How can organisations restore confidence in the wake of a scandal? Recent research from The University of Queensland (UQ) Business School has identified a number of different approaches organisations can take.
Society’s trust in business and government is at a historic low. From the financial crisis to misuse of Facebook data, cheating in cricket and revelations about the banks, a series of organisation failures and corporate scandals has helped to destroy public faith.
Yet trust underpins an organisation’s relationship with its staff and customers, and a deficit of trust is bad for society as a whole. So how can it be restored in the wake of a crisis?
Associate Professor Nicole Gillespie, an expert in organisational trust at UQ Business School, says the biggest mistake is to avoid dealing with the issue. “Organisations often try to cover up what’s happened. However once a trust failure has occurred, denying it is effectively a second violation which undermines trust further and makes it harder to recover.”
Through her research, she has identified six ways to rebuild trust in an organisation:
1. Making sense of what happened
When a scandal occurs, the cause is not always immediately apparent. To restore trust, a process of ‘sense-making’ is first required to establish what went wrong and how to stop it happening again. There is often a stream of social media, TV talk shows, newspaper articles and public enquiries, with different parties putting forward their point of view.
“Sense-making is essential but it can be a dynamic process,” says Nicole. “Explanations are often contested and open to interpretations, and the process can be dominated by strong political interests, self-protective behaviours and bias.”
She recommends organisations publicly acknowledge what happened, offer explanations, launch investigations and cooperate with public enquiries. To be effective, explanations must be comprehensive, credible and sincere. Timeliness is also important as people typically assume the worst if no explanation is offered.
Independent investigations can help to establish what went wrong, but can also deepen a crisis if they reveal further wrongdoing, as in the cases of institutional child abuse and the banking royal commission. If they take a long time, the reputational damage can linger even if the parties have been exonerated.
Whatever happens, it is important to tackle the root of the problem and avoid ‘scapegoating’ – blaming a few high-profile people to appease the public, says Nicole. “Removing a few senior people from office is a simple and cheap solution. While a ‘changing of the guard’ may be necessary to repair trust, it will not work if it’s only done to avoid tackling the underlying issues.”
2. Making amends
After a trust violation, ‘victims’ may experience strong emotions including a sense of injustice and outrage. Re-establishing trust can be facilitated by some type of ritual which re-establishes the social order in the stakeholder-firm relationship. Public explanations, apologies, accepting punishment and compensation are all ways for the offending organisation to restore their standing and re-establish a sense of balance in their relationship with stakeholders.
“An apology signals that the organisation accepts that its conduct was wrong and it will not be repeated,” adds Nicole. “Apologies are more effective when they are timely, acknowledge responsibility, are perceived to be genuine and when the violation is a one-off, rather than a repeated incident.
“Using apologies alongside other actions, such as punishment and compensation, adds further impact. Punishment suggests that the organisation has paid a price and learnt its lesson.”
However in some cases, lawyers may advise organisations to avoid apologising for fear of admitting liability. And if the offender retains a lot of money or power, even a punishment may not be enough – for example, where bosses have brought damage to a company’s reputation but still received a large pay-out.
3. Rules and regulations
Enforcing rules and standards are one of the most common ways to restore trust – whether imposed by regulators or by the company itself.
Regulations, such as the Sarbanes-Oxley Act introduced by the US after the collapse of Enron, or new banking regimes in the wake of the Global Financial Crisis, can help rebuild confidence. Voluntary controls can be even more effective as they suggest that the organisation is committed to operating differently.
However controls which are too tight can create a lack of flexibility, suffocate innovation and growth, and suggest that management don’t trust their own staff. Controls only work where violations relate to lack of competence. Failures of values and integrity need to be addressed by a wider cultural change.
4. Building an ethical culture
While new control mechanisms can help to restore trustworthiness, developing a strong ethical culture is equally, if not more important. When ethics are engrained into everyday routines, violations are less likely. However, managers are key in setting the tone. Leaders can encourage wrongdoing either by setting a bad example or by condoning or rewarding bad behaviour by others. Once established, an unethical culture is hard to change.
Some professions have strong cultures of their own, which can affect the whole organisation – for example finance teams focused only on maximising ‘shareholder value’ can jeopardise the company’s reputation by prioritising short-term gains.
Breakdowns of professionalism are behind many trust violations and sometimes occur in a group, whether it is elite athletes or investment bankers. Reminding people of their professional ethics and harnessing positive professional values such as those of doctors and engineers can help to rebuild trust.
5. Transparency and accountability
Disclosing information signals that a company has nothing to hide. The evidence suggests that organisations which are transparent and accountable increase or restore trust.
Nicole says: “Of course there is always the risk that openness will reveal bad news and there are powerful incentives for organisations to cover up failures, as the number of scandals involving data manipulation shows. Transparency can have unintended consequences, such as managers passing on blame or risk to others.”
6. Transferring trust
Endorsements or certifications are both ways in which trust can be transferred from one party to another. Appointing a respected public figure to the board or building links with a trustworthy institution can help scandal-hit organisations to restore their credibility.
However, this strategy depends on finding a trustworthy third party willing to collaborate, and there is always the risk they could damage their own reputation by doing so.
In practice, the different strategies often work alongside and complement each other, says Nicole. “Each of these six approaches has its merits and can play an important role but each has its limitations. No one mechanism can be relied upon solely to rebuild trust. Organisations will need to use a combination of approaches to fulfil the complex task of rebuilding stakeholder trust.”