The New Stakeholder Society

In this most difficult economic climate, we conducted a midyear survey of opinion leaders in six of the 20 nations covered in the annual Edelman Trust Barometer. Earlier this month, we spoke with college or professional school graduates in the top quartile of income, who read or watch media at least several times a week in China, France, Germany, India, the UK and the US. This is a mid-point assessment, to compare to data from Edelman's annual survey at the World Economic Forum in January, 2009.

We find that trust in business has stabilized and in fact has risen substantially in a few markets, such as the US and France, up 12% and 11 points respectively. At the same time, trust in government has risen, particularly in the US (12 points) and India (13 points) following recent elections. The synchronous rise in business and government trust contradicts the trend over the past decade, where trust was a zero sum game. In fact, there is a very high expectation that business and government must partner to solve key issues from economy to climate change.

The divergence of attitudes between Asia, the US and Europe becomes ever more clear. The trust in business in India is at 75%, highest ever in any market, while in China it is at 60%. The reputation of large companies as good or excellent in China and India is at about 70%; contrast that to only 13% in the UK, where 62% rate MNCs as fair or poor in reputation. The UK has moved significantly, so that it now more closely resembles France and Germany with the US now squarely in between and China and India as the most trusting nations.

The rise in trust in business can be traced to tangible actions by corporations. Respondents said that reducing CEO compensation (80%), paying back bailout money (81%) and firing underperforming executive teams (78%) were the most important short-term factors in regaining trust. In the longer run, we find that a mix of hard and soft power actions is most effective. These include producing quality products/services, treating employees well, having transparent business practices and communicating frequently on the state of the company. In China, continuing to spend money on philanthropy (77%) headed the list of options for a company seeking to rebuild trust.

We can confirm the shift from shareholder to stakeholder society. The expectation of business has expanded, rendering Milton Friedman's famous assertion from the 1970s about the sole social responsibility of business being to make profit as antiquated as the bell bottomed trousers then in vogue. The most important stakeholders are customers (70%), followed by employees (58%) and investors (49%). In an interesting cultural shift, the Chinese rate shareholders at top of the stakeholder list.

Technology is the industry champion by a mile, leading other sectors by 15 points. This can be explained by the importance placed on innovation as a characteristic of trusted companies (89%). The second or third ranked industry in Western Europe and the US is either biotechnology or health care, while in China and India, it is banking. Trust in the troubled industries in the West, specifically the auto and financial services, improved over the lows recorded in January, 2009, especially in the US and UK.

Younger respondents have become significantly more trusting in both business and government. The level of volatility among this younger group (25-34 year olds) is remarkable. In the US, for example, 58% of this group trust business to do what is right, up from 32% in January, 2009 and nearly back to the level of 60% recorded in January, 2008. This cohort in the US experienced an "Obama effect" since he took office with an increase of 24 percentage points in trust in government.

We see that trust has a specific role in selection of brands. In fact, cost is only a marginally more important factor in determining product choices (53%) than trust in a brand (45%). Past personal experiences (94%) and peer recommendation (79%) are twice as powerful as advertising in determining trust in a brand.

Where does this leave business? In the West, we are in the middle of a journey to regain reputation lost in scandals, bankruptcies of centerpiece companies and government bailouts. Meanwhile in the East, the role of business is confirmed as the change agent creating prosperity. This is not a one year deviation from the trend toward deregulation and business leadership on issues; it is in fact the end of the Reagan-Thatcher era. There are many tough issues still to resolve namely to negotiate in the co-habitation arrangements of business and government, fair compensation and management of portfolio (how green should GM become, how much community lending should Citigroup do).

It is a long-term proposition for business to work towards the broader goals of society. The key question is how to fit these goals, encompassing mutual social responsibility and shared purpose, with a profit-making strategy. Only in this way will companies attract the best employees, build support for brands and achieve outstanding returns for investors.