Company Directors Question Their Org’s Social Licence To Operate

A survey of company directors has found less than half believe their board has a proactive approach to building trust with important stakeholders, despite strong agreement that trust is important to organisational sustainability.

The Australian Institute of Company Directors partnered with KPMG to conduct a survey of almost 600 company directors, to examine how boards were approaching the oversight of trust issues at their organisation.

Just over 94 per cent of respondents agreed or strongly agreed that trust was important to their organisations’ sustainability, but only 48.4 per cent felt their board had a proactive approach to building trust with the organisation’s most important stakeholders.

Added to this, only 23 per cent said they received “meaningful” metrics on trust in their organisations.

The KPMG-AICD report on the survey findings detailed how directors were “starting to ask questions about their organisation’s social licence to operate”.

“Social licence is an important and powerful lens to frame trust. It acknowledges the active role that people and communities play in granting ongoing acceptance and approval of how companies – or entire industries – conduct their business,” the report said.

“Aggrieved and cynical communities can withdraw the social licence of organisations that lose or exploit their trust – with potentially devastating financial, legal and regulatory impacts.

“Organisations can no longer view trust as an asset that they can buy or rebuild after a crisis, but one that must be earned and maintained on an ongoing basis. Boards of all sectors are increasingly aware that fundamentally, trust is about relationships, not solely reputation.”

The survey elicited responses from a broad cross-section of organisations, with 40.7 per cent of respondents coming from private businesses, 30.8 per cent from NFPs, 14 per cent from the public sector and 11.2 per cent from listed companies.

The report noted that a loss of trust afflicted all of these sectors, highlighted in the 2018 Edelman Trust Barometer.

Boards nominated “clients or customers” and “employees” as the two most critical stakeholders to maintain trust in an organisation.

The local or regional community an organisation operated in was selected as the third most critical stakeholder for boards, ahead of government and shareholders.

Richard Boele, a partner at KPMG Banarra, said: “The survey shows a degree of increased understanding of the ‘social licence’ issue – I suspect a few years ago the local community would not have been third in the list of important stakeholders.

“Boards need to ask: What stakeholder voices are we hearing? Who is excluded from the conversation, and how do we ensure they have the opportunity to participate? Do we have the appropriate internal capacity, expertise – and willingness – to actively and authentically listen to all stakeholders?

“How do we equip our people to better listen? This will help introduce a social licence lens to conversations on corporate trust.”

“Internal culture and practices” was selected as the most critical issue relating to trust, with 74.1 per cent of respondents selecting it as part of their top three trust-related concerns.

“This suggests that issues that impact trust can originate from inside the organisation, as much – if not more – than from its business activities,” the report said.

“Our findings also reflect the AICD’s latest Director Sentiment Index, which found that more than 90 per cent of directors surveyed were making efforts to improve the corporate culture of their organisation.

“Unfortunately, many attempts from the top are in vain if employees view those attempts as inauthentic, or they are undermined by media reports of misconduct.”

AICD managing director and CEO Angus Armour said the report demonstrated that directors took the issue of retaining trust seriously.

“These results show that directors from all sectors, from listed businesses to not for profits, have heard and are responding to the community’s voice. The strong focus by directors on the need to have robust internal cultures and practices in order to rebuild trust reflects that social expectation,” Armour said.

“The KPMG-AICD Trust Survey presents a valuable tool for directors to reflect on their own practices and ways to improve their approaches to rebuilding community trust.

“This is more important than ever as we enter a new period of innovation and workforce transformation which will [emphasise] transparency, accountability and openness between directors and all stakeholders.”

Alison Kitchen, KPMG Australia’s chairperson, added that it was concerning “a sizeable minority of directors feel they are unable to satisfactorily challenge management on such issues”.

“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,” Kitchen said.

“It is important that the issue of trust is embedded into regular management reports and board conversations, so progress can be monitored.

“Given the well-documented loss of trust in business and institutions in society, companies must become more proactive in reshaping their procedures in addressing trust-related issues.”