How to restore trust in a digitalised society
Before the ascent of the internet, trust was earned through local reputation.
A network of family, friends and neighbours determined which organisations could be relied upon by word of mouth.
Someone would confide that a car dealer had let them down and was not to be trusted, shifting business elsewhere. Every parent was quickly made aware of the perceived quality of local schools, even where there was little choice.
All this shared knowledge, communicated in person via briefings over the garden gate or conversations at the bus stop, assigned a community’s unofficial rating to a trader or an organisation.
As society has changed, we’ve moved from buying direct from people we know about to the more anonymous supermarkets and chains, and now increasingly online — a trend accelerated by Covid-19.
Interacting completely online means we might know nothing at all about a vendor, including in which country their goods originate or the quality controls exercised upon them.
Having moved from the world of trust earned through a handshake with someone we have got to know to one of remote relationships, how do we now judge what and who to trust?
As business and society has become more globally interconnected and interdependent, there are new trust parameters. We didn’t have to worry about how businesses in other countries and continents operated when we didn’t interact with them or buy from them.
In our rapidly changing digital and global economy we now want and need to know much more about an organisation before we trust it: how do they treat workers in their supply chain, do they protect the environment, and do they pay their fair share of tax?
We can’t rely on our local community for answers, and social media is awash with conflicting information and opinions from people we’ve never met and don’t know if we can trust.
At ACCA, our latest report Tenets of Business Law: A Framework for the Future considers how legal frameworks can help us with these dilemmas, as we seek to recover from Covid-19 and build a sustainable economy.
This paper, prepared as part of our support for Global Ethics Day on 21 October, addresses the issue of what constitutes and builds organisational reputation in today’s world.
At the heart of this question is how our business laws can enable a transparent and accessible assessment of a business’s “character”, in addition to the reporting of financial information.
Governments, businesses and societies around the world are facing unprecedented challenges. The impact of the digitalising economy combined with demographic and social shifts, climate change and resource scarcity have driven a reappraisal of business models that has been gathering pace since the global financial crisis.
Over the past few months, the impact of the pandemic has further intensified the focus on, and importance of, resilient business models and cooperative action. The need for clear and effective business laws to build a sustainable economy for the future is greater than it has ever been.
Every major economy is experiencing or facing the threat of economic depression, with many seeing existential threats to some of their most important sectors. The challenges and opportunities facing policymakers and entrepreneurs alike are almost entirely novel. And yet the success of responses to them will depend on timeless concepts, one of the most important of which is integrity.
We need common frameworks and standards against which trustworthiness can be assessed. Professional accountants have, since the formation of the profession in the nineteenth century, acted as one of the gatekeepers of trust. Preparing, reviewing and providing assurance on the financial measures of others’ businesses is key in creating the environment of trust that fosters effective trade — and it relies on an ongoing commitment to ethics and professionalism, which ACCA works to develop and uphold.
Professional accountants operate by necessity within a shared framework of understood rules and standards, designed to allow individuals to make judgements and come to decisions about businesses and activities with which they have no direct contact. Business law acts not simply as a restrictive list of prohibitions but rather as an enabling framework.
If we are to build better economies and societies, it won’t be enough to rely on the enforcement of punitive laws to ensure that people do the right thing. Believing that the counterparty can be trusted to act in the joint best interest is at the heart of making decisions and investing time, money or effort into relationships and joint ventures of whatever form. Much of business law is designed to ease and encourage the making of those decisions.
But beyond those basics of enabling trade to take place, business partners, owners and managers, customers and suppliers, taxpayers and governments all need to have faith in each other’s commitment to the common good. And this needs to lie at the heart of the contract between an entity and the society it is designed to serve.
Failures of ethical behaviour have consequences far beyond the specific transactions and individuals affected. At a time when rebuilding both individual businesses and the frameworks and societies they operate in is going to be so vital to economic recovery, the integrity of partners and decision makers will be a key element in driving sustainable economic activity.
Business law structures are designed to enable as much as they are to protect. Compliance and risk management are essential elements of those frameworks, but a successful business will go far beyond that bare minimum. Positive engagement with the transparency and accountability provisions of business regulation demonstrates an openness to collaboration and cooperation.
ACCA believes that lawmakers should formulate a framework in which business success makes a net positive contribution to society’s prosperity. To be a sustainable organisation means being committed to minimising environmental impact whilst putting social justice and social responsibility at the heart of strategy. But for that to make a difference to how the business is perceived, those commitments must be measured against a reliable and trusted framework, and the results communicated in an accessible and understandable manner.
As we seek to rebuild, every organisation has a rare chance to recommit to a purpose that strengthens society. If we focus on this, heightened trust and confidence in business, post the pandemic, will be our reward.
Main image credit: Getty