In March of 2001, the class leader of our BUD/S class passed away during Hell Week. BUD/S, or Basic Underwater Demolition / SEAL is the initial six months of the Navy SEAL training pipeline. Hell Week is the brutal crucible that weeds the majority of the class out. That night the commanding officer of BUD/S spoke to us about coming together as a class during times of adversity, teamwork and the importance of team trust. A few months later was 9/11. We all then knew we’d be going to war where team trust would be at a premium.
How big an impact does internal and external trust have on your organization? Its value and performance? Its employees and shareholders? And more importantly, what aspects of trust are relevant and how do you measure them?
One year ago, I wrote the article 4 Steps for Measuring Trust and its Impact on Financial Performance for this column. I was beginning to perform research for my new book – TakingPoint: A Navy SEAL’s 10 Fail-Safe Principles for Leading Through Change – which comes out in a few weeks on February 20th.
Much of the book, including all of Part One is about how building a culture of trust and accountability sets an organization up for success when it comes to navigating organizational transformation – change! I generally focus on trust as it applies to people practices and learning how to measure the economic impact culture has on overall performance.
But the experiences I have had in my own companies we well as much research on the subject points to the fact that trust is a multi-dimensional concept. The first dimension is competence; the belief that an organization has the ability to deliver on what it says it will do. That it has the ability to sustain and compete in the marketplace. The second dimension is integrity; the belief that an organization is fair and just. The third dimension is dependability; the belief that an organization will do what it says it will and act consistently.
All great companies have a desire to have high levels of internal and external trust. But few do a very good job of measuring trust and working towards constantly improving it. They don’t pay attention to the impact trust has on the financial health of the company.
I recently came across an organization called Trust Across America that has a proprietary process for measuring and ranking the most trustworthy publicly traded companies in America.
In 2010, Trust Across America introduced the FACTS® Framework, a holistic unbiased barometer of the corporate integrity of America’s largest 2,000 public companies. The Framework identifies companies whose leadership is going above and beyond in meeting all stakeholder needs – which as we know often starts as an internal strategy.
During the three-year period from February 2013 to February 2016, and according to FACTS® Framework audited live returns, America’s most trustworthy public companies outperformed the S&P 500 by 1.8x. The composite results translate to 16.7% annualized for FACTS® vs. 9.5% for the S&P 500.
According to Trust Across America – to date – this is the most comprehensive and data-driven ongoing process for studying trust in organizations.
The FACTS® Framework focuses on five key areas:
F – Financial Stability and Strength: assesses the company’s financial and market performance. Companies that maintain high rankings have been shown to have better stock performance, with lower volatility over time.
A – Accounting Stability: analyzes the company’s transparency of earnings and quality of reporting. Companies ranking highly over time have conservative ratings and are shown to have less regulatory actions and restatements.
C – Corporate Integrity: assesses the company’s overall governance risk, board independence and composition, and compensation policies and risks. The focus is on real-world value and risk, not just “check-the-box” practices.
T – Transparency: analyzes the company’s financial and non-financial clarity including disclosure, environmental management and climate change, diversity, human rights and workforce composition.
S – Sustainability: assesses the company’s environmental, workforce policies, community impact and human rights performance among other metrics.
Again, whether your organization is public or private, the general areas of financial stability, integrity, transparency and sustainability all have an impact on internal and external trust. And the more today’s business leaders and managers prioritize these fundamentals, the more resilient their companies will be, the more easily they will navigate change, retain employees and customers, keep shareholders happy, and dominate their segments.
So prioritize trust and see the returns to prove you have it!