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Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance Branko Bozic (University of Glasgow) Sabina Siebert.

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Presentation on theme: "Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance Branko Bozic (University of Glasgow) Sabina Siebert."— Presentation transcript:

1 Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance Branko Bozic (University of Glasgow) Sabina Siebert ( University of Glasgow) Graeme Martin (University of Dundee) Ijeoma Okpanum (University of Glasgow)

2 Recent Cases of ‘Damaged Goods’ Financial Services (‘an industry unfit for the future’) – RBS – HBOS – Barclays – Northern Rock – Cooperative Bank Natural Resources – BP – Shell – Energy companies Media – BBC, newspapers National Health Service – The Stafford Hospital scandal and the Francis reports – NHS Scotland

3 Why the interest in organizational trust among practitioners and why now? – The claim Trust is seen as an essential component of engagement with external and internal stakeholders Levels of trust among stakeholders, particularly employees, are declining after recent events (CIPD Research) – The aim (of politicians, organizations and their leaders) To encourage greater trust in organizations and in the ‘leadership brand’ among stakeholders – The task To rebuild/restore/repair trust with stakeholders in institutions, organizations, leaders/managers – BUT HOW? Because the evidence suggests repeated transgressions are likely to occur

4 What is Trust and What’s Organizational About it? Trust is a ‘psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another’ (Rousseau et al., 1998) However, trust is researched and enacted at different levels – individual, group, organization, field, society Intra-organizational trust is something that is constructed for and by people in organizations, thereby producing some degree of predictability (Grey and Garsten, 2003) So, what factors do people look for in order to trust leaders and their organizations? Trustworthiness = 1.Competence (along different dimensions), 2.Benevolence (interest in satisfying others’ needs ), 3.Integrity (willingness to fulfill promises) (Mayer et al., 1995; Tomlinson and Mayer, 2009)

5 Which Leads us to Our Question: How Can We Explain the Trust Deficit and What can we Do? Problems with current trust research A key line of enquiry is the relationship between trust and governance models A ‘mutually constitutive’ relationship between different models of corporate governance and trust Our contribution: new configurational framework: – Explaining why organizations remain untrustworthy and repeated trust transgressions – Explaining how trust relations in an organization and the sector might change – ‘Institutional entrepreneurship’ rather than leadership as a way of thinking about the problem and solution

6 ‘Problematizing’ Trust and Trust Repair Research Current state of play in organizational trust and trust repair research and practice – Dominant explanations of what we know and how we know ‘functionalist paradigm’, ‘plant’ psychology and unconstrained managerial agency, unitary sentiments (we’re all in it together) and assumptions that trust is good (for everyone) if only we (and they) ‘get it’ Critical Management Theory - Market logics leave little room for managerial agency – trust and HR as a ‘failed project’ (e.g. Thompson, 2011) Corporate governance as a major influence on trust orientations in organizations – why should we trust organizations in marketised economies? Resolving the structure agency problem in trust research through institutional logics and institutional work

7 So What do we Mean by Corporate Governance and Its Relevance to Trust and HR? Progress in corporate governance definitions: – From: "the system by which companies are directed and controlled" (Cadbury Committee, 1992) – concern with board membership, structure, audit etc. – To: ‘the mechanisms to ensure that executives respect the rights and interests of company stakeholders, and that those stakeholders are held accountable for acting morally and responsibly for the generation, protection and distribution of wealth invested in the firm’ (Aguilera, Filatochev, Gospel & Jackson, 2008).

8 Societal-level logics Field-level logics Organizational governance logics Sensemaking by managers/emplo yees of implications for trust Organizations’ trust building, maintenance and repair practices Identities and frames of reference of managers/employ ees Managers’ intentions re trust building, maintenance and repair Field-level trust building, maintenance and repair practices Stakeholder responses MACRO MICRO MICRO FOUNDATIONS OF TRUST BUILDING, MAINTENANCE AND REPAIR Embedded agency FIGURE 1: CONNECTING GOVERANCE LOGICS TO TRUST PRACTICES

9 Four Configurations of Corporate Governance Investor led - Traditional Shareholder Value Hybrid Strategy-led Enlightened shareholder value Legitimacy-led Stakeholder model Hybrid/ intermediate, context-dependent led Focus: Market logic; concern with efficiency and how shareholders can maximise returns Focus: Pragmatic unitary economic returns and social demands Focus: Pluralist economic and social demands Focus: contingent economic and social demands e.g. Anglo-Saxon models of organization designed to maximize profitability/SV e.g. Anglo-Saxon corporations recognizing the value of being good citizens e.g. Pluralist continental European employee relations systems, Japanese corporatism Employee ownership e.g. Transnational corporations in which morality and economic value not absolute but specific to context ‘Shareholderism’ ‘Stakeholderism’

10 Configuration 1: Investor –led Traditional Shareholder Value Theory of GovernanceConnecting Organizational Logics and Frames of Reference Implications for Trust and Employee Behaviour 1. Focus: Normative concern with efficiency to explain how shareholders maximize their returns and deal with the agency problem (self- seeking executives) e.g. Fama & Jensen, 1983; Sundaram & Inkpen, Legal regulation: light touch regulation of corporations thro’ corporate law 3. Role of boards: to act as agents of shareholders by close monitoring of powerful and self- interested managers thro market mechanisms 4. Motivation and incentive discourse: Output pricing and intense contractual guarantees, economic man motivated by extrinsic rewards Market logic focusing on transaction costs, shareholder activism, share prices and profit (e.g. Lok, 2010; Thornton et al, 2013) Nature of trust: Alienative involvement (Etzioni, 1961) Low trust dynamic (Fox, 1974) Distrust (Jones & George, 1998) Low confidence (Lewicki et al, 1998) Alienative commitment (Dirks & Ferrin, 2002; Bussing 2002) Organizing principles – how work and the division of labor is organized (Fox, 1973) Values – unitarist focus on entrepreneurship, personal achievement & self-direction and self- interest; pragmatism Power basis – coercive power based on targets and payment by results Segmented approach to human capital investment, with sole focus on high value-adding and scarce employees (e.g. Liu et al, 2013)

11 Configuration 2: Strategy-led Enlightened Shareholder Value Theory of GovernanceConnecting Organizational Logics and Frames of Reference Implications for Trust and Employee Behaviour 1. Focus: dealing with criticisms of agency theory for sustainable value creation by recognizing powerful and knowledgeable stakeholders other than shareholders. Remains essentially unitarist /market structure to reconcile competing interests 2. Legal regulation: medium levels of regulation supported by codes of practice 3. Role of boards: to act as long term agents of shareholders by taking into account views of other stakeholders 4. Motivation discourse: hybrid focus on economic and self actualising man, motivated by extrinsic and intrinsic rewards and desire to participate Hybrid logics, comprising elements of markets and hierarchy (corporate) – ‘patient capital’ (e.g Lok, 2010) Nature of trust: Calculative involvement/ trust response (Etzioni, 1961, Jones and George, 1998) Hybrid responses – novice, familiar, identify (Pache & Santos, 2013) High trust among core management and value adding staff Calculative cooperation shaped by expected job behaviours (Jones & George, 1998) High degree of confidence (Bateson, 1988) Free knowledge sharing as a result of uncertainty (Williamson, 1985; Jones and George, 1998) Organizing principles – Softening of output control and recognition of inequities; rhetoric of commitment and engagement Values – unitarist focus on economic values tempered with social values of respect, tradition and conformity Power basis – coercive power based on market (targets and payment by results), hierarchy (supervision and discipline) and normative (values and culture) Balanced approach to human capital, comprising incorporation of key professionals and core value-adding staff with recognition of need to be inclusive with other employee groups

12 Configuration 3:Legitimacy-led Communitarian Stakeholder Model Theory of GovernanceConnecting Organizational Logics and Frames of Reference Implications for Trust and Employee Behaviour 1. Focus: Longer term understanding of value creation, accepting of a moral duty to recognize all interests in the firm concerning social and economic goals and values 2. Legal regulation: high levels of regulation supported by codes of practice 3. Role of boards: to work with managers to balance the needs of all legitimate stakeholders 4. Motivation discourse: emotional and ideological connections and identification; intrinsic rewards Principled pluralist community logic, comprising governance through cooperative capitalism (Thornton et al, 2013): Nature of trust: High trust dynamic throughout (Fox, 1974 Moral involvement (Etzioni, 1961, Jones and George, 1998) Unconditional trust(Jones & George, 1998) High degree of confidence (Dasgupta, 1988) Free knowledge sharing (Williamson, 1985; Jones and George, 1998) High cooperation (Jones & George, 1998; Mayer et al, 1995) High commitment (Dirks & Ferrin, 2002) Organizing principles – structures reflect democratic principles, equality, fairness, coodetermination, involvement and empowerment Values – Pluralist belief in appreciation and protection of all and benevolence in relation to welfare of all; belief in trust and reciprocity Power basis – normative, moral basis based on dialogue and integrative bargaining aimed at securing moral involvement and high trust Inclusive approach to human capital investment

13 Configuration 4: Context-dependent Organizational Theory Theory of GovernanceConnecting Organizational Logics and Frames of Reference Implications for Trust and Employee Behaviour 1. Focus: to show that different corporate governance practices and goals may be more/less acceptable in different organizational/sectoral/natio nal business system contexts, e.g. Aguilera et al, Legal regulation: dependent on context 3. Role of boards: ??? 4. Motivation discourse: Ethical relativism, integration/responsiveness

14 So How Do We Get Change in the System? Configurational approaches are theories of stability, and explain The paradox of embedded agency, But how can we get sustainable changed trust relations into the system? – Leaders, or – ‘Institutional entrepreneurship’ by individuals, groups and organizations?

15 The Paradox of Embedded Agency (e.g. Battilana, 2006; Martin et al, 2014) ‘How can organizations or individuals innovate if their beliefs and actions are all determined by the very institutional environment they wish to change?’ ‘… it is important to keep in mind that the objectivity of the institutional world is a humanly produced, constructed objectivity. Before being …experienced as an objective reality… by human beings, institutions are produced by them. SO

16 Institutional Entrepreneurship and How it differs from Leadership (Lockett et al, 2012; Martin et al, 2014) IEs who occupy central positions in an organizational field are least likely to seek major change because they benefit from existing institutional arrangements, and will usually seek to reinforce their positions. IEs who occupy a peripheral position are most likely to envision, and have the desire to seek, radical institutional change. However, they are less able to enact change IEs who occupy medium (to high) positions in a field may be best able to enact major change. Their intermediate position means that they do not gain major benefits under the existing institutional arrangements, so are better placed to envisage a more radical form of change and motivated to persuade other stakeholders to support change = DISTRIBUTED LEADERSHIP RATHER THAN THE ‘ROMANCE WITH LEADERS’ = ‘PROFESSIONAL’ LEADERSHIP ON BOARDS AND SENIOR MANAGEMENT TEAMS? ??? BUT A HEALTH WARNING OVER A ‘ROMANCE WITH DISTRIBUTED LEADERSHIP’

17 Conclusions A new framework for linking governance research and organizational trust creation, maintenance and repair Hybrids and multiple/conflicting logics present the most interesting problems for HR (and trust researchers)(Pache & Santos, 2012/13) How do we encourage institutional entrepreneurship to build, maintain and repair trust? So what is the role of HR in trust relations and how can they influence corporate governance? – For me, the biggest challenge HR faces


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