The Practice of Extreme Trust Is Inevitable
With bankruptcies, corporate scandal, accounting irregularities, and gaps in corporate governance making daily headlines, it's no wonder that public trust in companies has diminished.
GMI Ratings, a provider of research on environmental, social,governance, and accounting-related risks affecting the performance of public companies, recently released the latest results in a rolling 10-year study comparing the equity performance of companies with top decile and bottom-decile Accounting and Goverrnance Risk (AGR®) ratings, which correlates corporate behavior and negative events. Over the 10-year period ending July 1, 2012, a portfolio of companies with top-decile AGR ratings would have outperformed the lowest-decile portfolio by 55 percent. In the past, companies with low decile ratings have faced financial restatements. Conversely, those with high ratings have been shown to be the most trustworthy companies.
In today's 1to1 Magazine article, "Only the Trustworthy Will Thrive," a growing number of companies are making efforts not to fall in the bottom decile by becoming trustworthy with their customers through fulfilling the promise of offering fair prices, delivering reliable service, and becoming transparent in their policies.
In their book, Extreme Trust: Honesty as a Competitive Advantage, authors Don Peppers and Martha Rogers, Ph.D., argue that trust is not just a good idea, it's inevitable and requires extreme change. A trustable company, they explain, has policies in place that demonstrate good intentions toward its customers and is likely also to have those good intentions reflected in other domains as well--HT, investor relations, and community participation. Conversely, untrustable companies, see customers first and foremost as objects with pocketbooks, rather than as close business partners with individual needs.
In the current turbulent social and economic climate, companies that intend to not only survive, but thrive must conduct business going forward with good intentions--that is delivering accurate and informative information to customers and embedding trustable practices, policies, and procedures into all aspects of their businesses internally. Those who fail to adapt to these new measures won't see rising stock prices or valuations; instead they'll experience equity losses and face class-action lawsuits.
Did you enjoy this content? Sign up for our FREE weekly e-newsletter by clicking here!