In this week's Budget we may hear a lot about productivity and innovation. There is an historic productivity gap in the UK (and UK firms) compared to international competitors, which has widened since the 2008 financial crash (see for example: The Economist: The Productivity Puzzle ). Over the last year we have also increasingly heard about the collapse of trust in institutions across developed economies; in the UK the Edelman Trust Barometer suggests that only 33% of people in the UK trust business and only 28% trust business CEOs.
What we hear less about is whether there is a connection: does trust support productivity?
Grant Thornton has recently published new research with the Social Market Foundation that suggest there is a link: businesses can improve their performance by building trust. Strengthening trust can help reduce costs, raise productivity and introduce innovation. The new report ( The Business case for Trust ) shows how connecting and engaging with employees, suppliers, customers, investors, and wider society can improve the bottom line.
Historically trust was based on personal relationships and local community. The global nature of our modern economy has broken these ties and this is compounded by increasing transparency, driven by technology, which means business and government face greater and faster scrutiny. In addition, trust is harder to maintain during change; so the ever faster pace of change in our society and economy creates further strain.
Organisations and their leaders need to find new ways of building trust in a global, digital economy. Regulation and legislation have traditionally been used to create trust as organisations increased in size but regulation has struggled to keep up with the pace of change. And regulation has tended to create a ‘compliance culture’ which does not in itself create sustainable conditions for trust.
Crucially building trust is about culture and leadership in businesses. Our report with the Social Market Foundation includes examples of how many leading businesses have achieved this.
So what is the role of government and how can the Chancellor's Budget this week help? The UK Government is currently consulting on:
Reforms to corporate governance, including on executive pay, stakeholder engagement and private company governance,
An Industrial strategy to build on UK business strengths, close the productivity gap, and make the UK one of the most competitive places in the world to start and grow a business,
Further action to support Mission Led Businesses, including Elizabeth Corley’s review of increasing choice for individual savers who want their investments to have a wide impact.
There is an opportunity to bring these initiatives together.
In the short term, corporate governance reforms and a clear industrial strategy can help rebuild trust and drive growth in business This requires the application of three principles in corporate governance: engagement, accountability and transparency. Corporate governance can encourage greater stakeholder engagement, making connections that strengthen trust. And the Government could also incorporate the aim of greater stakeholder engagement by business into its industrial strategy, particularly through encouraging and embedding stakeholder engagement in supply chain, sectoral and productivity initiatives. The Chancellor could look at ways of incentivising and supporting this. For example, he could consolidate the various complex employee share schemes into one share allocation scheme; creating a simple scheme that is easy to self-certificate (as recommended here: Britain Unlocked: A Tax Code for Global Ambition)
In the longer term, Government can help by continuing to take forward the Mission Led Business Review and building on this to develop a shared vision of what trusted markets could look like in the future. One way of doing this would be for the Chancellor to explore how the tax system and financial markets could strengthen the connections between ordinary people and business, by making it easier for individuals to make choices about what businesses their savings or pensions are invested in.
And finally, Wednesday's Budget will set out a lot of statistics on GDP, budget deficit, borrowing etc. Measuring the balance of trust as well would provide an additional indicator of future growth and productivity.
We know that trusted economies are attractive for investors and for businesses; trust has a powerful impact on driving sustainable business performance. Trust is key to innovation being accepted by customers, to building employee engagement leading to improved productivity, to creating collaborative relationships with suppliers and to retaining customers as loyal advocates.