Trust Across America-Trust Around the World™

Does Trustworthy Business Result in Stock Market Outperformance?

This week, a well-respected colleague put a challenge before me. He said that Trust Across America (TAA) must continue to correlate stock market performance to trustworthiness in order to gain the attention of public companies. In other words, companies care about little else.

While I humbly think that TAA has gained plenty of attention, I love a challenge! So Mike, this one’s for you!

I decided to look back at our first “Top Ten” Most Trustworthy Public Companies named in early 2010 and calculate the collective market performance of these ten companies vs. the S&P 500.  We begin our calculation on December 10, 2009, the day the companies were selected, and end on May 17, 2013.

This is the list:

Hess (HES)

Albemarle (ALB)

Best Buy (BBY)

Cummins (CMI)

Eastman Chemical (EMN)

Lexmark (LXK)

Lubrizol (acquired by Warren Buffett)

Sonoco Products  (SON)

Texas Instruments (TXN)

USANA (USNA)

Setting Lubrizol aside (although the Buffett acquisition could be the subject of a separate blog post) leaves us with 9 companies. Collectively, these companies posted gains of 63.96% vs. 51.27% for the S&P, resulting in outperformance of 24%. For those of you who want to dig a bit deeper, 8 companies increased their share price while one (Best Buy) saw a decrease. Three companies had greater than 100% stock price appreciation over that period.

So Mike, in the short-term you may be more right than wrong. But the world is not that simple. We are seeing a shift in focus away from shareholder value, albeit a slow one. Building trustworthy organizations and increasing stakeholder trust, while flying in the face of the quarterly income statement mentality, may be gaining in popularity.

I will argue that the companies listed above are “on to something” that somehow approximates trustworthy business practices.  On the other hand, maybe Trust Across America just got lucky, as I’m sure some will conclude, when our FACTS® Framework chose these companies back in 2010.  You decide.

Feel free to leave your comments here or email me at barbara@trustacrossamerica.com

Our book, Trust Inc:, Strategies for Building Your Company’s Most Valuable Asset is now available for preorder!

Trust Inc.

Last week’s  release of the 2011 Edelman Trust Barometer www.edelman.com/trust has prompted much discussion in the news . Edelman sampled over 5000 people in 23 countries. Highlights of their survey, for our purposes focusing on US business, are as follows:

1. Trust is now an essential line of business

2. Trust in US business to do what is “right” dropped 8 percent

3. Trust in the US media to do what is “right” dropped 11%

4. Trust in the following US industries decreased from 2008-2011:

                – Technology- down 5%

                – Banks- down 46%

5. Trust in Automotive increased 17%

6. The most trustworthy industries in rank order are:

                -Technology

                -Automotive

                -Telecommunications

7. The least trustworthy industries, starting with the worst are:

                -Financial

                -Banks

                -Insurance

Charles H. Green at Trusted Advisor Associates www.trustedadvisor.com followed the release of the survey with an excellent blog post “Can You Trust the Data on Trust?” that explores the meaning of the word “trust” and how data can be interpreted in various ways:

trustedadvisor.com/trustmatters/can-you-trust-the-data-on-trust

As Charlie notes, the Edelman Survey is an opinion poll while Trust Across America (TAA) www.trustacrossamerica.com  uses quantitative data to assess the trustworthiness of American business. Both are important, but TAA’s findings are somewhat different than Edelman’s, especially in terms of the trustworthiness of various industries, as a whole.

Our data segments the largest 3000 companies into 16 sectors. While they cannot be fully aligned with Edelman’s industry categories, they are close enough to make several observations. Utilities, retail/wholesale and auto represent our most trustworthy sectors, while oils/energy, finance and transportation are the least trustworthy.

Edelman’s findings include estimates of how much people trust varies by industry. In our data, we have found that industry is not destiny; there is considerable room for individual company variation in trustworthiness. For example, technology is just slightly above average as a group. But when we delve a bit deeper into our data, the findings reveal something more interesting- thirteen of our Top 59 Gold List Companies www.trustacrossamerica.com/documents/media/PressArticle-v9.pdf are in the technology sector, lead by Lexmark www.lexmark.com , Texas Instruments www.ti.com , Analog Devices www.analog.com  and Teradyne www.teradyne.com– that’s over 20%. 

No one can argue with Edelman that trust is an essential line of business, and if trust in business to do what is right is down, we must find ways to reverse this cycle of mistrust. Quantitative data and surveys are certainly useful, but until CEOs acknowledge the trust crisis and agree to examine the data, we don’t see much changing in the short term. In other words, talking is fine, but moving the needle is essential.  

Trust Across America’s challenge to the C-Suite for 2011: The opinion surveys are out and our quantitative data does not lie. Very few companies have adopted  trust as a corporate culture.  Collectively, you have the power to reverse the downtrend in trust. Study your worst practices and improve them. Communicate your actions with your stakeholders. Get the needle moving in the right direction.