FEATURE: Trust and the bottom line

In 1986, Enron was the name of a new company formed by the merger of Houston Natural Gas and InterNorth. In 2001, Enron was, in addition to being defunct, an adjective for malfeasance, a synonym for greed, and an exclamation point on what was wrong about the rampant pursuit of economic growth of the late 1990s.

In 1986, Enron was the name of a new company formed by the merger of Houston Natural Gas and InterNorth. In 2001, Enron was, in addition to being defunct, an adjective for malfeasance, a synonym for greed, and an exclamation point on what was wrong about the rampant pursuit of economic growth of the late 1990s.

More recently, two stories - Enron's balance-sheet misrepresentation and institutional deceit, and Martha Stewart's insider trading and personal weakness - are lumped together as if they were the same. The disparateness of the situations showcased the deep and very general distrust a cynical population has in corporate America. But now, with reports that corporate trust is returning to pre-Enron levels, the corporate world, its PR handlers, journalists, and economists can to some extent examine recent history to determine what effect trust has on the behavior of the consumer. There is no silver bullet that will help correlate consumer trust with a company's bottom line, though much time has been devoted to trying to do so. But all that a bevy of current data indicates is that a firm's behavior and social practices seem to have very little effect on purchasing decisions on a whole. Evidence of trust's importance is better seen on a micro level - that is, in issues that are specific to a certain sector of the public, such as a small community that is vulnerable to the behavior of companies located in the area; a boycott enacted by a specific group of disenfranchised people; or, on the positive side, in employees developing a sense of pride based on their company's strength. On the macro level, it would seem that consumer trust develops more from companies delivering on their brand promises. Data compiled by Edelman in its most recent annual trust barometer survey, in which consumers were asked to rank issues based on how important they were to them, showed that the most important driver of trust for US respondents was a history of delivering top-quality products or services. Being active in cause-related initiatives ranked lowest. Similarly, a World Economic Forum survey of CEOs and business leaders found that CSR was considered least important in building trust. The two most important criteria to these leaders are those that deal with the end result delivered to the customer: the quality of the product and the corporate brand/reputation. The former criterion is frequently identified as a key driver of sales. But many corporations don't agree, as a different report finds. According to a survey this year of 515 business leaders conducted by the Center for Corporate Citizenship with the Hitachi Foundation, 82% of respondents felt that good corporate citizenship helped their bottom lines. In addition, 53% said that corporate citizenship is important to their customers. Does it affect their spending behavior, however? Another poll of 25,000 customers for UK department store Marks & Spencer by The Work Foundation found that customers would not change their purchasing choices based on a company's policies - even though they might say they approve of them. "One of the big disappointments in the consumer-goods industry has been environmentally friendly packaging," says Timothy Calkins, a clinical associate professor of marketing in the Kellogg School of Management at Northwestern University. "Everyone claims to really like and want it, but, in my experience, it has had no impact on his or her purchasing decision. And, indeed, it can hurt you if your package looks smaller." Herbert Gintus, an emeritus professor of economics at the University of Massachusetts who works with experimental economics and the study of emotions on decisions, says that it is difficult to determine a blanket social responsibility effort that would universally affect consumer spending. "If Nike had a policy in place that they would start paying Nicaraguan workers $10 an hour to make the shoes, none of our material would suggest that consumers would be more likely to buy the product," he says. Importance of consumer trust Indeed, consumers seem to reward corporations of both responsible and questionable behavior equally with their patronage as long as the company delivers the product or service they say they will. To illustrate this, Edelman's survey sought to identify the most trusted US companies and asked respondents to grade companies based on how much they trusted them to do what is right. Nearly 81% of US respondents gave UPS a positive rating, making it the most trusted brand in the country. UPS has increased its revenue by nearly $3 billion since 2001, and the company and its employees have donated, by its account, $54.2 million to the United Way so far this year. In the same survey, 68% of the 400 US respondents ranked IBM in the highest echelon of trust. Yet that company is fending off allegations through a class action suit and a scathing portrayal by CBS' 60 Minutes II that the company knowingly exposed its employees to carcinogens. Despite this developing story, IBM has increased revenues overall by $2 billion from 2001 to 2003 (albeit with a dip in 2002). And in Fortune's 2004 Most Admired list, the top global company was Wal-Mart, which has suffered with a corporate image problem of late. Among the debacles were: a cancellation of a project where the firm would use radio frequency identification tags in a smart-shelf system with partner Gillette in a Brockton, MA, store; rejection by voters of the company's request for exemption from zoning and environmental restrictions in Inglewood, CA; and widespread criticism for paying its employees less than competitors and for undercutting smaller, local businesses by wielding a massive supply-chain power. Additionally, Wal-Mart doesn't even appear on that same magazine's 100 Best Companies to Work For ranking. (Incidentally, another Work Foundation report from 2001 showed that employees seem to want the firm they work for to be a good corporate citizen, citing, "There was a statistically significant relationship between employee loyalty and the organization's CSR rating among ethical employees.") Despite these issues central to trust, the company's total revenues have risen from $193 billion in the year ending January 31, 2001, to $246 billion in the year ending January 31, 2003. Trust plays a different factor when communities are involved, says Kim Hunter, president and CEO of LaGrant Communications. "As it relates to the diverse African-American and Hispanic markets, these people tend to be very committed to brands based on a trust factor," he says. "If they believe that they have a history of doing the right thing in the community, then they will trust them." Furthermore, if a company has the trust of these constituents, then it might even be forgiven for one-off misdemeanors - so long as they're handled well. Hunter cites when AT&T years ago ran a cartoon portraying a black man as a gorilla in its employee magazine as what would normally be seen as an unforgivable transgression. But because the company was already in the community and reacted swiftly to the outcry, Hunter says, it managed to get over that hurdle. "AT&T put the chairman on a media tour in key markets in both radio and TV," Hunter says. "It fired the internal person who made the decision to run it and fired its outside consultant." ChevronTexaco, on the other hand, has never recovered in the black community after an episode in the mid-1990s when managers of then Texaco referred to African Americans as "jelly beans," says Hunter. "I don't know one African American who goes to a Texaco gas station, and the rationale for that is the trust factor based on what they said," he adds. While the effect that this incident had on ChevronTexaco's bottom line is not quantifiable (the company had revenues of about $120 billion last year), a community voting with its wallets is not something that a company wants to anger. Benefits of happy employees One place where trust does hit the bottom line is in the productivity and advocacy of its employees. The Work Foundation report asserted that employees were more likely to make a greater contribution toward their company's best interests if they felt their employer was acting at a high level of corporate responsibility. Edelman CEO Richard Edelman affirms, "Companies that have had trouble in the past, like Nike and Ford, have improved dramatically. We think that's because they've localized their communications and done things like talked to their employees." The Work Foundation adds that this employee satisfaction effectively helps engender customer loyalty. "If a brand provides a sense of pride and if a company has a reputation of quality, it gives the employees a sense of belonging," says Marc Gob?, president, CEO, and executive creative director of brand consulting firm Desgrippes Gob? Group and author of Citizen Brand. And that translates easily to the retail experience, he adds, explaining, "If you make the best coffee and the people who are serving it are unfriendly, the dream of the brand is destroyed." Ketchum's corporate practice created a survey called "Point of Influence" with the goal of quantifying levels of the trustfulness consumers have when it comes to specific people and sources. Respondents said they trusted employees 20% above average to help them make decisions about a company's product or service. So while it might not be clear that a company's malfeasant practices will stop a consumer from buying its products, it would appear that hearing about this behavior from an unhappy employee might do just that. Seller beware: Your employees' trust is the bottom line.

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