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Trust in governance

By | 24/01/2022 in Blog posts

One of the consequences of the events in Downing Street has been a loss of trust between those who govern and those who are governed. This note does not seek to opine on the rights and wrongs of the allegations circulating in Whitehall, but the theme of trust is an important part of successful corporate governance.

At Bvalco we carry out board evaluations for a range of different companies and organisations and have the chance to speak to directors and other key staff and stakeholders about the performance of the Board. It is very clear from our experience that the tone really does come from the top. Managers and other staff members know when they are being treated with respect and when their contribution to the business is valued. They know if they can trust their board. They appreciate features such as open honest feedback and a willingness to listen to concerns, it can help them to carry out their roles better and it demonstrates to them that they matter.

Boards can engender trust by being open and honest about their own performance and showing that they care about and are committed to the business and being better governors. Most board members we encounter really do care about the organisations they work for and their people. They want to be seen to be doing the right thing. They want to be better.

How can boards encourage trust?

It is important for the role of the board to be properly understood, certainly by all board members, but also by those elsewhere in the organisation. The terms of reference for the board need to be clear and key board members such as the chair need to be vocal in explaining the role of the board and the value it can bring to an organisation. The chair’s statement need not just be a reassurance for investors, it can also be a restatement of purpose for staff.

Companies often have a statement of corporate values. Boards need to underscore these values and the culture. Stakeholders, particularly, the workforce, need to believe that these are genuine and not just an exercise in going through the motions.

Boards need to be appropriately engaged with the business. This is always a delicate balance; non- executives need to guard against slipping into activity which falls within the ‘getting drawn into areas which are the responsibility of the executives’. However, being visible, “walking the floors”, can be a way for non-executives to show support and build trust. They may also gather useful intelligence along the way to help them carry out their roles as directors.

The restrictions around Covid have fettered the ability of boards to get in front of the staff, but as part of our work we have seen some boards adapting to the “new world”, finding new ways to get in front of staff. Chairs using zoom to run townhalls and individual directors proactively contacting senior executives managing the consequences of the pandemic are just two examples of the effective building of trust between the board and the executive.

Importantly, for businesses this is not just a “good” thing to do. Clients and competitors will soon pick up if a business is not to be trusted, ultimately a board which is not trusted by its colleagues will see the effect in its bottom line. The journalist Simon Nixon writing recently in The Times noted

‘a striking correlation between trust and economic growth across a large number of countries. According to one academic study a ten-percentage point rise in trust within society was associated with a 0.5 percentage point increase in real GDP’

What’s true for countries seems almost certainly to be true for companies.

Peter Snowdon is a legal and corporate governance expert, with a particular interest in issues affecting financial services firms, banks and investment firms. A former partner at Norton Rose, he also worked for the Financial Services Authority (FSA) prior to joining Bvalco.

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