Organisational effectiveness: How trust helps

28 Feb 2012 By Veronica Hope-Hailey, Ros Searle and Graham Dietz

A study was commissioned by the CIPD to explore how organisations can repair trust when it has been damaged

We all rely on certain levels of trust to function and prosper. However, our willingness to trust has been severely challenged lately by a series of scandals, including the unveiling of News International’s phone-hacking practices and the return of excessive bonuses to a banking sector only recently bailed out with taxpayers’ money. This loss of trust has serious consequences for both organisations and society as a whole.

Innovation and new ways of thinking, which are needed to kick start our economy, can thrive only in conditions of safety and trust. As well as fostering innovation, trust improves performance, reduces transactional and monitoring costs, and lowers levels of conflict within organisations. It also enhances co-operation and encourages employees to share knowledge. Moreover, without trust we may not be able to find new and more cost effective approaches to delivering public services.

So trust is an asset for any organisation. Our study, called Where has all the trust gone?, was commissioned by the CIPD to explore how organisations can repair this valuable asset when it has been damaged.

At the heart of trust – and its repair – are individuals’ perceptions about the trustworthiness of another party, whether this is an organisation, its leaders or the people in line management. Earlier studies (see also Links & Notes) have found that trustworthiness has four distinct components: “ability” – the extent to which the individual concerned believes in the competence of the other party; “benevolence” – the extent to which the individual believes that the other person cares about his or her well-being, and “integrity” – the extent to which the individual can detect and admire in the other an adherence to moral principles and high standards of behaviour; and “predictability” – a consistency of behaviour over time. How far leaders inspire these perceptions determines whether they are trusted or not.

The role of HR

Previous research suggests that among all organisational policies and processes, those associated with HR are some of the most important in creating and maintaining trust. These policies and processes are “touch points” in the lives of employees throughout their time with the organisation. Both separately and collectively, the policies provide clues and signals of the trustworthiness of the organisation. The way managers or leaders implement HR practices then provides tangible evidence to employees about whether their intentions are genuine.

As part of the CIPD-sponsored research, questions about trust were added to the institute’s quarterly survey of UK employees carried out in September 2011. We also collected qualitative data about trust repair through in-depth case studies of 14 organisations*, interviewing 220 people in September 2011.

What is happening to trust in UK organisations?

we found that organisations vary in where they focus their attention when building and sustaining trust relationships. There were five distinct types of approaches:

  • Type 1: Trust in each other – optimistic expectations and productive relations are maintained with customers, among employees and their line managers, and with the organisation and its senior managers, forming a virtuous and reinforcing “circle of trust”.
  • Type 2: Trust in leaders – the main emphasis is placed on trusting senior managers, with a tendency to focus on “heroic” or “visionary” leaders.
  • Type 3: Trust in the organisation – typical of public sector organisations, this is where individual leaders, whether politicians or CEOs, are less important to employees than the purpose of the organisation itself.
  • Type 4: Trust in external relations – senior management and, to a degree, employees, view their central trust relationship as being with key external stakeholders, most often customers, rather than focusing on internal trust relationships.
  • Type 5: Trust in the direct line manager – attention is given to maintaining the trust relationship between employees and their direct bosses.

The survey revealed that whatever approach is used to build trust, it plays an important role in employees’ decisions to recommend their organisations to others, in job satisfaction and in reducing the likelihood that they will leave their current employer.

Mirroring findings from other studies, our results also showed that the size of the organisation and an individual’s level within it both have an impact: people in senior positions are the most likely to trust their organisations, while larger organisations are less likely to inspire trust than smaller ones.

Another factor was the importance of the relationship between employees and their line managers.

The competence, benevolence, integrity and predictability of line managers’ actions are pivotal in shaping perceptions of the organisation as a whole. Open communication is equally important in building and maintaining trust. Nor is trust merely a one-way concern: we found that employees’ trust in organisations is generated and sustained when they themselves feel trusted by their managers.

Conversely, the results of the survey showed that poor communication, high levels of conflict and limited opportunities for staff to develop and progress were key factors in reducing trust.

At the heart of many of these perceived trust violations were challenges to the psychological contract. Anxieties about job security were weakening this implicit agreement between individuals and their employers even before the global financial crisis broke. The downsizing that many organisations – public and private alike – have been through since has stoked these anxieties still further.

How to rebuild trust in times of economic adversity

The case study research focused on how organisations were managing to maintain or repair trust in today’s adverse economic conditions. We identified types of behaviour and policies that had strengthened trust.

1. Creating a trust fund

In Type 1 organisations – those that emphasise “trust in each other” – there was a strong and persistent focus on maintaining trust across all relationships. Before the financial crisis they had created a deep fund of trust among a wide range of internal and external stakeholders, including employees, customers, senior managers, shareholders, trade unions and the local community. As the environment became more difficult, these workplaces were able to draw on a multiplicity of established trust relationships. If one relationship became strained, the others were sufficiently strong to maintain “trust relations”. Virtuous circles of benevolence were created with both internal and external groups. But those organisations relying exclusively on “trust in leaders” were at high risk of losing trust during the recession if those leaders were suddenly found to be lacking in the areas of ability, benevolence or integrity, in particular.

2. Managing with integrity

Some of the senior managers we interviewed recognised that they had a choice over how to lead in difficult times – that it was within their power to make things better or worse for staff. For example, the chief executive of the law firm Norton Rose consulted the whole workforce on the introduction of short-time working. Similarly, John Lewis implemented a restructuring scheme that resulted in jobs being made redundant on a scale never previously seen in its 80-year history, but managed to enhance trust as a result of the process it used (see case study).

In another of the organisations we studied, Sunderland City Council, the CEO appealed to the community to support efforts to minimise job cuts and maintain public services. In the current economic climate, he could not avoid taking difficult decisions, but chose to work with employees and other stakeholders when implementing those decisions, and so succeeded in enhancing trust.

3. Serving the workforce

Leaders who demonstrated their benevolence and integrity on a day-to-day basis made a difference. These trustworthy leaders saw themselves as having a duty to serve the needs of employees, as well as customers. Kirit Patel, CEO of the Day Lewis Pharmacy Group, is respected by his staff for his honesty, integrity and commitment to their well-being. Despite making a small number of redundancies at the height of the financial crisis, this medium-sized business has seen trust and engagement levels rise.

4. Killing spin

Even if the news is bad, employees appreciated honest, direct communication and being treated as adults. “Trust is about honesty,” said one local authority manager. “If you’re going to shut us, shut us. Tell us you’re going to shut us. Don’t give us false hope.” Good communication was often personal, coming directly from senior managers. In HMRC, for example, senior managers decided to spend far more time out of London, visiting local workplaces and talking to staff.

Senior managers in some of our other case study organisations publicly apologised to staff for past mistakes – asking to be shown some benevolence themselves. The financial institution in our study informed its staff of a commitment to doing things differently in the future, particularly by focusing on new ways of selecting and developing leaders.

5. Re-engaging with local line managers

Ensuring that line managers were consulted and made aware of the goals of senior managers helped to create a line of trust through the organisation. In some workplaces, trust in senior managers fell during the downturn because line managers “jumped into the trenches with the troops”, apportioning all blame for cuts on senior leaders. The case studies revealed that the greater the direct interaction between customers and low level employees, the more vital it was that the chain of trust between senior managers, line managers and employees was not broken.

6. Repositioning the employment relationship

Finally, organisations that succeeded in repairing trust invested time in reinterpreting their relationship with employees. Through openness they were able to begin to develop new, more realistic employment relationships that allowed them to move away from unsustainable agreements with the co-operation of their employees. HMRC, for example, is now slowly turning around trust relations through a sustained dialogue about more realistic contracts with staff.

'Trust enters on foot but leaves on horseback'

This old Dutch saying captures the speed with which trust can be broken in organisations. While it takes years to develop trust, clumsy self-serving moves on the part of senior managers or others can destroy trust very quickly. But we also found that, faced with economic adversity, those who demonstrated their moral concern for each other not only maintained trust but, in some cases, actually managed to increase it. Organisations that enjoy such trust may well enjoy higher growth over the next few years than those demonstrating less benevolence.

Case study

The John Lewis Partnership

In 2009, the John Lewis Partnership launched a new strategy based on the idea of the “branch of the future”. The aim was to improve both cost and process efficiency, but, in order to achieve these changes, a number of retail roles were to be made redundant. Senior managers in the branches affected were asked to tell the whole story – the why, when and how – and take as much time in their briefings as people needed to make sense of it all. Any questions could be asked, any comments could be made and at no time was a senior manager allowed to “squash any comment”.

One branch managing director said that while the communications briefings could demonstrate to people the intellectual side of the business plan, the emotional side was a different matter. It was up to all managers to address this by listening – and demonstrating that they were listening. So every senior manager was expected to be available immediately after each briefing to talk to people for however long they needed to talk. As one manager said: “This job requires a huge amount of investment of yourself.”

Every person whose job was becoming redundant was offered redeployment, and there was plenty of help for those who chose not to take up this offer. Throughout the restructuring, the partnership questioned whether the actions it was taking were right in terms of the long-term needs of the business and what these actions meant for individuals. The organisation emphasised that it was jobs that were going, not people, and that the relationship was two-way: senior managers had responsibilities, but so did the workforce.

As a result of this careful, people-oriented implementation of the restructuring and redundancy programme, trust in John Lewis as an employer actually rose. One sales assistant said: “I’ve been here 19 years... and I trust the company more now than I did when I first started because I think we’re a more streetwise business.”

*Organisations in the research were: BIS – Department for Business, Innovation and Skills; Cable & Wireless Worldwide PLC; City of Sunderland Council; Day Lewis Pharmacy Group; Ernst & Young; GKN PLC; Hampshire County Council; HM Revenue & Customs; John Lewis Partnership; Norfolk County Council; Norton Rose Group; Orvis; Royal Mail; and a financial institution that did not wish to be identified.

Veronica Hope-Hailey is professor of HRM at Cass Business School, Ros Searle is senior lecturer in occupational psychology at the Open University, and Graham Dietz is senior lecturer in HRM at University of Durham

We would like to acknowledge the critical and creative contribution of Dr Sue Abbotson to the development of the typology.

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