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  • Writer's pictureYoram Solomon, PhD

What Does Trust Have to do with the Boardroom?

When the organization has high trust, customers prefer to buy from it, even at higher prices. The employees are less stressed, more engaged, and more satisfied with their jobs. They are capable of conducting a constructive disagreement that leads to creativity. Those high trust companies are more innovative and productive. Projects finish on time and budget 45% more than low-trust organizations. They deliver 5 times higher profits and 286% higher shareholder returns. It’s all good. But what does that have to do with the board of directors? In this article, I will give you 4 ways in which the board can influence the level of trust in the organization, for better or worse.

Why is Trust Important to Your Company?

Customers are exposed to unethical sales and marketing practices every day, more and more. From outright scams to offering value and not delivering it, bad customer service and other behaviors cause customers to lose trust. As a result, customers tend to value the trustworthiness of companies they do business with. But not companies only claiming they are trusted, but companies they can really trust. In one of my surveys, I learned that customers are even willing to pay a price premium for trustworthiness.

A few recent reports from the National Association for Corporate Directors (NACD) indicate that shareholders and investors in the company trust companies that promote Diversity, Equity, and Inclusion (DEI) as well as Corporate Social Responsibility (CSR) practices. But is that enough? Will shareholders and investors trust a company that implements strong DEI and CSR practices while not delivering profit? Showing no growth? Experience declining share prices? Probably not!

In a 2017 Harvard Business Review article, neuroscientist and Claremont Graduate University Professor Paul Zak summarized multiple studies in the following paragraph: “Compared with people at low-trust companies, people at high-trust companies report 74% less stress, 106% more energy at work, 50% higher productivity, 13% fewer sick days, 76% more engagement, 29% more satisfaction with their lives, 40% less burnout.”

When employees enjoy their jobs, trust their company, and trust each other, research showed that they would be more creative, leading to stronger innovation and productivity, delivering stronger results, and higher shareholder returns, as stated at the beginning of this article.

The 4 Roles of the Board in Building Trust

While it seems that the board has no role in building trust and that trust-building is an internal management issue, there are four ways the board can influence trust-building in the company.

The first comes through the board’s role as a governance body, setting policy and direction. Even when management doesn’t see the importance of trust in the company (within and outside of it by external stakeholders), the board can make trust a priority and clearly communicate that to the Chief Executive. The board should clarify that they are interested in building real trust, not only the appearance of trust, or the use of the words trust, trusted, or trustworthy in internal and external communications.

The second opportunity for the board to influence the creation of trust is through its role in providing oversight to the company. The communication from the CEO to the board often includes metrics. Those metrics are typically mostly financial (profit, growth, etc.). The board could request trust metrics. Trust is one of those vague, abstract constructs considered hard to measure. However, when treating trust as a “black box,” the existence of trust can be measured through measuring the inputs (the 6 components of the trustworthiness model) and the outputs (symptoms of the existence, or lack thereof, trust). Inputs would serve as leading indicators. When those exist, it is safe to assume that so does trust. Outputs would serve as trailing indicators. Their existence would indicate the existence of trust. The board should demand to review trust metrics regularly, establish a baseline for them, set goals, and track improvement.

The third role of the board in building trust is in the relationship between the board and the Chief Executive. Low trust in that relationship would cause the board to micromanage the CEO. When the CEO is micromanaged, meetings with the board will become shows, in which the CEO will show the board what the board wants to see, rather than what it needs to know. The trust between the board and the CEO must be two-sided. Just like the board must trust the CEO with autonomy and not be surprised (trust me, I’ve been surprised by a few CEOs when I served on their boards), the CEO must trust the board enough to feel comfortable delivering bad news.

Finally, the behavior on the board, among board members, and between them and the CEO and other executives in the company is emulated throughout the entire company. The board is the ultimate example-setter in the organization. When the board demonstrates high-trust behavior, so will others in the company, starting with the CEO and the executive team and ending with the last production-line or customer-facing employee.

Trust on the Board is Just Like Trust Anywhere Else

The same 8 laws of trust and 6 components of trustworthiness described in The Book of Trust apply to every relationship, including within the board itself and between the board and the rest of the company. Remember also that you are more than a board member. You may be an officer (or another level employee) in your own company; you are a spouse; you have friends and other people you want to be trusted by. The same rules apply.

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