Translating trust into business reality

Trust and performance

To understand the link between trust and performance, we didn’t ask the 4,446 CEOs who responded to our annual survey whether they thought trust was valuable. Rather, we used advanced statistical methods to tease out hidden relationships. 

The starting point was a set of six questions about the nature of customer engagement with their company. Each question reflected a different dimension of trust: loyalty, reliability, foresight, intuition, competency, and benevolence. To move beyond vague impressions, the questions were quite specific—for example, “Thinking about the customers who frequently purchase your products and services, how often would you say they update their preferences to receive a more tailored experience?” We aggregated the responses and normalized the results by industry to generate a customer trust index, with quartiles ranging from most to least trusted. Finally, we ensured independence from demographic characteristics such as the company location or size. (To benchmark yourself and your organization against the CEOs surveyed by PwC, try this customer trust diagnostic tool.)

In a separate part of the survey, we asked CEOs about their previous 12 months’ performance, defined as profit margins and, in some industries, return on assets. Then we undertook factor analysis, which involves grouping highly interrelated individual questions into variables that can be analyzed and correlated with performance outcomes. 

Across the survey as a whole, trust and a second factor that we created for the survey, related to the company’s facility at reallocating corporate resources to high-potential opportunities, were extremely positive, statistically significant correlates with financial performance. (For more on resource allocation, see “The overlooked power of day-to-day dynamism.”) Not surprisingly, headwinds in the survey, such as global threats, decarbonization pressures, and tax risks, were negatively correlated with profit margins.

We further unpacked trust by studying the customer trust index on its own, against two control variables—industry and firm size—that typically dominate in industrial organization studies. Many variables simply don’t show up when set against industry and firm size, but trust explained a whopping 31% of the model’s variance for profit margins and 21% for return on assets. It’s extremely unusual for a single factor to explain this much variance.

Perception versus reality

Notably, we didn’t ask CEOs whether they think their customers trust them. Had we done so, it’s highly likely that they would have said yes. In fact, in another recent PwC survey, 87% of business leaders said they believe consumers highly trust their company. In contrast, just 30% of consumers in that same survey said they highly trust companies. 

This perception gap resonates with conversations that we sometimes have with leaders about consumer trust. The executives of a global asset management firm we know, for example, were initially skeptical when we suggested that if they took a hard look at their trustworthiness versus competitors’, they’d be likely to find gaps between the progress they thought they had made and market perceptions. A machine learning–based review of media coverage related to trust showed exactly that, with the company getting less credit than its leaders expected for innovative alternative investment approaches that they had viewed as key areas of strength. The leadership team immediately began using these insights to better engage key stakeholders, including capital markets.

The mismatch between leaders’ and customers’ perceptions on trust suggests that many companies have a lot of work to do. Although the issues at play are likely to be extremely industry- and company-specific, we looked for patterns in the six factors comprising the customer trust index to see whether any of them, on their own, were powerful performance drivers. Three were: CEO perceptions of their customers’ propensity to switch to a competitor’s products or services, to resist (or undertake) new updates or changes to a company’s products or services, and to provide feedback on whether the company’s products or services meet expectations. 

These findings suggest a checklist for leaders as they pressure-test product and service strategies.

• Exit: “What are we doing to guard against customer defections?”

• Loyalty: “How can we encourage our customers to come with us as we evolve our offering?”

• Voice: “How can we better engage our customers in dialogue about our products and services?”

In his classic 1970 book, Exit, Voice, and Loyalty, political economist Albert Hirschman posited that members of an organization also have these same three options—to exit, remain loyal, or give voice to their concerns—when they’re unhappy with the organization’s direction. Over time, as we broaden our examination of trust to move beyond customer trust and to include trust between employees and employers, as well as trust between institutions and a broader group of stakeholders, we’ll investigate whether this pattern, and its potential value as a management checklist, holds.

Tip of the iceberg

We’re quite cognizant that customer trust is just one piece of the overall trust puzzle. This year’s CEO Survey provided some glimmers suggesting the broader implications of trust. For example, we saw that highly trusted companies are more likely to have made net-zero commitments and to have tied their CEO’s compensation to nonfinancial outcomes, such as employee engagement scores and gender diversity in the workforce. 

It’s not yet clear which way the association runs. Still, the findings, which again were normalized by industry and confirmed for independence from demographic characteristics such as company location or size, seem important—a promising indicator that trust is an enabler of change and worthy of much deeper investigation.

We saw further intriguing evidence that customer trust is just the tip of the iceberg in a separate, recent research effort. We used machine learning analysis of a wide range of public media, as well as financial records, to identify a set of trust drivers and try to understand their relationship with financial performance. 

Of the 17 trust drivers emerging from the analysis, the two that were most strongly correlated with growth in market capitalization pertained directly to customer trust: brand reputation and customer experience. However, a number of other factors, such as employee engagement, greenhouse gas–emissions initiatives, and corporate governance, also showed positive correlations. Patterns like these can help companies confirm what matters for them and prioritize key areas of competitive advantage.

In our experience, many companies struggle to find the appropriate balance of making the right public-facing commitments, taking reinforcing actions, and effectively communicating the key messages to stakeholders. Often, even those that do find the right balance struggle with what and how much to share, forgoing opportunities to outshine competitors that are less tuned in to the importance of trust and what drives perceptions about it. 

Clearly, there is much to untangle. We’ve seen evidence in our work with clients that trust-related issues sometimes open up a gap between awareness of and affection for a company’s brand, a gap that can be a leading indicator of future performance problems. We’ve also seen that when companies furlough employees during hard times, instead of laying them off, they build trust and experience fewer disruptions to productivity. And we’ve seen trust play a role in big corporate change programs, acting as a shock absorber that maintains morale or energizing the organization as it tackles inspiring new goals.