Issues of mistrust, mismanagement of funds, poor business decisions have crashed well known business enterprises, leaving their memories in the archives.
Experts note that lack of expertise in financial management is one of the reasons why commercial banks in the country often decline lending to Small and Medium Enterprises.
They add that one of the reasons for SMEs’ limited access to finance is the absence of information on their creditworthiness because they are generally perceived as high risk bearers.
Financial advisers also note that one of the most important factors in building a business is to establish business credibility from all angles.
According to business experts, having information on credit history and status of indebtedness does not automatically guarantee access to bank loans.
Other relevant factors such as provision of acceptable collateral, cost of funds, and suitability of the loan to the enterprise operations as well as the operational structure of the business can still affect access to loans.
Lack of trust is also usually responsible for the aversion of some business owners to partnership, which business consultants have endorsed as a better option in running new enterprises and expanding existing venture.
According to them, the economic impact of successful ventures cannot be quantified as they are capable of creating more jobs and addressing societal challenges.
A report by the World Economic Forum states that a mismatch often seen in the contribution a business makes and how it is perceived requires a clarification between a business’ general objectives and its purpose which is beyond the creation of financial value.
The report titled, ‘The Evolution of Trust in Business from Delivery to Values,’ states that when business leaders generally accept that trust is important to their licence to operate, they fare better.
Therefore, a case needs to be built based on clear facts and examples in order to catch leaders’ attention, substantiate the economic impact of investing (or failing to invest) in trust, and highlight the levers they can use to effect change, it adds.
Benefits to be derived by ventures built on trust, as highlighted by the report include:
Better business terms, processes and conditions
The WEF report says that companies that succeed in strengthening trust among their stakeholders stand to gain an edge over their competitors in areas including business terms, processes and conditions, and other areas ranging from mergers and acquisition to partnerships and project execution.
Easier, more productive corporate ventures
According to a study by KPMG, 83 per cent of all mergers and acquisitions fail to deliver value, with an average of 50 per cent of top executives leaving the acquired company within the first year after the deal.
Other research has shown that building trust during a corporate venture can help reduce costs, increase staff retention and reduce hurdles to the venture execution.
The report adds, “These statistics underline the value of focusing on building trust during a corporate venture.”
Improved access to capital
Amid the recent tough economic conditions, getting funding from banks or other sources has been especially challenging for many companies.
The WEF report suggests that building stronger trust with credit institutions will allow companies to gain better access to sources of funding and achieve more favourable terms.
To draw the attention of foreign investors, the report says that information on the credibility of the business and its track record of achievement is often sought.
The report adds, “Trust also has a positive effect on investments that is highly significant both statistically and economically. Looking at interpersonal trust across 15 European countries, research found that a one per cent increase in those who have high trust towards another country implies an almost seven per cent increase in the probability of a venture capital investments in a company in that country.
“By the same token, evidence suggests that lack of trust imposes a hurdle for investments, including when seeking funding from non-banking sources such as venture capital providers.”
More productive and engaged employee relationships
The costs of high staff turnover are substantial – and go far beyond additional human resource costs. The WEF report notes that organisations with dedicated employees are significantly more likely to retain key talent than organisations with less employee trust.
It states that other studies have found that factors such as lack of recognition, poor empowerment and bad relationships with managers mean that three-quarters of employees today would consider taking a new job and one-third are actively looking.
All of these causes for leaving can be alleviated by building stronger trust.
Enhanced innovation and entrepreneurship
When all stakeholders are engaged in decision making during innovation, research and development processes, they will feel more comfortable identifying new and disruptive ideas, even at the initial stages of programmes, WEF notes.
It states in its report, “In the context of entrepreneurial innovation, it is significant that the factor with the greatest influence on people’s perceptions of organisational “climate”, and hence on their creative performance, is the behaviour of the role models and leaders they see around them. This point to a culture of encouragement rather than coercion; a readiness to consider new ideas rather than rejecting them out of hand; and a focus on influencing behaviour through trust rather than control.”
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