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EXECUTIVE SUMMARY

the situation

Survey data indicates that low public trust in business is an enduring phenomenon, but does not illuminate the underlying causes of this reality. While significant academic research has been done in the areas of interpersonal and interorganizational trust, little has been done in the area of public trust in business. This makes it difficult for business leaders to truly understand the problems posed by a lack of public trust and creates hurdles for their efforts to build and maintain public trust.

key questions

What do business leaders know about building public trust in their companies? What don’t they know and how might that be important for their particular business? What factors play a role in low levels of public trust in business? Why does trust matter to companies? What are the core dynamics of trust in business?

new knowledge

Public trust in business is a highly complex phenomenon that is impacted by social and technological change. Low trust in business is not the result of a single factor, but rather emerges from the interaction of multiple causes. Some aspects of what shapes public trust in business seem fairly constant and stable over time (e.g., suspicion of large institutions) other dimensions seem more contextual and fluid (e.g., the rise of the internet, information sharing, and the decrease in direct human interaction as a part of business).

Executive summary

The situation

Leaders need a better understanding of “public trust,” what factors influence it, and what that means for organizational action.

We understand a great deal about organizational trust, but research generally assumes that all parties view trust in organizations the same way. Stakeholder trust – or, an analysis of differential stakeholder approaches to trust – has been relatively unexplored, with a few notable exceptions.

Key questions

What role can stakeholder theory play in understanding public trust in the institution of business?

How do different stakeholders conceptualize organizational trust, and what impact do these differences have? What does a better understanding of stakeholder trust tell us about public trust in business?

New knowledge

Trust has at least two key components – trust that is based upon an assessment of integrity or goodwill and trust that is based on an assessment of competence. Competence-based trust may be a higher priority in certain stakeholder relationships, whereas in others goodwill-based trust may be more important. Recognizing and understanding which aspect of trust has priority in particular stakeholder relationships, and understanding how those stakeholders balance these two aspects of trust in their decisions, would be highly useful to business leaders.

Key lessons

At the individual level, trust in the institution of business and trust in a particular business are distinct concepts.

Stakeholder roles (e.g., customer, employee, investor) differ qualitatively and engender different areas of emphasis when it comes to organizational trust; this has an important bearing on trust in business as an institution.

The research compiled in this volume, the consistently dismal poll results, and continued public interest in the role of business in society give rise to a number of opportunities to further improve our understanding of public trust in the institution of business. One of our primary objectives in commissioning these chapters was to stimulate further scholarly thinking and research on the subject of trust in the institution of business; as such, a number of questions offer potential avenues for additional analysis and inquiry.

Definition and antecedents

We need a better conceptual understanding of what constitutes “public trust” and how we might define it in terms that build on the existing literature and extend our theoretical understanding. Given the potential importance of trust in business as an institution, there is an opportunity for scholars to bring more precise understanding to what exactly respondents are talking about when they talk about public trust in business writ large. How much of one’s trust in business as an institution arises from one’s direct experiences with various specific businesses? How much is attributable to a particular stakeholder role or mindset? How is one’s generalized trust in business influenced by observations about others’ experiences, or the observed behavior of firms with which one has no direct experience? We need to better understand the drivers of trust in business as an institution. Several chapters in this volume begin to offer theory about how public trust is formed, but many questions remain.

Despite the importance of public trust in business, very little scholarly work has been written on this topic. While the literature on organizational trust – both interpersonal and interorganizational – is vast and growing rapidly – particularly in the field of management – much less academic research has been conducted on public trust in business as an institution. Based on top executives identifying trust in business as their biggest concern, we held several seminars with executives, journalists, and governance experts during 2007, in both Washington, DC and New York, to seek their input and increase our understanding of their practical perspective on the crisis of trust in business. Based on what we learned, and with the further erosion of public trust in business with the onset of the global financial crisis, we issued both a preliminary report on the topic, and convened the 2009 Ruffin Summit on Public Trust at the University of Virginia’s Darden School of Business, which involved twenty-five top thought leaders on trust across a variety of disciplines. This volume includes papers presented at the summit, and other invited papers, to gather what we believe to be the best current thinking on the problem. The scholarship in this volume speaks in detail to this critically important topic, and raises a variety of questions that beg for further attention.

Part I of this volume focuses on public trust in business as an institution. In Chapter 2, Eric M. Uslaner analyzes data from multiple surveys of the US population to determine the extent to which the global economic crisis caused a reduction of trust in government and in generalized trust. Using these same data sets, he explores whether the economic crisis played a key role in support of the Tea Party movements, and whether these movements in turn lowered levels of trust.

The distinctive focus of this chapter is on how stakeholder theory has been developed and discussed within the normative business ethics literature as we understand the main work in the discipline. Though it takes many forms, there are many reasons to see stakeholder theory as it has evolved as having a central place in business ethics (and vice versa). Within this literature, we can think of stakeholder theory as providing an effort to address the problem of the ethics of capitalism outlined in Chapter 1 and to integrate it into an understanding of value creation and trade. Partly because of their disciplinary background, and partly due to the momentum of the stakeholder concept, ethicists quickly latched onto stakeholder theory as a powerful way of thinking about the way in which we connect ethics and business.

In order to think in more detail about stakeholder theory as an avenue for addressing the problem of the ethics of capitalism, we identify several themes that underscore the importance of stakeholder theory for business ethics. First, particularly due to its reach into the strategy literature and the wider management literature, stakeholder theory provides a way for ethicists to connect systematically with a wider conversation about business and organizations. No longer just focused on a set of isolated, idiosyncratic problems, the focus of stakeholder theory opens up connections to basic considerations about business, its underlying purposes, its core focus, and its everyday operations.

Stakeholder theory has much to say about strategic management. The stakeholder perspective offers an alternative that can enhance the economic perspectives of modern strategic management. We have already argued in Chapter 1 that the idea of stakeholder theory is consistent with strategy theories such as Michael Porter's industrial economics and Oliver Williamson's transactions cost theory. The body of work that we have called “stakeholder theory” was developed during approximately the same time frame as the economic approaches that are more mainstream today.

Although the stakeholder approach to strategic management has influenced thinking in the field, there are numerous interpretations of it, the results of which are that it sometimes still struggles for acceptance among mainstream strategic management scholars. For example, Michael Hitt (2005), a widely acknowledged expert in the field, reviewed the development of the strategic management discipline and highlighted important areas for future research and discussion. His review suggested that the most important theoretical perspectives include industrial organization economics, corporate strategy and diversification, transaction cost economics, evolutionary economics, resource dependence, and the behavioral theory of the firm. Within these perspectives, he mentioned dozens of individual topics such as agency theory, corporate governance, mergers and acquisitions, international strategy, and the resource-based view. Not once did he mention the stakeholder perspective, although he did refer to the closely related concept of network strategies (Dyer and Singh 1998; Gulati and Singh 1998; Ireland, Hitt, and Vaidyanath 2002).