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Stakeholder Trust: A New Destination for Risk and Compliance


Shareholder Trust: A New Destinition for Risk and Compliance
Shareholder Trust: A New Destinition for Risk and Compliance

Stakeholder obligations are promises made to those who have put their trust in your business, your products and in the services you provide. Stakeholders extends beyond shareholders and include employees, suppliers, customers, communities, and the public at large.

What stakeholders expect is a measure of assurance that your organization will keep all its promises you have made to them. In return for this assurance, trust is engendered giving rise to the pursuit of shared values along with the acceptance of shared risk.

In this blog post we look at what stakeholder trust looks like, the role that risk & compliance has to engender trust, and how you can improve the probability that you have the trust you need for your business.

What is the value of trust?

The benefit of having trust far exceeds financial returns and the exchange of money. Trust provides the fuel to sustain growth and the ability to thrive.

Companies that have stakeholder trust find approval to pursue opportunities and create even more value. Companies without stakeholder trust discover they don’t have approval to operate in the communities they want to work in. Even regulatory approval will be conditional subject to significant scrutiny and inspection.

Without stakeholder trust you will not have a business.

How do you build trust?

Businesses first gain trust by acquiring a regulatory license to operate which requires that specific conditions are met. Meeting regulatory obligations provides an initial level of legitimacy and the first boundary towards stakeholder trust.

For companies to succeed they need to build on the legitimacy earned to achieve credibility which is another precursor to trust.

Credibility is achieved by working towards social and corporate responsibilities. In some industries this is called a social license to operate demonstrated when stakeholders give their approval to proceed on business initiatives. These responsibilities are concerned with achieving quality, health, safety, environmental and overall sustainability objectives.

Compliance and risk programs provide the means to achieve these objectives creating the conditions for trust to exist and to improve. Compliance programs protect against the erosion of value by keeping businesses operating between the lines. Risk programs make certain that obligations are met, promises kept, and values are respected.

How do you measure trust?

At a basic level it is possible to determine whether or not a company has met the regulatory conditions for it to operate. Regulators utilize reporting, inspectors or auditors to verify that companies have met license requirements and to lesser degree that they will continue to be met in the future.

However, when it comes to meeting obligations associated with the broader scope of stakeholder expectations, measurement has been more qualitative than quantitative.

A social license or perhaps better called a "stakeholder license" is really an agreement on shared values and shared risk. This contract while not formal includes expectations that shared values are respected, and mutual risk is handled. Trust will increase or be lost based on how well a company manages each.

With growing concern on climate change, ESG (Environment, Social and Governance) is gaining more traction and is poised to become an important performance index which could be used to measure the conditions for greater trust to exist.

We have all the trust we need.

Trust is never static. Companies are either gaining trust or losing it. When risk & compliance programs are working together stakeholders will have the assurance needed for trust to exist and to improve. However, without effective risk & compliance programs, assurance will be lacking, credibility will erode and the company's legitimacy will be at risk.

Companies that value stakeholder trust will not leave assurance to chance and will instead establish effective risk & compliance programs to provide the assurance needed for their business to operate and to grow.

Perhaps, it is time for your risk & compliance to chart a new course to a new destination: Stakeholder Trust.

 
Lean Compliance helps forward looking organizations improve stakeholder trust by improving the effectiveness of risk and compliance programs. If trust is valuable to you please reach out to us to learn more on how we can protect the trust and improve the trust you now have.

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