Good News: We Can Build Institutional Trust

By Dr. Wynette Harewood –  Programme Lead, Master of Human Resource Management

Main Article Points

• Organisations can increase institutional trust by relentlessly focusing on 4 factors:  Competence, Motive, Means and Impact.
• New research suggests companies get better at creating institutional trust when they focus on creating valuable products and services, act with good intentions, treating people fairly and taking responsibility for how their organisation impacts business and society.

Reading Time: 3 minutes

Trust is at the core of all social interactions. In the case of companies and public institutions it shapes the perceptions of confidence investors, consumers, or members of the general public have in the organisation. In 2019, the CEO of Airbnb, in speaking of his business said, “things move at the speed of trust.” His comments are   true not only for the Airbnb business model, but for any business in which in speed and agility are important criteria for business success. In high trust work environments, there is less “transactional friction” as decisions are made and implemented faster, and at a lower cost. This translates into increases in employee and organisational performance.

Building Institutional Trust

The Covid-19 has putting institutional trust in local and international organsations to the test. The inequities revealed by the pandemic, has generated concerns regarding whose interest are being served by decisions to accept vaccinated or un-vaccinated labour, to provide curb side pick-up or no service, or offer employees traditional, hybrid or on-line work arrangements.

As business reopen, CEO’s and other leaders’ business are faced with the task of establishing or reestablishing trust with stakeholders-customers, employees, the general public. For companies that take institutional trust seriously, it is possible. New research suggests companies get better at creating institutional trust when they focus on creating valuable products and services, act with good intentions, treating people fairly and taking responsibility for how their organisation impacts business and society.

Institutional Trust Framework

Researchers Sucher and Gupta (2021) suggest organisations can increase institutional trust by relentlessly focusing on 4 factors:  Competence, Motive, Means and Impact.

Competence. This refers to organisational capability – technical know-how, managerial smarts, people skills – to consistently create and deliver high value products and services. Competence pinpoints what the organisation consistently does well or better than its competitors (think core competence). Competence provides guarantees and the belief that things in the company are operating as planned and expected. Under conditions of chaos and uncertainty, the existence of “situational normality” is both comforting and reassuring to stakeholders. Competence also conveys reliability.

The second factor Motive, addresses communicating what the organisation does and whose interests it serves. Organisations should have motives beyond profit generation for its shareholders and operate ethically to serve all stakeholders. Business motives are conveyed through stated business aims, goals, purpose, or a mission statement. Organisations whose actions- policies and practices, are transparent and consistent with expressed business motives and beliefs are perceived to be trustworthy, honest, and responsible. Companies with a high trust culture give more than lip service or widow dress to business motives, they operate from them. According to Sucher and Gupta, the motivation of a company’s leadership “to serve the interests of others as well as your own” is a critical determinant of the motive factor.

 Means refers to the business methods, and equitable practices of the company. Ethical conduct and practices convey integrity which in turn engenders institutional trust. Means includes conducting business affairs with honesty; a commitment to treat individuals fairly and accommodate diversity; empathetic decision-making; adherence to good governance and compliance expressed, regulations, standards, and practices. In time of crisis, corporate benevolence and altruism are conveyed through business means.

Finally, Impact or the overall effect of a company’s practices and actions on the society, and the acceptance of responsibility for its outcomes. As a whole, impact can be positive or negative. An example of a company with positive impact is Patagonia Inc. The outdoor sports apparel manufacturing company considers itself an “activist” company. Its mission statement is to “build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”. It lives up to its business philosophy by promoting pro-environment and eco-friendly practices and policies. The company is globally recognized for its innovative and family friendly maternity leave policies. Its activist stance extends to its value-chain activities. In sourcing raw materials such as wool and down-feathers, the company’s relationship with suppliers is guided by its principles on ethical treatment of animals and sustainable farming practices.

Sucher and Gupta, suggest, companies can maintain trust even when the company’s impact is bad, by acknowledging the harm it has caused and apologizing to employees, customers, and the general public. Unfortunately, loss of institutional trust is often associated with financial fallout.

These four factors, while no walk in the park to implement and sustain, do offer a framework of engineering institutional trust. Companies interested in building trust must first establish trust with its customers and employees then create and sustain processes and standards internally to ensure products or services are up to standard.

For CEO’s HR managers, IR practitioners and OD consultants and others searching for innovative and inclusive ways to improve levels of trust in local organisations, the Sucher and Gupta model provides four specific building blocks for starting the change process. What are your thoughts?

Reference.

Sucher, Sandra, and Gupta, Shalene, 2021. The Power of Trust: How Companies Build It, Lose It, Regain It, New York: Public Affairs.