In Corporations We Trust

Many thanks to all of my friends and colleagues who responded with such vigor to my previous blog post entitled Is Trust Necessary? In that post, I suggested that the European leaders who are embroiled in the German – Greek dispute shouldn’t worry so much about trusting each other, and should instead focus on developing reliable verification controls, in the manner first espoused by Ronald Reagan and Mikhail Gorbachev and currently advocated by John Kerry.

That led to a considerable amount of consternation and debate among my readers, with some individuals brusquely asking me whether I was actually implying that trust is worthless. My response?

Of course not. After all, necessity and worth are two entirely different concepts. In fact, although trust is not an absolute requirement for negotiating treaties, it is indeed helpful when it exists.

The same concept applies in the corporate world. Why, for instance, is Apple’s global brand worth more than $118 billion? It is because Apple has built the most valuable brand in the world by ensuring that its customers trust it to provide the most intuitively simple and immaculately stylish electronic devices on earth.

This customer trust in the Apple experience extends to other forums as well. Its unique retail store environment, for instance, extends its product experience to the shopping milieu. And the late Steve Jobs, a person who was trusted to perfect every detail of Apple products, remains one of the most fascinating leaders in business history. Biographies of his life still enrich the book industry.

Of course, it is true that generic “no name” products do exist. They often do quite well in the market place. Indeed, it is obvious that such trust is not necessary to build a successful business.

Nevertheless, Apple has demonstrated that trust can be extremely beneficial. And many other organizations have done so too.

But how can we assess an intangible, and sometimes ephemeral, advantage like trust? Although it represents a tremendously valuable asset, no corporation records “Trust” on its traditional financial statements. And yet some contemporary accountants are starting to design ways to account for trust.

The International Integrated Reporting Council, for instance, defines Social and Relationship Capital as one of the six value drivers (i.e. the “six capitals”) of a business. Trust is a key component of Social and Relationship Capital.

In addition, the Global Reporting Initiative states that “building and maintaining trust in businesses and governments is fundamental to achieving a sustainable economy and world.” It names Trust, along with Transparency and Decision-Making, as the three primary outcomes of its Sustainability Reporting Practices.

This emphasis on non-traditional corporate reporting represents a practice of codifying and then verifying the assertions that are made by corporations about their socially responsible business practices. Its underlying assumption is that public accountants will audit these assertions and verify their accuracy, in the same manner that they audit and verify the traditional financial statements.

In other words, when assessing the business practices of corporations, these organizations aren’t really assuming that verification activities can suffice in place of trust. Instead, they are assuming that verification activities will lead to trust.

It’s a distinctly different premise than the one espoused by Reagan, Gorbachev, and Kerry in the political world, isn’t it? And yet it’s quite possible that, in their world, those three gentlemen would hope that verification activities will eventually lead to trust as well.