Speech by Ngozi Okonjo-Iweala
Managing Director, The World Bank Group
“Opportunity in Crisis”
Introduction His Excellency Mr. Abdullah Gül, President of Turkey, UN Secretary General Mr. Ban Ki-moon, Secretary General of the Fourth UN Conference on LDCs Mr. Cheik Sidi Diarra, Excellencies, Heads of States, Heads of Government, Ministers, delegates, colleagues, ladies and gentlemen it is a great pleasure to be with you today. First of all I would like to thank the Turkish PM, HE Mr. Recep Tayyip Erdoğan and his Government and the people of Turkey for their warm hospitality in hosting this important conference.
On behalf of the World Bank Group and of President Robert Zoellick, I want to thank the UN for organizing this event. We are here at a very important time in history.
The world economy is going through a very difficult transition. Three years after the worst financial crisis since the great depression, global growth is finally recovering – albeit very slowly. World GDP has increased from a 2.5 percent average in 2008-2009 to 5.5 percent in 2011. Developed country GDP has grown from 0 percent to 3.5 percent while emerging country GDP has grown from 5.7 percent average in 2008-2009 to 7.8 percent in 2011.
But the least developed countries (LDCs) have performed well. LDC’s (excluding four outlier countries) have grown from an average of 8.5 percent during 2000-2007 to 10.3 percent in 2008-09. That’s a significant increase in this difficult post financial crisis environment.
However this growth is fragile. Millions of people in the world’s poorest countries are today living on a knife’s edge – the victims of high and volatile food prices. People’s lives too are under threat by the impact of climate change and civil unrest. The devastation wrought by climate change, volatile and high food prices and conflicts pose threats not only to the poor people within countries, but can also spill over borders and threaten global security.
Rising food prices have pushed about 44 million more people into poverty since June last year. The 2008 food crisis led to over 40 riots in many poor countries serving as a strong warning about the importance of food security for social stability and people’s own security. 1.5 billion people now live in countries affected by repeated cycles of political and criminal violence.
And the entire development agenda is threatened by climate change. We know recent natural disasters – and the crises in the Middle East – are further straining resources and creating added uncertainties.
The world’s least developed countries also face the challenge of dealing with a youth bulge – as more than 50 percent of the population in the Least Development Countries is below 25 years of age. And there are also challenges in dealing with the private sector; today nineteen of LDC countries are in the bottom 25 countries of the Doing Business survey.
In sum, despite the good growth rates experienced by the LDCs, the favorable economic conditions of pre-crisis period no longer exist.
So what does this mean for the 48 LDC countries represented here if the next decade is to be a decade of growth for LDCs? How can we together manage the transition back to accelerated growth? What should policy makers in LDCs focus on over the medium term and how can development partners assist? These are the issues I would like to focus my talk on.
I believe we need to focus on three critical issues: fiscal stability; building on the comparative advantage of countries and attracting foreign direct investment to support manufacturing and scaling up what we know works – designing safety net programs to protect the poor and vulnerable. These are areas where the international community can help – and also where the least development countries must now look within to create favorable growth conditions.
Let me begin by mentioning some interesting statistics about LDCs which are helpful to set the scene.
- In the eight years prior to the crisis GDP growth for the LDCs averaged 8.5% (With the exception of Equatorial Guinea, Angola, Chad and Afghanistan);
- GDP per capita increased from $US 271 million in 2000 to $US 686 million in 2008;
- Average debt to GDP ratio of all the LDCs was 32 percent in 2008;
- LDCs substantially increased FDI – seven fold- from $US 3,5bln in 2000 to $US 17.3 bln in 2008 and
- LDC share in world trade increased rapidly from 0.61 percent in 2000 to 1.0 in 2008.•
In sum, the LDCs as a group have been doing their part to contribute to global growth. With the return to growth in most countries, ensuring a new decade of sustained and inclusive growth means seizing the opportunities, building on what works and meeting the challenges of today and preparing for the risks of tomorrow. Clearly the international community is helping and can continue to help. It’s also about the least developed countries innovating from within and seizing the momentum to create favorable conditions for another decade of growth and a decade in which at least half of the LDCs double their GDP per capita as they did in the last ten.
So how do we achieve this?
First protect existing growth. LDCs must continue to watch inflation. Many countries today are confronting the challenges posed by new inflationary pressures resulting from renewed increases in oil and food prices. Inflation in the LDCs now averages 5.4 percent in 2011 compared to 8.2 percent in 2007. LDCs have managed this well and cannot be complacent.
On the fiscal front, over the last three years many countries including LDCs put in place fiscal stimulus measures to cushion the impact of the crisis. Our analysis shows, for example, that countries like Tanzania, St Lucia, and Cambodia created labor intensive public works programs and Bolivia, and Senegal strengthened or introduced cash transfer programs. These countercyclical measures served countries well. But as we emerge from the crisis, many of LDCs will no longer have the fiscal space needed to restore growth to pre-crisis levels or accelerate growth if these policies are not scaled back or rationalized further.
The challenge, therefore, is for LDCs to focus on rebuilding fiscal space. This means strengthening domestic revenue. LDCs should increase the efficiency of the tax and customs administration offices to collect more from those registered to pay and also broaden the base by reviewing policy choices.
On the expenditure front, the crisis forced many countries to adopt legislation to improve the efficiency of public expenditure. In countries like Ethiopia improved subsidy programs have been designed to better target the poor and vulnerable at least cost.
Preparing for crises
Part of the new normal in many countries is the need to protect against the next crisis by building macroeconomic and fiscal buffers. A recent World Bank study shows that in the 1980s, the world had 150 crises every year. Now studies suggest the number of crisis has increased to 370 per year. This means increased uncertainty and volatility in the global environment. Countries need to be prepared for this. Increasing fiscal space and maintaining sustainable debt to GDP levels will be crucial for this.
In this regard there are lessons we could learn from our host country Turkey. Turkey rose from the crisis of 2001 — and seized the opportunity of that crisis – to build a better future and drive poverty rates dramatically down. A strong program of comprehensive reform produced growth of nearly 7 percent annually from 2003-2007. This progress helped to minimize the crushing impact of the global crisis of 2008.
Policies for Private Investment and Trade
The lesson from Turkey is that a strong reform program can deliver rapid and job creating growth as well as cushion countries from future crisis. As small open economies LDCs will rely on trade for growth and as such reforms should focus on opening up the economy and building skills that allow for increased competition and take advantage of FDI inflows to innovate.
But first LDCs must build and consolidate markets in the sectors where they have a comparative advantage.
Opportunity with agriculture
Agriculture production must grow by 70 percent worldwide by 2050 to feed an expected population of more than 9 billion people. In an era where unemployment is a big problem, an food prices continue to increase because of low stocks and other demand and supply pressures, the agriculture sector provides a big opportunity for many of the LDCs. The added bonus is that increasing agricultural production can help tackle the inflation problem in many countries
A recent study by the Bank showed that in many LDCs the agriculture sector was still characterized by low yields and high proportions of idle arable agriculture land. That idle land should be put to use as part of a bid for the least developed countries to take advantage of the growing demand for more and better agriculture products. This will create jobs while help feeding the planet.
How can this be done? The first thing is to move away from the concept of treating the agriculture sector as safety net and instead treat it as an engine for growth. The agriculture sector is also the very basis of the development of the private sector.
Essentially agriculture is a private sector activity. But in many countries, persistent state intervention in pricing policy, the imposition of export bans and the lack of adequate property rights, especially for land and for women, has impeded improvements in production and productivity. These constraints have also stifled the development of value adding agri-business. Vietnam has shown what good agriculture sector policies can do to grow the private sector. The growth in exports of mangoes in Mali – six-fold in the period 1993-2008 – is an outstanding case of export success for an LDC. Mali now has to begin exporting mango juice.
Beyond economic growth, agriculture development and increased food security can also be a tool for achieving political stability especially in the fragile and conflict affected states. The good news is that we have learnt some lessons from the 2008 crisis but we again must not be complacent. .
We must work to improve the agriculture value chain, improve agriculture markets, and increase transparency of the trading system. According to the World Development Report, for the poorest people, GDP growth originating in agriculture is about four times more effective in reducing poverty than GDP growth originating outside the sector.
Opportunity in Trade and Manufacturing
As countries improve agriculture productivity and production they would have to address the issue of non-farm employment. Moving people off the farms and into manufacturing or service sector jobs must be part of the long term strategy of all LDCs.
It is my firm belief that a “Decade of Growth” for LDCs must be anchored in more and better trade and trade openness. LDCs do not want aid they want trade. In fact recent rapid LDC growth has coincided with a period of increased trade.
Export growth in LDCs has turned from a negative -3.4 percent average in the 1990s to a spectacular rate of 18.5 percent in the 2000s. LDC exports to BRICs in 2005 was 19.0 percent and by 2009 increased to 24.2 percent.
A privilege LDCs enjoy which makes least developed countries the envy of many non-LDCs is the access to “Everything but Arms” and Africa Growth Opportunity Act (AGOA). These two agreements grant access to both European and North American markets other countries are struggling to enter. But for this access to be meaningful countries must exploit it. Lesotho for example in the first two years of AGOA access experienced a 36 percent increase in employment from 29,000 to 45,000 due to the establishment of new companies seeking to take advantage of the AGOA preferences. Other countries are also negotiating trade agreements and countries must be ready and prepared to compete with more countries over time. So how can LDCs seize the opportunity provided by this access?
As China moves up the value chain to produce more value added goods and phases out of labor intensive manufacturing LDCs should look to attract these investments.
In addition, rising labor costs in China as Chinese workers become more educated and demand better jobs will result in Chinese and foreign firms relocating their manufacturing plants to cheaper labor markets. A recent Credit Suisse report predicted labor costs in China for its over 150 million migrant workers could rise by over 20 to 30 percent in the next three to five years. Net FDI inflows into China increased from $30 billion in 2000 to a record $147.7 billion in 2008. With the increasing pressure on the Yuan, and rising labor costs companies will begin to look elsewhere to locate their businesses and their manufacturing. Net foreign direct investment inflows to China 7
increased from $30 billion in 2000 to a record $147.7 billion in 2008, it’s worth the least developed countries taking note as they stand to benefit from FDI relocation.
Recently for example, a large company, the world’s biggest contract electronics manufacturer– announced that it was looking to move some of its manufacturing operations – over $400,000 jobs- out of China. Imagine what attracting a company with 100,000 jobs could do for your economies. In many of these cases firms are looking to move their production to other Asian economies such as Bangladesh, Nepal and Cambodia where labor is abundant and cheap. But also some firms are relocating from Asia into Africa. The race is on to attract these firms.
If only 10 percent of Chinese FDI was available for investment in the LDCs, this would be the equivalent of over US$ 9-14 billion additional FDI into the LDCs. This means LDCs have to prepare their economies for this massive economic transition by building the infrastructure and creating the right environment for private sector to foster.
LDCs will have to compete with in-land China and other non-LDC countries for these new investments. China and India for example are all facing the pressure of rising labor costs in their manufacturing cities so they are investing heavily in infrastructure to link the inland states and provinces to markets at cheaper and faster rates.
LDCs need to export more and more to new markets. This means that the LDCs must find new ways of working and trading with emerging market economies. They need to take action to lower trade costs. Trade costs tend to be highest in those countries at the bottom of the development ladder. There are real gains to lower trade costs. For example, a recent Bank study shows that improving the business environment in Bangladesh halfway to the level of India could increase its trade by about 38 percent. Policy makers must put in place laws that encourage private sector investment. LDCs must make it easier to open businesses, settle disputes and hire skilled labor.
A key ingredient in the decision of firms to invest in LDCs in addition to the cost of inputs and infrastructure is the skills base of the economy.
Seizing the opportunity offered by youth is vital for the future, given that over half of all people in the least developed countries are under 25 years of age. Education is critical. While enrollments rates for primary school in many LDCs have increased over the last decade, they are still low compared to other emerging market economies. Girls’ enrolment continues to lag in many LDC countries.
It’s not just about numbers in the classroom but also what is being taught. In many countries the curricula has not changed to reflect the changing needs of the market place. But there is evidence of change. In sub-Saharan Africa for example despite the huge dependence of many countries on natural resource exploitation there are not that many specialized mining schools and colleges. Today the government of Mali is working with the private sector to build one such specialized school to supply the sub-continent with high quality mining engineers.
LDCs can also learn from the experience of countries such as South Korea and Malaysia. In 1997 faced with changing labor market demands, South Korea reformed its education sector including the curriculum to emphasis the need to prepare secondary school level students for the workforce. Protecting the Poor and Vulnerable; Natural disasters and Fragile and conflict Affected States:
“It is not where you start but how high you aim that matters for success.” Nelson Mandela In many countries close to half the population still lives below the $2 a day mark. Excluding four countries, the GDP per capita of the other 44 countries averaged US$560 in 2009, up from US$269 in 2000. The challenge of addressing poverty has been compounded for many countries with issues of recurring crisis.
Climate change for example will continue to pose significant dangers to economic growth, with more droughts, floods, storms, and heat waves. Over the period 1960-2007, actual reported losses in the worst disaster year reached 86% of GDP in Vanuatu and 100% in Samoa, with respectively 16% and 42% of population affected. We all witnessed the magnitude and size of the disaster in Haiti and the cost of rebuilding.
For the Pacific Island countries and for the Sahel countries for example, reducing the risk of disasters and adapting to the impact of climate change is a social and economic development imperative.
Today, four years to 2015, no low income fragile or conflict-affected country has yet achieved a single Millennium Development Goal (MDGs). Poverty rates are 20 percent higher in countries affected by repeated cycles of violence. Evidence from the 2011 World Development Report on Fragile and Conflict affected States shows that violence is the main constraint to meeting the MDGs. The 1.5 billion people who live in countries affected by organized violence are twice as likely to be undernourished, 1.5 times as likely to be impoverished, and their children are three times as likely to be out of school and jobless.
Fragility and conflict in most cases is the result of a weak social contract between people and their governments. Most often as in natural disasters and other crisis, the poor and the vulnerable are the most affected by these crises and most likely to fall deeper into poverty.
This is one area where we cannot stand-by as observers. On the disaster front and in the case of conflict and other crises the poor and vulnerable suffer the most.
To break these cycles, we must strengthen national institutions and governance processes to provide citizens with security, justice, and jobs. Countries with accountable institutions, where citizen participation in the decision making processes is facilitated and where there is room for social accountability mechanisms to be deployed usually do better in containing conflict and managing crisis including natural disasters.
In addition our experience shows that countries with real time risk monitoring systems to identify and understand the levels of vulnerability of their population are those most able to respond in times of crisis. During the 2008 food crisis, we also found out that countries with the basic administrative structures needed to develop needs- based safety nets were best able to respond to the crisis. These are some lessons LDCs must take from other developing countries and begin to implement in order to protect their medium term growth ambitions. Clearly the international community is and can play a role to support LDCs.
It’s about providing more access to resources, facilitating trade and investment especially south-south exchanges and finally through our knowledge and advocacy.
The good news is that despite the recent financial crisis, Official Development Assistance (ODA) has continued to rise and it is expected to reach $126 billion in 2010. The World Bank just concluded the 16th replenishment of the International Development Association (IDA16) and thanks to your help the World Bank raised a record $49.3 billion, an 18 percent increase from three years ago. With these resources, we’ll have the ability to help build 80,000 kilometers of roads; train and recruit over two million teachers; and give access to improved water sources to 80 million more people.
Going forward in agriculture, the World Bank’s Agriculture Action Plan projects an increase in World Bank Group lending from US$4.1 billion annually in FY06-08 to between US$6.2 billion and US$8.3 billion annually over FY10-12. Actual lending in FY10 was US$6.1 billion to over 51 countries over half of whom are LDCs.
The World Bank Group is also strengthening its agriculture partnerships such through support to the reformed Consultative Group on International Agricultural Research (CGIAR) and the establishment of the Global Agriculture and Food Security Program, which has already approved US$321 million in grants for eight countries — all to LDCs. The Bank is also working closely with United Nations High Level Task Force on the Global Food Security chaired by UN Secretary General Mr. Ban Ki-moon.
On helping countries improve their investment climate to attract and retain FDI, we work with countries to support reforms aimed at easing the business environment and improving infrastructure quality. We also work with WTO and UNCTAD to support the aid for trade agenda. We’re also strong supporters and help in south–south business knowledge sharing.
The Bank has also moved to help poor people hard hit by disasters. Following the 2009 tsunami, IDA was able to provide significant additional resources to both Samoa and Tonga. The Bank committed a total of $250 million to support Haiti’s recovery and development after its earthquake. The Bank hosts the Global Facility for Disaster Recovery and Reconstruction (GFDRR) and has established a Disaster Risk Financing and Insurance program to boost capacity building and knowledge sharing on disaster risk financing.
Since 2000, IDA has provided over US$5.9 billion in post-conflict reconstruction assistance to fragile and conflict-affected countries. Our latest World Development Report is also helping re-shape the way countries and development agencies approach the issue. The report shows that institutions matter, citizens’ matter and strong citizen participation and social accountability can improve development outcomes.
The World Bank Group, along with other development partners is keen to continue to support.
In conclusion, as we meet here in Istanbul to craft a new Action Plan for the LDCs, we must learn the lessons from the past celebrate our successes and use this to chart a course which can deliver a decade of growth while halving the number of poor in LDCs.
As Mandela said “It always seems impossible until it’s done.”
Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense
By Rob Harrison, MD UK & Ireland, SAP Concur
The last few months have been an exercise in adaptability for businesses across the UK. With the sudden mandate to work from home, company processes that were ingrained in employees’ day-to-day routines were either put on hold or turned upside down. The new office normal now includes virtual meetings, conversing through instant messaging instead of in the hallway, and the redefining of “business casual” attire.
Many of the processes that have undergone changes fall into the category of travel and expense. With most business travel on hold and the nature of expenses changing, finance managers have had to adjust policies and practices to accommodate the new world of work. Recent SAP Concur research found that 72% of businesses have seen changes in the levels and types of expenses submitted, but only 24% have changed their policies to support this. Examples of travel and expense related changes that were made at the beginning of work from home mandates include:
- A halt to business travel and its associated expenses.
- Temporarily ending expensed meals for business lunches, dinners, or in-office meetings.
- Increase in office expenses like monitors and chairs as employees furnish their home offices.
- New expenses to consider like Internet and cell phone bills for employees who must work from home.
Now, as companies begin thinking about return to work plans, finance managers are discovering it’s not simply business as usual again. SAP Concur research found that many expect finance will return to normal quicker than general workplace practices, but vast majority see the process taking up to 12 months. New policies and processes need to be put in place to accommodate travel restrictions and changes in expenses. While finance managers need to stay flexible as the business environment continues to evolve, spend control and compliance should still be a high priority.
Here are a few questions that can help finance managers prepare for return to work while keeping control and compliance top of mind:
- What will travel look like for the company? Finance managers must work with travel and HR counterparts to determine the need for employee travel, if at all, and how to keep employees safe. At SAP Concur, we surveyed 500 UK business travellers and found that health and safety is now seen as more than twice as important than their business goals being met on trips (34% versus 16%. Clear guidelines should be developed, even if they are temporary or evolving, so it’s clear who can travel, when they can travel, and how they can travel. Duty of care plans should also be re-evaluated and businesses should ensure they know at all times where employees are traveling for business and how they can communicate with them in the event of an emergency.
- Who needs to approve travel and expenses? While it may be temporary, businesses may have to implement a more stringent approval policy for travel and other expenses. Due to health concerns related to travel and the need to conserve cash flow, business leaders like CFOs may want to have final approval over all travel and expenses until the situation stabilises. To help ensure new approval processes don’t cause delays and inefficiencies, finance managers should implement an automated solution that streamlines the process and allows business leaders to review and approve travel requests, expenses, and invoices right from their phones. According to SAP Concur research, 11% of UK businesses implemented some automation of financial processes in response to COVID-19. This is definitely set to increase post-pandemic.
What types of expenses are within policy? Prior to social distancing, employees may have been allowed to take clients out to dinner. In-person team meetings held during the lunch hour, may have included expensed lunches. As employees return to work, finance managers need to determine if these activities and expenses will be allowed again. Clear guidelines must be put in place and expense policies need to be updated to reflect any changes.
- What happens to home office items that were purchased? While new office equipment may have been purchased for employees’ home offices, they remain the business’s property and what to do with them as employees return to work needs to be determined. Perhaps employees will continue to work from home a few days a week and need to keep the equipment to ensure productivity. However, if a full return to work is expected, finance managers have options that can maximise their asset investment and possibly save the company money, like replacing old office equipment with the new purchases, reselling to a used office furniture company, or donating to a non-profit.
- How can cost control be ensured? For many businesses, cash flow will be tight for the foreseeable future. Spend needs to be managed to help ensure recovery and stability. An important aspect of controlling costs is having full visibility of expenses throughout the company. Implementing an automated spend management solution that integrates expense and invoice management brings together a business’s spend, giving finance managers an understanding of where they can save, where to renegotiate, and where to redirect budgets based on plans and priorities.
Once finance managers have asked themselves the questions above and determined how they want to approach travel and expense procedures, it’s vital they create guidelines and communicate clearly to employees. Compliance can only be ensured if employees have a clear understanding of what has and has not changed with travel and expense policies and what’s expected as they return to work.
Spotting the warning signs – minimising the risk of post-Covid corporate scandals
By Professor Guido Palazzo is Academic Director at Executive Education HEC Lausanne.
A recent report from the Association of Certified Fraud Examiners (ACFE) found that almost seven out of 10 anti-fraud professionals have experienced or observed an increase in fraud levels during the Covid pandemic, with a-quarter saying this increase has been significant. Almost all of those questioned (93%) said they expected an increase in fraud over the next 12 months and nearly three-quarters said that preventing, detecting, and investigating fraud has become significantly more difficult.
For corporations, banks and financial directors, this is a clear warning signal of new risks ahead. Indeed, it’s not difficult to predict that the birth of next big corporate scandal will be traced back to this period. As the ACFE put it, the pandemic is “a perfect storm for fraud. Pressures motivating employee fraud are high at the same time that defenses intended to safeguard against fraud have been weakened.”
If we want to stop corporate misconduct, where should we be focusing our efforts? What should we do to minimise the chances of corporate scandals, fraud and unethical decision-making? Compliance and risk management are obviously critical in detecting fraud, but given that corporate scandals keep happening, perhaps it’s time to ask ourselves whether we need to take a different, more holistic approach to combat unethical behaviour.
Bad Apples or Toxic Cultures?
Most compliance is based on the premise that we need to keep bad people in check and to root out the ‘bad apples’ who usually get blamed when there’s a corporate scandal. When the scandal breaks, we all ask, “how was that possible? What were they thinking?” And we also tell ourselves that we could never behave like that and that it could never happen in our organisation – it’s not our problem.
But are those who succumb to this temptation really ‘bad apples’ or rather people like you and I? Most models of (un)ethical decision-making assume that people make rational choices and are able to evaluate their decisions from a moral point of view. However, if you made a list of the character traits of a rule breaker in an organisation and then compared it to a list of your own, you might be surprised to find a lot of overlap.
When we examine corporate scandals, what we invariably see is good people doing bad things in highly stressful circumstances. If you put sufficient pressure on an individual and they start making ill-advised decisions or behaving unethically, the first reaction is fear as they realise what they are doing is wrong. But then they will start to rationalise their actions to justify what they are doing. Over time, such behaviour becomes normalised and they convince themselves that there is no wrongdoing involved. That’s something that my HEC Lausanne colleagues, Franciska Krings and Ulrich Hoffrage, and I have termed ‘ethical blindness’, and it is a phenomenon that plays a fundamental role in systematic organisational wrongdoing.
The trouble with conventional technical and regulatory compliance strategies is that while policies, codes of conduct and formal processes are all very necessary, they don’t take into consideration the importance of leadership behaviour or human psychology. We can’t pre-empt those who succumb to the temptation to do bad things in difficult circumstances unless we understand why they behave in the way they do. If we simply attribute problems to the psychological failings of ‘bad apples’ while ignoring the context, culture and leadership style which made their wrongdoing possible, then the barrel will still be contagious.
So what can be done to reduce the chances of new corporate scandals emerging in these challenging times? One take-away from previous scandals is the learning how to read the warning signals. This entails a deep understanding the psychological and emotional factors behind human risk, which surprisingly is not included in most compliance and ethics training. These small signals viewed in isolation may seem insignificant, but over time they can combine to create a dysfunctional context and culture where it can be all too easy for people to slip into the dark side.
Develop a Speak Up Culture
One of the most potent antidotes to that sort of dysfunction and the ethical blindness it encourages is a culture in which individuals at all levels feel able to speak up to their superiors about problems and ethical issues without fear of retaliation. But that will only happen if their own bosses are prepared to speak up and the tone for this must be set at the top. So, the critical question every executive needs to ask themselves is, “do I speak up?” Then they need to reflect on whether people come to them and speak up freely without fear of the consequences. That’s an approach to compliance that offers real protection against the onset of ethical blindness in a way that no conventional strategy can match.
This understanding of human risk element also elevates compliance to a leadership topic with all kinds of positive implications beyond compliance. Whilst on the one hand, this approach helps to boost the status of the compliance and risk function, my experience of working with senior executives is that when they start to understand the psychological elements of the dark side, it shines a light on their own behaviour. One thing they realise is that, yes, it perhaps could have been them doing those things in one of those scandals. The other is understanding that their leadership style can unwittingly creating the context for unethical behaviour.
That’s one reason I invited two former senior executives who were involved in corporate scandals to share their first-hand experience as teachers on our new certificate in ethics and compliance. Andy Fastow is the former CFO of Enron and Richard Bistrong is a former sales executive involved in an international bribery scandal. Amongst other things, the valuable insights of people like these can help others to understand how risks accumulate over time and how this can impact the integrity of an organisation. Their stories also highlight the temptation that people can face as a result of the tension between the pressure to succeed and the pressure to comply.
Traditionally, compliance training and development has been technical and regulatory – what are the rules, what are people allowed to do or not allowed to do, and how do we demonstrate to the authorities that we did everything possible to ensure that people understand the laws and regulations? But what’s becoming increasingly clear is that it’s time for a multi-disciplinary approach if we are to start redressing the balance between the legal dimension of risk management and the human element.
Trust is a critical asset
By Graham Staplehurst, Global Strategy Director, BrandZ, explains how it’s evolving.
Trust is what makes us return to the same brands, particularly during times of uncertainty and crisis.
Pampers is an instinctive choice for many parents. It’s the go-to global nappy brand whether they shop online or in-store. By our reckoning, it’s also the world’s most trusted brand, driven primarily through its perceived superiority over competitors, which it has honed through a relentless focus on technological improvements that make its products the best in the category.
BrandZ has been tracking Trust since 1998 because it’s a critical ingredient in delivering both reassurance and simplifying brand choice, thereby boosting brand value. It’s also become extra critical in delivering business performance at a time when consumers are uncertain and often anxious.
Even brands that haven’t been available during Covid-19 lockdowns, brands that are already trusted, have found that they are more reassuring to consumers when they start returning to market with new safety measures such as protecting staff, which will be seen as evidence that the brand will take similar steps to protect customers.
With a growing demand from consumers for more responsible corporate behaviour, this in turn amplifies the need for brands to make a positive difference.
Alongside Pampers, other brands in this year’s BrandZ Top 100 Most Valuable Brands ranking that have strengthened their trust and responsibility credentials include the Indian bank HDFC, which has supported customer initiatives across its consumer and business banking and life insurance operations – with innovations such as mobile ATMs, and DHL, which has proven itself even more essential as a delivery service during the COVID-19 outbreak.
New brands too have managed to grow Trust relatively rapidly. Second in the Top 10 most trusted brands was Chinese lifestyle brand Meituan with a trust score of 130. This delivery and online ordering brand, which was launched just over a decade ago, has clearly demonstrated its understanding of what consumers want and developed a strong reputation for customer care.
Then there’s streaming service Netflix – founded in 1997 but which only became a streaming service in 2007 – which scored 127 and was the fifth most trusted brand in our ranking. Netflix has created a strong association with being open and honest compared to other ‘content’ platforms, despite the fact that it uses customer’s personal data to suggest future viewing options.
Top 10 Most Trusted Brands in the BrandZ Top 100 Ranking 2020
|Position||Brand||Category||Trust Score (Average is 100)||Position in Top 100 ranking|
|3||China Mobile||Telecom Providers||129||36|
What defines trust?
The nature of trust is evolving with ‘responsibility’ to consumers forming an increasingly large proportion of what builds perceptions of trust. This amplifies the need for brands in all categories to act as a positive force in the world.
Traditionally, consumers trusted well-established brands based on two factors:
- Proven expertise, the knowledge that the brand will deliver on its brand promise, reliably and consistently over time.
- Corporate responsibility, which is about the business behind the brand. Does it show concern over the environment, its employees, and so on?
In recent years, the latter factor has become increasingly important. It is now three times more important to corporate reputation than 10 years ago and accounts for 40% of reputation overall, with environmental and social responsibility the most important component, alongside employee responsibility and the supply chain.
Companies such as Toyota, with its emphasis on sustainability, Nike, with its campaigns around social responsibility, and FedEx focusing on employee responsibility, highlight the fact that responsibility is high on the agenda for many brands in the BrandZ Global Top 100 Most Valuable Brands, which has been tracking rises and falls in brand value via a mix of millions of consumer interviews and financial performance data since 2006.
Such actions explain why trust in the Top 100 brands has been increasing not declining, filling the gap as trust declines in other institutions like government and the media. This is being driven largely by consumer concerns over the bigger issues including sustainability and climate change that society faces today.
One of the challenges that we face in assessing trust is understanding how and why consumers will trust brands they hardly know or have never used? Why do we trust Uber the first time if we’ve never used the platform before, or Airbnb the first time we rent an apartment or holiday accommodation?
The answer is that there are three elements that build trust and confidence when a brand is new to a market. These are:
- Identifying with the needs and values of consumers
- Operating with integrity and honesty
- Inclusivity, i.e. treating every type of consumer equally.
New brands that can develop these associations not only build trust rapidly and more strongly but also tend to outperform their competitors in growing their brand value.
As a result of this new understanding we have added an additional pillar to our previous understanding of Trust builders. Alongside proven expertise and corporate responsibility, we have a new quality of ‘inspiring expectation’ driven by our three key factors of identification, integrity and inclusivity.
Airbnb, for example, has long had promoted a platform of inclusivity for both renters and users of properties on the platform, helping it to build an overall Consumer Trust Index of up to 105 – and 110+ on the specific dimension of Inclusivity.
Flying Fish in South Africa is a premium flavoured beer that has gone from a launch in October 2013 to being the second-most drunk brand in the country, with trust equal to the vastly more established Castle and Carling brands. It has appealed to a new generation of beer drinkers with strong integrity and inclusion, using a playful mix of young men and women in its messaging to portray South Africa’s multicultural society.
Brands have a unique opportunity to earn valuable trust and create change, providing this is seen to be genuine. Being sincere, empathetic and ensuring your brand remains consistent with its core values will ensure your corporate reputation is not compromised.
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