The Australian Institute of Company Directors (AICD) and KPMG have released a report on how boards are approaching the oversight of trust issues at their organisations: Maintaining the social licence to operate: 2018 KPMG - AICD trust survey.  AICD writes that the report 'shows that directors are acutely aware of the need for their organisations to maintain trust with stakeholders amid generally declining trust in all institutions' and that the majority (62%) believe their board can adequately challenge management on how to respond to issues that could undermine trust in their organisation.

Key points

• Trust is a key concern for directors: 94.1% of respondents agreed or strongly agreed that trust was important to their organisations sustainability.  45.8% of directors reported that their board had had to deal with issues that can affect trust in their organisation over the past year.

• Clients or customers (not shareholders) identified as the most critical stakeholder group: Asked to identify the most critical stakeholders whose trust their organisation needed to maintain, respondents identified 'clients or customers' as the most critical stakeholder group, with shareholders ranked as only the fourth most important:

1. Clients or Customers (82.3%)

2. Employees (81.6%)

3. The local or regional community in which the organisation operates (35%)

4. Shareholders (33.4%)

5. Shareholders (33.4%)

6. Media 7.07%

7. Government (4%)

8. Other (4%).
   The AFR quotes Managing Director and CEO of the AICD, Angus Armour as commenting on this aspect of the report: 'I think there is a rebalancing under way…In order to serve our shareholders, we need to be more engaged with the local community.'

   [Note: 40.7% of survey respondents were from private business; with 11.2% of survey participants from listed companies.]

• Boards approach to building trust with stakeholders? 48.4% of company directors felt that their board has a proactive approach to building trust with the organisations most important stakeholders.  38.3% indicated that they had a proactive approach to building trust with all of the organisation's stakeholders.  The report comments that a majority of organisations need to 'proactively improve their relationships with all stakeholders, rather than with one or two priority groups'.

• Communication and engagement with stakeholder the most critical factor to building trust: Respondents identified the following as critical factors for building trust in their organisations:

  1. Communicating and engaging with our stakeholders openly: 82%

  2. Transparency of business practices and decision-making: 78%

  3. Understanding of the issues that matter to our stakeholders: 64.7%

  4. Maintaining social licence to operate (ie ongoing acceptance or approval by the community): 41.3%

  5. Responsiveness to social issues and impacts: 17.8%

  6. Responsiveness to environmental issues and impacts: 10%

• Less than half of respondents (38.5%) believe their board has clear processes for responding to these issues.  The report comments that 'some boards may be preoccupied by crisis management and preventing the erosion of trust, when they could be playing a forward-looking role, and spending more time strengthening their organisation’s social licence'.

• Less than one quarter (23%) of directors believe they receive 'meaningful' metrics on trust in their organisations

• A majority (62%) of directors perceived that their board can adequately challenge management on how the organisation responds to issues that can undermine trust.  The report comments that it is worth noting that a significant minority (38%) of respondents 'did not share this confidence'. The AFR quotes Chairwoman of KPMG Alison Kitchen as commenting in relation to the last two points that '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.'

How do boards start to build a 'social licence lens' into their thinking on trust issues

The report suggests that directors looking to 'introduce a social licence lens to conversations on trust' should consider exploring (among other questions):

• Their capacity, expertise and willingness to engage on trust issues

• Which stakeholders are being engaged, the opportunities for stakeholders to do so and which stakeholders are excluded.

• To what extent the needs of vulnerable stakeholders are considered in the decision making process.  

• The quality, clarity and authenticity of communication with stakeholders.

• What changes may need to be made to approaching stakeholder governance to enable the business to be more responsive to stakeholder needs and how the changes should be communicated to stakeholders.

AICD Chair Elizabeth Proust commented on the survey findings overall: 'It is incumbent on leaders across all sectors to engage with stakeholders, listen to their concerns and have an honest conversation about the challenges and opportunities we face as a society'. 

About the survey:  The report is based on a survey of 600 directors (AICD members) drawn from a range of sectors: 40.7% from private business; 30.8% from not for profits; 14% from public sector and 11.2% from listed companies.

[Sources: Australian Institute of Company Directors media release 27/02/2018; Maintaining the social licence to operate: 2018 KPMG - AICD trust survey; [registration required] The AFR 27/02/2018]

Signs of change in corporate governance? Writing in The Australian, KPMG partner Richard Boele suggests that corporate governance is changing, and is fact at a tipping point, where there is increasingly acceptance at board level, of the need for companies to maintain a social licence to operate.  This is beginning, he argues, to translate into a trend towards companies adopting a policy of engaging with, and responding to community as well as shareholder concerns.  

Commenting more broadly on the reasons behind the change, he states that: 'The deepening level of distrust in Australia requires change in corporate governance. Each organisation needs a new role that stewards stakeholder voices, especially the quiet that aren't heard or the noisy that are quickly dismissed.  After listening, and understanding, organisations must act upon what is heard in a sensitive and timely manner.  Most importantly, they must be publicly seen to act upon that information. A social licence must be earned every day'. 

[Source: [registration required] The Australian 01/03/2018]