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TRUST ME

Business leaders cannot restore trust without reprioritizing what matters

A Wall Street street sign outside the New York Stock Exchange
REUTERS/Brendan McDermid
Not the be all end all.
  • Judy Samuelson
By Judy Samuelson

Executive director, Aspen Institute Business & Society Program

Published Last updated

The latest installment of the Edelman Trust Barometer is a gloomy report on public attitudes toward institutions of all kinds. The public relations firm’s findings (pdf) put trust in business at only 61%, marginally ahead of trust in NGOs (59%), vs. government (52%) and media (50%.)

David Gelles of the New York Times commented, “The public doesn’t trust anyone, these days.” But Edelman sees the relative trust in business as meaningful and describes a public hungry for corporate executives to show leadership on an array of critical issues. Richard Edelman, CEO of the firm, believes the findings in the 2022 Trust Barometer suggest people want to see more from business leaders, not less. In the language of the report, “It’s up to business to break the cycle of distrust.”

In his 2022 letter to CEOs, Larry Fink of Blackrock strikes a similar tone. “It’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy, and a long-term view. Your company’s purpose is its north star in this tumultuous environment.”

What might these two keen observers of corporations and markets expect to happen now as they call business to account? Will anything truly change is this moment of intensifying interest in so-called ESG—environment, social, governance—intentions and disclosures?

The Davos Man disconnect

In the new book Davos Man, Peter S. Goodman describes what has become a classic disconnect in the quest for trust in business: Corporations earn accolades for philanthropy and public commitments on all kinds of causes, while deploying tax subsidiaries across the globe to avoid paying taxes for these same needs at home, and using their voice in Washington and at the state level to keep it that way. (Per the Joint Committee on Taxation, the average effective tax rate of US multinational corporations in 2018 on US profits was 7.8%, down from 16% in 2017, a result of the 2017 tax cuts.)

The trust disconnect also can be seen in business opposition to US president Joe Biden’s Build Back Better bill, which now languishes in Congress.

On the one hand, the bill includes investment and incentives supported by the business community for more aggressive action on climate change; on the other hand, the bill raises the federal tax rate to 28% from 21%—and the House version proposes a 15% minimum federal corporate tax—to help pay for the investment required to reduce carbon, prompting business groups to work to kill the bill in its current form.

The bottom line is that CEOs can appear to offer what BlackRock’s Fink calls for—voice, purpose, strategy, and a long-term view—while still deploying extreme measures to avoid taxes and dodge the cost of public goods, including infrastructure and decarbonizing the energy mix to avoid a climate catastrophe.

What is the motivation for tax avoidance? To maximize profits and juice the stock price, of course. A research team led by William Lazonick at the University of Massachusetts reports in Harvard Business Review that from 2009 to 2019, S&P 500 companies spent over 90% of net income on buybacks and dividends, with the highest levels achieved after the 2017 tax cuts, in 2018 and 2019. Taking on corporate debt to finance share repurchases has become commonplace. Never mind that share buybacks deplete corporate treasuries of cash to weather setbacks and to fund productive investment in labor and R&D.

What will it take to actually restore trust in business and those who lead?

American society has always expected leadership from big business—this moment is not unique. But four decades of putting share price at the center of incentives for management of public companies is holding us back. (We’ve also seen a parallel and growing concern over private companies controlled by investors overly focused on cost-cutting to find a profitable exit.)

One difference today? The clearest signals to executives now come from within—from employees filled with existential concern over the advance of climate change and other social issues playing out in the public square. As a result, employees are focused on how executives utilize their power and political spending. They have become more public in voicing their discontent—at employee town halls or annual meetings, in social media, or in the press—over the disconnects between the proclamations of their CEOs and the actions of their employers.

But even with employees leaning in, the executive’s playbook for restoring faith in both business and democracy itself isn’t all that clear. And not everyone is welcoming business to the table. Kim Phillips-Fein, a historian at New York University, questions whether the public even wants business involved in this struggle at all:

“Focusing political energy on securing the commitment of a group of business elites would undermine the engagement of a broad democratic base that must be the real basis of substantial reform. To address many of our deepest problems, nothing less than a redistribution of economic and political power will be needed, and it will be achieved only over the opposition of business and the wealthy.” [Emphasis added]

Carving a path to better business judgment

If corporations do have a role to play to restore common sense to the balance between private inurement and public benefit, leadership must include a radically different set of priorities, whether it’s supporting sensible policy when it comes to taxing carbon or putting profit-sharing with those who deliver the products and services ahead of return to investors. We no longer live in a win-win world; there are real tradeoffs required.

Saying the public expects more of business leaders might suggest that CEOs and boards keep doing what they are doing, only more of it. That feels like quite a leap based on the Edelman data.

In a blog that accompanies the report, Richard Edelman himself calls out the dilemma for business executives managing to both shareholders and change agents. He suggests there is a need to take more risk, and to pose some new questions about business performance:

“Business must walk a tightrope. For now, business must accept the burden of filling the void left by government, but it should be poised to pivot to a more level playing field. CEOs will have to lead on policy and continue to be a model of long-term thinking for other institutions while avoiding political overreach.”

Rather than needing “more leadership” from business, we need better judgment and a reordering of priorities. It means parting with conventional protocols for CEO pay that put the stock price at the center of rewards, or even thinking differently about unions and worker voice. Business wields influence whether we want it to or not. If we truly take a long-term view, then what we need to see from business leaders isn’t “more” or “nothing,” but a radical rethinking of what matters.

Judy Samuelson is executive director and founder of the Aspen Institute’s Business and Society Program, and author of “The Six New Rules of Business: Creating Real Value in a Changing World.”

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