A crisis of trust in the ‘Age of Transparency’

Published on
April 19, 2018

Despite the advent of digital technology and big data, which is making corporations and governments more transparent than ever, public trust in these institutions continues to decline.

Customers, regulators, employees, interest groups, investors and the media are putting organisations under more scrutiny than ever before, and the internet and social media are ideal channels to facilitate this scrutiny.

Companies are now going well beyond their regulatory reporting requirements and providing reports to their stakeholders on all manner of subjects – from remuneration and environmental, social and governance issues, to human rights and diversity.

However, despite this new era of transparency, Qantas Loyalty CEO Olivia Wirth recently told an Australian Financial Review Business Summit the airline’s research had shown a noticeable decline in trust in big business in general over the past five years – a trend that is also in evidence internationally.

The Qantas research pointed to perceptions of a lack of transparency, and the view that big business’s focus on the bottom line had driven this loss of trust.

So trust is now a key issue for Australian corporations and every sector is experiencing the challenges in this new environment.

Business Council of Australia Chief Executive Officer, Jennifer Westacott, was recently compelled to speak out against the general negativity presently surrounding the business sector.

“If we want to bash up on business, we are going to bash our futures,” she stated in the Australian Financial Review article ‘Bashing business bashes our future’ on 19 February 2018.

Renowned cognitive scientist Steven Pinker provided some insights into how the negativity of the media is playing its part in the negativity which appears to be engulfing society more broadly. He says the media’s narrow focus on negative anomalies can result in “systematically distorted” views of the world.

Pinker cites data indicating the share of negative news stories has trended upward in the post-war period. Since the arrival of digital and social media, the news cycle has shortened and this has encouraged a non-stop flow of often inaccurate, sensational, fake, and even deeply biased content.

Negative news tends to be more popular among readers, perhaps because of our in-built negativity bias. Another contributing factor is the fact that with the internet and social media, users can “self-select” or filter the type of content they are exposed to, potentially reinforcing their existing biases.

In his book Enlightenment Now: The Case for Reason, Science, Humanism, and Progress, Pinker says the consequences of negative news are themselves negative.

Rather than being better informed, news-watchers can become miscalibrated. That leads to more worry about issues such as crime, even when rates are falling, and sometimes media consumers lose sight of reality altogether.

Despite its pitfalls for organisations, the immediacy and accessibility of the internet also makes it an ideal vehicle for demonstrating corporate transparency, which is an essential component of building trust with stakeholders and enhancing brand reputation.

KPMG believes one way companies can enhance trust is through a new form of reporting called integrated reporting.

According to KPMG, integrated reporting is an approach which enables companies to report beyond the financial results over the past 12 months and their financial position, to outline a broader approach to strategy and long-term value creation.

Benefits include more meaningful reporting about the past, in addition to strategies for creating greater value in the future.

According to Stanford Graduate School of Management Professor Mary Bartha, integrated reporting is also positively linked with stock liquidity and expected future cash flows.

It is described as a “flagship” report and focused on key elements including strategy, business model, availability and use of scarce resources, governance, risks and risk management, performance and future prospects.

The foundation of integrated reporting is “integrated thinking”, which has business strategy and the business model at its core.

KPMG states that integrated reporting lends itself to a strategic and systematic implementation approach, based on a clear business case which specifies a required return on investment.

Assurance from independent auditors with integrated reporting expertise is a key requirement from investors and company boards.

Integrated reporting is gaining popularity internationally with around 1,600 companies now utilising this approach. Interestingly, South Africa is leading the way in terms of adoption.

In Australia, integrated reporting is gaining momentum and KPMG’s review of corporate trends for the year ending June 2017 indicated that companies were working towards improving their existing annual reports and, whether intentionally or by accident, were moving towards an integrated reporting model.