Daniel Diermeier

‘You will not survive on a reservoir of trust’

People expect more from business and government today. But at the same time, surveys say they trust those institutions less and less. These circumstances demand greater skill and deeper understanding from managers now — and in the future.

Historically, the shareholder value model directed corporate efforts in a way that appeared straightforward: Firms were to maximize profits while operating within the law.
Over the last decade, this model has been ruptured by at least three interconnected phenomena:

1. A global trend demanding more corporate social responsibility and sustainable practice.

2. The “crisis-a-week” trend that some believe began with the Enron scandals in 2001 and accelerated afterward.

3. The broad erosion of public trust in large organizations.
Some still argue that the shareholder value model “should” continue to frame the relationship between business and society. However, from the practical standpoint of running a complex global organization today, this is a fruitless debate.

Why? Three factors have shifted the environment for business:

1.  Media explosion, including the rise of social media.
Companies must now operate on a much bigger stage, while an ever-more-skeptical public demands an increasing degree of transparency from corporate leaders. Digital technology has transferred the power away from business toward anyone with a URL.
Exhibit A: Wikileaks. 

2.  The “governance gap.”
We now operate in a globally integrated economy. If you buy a loaf of bread, it may have ingredients from 20 countries. Yet, this economic integration has outpaced the political and regulatory processes that govern it.

3.  A global and sustained shift from more materialistic values toward community-oriented ones — especially among the younger generations, including Kellogg students.  This is not a fad. It likely will persist.

Thriving in this landscape requires managers who can think holistically in an environment where diverse and conflicting values are the norm, where coalitions are important and where legitimacy must be won and maintained, and where governance structures are less certain and fluid.

Managing organizations in this context means understanding that you will not survive on a reservoir of trust — even if people like your brand or product. Trust needs to be earned every day, but especially when things get tough. Tomorrow’s leaders will be expected to operate in an environment that goes far beyond what they learned in a conventional textbook.

Daniel Diermeier, the IBM Professor of Regulation and Competitive Practice, is director of the Ford Motor Company Center for Global Citizenship. At Kellogg, he researches and teaches issues related to political and regulatory risk, crisis management and integrated strategy. He is the author of the forthcoming book Reputation Rules: Strategies for Building Your Company’s Most Valuable Asset.