Corporate Governance and the Grievance-Based Society

Edelman has prepared its on-line “Trust Barometer” survey on an annual basis for the last 25 years.  The Barometer reflects the input of over 33,000 respondents from 28 countries (including the United States).  The focus of the Barometer is to measure the influence of trust among major institutions.

As such, the Barometer has become a notable “trust” resource for corporate boards across borders and industry sectors, as they evaluate their strategies, corporate purposes and civic/social engagement.  This, as consumer trust is increasingly recognized as a significant – if intangible – asset of most business organizations.

In this regard, boards should consider “trust” as a concept separate and distinct from “reputation”.  Both are valued attributes of an effective enterprise.  But degrees of “trust” are typically generated by internal and external perceptions of organizational ethics, integrity and corporate responsibility.  Degrees of “reputation”, on the other hand, are typically generated by perceptions of the quality of a company’s goods and services, the success of its corporate strategies and initiatives, and its overall public image.  Organizational “trust” may have a significant impact on organizational “reputation”, but the opposite is not always automatic.

The principal theme of this year’s edition, entitled “Trust and the Crisis of Grievance”, is that economic fears have reformed into grievance that arises “from a conviction that the system is unfair, business and government make things worse, and the rich keep getting richer.”  This climate of grievance reflects what Edelman refers to as “a profound shift in popular sentiment…beyond political polarization to aggressive advocacy for self-interest.”

The Edelman Barometer cites four specific causes for the rise of the “grievance society”:  (i) a pervasive lack of belief in a better future; (ii) a widening divide in trust among top and bottom income brackets in major institutions (e.g. business, government, media and NGOs); (iii) specific concerns with the truthfulness of institutional leaders (e.g. journalists, government officials, and CEOs); and (iv) fewer and fewer agreed-upon facts; e.g. the increasing difficulty in differentiating between news from a reliable source and disinformation.  These are all developments with general corporate governance relevance.

Notably, the Barometer identifies business as the “default solution on societal issues”, with many survey respondents viewing businesses as more competent and ethical than government.  Along the same lines, Barometer respondents support steps by corporate CEOs to address societal concerns when the CEOs believe such action can be effective.  However, those respondents with the highest sense of grievance are more skeptical of business’ ability to help correct those concerns.

All of this creates something of a dilemma for corporate boards.  On the one hand, the suggestion that businesses and their CEOs can play an important and positive role in confronting societal problems is not new.  In the 2019 version of his annual “Letter to CEOs” BlackRock Chairman Larry Fink described a dynamic where society, unnerved by fundamental economic changes and the failure of government to provide lasting solutions, was increasingly looking to both public and private companies to address pressing social and economic issues.

And of course, Fink’s “Purpose and Profits” connection was a major premise of the ESG movement, which now appears to be suffering from declining interest in many leadership suites, and in many halls of government.  In addition, numerous CEOs have already been chastened by consumers and politicians alike for exercising their corporate social voice.  The current political environment is unlikely to dramatically change those perspectives.

On the other hand is the Barometer’s projection of the underlying threat of the “grievance based society”:  one in which “ideology becomes identity and violence is seen as a viable option”.  That’s likely to strike a very sensitive chord in many boardrooms and executive suites.  This, in the aftermath of the recent, horrific murder of a prominent business executive and the disconcerting public reaction it generated.  There may be many a corporate leader discreetly shaking his/her head in acknowledgement of the Barometer’s observations.

One possible solution is for the board to use the Barometer’s release as a prompt to revisit the Business Roundtable’s controversial 2019 redefinition of corporate purpose.  The essence of that redefinition was that while individual companies will of course always serve their own unique corporate purposes, they should collectively share a fundamental commitment to serving all of their stakeholders.  The premise was that long term value is best developed when companies serve not only their investors, but also their customers, communities, suppliers and employees.

In other words, the 2019 concern that “The American dream is alive, but fraying,” bears some basic similarity to the Barometer’s 2025 concern with a declining sense of trust with institutions and elites.  With that, it’s fair for boards to “pressure test” the “trust” equation.  Are its strategies indeed delivering the type of long-term value that better serves the company’s constituents?  Can more be done to put the customer first and invest in their employees and communities?  Would these purposes be better served by exercising a louder public social voice?  Are our corporate communications accurate and truthful?

There is, of course, no one-size-fits all answer to these questions, and the answers themselves can be expected to vary according to company circumstances and industry sectors.  But neither should prevent the board from addressing the ultimate “trust” question-as long as it is first comfortable with the distinction between trust and reputation.

The Edelman Barometer doesn’t have the force of law, the significance of “best practices” or the influence of governance principles.  It speaks broadly to business enterprises, not to individual industry sectors.  It is global in scope, rather than focused solely on the United States.

Yet its fundamental message on the importance of trust as an intangible corporate asset is universal in its application.  And at the very least, the message commends to boards of directors a greater degree of consideration of how trust is earned, preserved – and lost.