Measuring Trust in Business

By Verschoor, Curtis C. | Strategic Finance, May 2011 | Go to article overview

Measuring Trust in Business


Verschoor, Curtis C., Strategic Finance


Trust is a vital element of business, yet it is difficult to measure and often gets overlooked. Two research groups have devised their own rating systems to determine which companies are most trustworthy.

Trust isn't one of the four overarching ethical principles contained in the IMA Statement of Ethical Professional Practice, but it is certainly an inevitable outcome from the application of honesty, fairness, objectivity, and responsibility. Trust underpins the practice of each of those principles, and only with trust can business transactions be entered into with confidence. A company's use of trust as a basic business strategy allows it to demonstrate superior performance on a number of other metrics. Being able to quantify the trustworthiness of a company would be valuable information to both investors and the general public. Two groups, Governance Metrics International's Audit Integrity (AI) service and Next Decade, Inc.'s Trust Across America[TM] (TAA) unit, have been attempting to do just that. Both have published lists of the most trustworthy companies in the United States.

Audit Integrity

For the past seven years, the Audit Integrity service of Governance Metrics International has been applying the Accounting and Governance Risk (AGR) rating to identify the existence of factors most associated with fraud and the risks of a decline in stock price. The AGR rating serves as the basis for the Forbes Risk List and involves more than 100 factors that attempt to measure the quality of corporate accounting and management practices. AI believes the resulting score demonstrates solid corporate governance and management. Companies must have a market capitalization of $200 million to be considered.

In April 2010, Forbes published AI's list of the 100 Most Trustworthy U.S. companies in three categories of market capitalization. In addition to the AGR score, AI's evaluation of trustworthiness uses additional factors that penalize companies for unusual or excessive executive compensation, a high proportion of incentive-based executive pay, high levels of management turnover, substantial insider trading, class action litigation, and restatements or other accounting issues. Fewer than 5% of public companies make AI's Most Trustworthy list.

The nine top-ranked Companies--three in each of the large-, mid-, and small-cap categories--based on the average AGR score for the last three calendar quarters are:

* Bed Bath & Beyond, Inc., a $7.8 billion retailer, largely in the U.S. and Canada, specializing in domestics merchandise and home furnishings;

* Enbridge Energy Partners, LP, a $5.7 billion provider of oil well services and equipment;

* Hess Corporation, a $34 billion global integrated energy company;

* Montpelier Re Holdings, Ltd., a $748 million provider of customized reinsurance and insurance solutions;

* Werner Enterprises, Inc., a $1.8 billion global transportation provider of freight management and supply chain solutions;

* Casey's General Stores, Inc., a $4.6 billion owner, operator, and franchisor of convenience stores, largely in the midwestern U.S.;

* Greenlight Capital Re, Ltd., a $415 million Cayman Islands-based open market property and casualty reinsurance company;

* National Interstate Insurance Company, a $309 million insurer specializing in transportation risks; and

* CDI Corporation, a $926 million provider of engineering and information technology, outsourcing solutions, and professional staffing.

Trust Across America

In December 2010, Next Decade, Inc.'s Trust Across America[TM] unit published its ranking of trustworthy corporations. Based on data from 3,000 public companies, TAA utilizes five indicators of trustworthy corporate business behavior: financial stability and strength, accounting conservativeness, corporate integrity, transparency, and sustainability. …

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