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12 Downsides to Trust… Seriously – Week 10 in Twelve Weeks to Trust

June 27, 2012

Inter-organizational trust research focuses primarily on the definition and measurement of trust, on its benefits and its impact on performance; however, very little research explores its downsides which can be considerable. Here are eleven, based on my literature review of economics, marketing, business strategy and business ethics literature.

1.  The costs of building trust may not always exceed the benefits

Consider the cost in time and other resources required to establish and develop relationships with partners. If the benefits of investing in inter-organizational trust building do not exceed those costs, if a competitor can obtain the same level of trust with less investment, or if the relationship does not last long enough to recoup the investment, then the organization fails to create a competitive advantage.

2.  Group think may limit innovation (Ring & Van de Ven, 1994; McEvily, Perrone & Zaheer, 2003; Nooteboom, 2006; Osarenkhoe, 2010)

3.  There exists potential for “uncontrolled outflow of tacit knowledge” (Janowicz-Panjaitan & Nooderhaven, 2009, p.1031)

5. Partners may miss opportunistic behaviour

High trust in a partner allows a firm to reduce its monitoring. While this reduces costs, it unfortunately also

  • Creates opportunities for malfeasance and increases the amount of damage opportunistic behaviour can cause to an unwitting trustor (Gargiulo & Ertug, 2006; Goel et al., 2005).
  • Reduces partners’ ability to sense that the trustee is exploring alternatives (Kumar, 1996), imitating a technology (Osarenkhoe, 2010) or behaving opportunistically (Nooteboom, 2006).

While economics and strategic management scholars propose – and “common knowledge” suggests -that trust is fragile (Dasgupta, 1988; Dovey, 2009; Hexmoor et al., 2006; McEvily et al., 2003; Nooteboom, 1999), business ethics scholars argue that:

“Trust is resistant to contradictory evidence, and serves as a filter to interpret future actions. This process of “selective interpretation” means that a trustee’s actions which would otherwise destroy trust are either less salient to the trustor, or explained or excused away as errors of judgment or honest mistakes, rather than malice” (Goel et al., 2005, p.213).

Since the evidence required to change the perception takes time (Nooteboom, 2006) opportunism can multiply and delays are incurred.

6. Long-term relationships lead to relational inertia

In the Handbook of Trust Research (2006), Martin Gargiulo & Gokhan Ertug suggested that when trust is high, actors are less likely to perceive objective deterioration in performance and take longer to engage in corrective action which leads to larger losses. This was substantiated in a rare empirical look at the downsides of trust by Eric Fang and his colleagues who found that high trust lowers responsiveness within the coentity in the event of environmental changes (Fang et al., 2008).

7.  Partners may stay in underperforming relationships or fail to embark on new ventures

Delayed reciprocity, a hallmark of long-term relationships, can contribute to a party’s inability “to extricate themselves from relationships that have ceased to generate value” (Zaheer, McEvily & Perrone, 1998, p.157). An additional downside to staying in under performing relationships too is that this also prohibits organizations from pursuing new, and potentially more lucrative, partnerships (Kay, 1996; Nooteboom, 2006; Poppo & Zenger, 2002).

8.  Partners make cross-domain errors when trust is extended to inappropriate contexts (Goel et al., 2005, p. 210)

9.   Partners rely on “soft rather than hard data” (Zaheer, McEvily & Perrone, 1998, p.157)

10. Potential for ethical breaches. In a great article titled: The Ethical Limits of Trust in Business Relations, Brian Husted warns that

“[when] trust replaces rational economic criteria in decision making, inefficiency and injustice may result” (1998, p.234).

Further, in his interviews with purchasing managers across a number of industries, Amit Saini (2010) found that a long-term orientation in a trusting alliance may also influence parties to try to keep their relationship ‘frictionless’ and, in doing so, may accept ethically questionable requests or overlook failure to deliver on key metrics. You may remember from Week 5 that economic efficiency is one of Hosmer’s Ten Ethical Principles of Analysis and that to fail to signal problems with outcomes or performance constitutes an ethical breach. Why people hesitate to do so may be explained by #11.

11.  It’s uncomfortable to voice concerns in a high-trust culture

In The Perils of Pollyanna published in the Journal of Business Ethics, Sanjay Goel, Geoffrey Bell and Jon Pierce explain:

“Trust may bring a sense of ease, security, and physical and psychological comfort. Quite simply, trusting feels good. Distrust, on the other hand, is filled with unease, uncertainty, and tension…produces a visceral reaction” (2005, p. 204).

This makes it very difficult for an individual within an organization to voice concern when the culture or “collective orientation” is to trust the other organization (Kramer, 2002).

12. Potentially diminishing marginal returns

Some research suggests that it is possible that there are “diminishing marginal returns on trust as relationships progress” (Gulati & Nickerson, 2008, p.17). The problem is that partnering firms have no way of calculating where that optimal trust point will be and the lack of longitudinal trust research gives us no indication as to whether an inverted curve actually exists – or in non-academic speak: after a while it just doesn’t work as well as it originally did.

Now if you have been following the Twelve Weeks to Trust series, you know that I am an absolute, unabashed advocate of building trust between organizations (including between departments), primarily through formal and informal governance mechanisms (oh yeah! I’m so fun at parties!). However, it’s important to understand the dangers of over-trust in a business context and to find mechanisms to mitigate them… that will be my next post.

Do you have anything to add to my list?

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