12 Tangible Benefits of Trustworthy Leadership

Editor’s Note: This post is part of the series “Return on Trust,” a weeklong effort provided by some very special invited guests. Be sure to keep track of the series here and check out our daily e-mail newsletter. Don’t subscribe? Sign up.

In mid-July, Rodger Dean Duncan, a well-respected leadership expert and Forbes contributor asked if I would comment on an article he was writing called “How Do You Build Trust in a Trust Deficient World?

The first question he posed was why the daily headlines are filled with stories about trust-deficient people and organizations, and my answer was simply as follows:

While we continue to read about the decline in trust, the information is usually generated via public opinion polls and media hype. Ten years ago journalists and politicians were viewed as the least trustworthy, while nurses and military officers were seen as most trustworthy. Not much has changed. (See Gallup Poll).

I’m not suggesting we live in a society with an overabundance of trust, but the reports may not be as bleak as the media wants us to believe. After all, we know bad news sells.

The “game changer” question, at least from my bird’s eye viewpoint, is simply why do business leaders refuse to acknowledge trust as a “tangible asset?” Imagine how much healthier companies would be if CEO compensation was tied to an annual trust audit or trust test. While business leaders have yet to embrace the case for trust, the tangible benefits of trustworthy leadership are mounting, and the more savvy CEOs are paying attention, with great results.

I’m not suggesting we live in a society with an overabundance of trust, but the reports may not be as bleak as the media wants us to believe.

I have compiled a list of twelve benefits of trustworthy leadership, some with “hard evidence” and others based more on pure common sense:

1. Improved Profitability

Building a trustworthy business will improve a company’s profitability and organizational sustainability.

A growing body of evidence shows increasing correlation between trustworthiness and superior financial performance. Over the past decade, a series of qualitative and quantitative studies have built a strong case for senior business leaders to place building trust among stakeholders high on their priority list. While none of these studies are perfect, over the next decade their results will be increasingly difficult to ignore.

In a Harvard Business School working paper from July 2013 called The Impact of Corporate Sustainability on Organizational Processes and Performance, Robert G. Eccles, Ioannis Ioannou, and George Serafeim provide evidence that High Sustainability companies (those integrating both environmental and social issues) significantly outperform their counterparts over the long-term, both in terms of stock market as well as accounting performance.

Building a trustworthy business will improve a company’s profitability and organizational sustainability.

2. Lower Employee Turnover

According to Fortune’s  “100 Best Companies to Work For”, based on Great Place to Work Employee Surveys, the best companies experience as much as 50% less turnover and Great Workplaces perform more than 2X better than the general market (Source: Russell Investment Group)

#3 Lower Cost of Capital & Less Risk

Forbes and GMI Ratings have produced the “Most Trustworthy Companies” list for the past six years. They examine over 8,000 firms traded on U.S. stock exchanges using forensic accounting measures, a more limited definition of trustworthy companies than Trust Across America’s FACTS® Framework but still somewhat revealing. The conclusions they draw are:

“… the cost of capital of the most trustworthy companies is lower …”

“… outperform their peers over the long run …”

“… their risk of negative events is minimized …”

From Deutsche Bank:

100% concurrence on Lower Cost of Capital (“… academic studies agree that companies with high ratings for CSR (Corporate Social Responsibility) and ESG (Environment, Social responsibility, Governance) factors have a lower cost of capital in terms of debt (loans and bonds) and equity.”)

4. Superior Accounting Performance

(Also from Deutsche Bank) 85% concurrence on Greater Performance on Accounting –Based Standards (“… studies reveal these types of company’s consistently outperform their rivals on accounting-based criteria.”)

5. Higher Return on Equity & Return on Assets

From Global Alliance for Banking on Values, which compared values-based and sustainable banks to their big-bank rivals and found:

7% higher Return on Equity for values-based banks (7.1% ROE compared to 6.6% for big banks).

51% higher Return On Assets for sustainable banks (0.50% average ROA for sustainable banks compared to big bank earning 0.33%)

These studies are bolstered by analyses from dozens of other respected sources including the American Association of Individual Investors, the Dutch University of Maastricht, Erasmus University, and Harvard Business Review.

6. Higher Return to Investors

Using its FACTS® Framework, a holistic, quantitative and independent assessment of trustworthiness, we at Trust Across America-Trust Around the World have been tracking the performance of America’s most trustworthy public companies since 2009, and the results are nothing short of staggering. These companies have produced an 82.9% return vs. the S&P’s 42.2% since August 2012. (The results are based upon a monthly re-balanced list of selected companies rather than an actual portfolio.)

We have been tracking the performance of America’s most trustworthy public companies since 2009, and the results are nothing short of staggering.

 Copyright© 2014 Next Decade, Inc.

On a more personal level and to complete the list of trust’s tangible benefits let’s add the following:

7. Psychological well-being

8. More meaningful relationships

9. Faster, more efficient decision making

10. Greater effectiveness in groups

11. Greater support for your decisions

12. More time for creativity and relaxation

Most business leaders continue to ignore trust as a cultural imperative. Those that have built it into their DNA are crushing their competition.  If you are interested in reading more, please click on this recent blog post .

After all is said and done, it’s pretty simple, trust works!

Barbara Brooks Kimmel is the Executive Director of Trust Across America-Trust Around the World and an EXPERT on Trust. Check out her books below!

[easyazon_image add_to_cart=”default” align=”left” asin=”1932919368″ cloaking=”default” height=”160″ localization=”default” locale=”US” nofollow=”default” new_window=”default” src=”http://ecx.images-amazon.com/images/I/51djqVtfWPL._SL160_.jpg” tag=”achievstrate-20″ width=”107″][easyazon_image add_to_cart=”default” align=”left” asin=”1932919384″ cloaking=”default” height=”160″ localization=”default” locale=”US” nofollow=”default” new_window=”default” src=”http://ecx.images-amazon.com/images/I/413PEBvSP3L._SL160_.jpg” tag=”achievstrate-20″ width=”108″]

If you would like to communicate directly with Barbara, drop her a note at [email protected]