KPMG’s Emily Frolick on The Trusted Imperative: A Dynamic Approach to Risk and Regulation for the Digital Age
Building trust enhances enterprise value and secures stakeholders’ confidence. It also fosters growth and innovation, improves performance, and helps you manage change. To thrive in today’s complex business environments—and keep pace with rapid transformation in the digital era—you need a dynamic approach to risk and regulation.
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Julie Devoll, HBR
Welcome to the HBR Quick Take. I’m Julie Devoll, editor of special projects and webinars at HBR. Today, we are joined by Emily Frolick. Emily is the US leader for KPMG’s Trusted Imperative, helping clients take a new approach to risk in our digital era. Emily, thank you so much for joining us today.
Emily Frolick, KPMG
Hi, Julie, happy to be with you.
Julie Devoll, HBR
Emily, let’s start us off by telling us what you mean by “the Trusted Imperative” and why is it so important?
Emily Frolick, KPMG
It’s so important because we find that trust can be the ultimate business enabler. Growth, performance, efficiency, and innovation are all fueled by the confidence that people have at an organization. With recent changes in market dynamics, today, more than ever, businesses need to focus on building and maintaining their trusted status.
This means considering multiple stakeholders when approaching risk management. When we talk about those multiple stakeholders, not only do we mean customers, investors, and employees, but also suppliers, partners, regulators, and even our communities.
When companies inspire trust in all their stakeholders, they create a platform for better business performance, including responsible growth, bold innovation, and sustainable advances in performance and efficiency. We found that stakeholder trust is a multiplier of benefits.
For example, the automation of a customer onboarding process can reduce costs and satisfy the regulator, but it can also transform the customer experience and boost market share. The integrity and ethics of a supply chain and the ability to deliver goods and services based on demand can build or destroy brand reputation.
Julie Devoll, HBR
Emily, tell us more about how the Trusted Imperative works.
Emily Frolick, KPMG
Our Trusted Imperative is designed to reframe the way companies look at risk management. Rather than narrowly focused on passive, more reactive compliance, we work with clients to think through strategic, proactive ways to build trust and generate value across their entire business ecosystem.
We understand the disruptors that have dramatically shifted— how and where stakeholders place their trust, whether it be global megatrends, such as the move to hybrid and remote work, continued digitization of operating processes and models, alliances and partnerships with third parties, responsible data collection and management, physical and operational disruptions, or even changing regulatory and compliance landscapes.
Julie Devoll, HBR
What does the trustworthy organization look like?
Emily Frolick, KPMG
Research suggests that a trustworthy organization is one that demonstrates three key characteristics— ability, humanity, and integrity. Organizations that demonstrate ability or situational competence have the collective knowledge, skills, and abilities to reliably provide their products and services.
For example, the retailer who has demonstrated mastery of a customer-centric supply chain is highly trusted by customers to deliver orders accurately and on time. Those organizations that prioritize humanity go beyond a profit motive alone to also show that they care for stakeholders.
And not only those people involved in transactions, but also the overall community where they do business. It’s no wonder that environmental, social, and governance, or ESG, activities are becoming a top concern in the boardroom as stakeholders want to work with companies that share their values.
For example, many consumers will only buy from companies that pledge to reduce carbon emissions. And employees are likely to feel loyal to companies that consider their desire for flexible working arrangements. Organizations that value integrity are respected for doing the right thing.
For example, if a customer’s expectations are not met, these are the companies that take responsibility and correct the situation, drawing on those principles that we all know, like honesty, fairness, ethics, communication, and promise fulfillment.
Integrity also comes into play when organizations must publicly react to difficult issues. For example, some airlines responded to COVID-19 by blocking middle seats, clearly prioritizing passenger health over company profit. Perhaps it’s no coincidence that we now see some of those airlines with high rankings in passenger satisfaction studies.
At the highest level, these are the factors that create trust, and the implementation of them starts at the top of the house with strategy, culture, leadership, and management.
Trustworthy organizations are those that ask, “Does our organization have a purpose that creates value for society? Do employees at all levels share our beliefs, values, and behaviors that create trust? Do we have the right governance and organizational structures to make it happen?”
Julie Devoll, HBR
When I ask about digital transformation as part of this, as we know, a lot of companies are working to transform themselves to meet the demands of the market. So, how do you think digital transformation connects to risk and trust?
Emily Frolick, KPMG
In the fast-evolving market that we find ourselves in on the heels of a global pandemic, digital transformation is no longer this distant aspiration. It’s the new reality.
As companies face pressure to grow while also increasing agility, managing risk, and building resilience for whatever tomorrow holds, risk and regulatory functions are at the heart of that transformation. Whether you’re digitizing a single part of the organization, connecting the business around your customers, or rethinking the entire business model, you need these functions to assess what could go wrong and determine how to mitigate it so that you can create stakeholder trust at every turn.
Unfortunately, all too often, risk and regulation are afterthoughts. Compared with areas like front-office digital transformation, they’re sometimes viewed as these staid necessities that slow down the business and have a real elusive return on investment.
However, we find when you address risk and regulation in a disciplined way, through the eyes of all stakeholders, it doesn’t hold you back. It gives you the freedom to go fast. So you can confidently explore new markets and create new technologies and customer experiences because you’ve built trust into your systems and your processes.
And we know people want to work for and do business with companies they trust. Sometimes, that ROI, like I said, isn’t always so obvious, but it’s there—whether it’s avoiding the fines because you complied with a regulatory requirement, keeping customers because you’ve protected their data, or attracting and retaining top talent because you’re a trusted organization.
Julie Devoll, HBR
What actions should executives consider taking to help them with their own Trusted Imperative?
Emily Frolick, KPMG
They should consider how to incorporate trust into systems, processes, and products or services. Trust is built on consistent predictable action in the moments that matter, like keeping data safe, delivering the right product within the time frame you promised, using ethical business practices, complying with regulations, and partnering with credible third parties.
However, even if you do and say the right things, a failure at a critical moment can undermine the trusted reputation you’ve worked so hard to earn. That’s why it’s important to weave things like security and compliance and trust into all systems and transformation activities.
For example, are you analyzing interconnected risks to identify potential vulnerabilities? Are you proactively monitoring market signals for your industry, anticipating changes in customer sentiments or regulations? Are you auditing your culture and employee conduct risks? Are you automating your fraud and financial crime processes to improve accuracy, speed, and trust as well as the customer experience?
Thinking through and planning for risks in these areas can help organizations thrive through uncertainty while becoming trusted and respected for the example they set.
Julie Devoll, HBR
Emily, thank you so much for joining us today. This has been a great discussion.
Emily Frolick, KPMG
It’s my pleasure to be with you, Julie. Thanks for having me.
If you’d like to learn more about how KPMG helps clients earn the trust of stakeholders, visit read.kpmg.us/trust.