Good afternoon ladies and gentlemen. It's been a privilege to join the discussions of the Global General Counsel Summit over the past couple of days. As the former head of the Australian Securities and Investments Commission, I have long appreciated the central role corporate counsel play in ensuring legal and ethical integrity in business operations.
Now as head of the OECD's Directorate for Financial and Enterprise Affairs, I oversee the Organisation's work on corporate governance, responsible business conduct, competition and anti-corruption, among others.
Over the past few days we have heard of the general counsel's growing importance in managing emerging risks and helping businesses adapt to a fast-changing business environment. One of the major factors I see having a profound impact on markets and business over the coming years is trust – particularly the trust public has in business. Trust's impact on business directly affects the role and objectives of the general counsel; and will be my focus for today.
To that end I'll discuss three things:
Today's conference comes roughly 10 years after the start of the global financial crisis. Measures such as the Edelman Trust Barometer have showed how the public's trust in public and private institutions collapsed in the aftermath of the crisis. These levels of trust have since improved, but they are still low — and momentum has stalled over the past couple of years. This is particularly the case for public trust in business.
Edelman's measures for 2018 showed that trust in business worldwide remain unchanged between 2017 and 2018.
At a high level, trust is essential to support economic activities — to secure the confidence of consumers and investors in markets. Trust in institutions is important for the success of government policies, programmes and regulations that depend on cooperation and compliance of citizens.
Just 52 percent of the general population trust business to "do the right thing." In the United States this number is 48 percent — 10 percent less than last year. We have seen major scandals engulf a number of major businesses in the past few years – businesses which previously enjoyed high levels of trust, like Volkswagen, Wells Fargo and Facebook.
For a business, trust is important because it measures the extent to which business conduct and values are aligned with customer outcomes. Businesses must put their customers unequivocally first, because not doing so could be costly, including:
Social media and the 24–hour news cycle have harnessed and amplified the power of the crowd. The crowd sets the conditions for the social license — the overall community expectations for conduct that businesses must meet if they are to be successful over the long term.
This social license is constantly evolving. Businesses need to monitor community expectations closely and make sure they don't fall too short of them, otherwise they may find themselves adversely impacted by the law, or their reputation damaged.
Reputation flows through to a business's ability to attract and retain capital, talent, and customers, and contributes to its long-term sustainability. And the bigger the gap in trust between customers and business, the more likely business models will be disrupted by innovative entrants offering better services and prices — and values.
This is supported by empirical analysis from the OECD. A study in last year's OECD Business and Financial Outlook found that a business's social score — its capacity to generate trust and loyalty with its workforce, customers and society — was an overwhelming predictor of strong returns on equity and return on assets.
As general counsel, conduct is a fundamental concern for two reasons:
Business's ability to do the right thing boils down to one key factor: corporate culture. Culture is the set of shared values and assumptions within an organisation. It sets the
"unwritten rules" for how things really work in a business — including towards customers and compliance.
Poor culture creates a corporate environment where poor conduct can take root, and may even be rewarded, while good culture can help uncover and inhibit misconduct and reward and
encourage good conduct.
Because the general counsel is concerned with conduct, they must also be involved in culture, and I so want to touch on what I see as the four main drivers of culture:
Poor culture creates a corporate environment where poor conduct can take root, and may even be rewarded, while good culture can help uncover and inhibit misconduct and reward and encourage good conduct.
We know that culture exists and is propagated at the business unit level. So, while tone from the top is critical, so must middle and frontline managers model the firm's values.
Several measures that support accountability fall firmly within the general counsel's domain. In particular, businesses need effective frameworks, clear procedures and channels in place for internal reporting of misconduct and breaches of the law — something which was discussed at one of yesterday's sessions.
I can tell you as the former head of a regulator the value to law enforcement authorities of information from whistleblowers. These are often employees who want their organisations and their colleagues to do the right thing — they should be an asset to legal departments and businesses more widely. Employees need to trust that internal reporting systems and internal whistleblower programmes will protect them and that concerns will lead to action.
There is no "correct" culture that will be right for every organisation, but there are international standards and guidance, including:
I want to turn finally to how issues of trust, conduct and culture intersect with the globalised nature of 21st century business — and how these can be managed with a focus on Responsible Business Conduct. Cross–border business is increasing at an exponential rate. The share of trade in global GDP has tripled since 1950, and the level of outward FDI relative to GDP in OECD countries has quadrupled since the early 1970s.
Participating in the global economy means navigating a complex legal, social and regulatory environment, where laws, community expectations and enforcement may differ geographically. Reputational risks can flow right through the value chain.
Governments have an obvious role to play in ensuring businesses — and countries — can't compete on weak governance and standards in other jurisdictions. The OECD's motto is better policies for better lives, and we help level the international playing field for business through international instruments like the OECD Anti–Bribery Convention and the OECD Recommendation on Public Integrity. But for individual business, the fact that good conduct is simply good for business extends to multinational operations. Participating in the global economy means navigating a complex legal, social and regulatory environment, where laws, community expectations and enforcement may differ geographically. Reputational risks can flow right through the value chain.
At the OECD we see Responsible Business Conduct as a particularly powerful framework to manage cross-border business risks. Responsible Business Conduct is a catch-all term which encompasses the kinds of corporate culture and practices that ensure multinational enterprises do no harm, and make a positive contribution to economic, environmental and social progress.
The OECD Guidelines for Multinational Enterprises is the international gold–standard for Responsible Business Conduct – and should be of particular interest to general counsel. The guidelines are a way for governments to communicate to business that they are serious about building responsible business conduct in their jurisdictions. Forty–eight countries are signatories to the guidelines But importantly, these are business focused guidelines. Businesses need not depend on governments to sign up in order to use them.
In particular, the guidelines recognise the important role of due diligence in helping drive Responsible Business Conduct by identifying, assessing and mitigating adverse impacts in operations, supply chains and business relationships. We have specific due diligence guidance for:
Blockchain allows information to be securely validated, stored and transferred in a way that is both transparent and cannot be tampered with. The potential for due diligence in global supply chains is enormous.
This can be supported by the principles of Responsible Business Conduct, and the international standards, guidance and technologies available to help implement it.
In these ways, general counsel can make a strong contribution to securing the trust that is necessary in meeting the evolving social license to operate, and the good conduct which is central to business success over the long term.
For additional information, visit www.acc.com/governance.
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