the issue of trust is embedded into regular management reports and board conversations, so progress can be monitored.”

AICD Managing Director Angus Armour says the report clearly shows directors take seriously the task of rebuilding and retaining trust.

“These results show that directors from all sectors, from listed businesses to not-for-profits, have heard and are responding to the community’s voice,” he says.

Survey respondents represent organisations across all sectors with 40.7% coming from private business, 30.8% NFPs, 14% public sector, and 11.2% from listed companies.

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