Home' HR Monthly : June 2018 Contents 6
In 2008, Alan Greenspan, then chairman of the US Federal Reserve
for about three decades, came under attack from prominent
economists for having laid the foundations of the global financial
crisis by lowering interest rates to such an extent that borrowing
became too easy for the more voracious banks.
Greenspan had trusted in long-term, proven monetary techniques
with confidence through a sustained boom economy, but the unknown
vagaries of human nature revealed themselves and let him down.
Closer to home, we in Australia have recently witnessed two royal
commissions into the widespread sexual abuse of children in public
institutions, and more recently the failure of our big banks and
financial institutions to administer their contemporary lending and
other prudential practices responsibly. These failings have led to an
evaporation of public and, in the case of the banks, investor confidence
in the institutions to which we formerly gave unquestioning trust.
Against this backdrop, KPMG and the Australian Financial Review
co-hosted a roundtable that explored the waning currency of trust in
the corporate environment and how to rebuild it. The trust issue was
approached from six perspectives that touch on stakeholders, integrity,
transparency, technology and change, communication through
integrated reporting, and active governance.
For stakeholders, the perspective of trust relates to the social licence
of companies to operate. The roundtable participants accepted such
a licence could no longer be taken for granted, and that listening
to stakeholders was critical, so long as it went hand in hand with a
subsequent readiness to change. Without complete control over the
narratives they wish to tell, industries that don't listen and respond risk
serious brand and reputational damage.
Another perspective on trust comes from integrity, driving credibility
and assurance to the investor market. Principle 4 of the ASX Corporate
Governance Principles and Recommendations state that "a listed entity
should have formal and rigorous processes that independently verify and
safeguard the integrity of its corporate reporting".
Whatever the outcomes of the AMP having allegedly demanded
multiple revisions to a Clayton Utz 'independent' report, the airing
of such revisions at the banking royal commission, did not enhance
confidence in the integrity of the system.
The roundtable also noted that investors, regulators, customers,
employees, interest groups and the media seek transparency by
looking closely at claims made by Australian organisations about
their strategy, performance and future prospects. Investors seek
transparency about long-term sustainability and strategy, supported
by reputable assurance providers that what the company says about its
plans and prospects is 'fair, balanced and reasonable'.
The fourth perspective relates to the use of new technologies to
get better insights and assurance over matters beyond the financials.
Analysis of performance, risk and regulation are increasingly critical
because these are areas that have the potential to diminish value and
bring companies down. KPMG research shows that 25 per cent of
C-level executives in Australian companies do not trust the manner
in which the company uses analytics.
Risk identification and mitigation are rated highly by investors.
It was noted, for example, that drones are trialled at storage and
inventory sites that look for obsolescence so as to give clients accurate
and reliable sales and procurement data.
Building a narrative for investors and other stakeholders requires an
integrated reporting management system that looks, not simply at the
tangible financial capital of a company, but also the intangible assets
that now make up 86 per cent of Standard & Poors index of what
makes company value. They tell a bigger story than merely reporting
on tangible assets, but require data that is accurate and credible.
The roundtable noted that Google, Amazon and Microsoft,
for example, value brand, intellectual property and technological
capability highly, and they are all intangible assets. Others are human
and customer capital, which are not on the balance sheet but are
critical when reporting on company value, and together are now rated
more highly than financial capital by rating agencies. For that reason,
it is vital that the 'reportability' of the business model and the strategy
is robust, and the data that make it up is accurate.
Finally, roundtable participants agreed that central
to rebuilding trust is active governance overseen by
competent boards that are mindful of long-term
sustainability for the benefit of investors and other
stakeholders. That includes actively overseeing
the development and execution of the company's
reporting strategy, and the required level of assurance
over the information that makes up the reports.
Academic Rachel Botsman defines trust as having
a 'confident relationship to the unknown'. Achieving
that involves being sufficiently humble to
acknowledge the unknown rather than
suffering under the illusion that all
knowns can be based on past experience.
Greenspan realised that that latter
presumption let him down badly at the
end of his career. •••
Trust on the wane
Acknowledging that we don't know it all is the first step to rebuilding confidence.
BY PETER WILSON AM FCPHR AHRI CHAIRMAN
To read past Perspective columns by Peter
Wilson, visit hrmonline.com.au
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