Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance

Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance BrankoBozic (University of Glasgow) Graeme Martin (University of Dundee) Sabina Siebert (University of Glasgow) IjeomaOkpanum (University of Glasgow)

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

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

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 = • Competence (along different dimensions), • Benevolence (interest in satisfying others’ needs), • Integrity (willingness to fulfill promises) (Mayer et al., 1995; Tomlinson and Mayer, 2009)

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

‘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

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).

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

Four Configurations of Corporate Governance ‘Shareholderism’ ‘Stakeholderism’

Configuration 1: Investor –led Traditional Shareholder Value

Configuration 2: Strategy-led Enlightened Shareholder Value

Configuration 3:Legitimacy-led Communitarian Stakeholder Model

Configuration 4: Context-dependent Organizational Theory

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?

The Paradox of Embedded Agency (e.g. Battilana, 2006; Martin et al, 2014) ‘…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 ‘How can organizations or individuals innovate if their beliefs and actions are all determined by the very institutional environment they wish to change?’

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’

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

Can We Trust Organizations Too Much? Linking Organizational Trust to Models of Corporate Governance