Building trusted regulatory relationships in uncertain times

Complete Strategy considers how to build trust with regulators

Building trust with a regulator can bring significant benefits. Regulators and the companies they regulate have complex and time-consuming relationships. Everyone gains if the conduct of these relationships is underpinned by trust.

The need for trust is particularly acute in the energy and water sectors. Trust can help regulators and regulated businesses collaborate to manage the impact of the energy and cost-of-living crisis. It can also smooth the path to delivering a transition to net zero that delivers for all customers.

Whilst few would argue against the importance of trust, it can be a difficult concept to pin down and even harder to create or maintain trust.

Indeed, it can be particularly challenging to establish trust with regulators, not least because their independence requires them to maintain a critical attitude toward the companies they regulate.

As we advise leading utilities companies on their interactions with their regulators, we have engaged with the latest research on trust and created a framework which summarises what trust is and how it can be maintained.

At its heart, trust is a product of the regulator’s assessment of a company’s reliability, or its trustworthiness, to deliver the desired, and promised outcomes.

In other words, the regulator needs confidence that the company is competent, reliable, and will not engage in opportunistic behaviours.

Thus, to be trusted, we think an organisation needs to consistently sustain actions and behaviours in line with the four key components of trust:

• Competence, or the consistent delivery of a service or product and the ability to make strategic decisions to achieve goals;

• Integrity, or a willingness to do the right thing. This is a measure of the moral character of an organisation;

• Benevolence, or the demonstration that an organisation genuinely strives to live up to the expectations; and

• Transparency, which is a measure of an organisation’s openness and truthfulness.

Figure 1 - The four components of trust

Whatever it is, the way you tell your story online can make all the difference.

But this is not all. Trust is reciprocal. It is crucial to understand the regulator’s point of view.

Alongside the behaviour of the company, the regulator’s assessment of the trustworthiness of a company will also depend on the environment within which the regulator is working. For example, a regulator who faces bad press and public criticism might be more reluctant to take risks and to rely on trusted relationships.

It is important to be realistic about the extent to which any regulator can rely on trust and to identify the actions which might undermine trust. In turn, this means developing a deep understanding of what matters to the regulator and their attitude to risk.

Addressing the high-profile challenges regulators and companies face will require cooperation and coordinated actions.

Our trust framework can help you understand how you can build and maintain trust and improve your regulatory relationships.