Organizational Trust

Organizational trust is defined as a state where stakeholders (e.g., employees, investors, customers) feel that they can confidently rely on the company. A decade of research has produced compelling evidence that trust is crucial to organizational performance. Yet while trust is clearly essential to effectiveness, it remains a confusing topic for many scholars and practitioners. This entry defines trust and trustworthiness and examines how organizational trust can be measured and managed. The relationship between organizational trust and the larger concept of corporate reputation is also reviewed.

Trust

The words love and trust can be used to characterize the nature of a relationship. The words distrust and hate similarly can be used to describe a relationship that is adversarial. Trust has been defined as the willingness to be vulnerable to the actions of another, based on positive expectations of the intentions or behavior of the other, under conditions of risk and interdependence. Recognizing the difficulty of parsing the construct of willingness to be vulnerable and the multilevel nature of it, trust has also been defined as a judgment of confident reliance by a person (a trustor) on a person, group, organization, or system (a trustee) where there is uncertainty and risk.

A trust violation is an incident that lowers confidence and trusting beliefs toward a trustee. Violations disconfirm trustors’ confident positive expectations. For example, when it was revealed that large banks had grown by securitizing toxic financial instruments, had engaged in LIBOR fixing, and had required taxpayer bailouts to avoid wider economic damage during the financial crisis, there was a perception that trust had been violated. Trust repair can be said to be a process of taking actions to restore confidence and return the relationship to a state where positive expectations exist concerning future behavior. Typically, this involves understanding which expectations were violated and the root cause of these violations and taking measures that signal to the trustors that confident reliance is once more appropriate. Organizations have shown that trust can be restored after significant violations of stakeholder expectations, as was the case with Mattel after recalling millions of toys in 2007 due to concerns about lead paint and tiny magnets that could be swallowed.

Trustworthiness and the Antecedents to Trust

Definitions of trust are incomplete without distinguishing trust from trustworthiness. First, the question of who is deciding to trust is important. Since trust is a relational construct, it is important to consider different stakeholder relationships and the fact that they might desire different attributes in a trustee. Then, trustworthiness is a collection of signs or signals that help assure different stakeholders that the trustee can be relied on. Figure 1 is an adapted version of Graham Dietz’s universal trust process, and it brings together this process and all of the definitions reviewed earlier.

Figure 1 Stakeholder Trust Process

Source: Dietz (2011).

Stakeholders exhibit trusting behavior when they have made a decision to trust based on accumulated beliefs that a trustee is trustworthy. These beliefs are formed in particular situations with specific risks and are based on accumulated evidence of the degree to which an agent manifests various attributes of trustworthiness. It is possible to reduce risk and vulnerability through control and contracting techniques, but these approaches often do little to increase trust, and they can even decrease it. While swift trust can happen where the right conditions exist and there is a high disposition to trust (e.g., the military), in most cases it often starts out low and grows based on proof of trustworthiness as the relationship evolves.

This brings up the important question of what these elements of trustworthiness are and how might they differ for different stakeholder relationships. In the trust literature, one of the most widely used models of trustworthiness is ABI (ability, benevolence, and integrity). ABI stands for the idea that most stakeholders require that a trustee have the ability to follow through on commitments, benevolent versus malevolent motives, and the integrity to match words with deeds. There is some evidence that concerns related to ABI are a factor in all trust decisions across all cultures. Others have argued that ABI leaves out some important factors of trustworthiness such as communication, alignment of interest, and similarity of values and identity, which are often important bases of the decision to trust. Figure 2 proposes a model of the decision to trust that addresses these shortcomings and uses the abbreviation CBASIC to capture the critical elements of trustworthiness: communication, benevolent concern, alignment of interests, similarities, integrity and predictability, and capability.

It bears noting that different stakeholders will weigh the various elements of trustworthiness differently. For example, employees of an auto company may be highly concerned with value congruence (similarities) with their employer and the degree of benevolence of their employer, but customers may be more concerned with the integrity and capability of the car, and investors may focus on the predictability of the dividends. As such, using Figure 2 to diagnose trust relations requires working through the particular stakeholder relationship and context to determine which elements of trustworthiness are more or less important and strong or weak. Dietz argued that there is a universal trust process that occurs with all types of trust (interpersonal, organizational, or systemic), but which elements of the process are most relevant may vary for particular types of stakeholder relationships.

Reputation and Trust

While understanding that trust is important, understanding how trust factors into reputation is also vital. The literature on corporate reputation, like the literature on trust, has emphasized the importance of signaling theory, belief formation, multiple stakeholders, expectations, and some prediction of the positivity of future behavior. One difference between the literatures on trust and reputation is that much of the literature on reputation concerns more general perceptions and generally does not address vulnerability. For example, in two studies of corporate reputation that modeled both trust and reputation as separate constructs, the measures of reputation focused on being admired, respected, and highly regarded, whereas the trust measures probed whether the firm would knowingly hurt stakeholders and whether they were competent. Not surprisingly, in both studies, the correlation between corporate trust and reputation were very high. It is fair to say that the literature on corporate reputation considers aggregate perceptions, cognitive representations, and a sense of overall appeal. Direct measures of trust assess the trustors’ overall confidence in relying on the trustee when there is risk and, in some cases, go further to measure perceptions of the antecedents to trust—that is, perceptions of trustworthiness (i.e., CBASIC).

Some scholars and practitioners suggest that a positive corporate reputation is an antecedent to stakeholder trust; that is, trust is a desired dependent variable partially explained by reputation. For example, scholars have suggested that evaluations on different dimensions of corporate reputation will lead to varying levels of stakeholder trust toward the company. Practitioners often take the same view in measuring reputation and will often do an analysis that seeks to ascertain which dimensions of reputation (independent variables, e.g., having high quality products) best predict high levels of stakeholder trust (dependent variable, e.g., being a company on which a stakeholder can rely). Trust can also be considered not as a separate dependent variable but as one of many dimensions of overall reputation (e.g., innovative, socially responsible, trustworthy). Alternate conceptualizations of overall reputation and trust are reasonable, but clarity is important for scholars who seek to model the relationships among variables and for practitioners who seek to properly measure these constructs.

Supporting the view that trust is both an important dimension of reputation and a desirable higher-level variable is the extensive literature, which shows myriad benefits of trust. Achieving a high trust relationship with stakeholders has been shown to facilitate business transactions, increase customer satisfaction, enhance employee motivation, and promote cooperative behavior within organizations and between organizational stakeholder groups, as well as foster commitment, creativity, innovation, and knowledge transfer. From a financial return perspective, there is research that supports the view that firms with higher levels of employee trust perform better than peers on performance as measured by return on assets and market-to-book-value ratios. Conversely, research also shows that violations of trust (i.e., fraud, deceit, gross incompetence) lead to reputational damage, which in turn increases selling costs and stock return volatility and decreases overall shareholder returns.

Measures of Trust

Trust can be measured at the interpersonal dyadic level (trust between leader and follower or among partners), at the organizational level (employees’ trust in their company or customers’ trust in the company whose products they buy), or at the institutional or systemic level (trust in government, the financial system, or the health care system). Since the focus of this entry is corporate reputation and trust, the focus of this section is on measuring corporate or organizational trust.

A survey of the trust measurement literature reveals that most trust measures assess the respondents’ beliefs concerning the trustworthiness of the referent; that is, they are measuring the antecedents to trust. Only a few studies have included both trusting intentions and exhibiting trusting behaviors (e.g., actually taking risk) in measuring trust. Most surveys assess trust by measuring beliefs about the antecedent elements (trustworthiness) from which an aggregate measure of trust is derived. This follows from research suggesting that trust is a multidimensional construct.

With regard to the referent in measuring trust, some have focused on top management and made the argument that the more specific the focus, the more reliable the measure and have suggested that trustworthiness of leaders was the critical linchpin to organizational trust. Others have focused on attributes of both the company and managers. One study measured perceptions about a host of organizational dimensions: direct supervisors, the organization, the product and services, and top management. It would seem that there is not one correct answer to this question, and it depends on the purpose of the survey. Clearly, the more specific the referent, the more reliable will be the measures, but if the level of the referent is too narrow (e.g., just leadership) and leaves out critical aspects of organizational trust (e.g., core processes or incentives), then the survey is less valid for use in measuring overall trustworthiness. It seems that the best referent for measuring organizational trust is to assess the company or enterprise as a whole and measure a variety of dimensions of trustworthiness (e.g., reliability of products, fairness of the leadership, responsiveness to stakeholders).

Regarding the question of whom to survey, the answer is, not surprisingly, discipline based. Management scholars tend to focus on employee perceptions of trust, the marketing field on customers’ perceptions and communication, and public relations disciplines on perceptions among the wider stakeholder community. Very few studies collect reliable data on trust perceptions among all stakeholders in the same study.

Trust Repair

Trust repair presumes that there has been a violation on the part of one or more of the parties and that at least one party is aware of the violation. Since trust is about the degree of “confident reliance,” repairing trust must involve changing the beliefs of the trustor concerning the trustworthiness of the trustee. Trust repair is typically attempted when the violation is caused or exacerbated by the trustee, when there is the possibility of fixing the violation, and when the parties are motivated to do so. Researchers have suggested that trust repair include the following actions:

• Acknowledge that a violation has occurred
• Determine the causes and admit culpability
• Admit that the act was destructive
• Accept responsibility and the consequences

Research has also provided evidence that apologies are more effective for violations due to lack of competence than they are when there has been an integrity violation. If accused of an integrity violation that is in fact false, a denial is more effective in repairing trust. The difference between an interpersonal and an organizational repair of trust is that organizational trust violations are typically more complex, involve multiple agents, and often require more time to diagnose and more interventions to regulate distrust and demonstrate trustworthiness going forward. At the organizational level, researchers have suggested that trust repair involves four stages: (1) immediate response—acknowledgment, expressing regret, announcing investigation, commitment of resources to prevention, and action against known causes; (2) diagnosis—timely, transparent, systemic, and multilevel examination of violations; (3) reforming interventions—verbal apology and reparation and implementation of recommendations from the diagnosis; and (4) evaluation—timely and transparent assessment of whether reforms have corrected the problem.

Managing Reputation and Trust

It is not possible to manage what is not understood. In a skeptical age where trust is hard to come by and everyone with a cell phone is a potential reporter, managing trust and reputation is challenging. The concept of the authentic organization has been introduced by the Arthur Page Society to suggest that in an age of increasing transparency, chief communications officers cannot influence the reputation of the enterprise by controlling the media. How the organization operates, not what the organization says, will eventually become its image. This is true for overall reputation and particularly true concerning stakeholder trust. The Page Society suggests that chief communication officers who wish to promote a positive reputation for trust and trustworthiness for their companies need to influence how the organization operates. Stakeholder trust is managed not by managing the output (trusting behavior) but rather by influencing the inputs to trust beliefs and doing so in an authentic and credible manner. Increasing stakeholder trust requires that the organization increase the number of positive signals of trustworthiness and decrease the negative signals (trust violations).

How to actually affect organization signaling is more challenging. In a sense, all leaders of the enterprise must own the reputation of the firm. The chief communication officer becomes a very influential facilitator whose primary focus is not market share or profit but rather the overall reputation of the firm. Increasingly, the chief communication officer will need to help engineer a trustworthy organization by influencing the firm’s strategy, leadership behavior, governance structures, compliance procedures, incentives, and other aspects of organization architecture and the degree to which they produce authentic trust signals. Going forward, companies that “build in” trustworthiness by changing the organization as an integrated sociotechnical system will distinguish themselves on trust versus those who see it as merely a “bolt-on” change in communications or marketing. To be successful in this effort, C-suite executives must understand the process of building, sustaining, and repairing trust in a variety of stakeholder relationships.