Trust: The Hedge for Unhedgeable Risks?
A growing number of organizations have acknowledged the cumulative and increasing effects of unhedgeable risks: the risks we can’t avoid regardless of strategy or tactics. Climate change is the poster child: investors and organizations must accept and adapt to climate change as a global issue they can’t avoid. In addition to its effects on the physical landscape, climate change will certainly shift the collective financial landscape as well. It, along with other unavoidable risks, will disrupt the way companies operate.
Even so, companies aren’t powerless when it comes to addressing these challenges. Trust—from consumers, from partners and suppliers, from investors—can act as a sort of hedge against the unhedgeable.
In simple terms, companies that are trusted will have more latitude to operate and adapt. If the underlying assumption is that a company is doing the right thing, then investors, consumers, and others will be far more likely to stick with that company through changing times. Trust is an insulator, a pushback against many types of risk, even the most serious.
Being trustworthy doesn’t make a company immune to the effects of climate change. It doesn’t enable the company to undo the cumulative effects of chemical use, a growing world population, or the increasing strain on rare elements. What trust does do, however, is to enable your company to be better equipped.
All companies will feel the effects of unhedgeable risks. Those that are better positioned will be better able to deal with the consequences, maintaining operational continuity while avoiding conflict and catastrophe. It makes sense that trustworthy companies will have more access to capital and other resources, and will be better able to allocate those resources toward operational issues than will companies having to deal with credibility problems on top of other significant issues.
Gaining trust means gaining an intangible asset that can take many forms: Benefit of the doubt. Time to adjust. Financial flexibility. If we accept that it’s an important factor going forward, the only real questions are how to assess, measure, and grow the level of trust we earn.
Measuring trust is, in some ways, getting easier. We have better and broader access to information than ever before, and we have sources of data and types of analyses that once we could only dream about. However, using that information to your company’s advantage still requires careful planning and the right tools.
When your company can measure and monitor the trust it has earned, it will better understand how to maintain and grow that trust—its reputation and brand will be inherently stronger and better placed to face future risks and changes. Trust management, as a complement to traditional risk management, may be the hedge that delivers a key competitive advantage in changing times.