Building trust in business
The Edelman Trust Barometer finds that only 20% of people believe the system works for them. Most sense injustice and want change. Many also worry about job security through a lack of skills, the threat of automation or conflicts about international trade. Yet, 80% trust their employer.
What is the role of business? Should it help employees to future-proof their careers?
A business exists to generate value. American economist Milton Friedman argued in 1970 that its sole corporate responsibility is to increase its profits. But, as Sir Brian Pitman of Lloyds Bank, explained to CIMA members, Shareholder Value Maximisation is more challenging than a focus on current profits, which can lead to short-termism: “It requires delivering outstanding levels of current performance while building a legacy for the future”x
Michael E. Porter of Harvard has taught us all since the mid-1980s that a business’s value proposition must meet customer needs and it gains competitive advantage through developing its value chain. More recently, he has explained that a business cannot sustain long-term success unless it generates value for its customers, suppliers and employees. “The purpose of the corporation must be defined as creating shared value, not just profit per se.”xii
“Jamie Dimon and other leaders at some of the world’s largest companies said they plan to abandon the long-held view that shareholders’ interests should come first … “.xiii
Over the years, we have seen leading companies focus on technology-related Corporate Social Responsibility (CSR) activities that benefit society whilst boosting their brand and consumer relationship:
High levels of executive pay, aggressive tax planning and outsourcing of jobs, in addition to corporate scandals, have contributed to distrust in society. When new business models transform industries and automation makes workers’ skills redundant, many people may have cause to feel disadvantaged.
Management accountants must stay alert to external developments and their implications for the business and its stakeholders. For example, McKinsey suggests that businesses risk a backlash from customers, society and regulators unless they consider stakeholders as well as investors when addressing the risks of AI and analytics:xiv
“A business cannot sustain long-term success unless it generates value for its customers, suppliers and employees and continuously invests in developing its business model.”