SUMMARY OF ELLEN M. WHITENER, SUSAN E. BRODT, M. AUDREY KORSGAARD AND JOHN M.

WERNER

ARTICLE ON MANAGERS AS INITIATORS OF TRUST: AN EXCHANGE RELATIONSHIP FRAMEWORK FOR UNDERSTANDING MANAGERIAL TRUSTWORTHY BEHAVIOUR BY JOSEPH KIOKO DSO/61281/2011

PhD. STUDENT OF BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS UNIVERSITY OF NAIROBI

MANAGING HUMAN RESOURCES DHR701

FACILITATORS: PROF. P. KOBONYO & DR. H. KIDOMBO

22nd March 2011 Joseph Kioko DS0/61281/2011 Page 1

Summary: The authors seek to analyze the types of behaviour managers may engage in, that builds managerial trustworthy behaviour and present a framework for understanding the antecedents of this behaviour within an organization. The authors argue that managers action and behaviour provide the foundation for trust and that it is actually management responsibilities to take the first step to initiate trusting relationship within the organization. The authors have used both the agency and social exchange theories to identify and analyze organizational, relational and individual factors that encourage or constrain trustworthy behaviour within the organization. The Article consists of five sections; a) a brief review of the Agency and Exchange theories and their implication for trust formation, b) a taxonomy of the five dimension of trustworthy behaviour, c) framework representing the organizational, relational and individual antecedents of trustworthy behaviour, d) challenge of trust initiation and what organization can do to support managerial trustworthy behaviour, e) discussion of implication and avenues of future research and practice. The manager-employee exchange Relationship: The Agency Theory: A principle-agent relationship occurs when one party (Principle) contracts another party (Agent), to perform tasks involving delegation of decision making in exchange for compensation. Agency Theorist examine attempts to structure the relationship between principle and agent in there endeavor to protect their own interest. From the foregoing we can consider the employee to be the agent while the manager represents the interest of the principle. This perspective assumes self interest in that individuals strive to maximize individual utility, with both parties seeking to minimize risk associated with the relationship. The agent bears risk as a function of how they are compensated while the principle faces the risk of opportunism and incompetency on the part of the agent. The authors have used the agency lens to highlight the formal economic context and self interest motive as well as the behavioral consequences, it also delineates factors that contribute to the risk of opportunism and how the exchange relationship can be structured to minimize this risk.
22nd March 2011 Joseph Kioko DS0/61281/2011 Page 2

Although implying how relationship context contributes to risk, agency theory takes a relatively static view of the relationships. Social Exchange Theory: Social Exchange Theory helps to explain how a social element evolves in a formal or contractual employment relationship which is economically driven. It helps to explain how an individual voluntarily provides a benefit to another, invoking an obligation to reciprocate by providing some form of benefit. (Blau, 1964) argues that, trust can be generated through two means; through regular discharge of obligation and through gradual expansion of exchange over time. Blau, further asserts that social exchange differs from economic ones in a number of ways including that social exchange may involve extrinsic benefits with economic values (information and advice) or intrinsic benefits without any direct objective economic utility (social support); secondly whereas benefits in economic exchange are formal and contractual such benefits are rarely specified before hand or explicitly negotiated in social exchange. Provition of benefit is a voluntary action; finally since such behaviour is voluntary, there is no guarantee that benefits will be reciprocated or that reciprocation will result in the receipt of future benefit. The authors have used the social exchange lens to highlight the dynamics of the exchange relationship and its development over time; to indicate that successful social exchange should influence perception of risk of non-reciprocation (opportunism) and trust. The authors have used the lens to indentify when under conditions of agency risk is an individual likely to trust another party rather than impose greater control. While the agency theory lens indentifies relatively static, contextual factors associated with the risk of opportunism in economic exchanges (agency risk), the social exchange theory is particularly relevant in helping us examine when one party is willing to trust another rather than impose control. The social exchange theory lens suggests that by habitually discharging ones obligation, trust develops that may mitigate the risk of opportunism inherent in the organizational context.

22nd March 2011

Joseph Kioko DS0/61281/2011

Page 3

Dimensions of Trustworthy Behaviour: The authors have defined managerial trustworthy behaviour as volitional actions that are necessary though not sufficient to engender employee trust in them; this behaviour occurs in both social and economic exchange context in which managers initiate and build relationship by engaging in trustworthy behaviour as a means of providing employees with social rewards. The authors have indentified 5 categories of behaviour that influence employee perception of managerial trustworthiness. These include Behavioral consistency, behavioral integrity, sharing and delegation of control, communication and demonstration of concern. a) Behavioral consistency: (reliability or predictability) The authors assert that if managers behave consistently over time and across situation, employees can better predict managers future behaviour and therefore increase their confidence. Predictability and positive behaviour reinforce the levels of trust in the relationship. b) Behavioral integrity Employees observe the consistency between managers words and deeds and make attribution about their integrity, honest and moral character. The authors assert that while behavioral consistency reflects the reliability or predictability of managers action based on their past action, behavioral integrity refers to the consistency between what the manager says and what they do. c) Sharing and delegation of control Sharing control, including participation in decision making and delegating control are key components of trust worthy behaviour. The extent to which managers involve employees influences the development of trust; employees trust is higher when they are satisfied with their level of involvement or participation in decisions and when they can also determine their work roles. When managers share control it demonstrates significant trust in and respect for their employees. d) Communication The three factors that affect perception of trustworthiness within an organization include accuracy of information, explanation for decisions and openness. Employees

22nd March 2011

Joseph Kioko DS0/61281/2011

Page 4

see mangers as trustworthy when their communication is accurate, forthcoming, adequate and timely. e) Demonstration of concern. Managers can promote trust by showing concern for employees need and interest, by respecting others right and apologizing for unpleasant consequences; the managers behaviour must connote a genuine interest in employee welfare and imply some form of attachment to the employee. The manager should show consideration and sensitivity for employees needs and interest, should act in a way that protects employee interest and should refrain from exploiting others for his/her own benefit. Antecedents of Trustworthy Behavior: The authors have used both the theoretical approaches to lay foundation for developing a framework that organizes the antecedents of managerial trustworthy behaviour. The framework indentifies major sets of variables at the organizational, relational and individual level that the authors believe support or encourage managerial trustworthy behaviour. Organizational factors: R. Hardin (1996) asserts that organizations can be designed to enhance trustworthiness by creating structures that make trusting successful. Organizational attributes such as structure, policies and culture may dictate the degree of control managers can exert over the actions of their employees hence either inhibit or support the extent to which managers engage in a variety of trustworthy behaviors. While Creed and Miles (1996) propose different trust requirement for varying organizational forms, the authors have however developed propositions about the impact of different organizational forms on the development of trustworthy behavior. These propositions include: Organizational Structure: Proposition 1: Organization that are highly centralized, formalized, hierarchal, and focused on efficiency will be less likely to generate managerial trustworthy behavior (in particular communication and delegation of control) than will organizations that are decentralized, less formal, less hierarchical, and focused on effectiveness.
22nd March 2011 Joseph Kioko DS0/61281/2011 Page 5

Human resource policies and procedures: Proposition 2: The more an organizations HR policy and procedure incorporate (procedural) justice principle into performance appraisal and reward systems (e.g. regular and timely feedback and mechanism for employee input into performance appraisal) the more likely it will be that managerial trustworthy behavior especially communication and behavioral consistency will occur. Organizational culture: Proposition 3: Organization with cultures characterized by risk taking, inclusiveness,

open communication, and valuing of people will show greater trustworthy behavior, particularly delegating control, communicating openly and showing concern, than will organization with cultures that do not share such values or norms. Relational factors: High quality exchange relationship involve showing mutual respect, concern and sharing of decision control, mangers may therefore exhibit such behavior inorder to provide social rewards to employees and to elicit various pro-social or pro-organizational benefits from employees such as loyalty and compliance. The managers motivation therefore to engage in such behavior is thus related to the value of benefits received from the employee and the costs of engaging in such behavior. The three exchange factors and there proposition include: Initial interaction: Proposition 4: The more effective an employee is in initially meeting role requirement, the greater the likelihood will be that the manger will engage in trustworthy behavior, particularly sharing control, communicating openly and showing concern. Expectation: Proposition 5: The greater a managers expectation are concerning an employee willingness to reciprocate, the greater the likelihood will be that the manager will be willing to engage in trustworthy behavior particularly sharing control and communicating openly.
22nd March 2011 Joseph Kioko DS0/61281/2011 Page 6

Cost of exchange: Proposition 6: The higher the cost associated with unreciprocated exchanges, the lower the likelihood will be that mangers will engage in trustworthy behavior, particularly sharing control

Individual factors: Social exchange suggests that manager engage in exchange of rewards based on in part on their expectation of reciprocation and the perceived cost of non-reciprocation. The authors propose 3 individual factors that influence managers belief and expectation regarding the likelihood of successful social exchange and hence the propensity to engage in trustworthy behavior. These include: Propensity to trust: Proposition 7: The greater a managers propensity or disposition to trust is, the greater the managers expectation of reciprocation will be and the greater the likelihood will be that the manager will engage in trustworthy behavior particularly behavioral integrity. Self-efficacy: Proposition 8: Managers who lack efficacy regarding their knowledge, skills, and ability to perform trustworthy behavior (e.g. delegating control or communicating openly) will be unlikely to engage in trustworthy behavior. Values: Proposition 9: Managers whose values are self-transcendent will be more likely to engage in trustworthy behavior such demonstration of concern and behavioral integrity, than will those managers whose values are self-enhancing.

22nd March 2011

Joseph Kioko DS0/61281/2011

Page 7

The Challenge of Trust Initiation: The authors have noted that both social exchange and agency theories highlight unique challenges to initiating the social exchanges that ultimately build trust. From a mangers

perspective trust initiation involves engaging in trustworthy behavior preemptively before the subordinate demonstrates his/her worthiness. To reap organizational benefits of trust, the authors state that, mangers must be encouraged to make the first move. The authors have indentified three impediments to trust initiation within the organization which include motivational context, social dilemmas and cultural values. Motivational complexity: Both agency and social exchange theory present a complex motivational dynamic for mangers. The agency theory highlights managers motivation to minimize risk exposure (through tight control and close behavioral monitoring), while the social exchange theory suggests that if managers need to create relationships based on voluntary discharge of reciprocal obligation they should relax control and promote trust. These lenses highlight fundamental tensions between building a relationship based on trust and reducing risk of opportunism that could potentially preempt trust. The authors advice that a judicious design of organizational factors may mitigate this problem and encourage trust initiation. Social Dilemmas: Social exchange theories contain inherent conflicts related to trust initiations. The theories of social exchange presume individuals self interest-people are motivated to maximize individual rewards and minimize individual costs; this ultimately creates a conflict between self-interest and collective good. Social dilemmas occurs when individuals outcomes are maximized as they act in their own self-interest regardless of what others do, hence creating negative outcomes for all involved. Two types of social dilemma that complicate trust initiation with an organization are the Prisoners Dilemma and the Volunteer Dilemma. The prisoner dilemma is whereby individuals who cannot communicate with each other face a conflict between maximizing individual interest by not trusting each other (defecting) versus maximizing collective welfare by trusting and cooperating. While the Volunteer Dilemma is whereby one person makes a sacrifice so that the entire group benefits; the cost of self sacrifice is uncertain or highly negative in the
22nd March 2011 Joseph Kioko DS0/61281/2011 Page 8

short term. To mitigate this challenge the authors suggest that changing the nature of interdependence and decreasing the perceived cost associated with unreciprocated exchange will encourage managers in a dilemma situation to initiate trust. Cultural Values The variety of cultural values that exist around the world influence individual behavior and potentially complicates managerial trust initiation. The authors have conceptualized cultural values from an individual level i.e. cultural value as represented in an individual managers beliefs and behaviour. The authors assert that trust initiation may either be helped or hindered depending on ones cultural values, norms and practices. Discussion: Implication for research: The authors propose that future research is needed regarding the typology of managerial trustworthy behavior as well as elements of the authors framework and propositions regarding the antecedents of such behavior. Research should also investigate additional dimensions of trustworthy behavior and possible factors that might affect trust initiation. While the authors have proposed that trustworthy behavior is necessary but not sufficient to influence employees perception of trust, there is need to pursue the robustness of trustworthy behavior especially individual and situational factors that may limit the extent to which

managerial trustworthy behavior affects employee perception of trust. Research is also needed on other contextual factors that may influence managers propensity to engage in trustworthy behavior and employee reactions to such behavior. Implication for practice: The authors suggest that the framework provides a concrete guideline for managers and organization for initiating managerial trustworthy behavior within organizations. The authors have identified several ways of overcoming potentially challenging barriers, conflict and uncertainties in the process of initiating trust.
22nd March 2011 Joseph Kioko DS0/61281/2011 Page 9

Organizations can also provide training and educational opportunities to enable and enhance managerial trustworthy behavior. Trustworthy behavior may provide a source for competitive advantage for an organization.

22nd March 2011

Joseph Kioko DS0/61281/2011

Page 10