Are you contributing to trust?
“The impact of today’s global trends is radically changing society’s expectations of business. And the extent to which a business behaves in line with these expectations determines how trustworthy it is perceived to be. Trust is pivotal because it is the basis of every human relationship, every transaction, and every market. Trustworthiness is the foundation of a business’s “license to operate” in any region or industry.”
This is the major conclusion from PwC’s most recent survey of CEOs. It is driving them to think not just about growth, but about ‘good growth’. That means growth that is ethical, sustainable and can be realistically positioned as representing social benefit. Many CEOs feel that things are already improving, that the collapse in trust that accompanied the financial collapse of 2008 is reversing. The most recent trust indicators suggest they are right, with the latest Edelman Barometer showing 58% of people now trust business, versus just 50% in 2009.
This shift in emphasis may explain why so many executives are talking more about collaboration and why IACCM’s top negotiated terms survey has started to show a subtle change in the focus of negotiations. Last year, we observed some reduction in the adversarial, risk-allocation style and increased attention to governance and performance oversight. This perhaps reflects an even greater unwillingness to engage in litigation – high-profile lawsuits are unlikely to help either side in the battle for trust. So if contracts are not about litigation, it further reinforces the point that they are primarily about creating certainty and enhancing relationships.
But it seems to me that ‘the trust agenda’ begs questions that go beyond the purpose of contracts or the way they are negotiated. It should be causing all those in Legal, Procurement and Contract Management to reflect on their precise role and contribution to the business. The answers vary a little. For example, in Procurement it must surely mean that efforts at cost reduction must be tempered by questions of social consequence; that purchasing activity will often be driven by the benefits to market image through longer term partnering or visible investment in socially desirable business. On the sell side, there are already growing trends in establishing off-set agreements or local content. Projects are assessed for community impact and stakeholder concerns are addressed through socially beneficial investments or development activities, such as improved schools or medical facilities, or boosts to local employment and skills.
Going beyond these transactional elements, business leaders are also looking for new commercial offerings that can alter the image of their business. A great example is in the energy industry, where leaders have understood that growth and profitability can actually come from reduced energy use. Therefore, rather than simply operating as a volume-based commodity supplier, large energy companies are developing contracts that offer facilities management and shared benefits from cost reduction. It helps them grow; it assists their customers in reducing costs; and it shows leadership in the social and political agenda for reduced energy use and environmental protection.
All of this implies that there are exciting opportunities for professionals in Procurement, Legal and Contract Management to be active contributors to the trust agenda. But I think there is actually an even bigger question regarding our potential role – and I will write about that tomorrow!
Meantime, I’d love to hear examples where you have observed a shift in approaches to contracting or trading relationships that illustrate this response to ‘changing social expectations’.