March 2011

"Trust is the essence of leadership."

Colin Powell

Abstract

This article discusses trust in leadership, a major issue in current business management. Paradoxically, in the environment of continuous change that characterizes many organizations today, trust is needed more but is enacted less. Trust forms a foundation for functioning relationships and co-operation. Trust is intangible – it is an intellectual asset, a skill, and an influencing power for leaders. Leadership by trust emphasizes trustful behaviour towards employees. In this article, we suggest that, in trust formation, it is trustworthiness in leader behaviour that matters. Showing trustworthiness by competence, integrity, benevolence, and credibility makes a difference in daily leadership work. The importance of trust in leadership has been widely recognized in the literature and business practice.

This article focuses on how leaders enact on trust by showing trustworthiness to subordinates. The ways of building and sustaining trust and the effects of trustworthy and untrustworthy leader behaviour are examined. Two real life cases from industrial companies are presented and their implications are discussed. In conclusion, a leader’s competence (ability) is one of the key dimensions in showing trustworthiness. As to untrustworthy behaviour, it is worth noting that building and sustaining trust is reciprocal in nature. A practical implication for leaders is that the development of an awareness of trustworthiness and skills for demonstrating it should be a top priority in the current business environment, which demands strong interaction, cooperation, and communication abilities.

Introduction

This article examines trust in leadership by looking at trustful or distrustful leader behaviour towards employees. The objective of the article is to increase leaders’ awareness and knowledge of the importance building interpersonal trust within work relationships, particularly between leader and follower. The article looks at trust in a relational context, which means that trust develops and evolves in interactions and relationships between organizational actors (Mayer et al., 1995). Trustworthiness is examined through leader behaviour and in the context of intra-organizational, inter-personal work relationships. The main question is how leaders show trustworthiness by building and sustaining or violating trust. The consequences of trust and lack of trust for collaboration activity, commitment, and mental work well-being are discussed.

There is no doubt that studying the topic of trust is highly timely, relevant and meaningful. This is grounded in the recently increasing awareness that existing bases for social co-operation, solidarity, and consensus have been eroded and new alternatives are needed. Because organizational change is a frequent threat to trust, better understanding is needed of ways of enacting on trust in inter-personal work relationships within organizations. However, the consequences of intra-organizational trust spread far beyond the organizational boundaries. In trustful leader behaviour, competence (ability) is seen one of the main dimensions of trustworthiness, together with three other factors: integrity, benevolence, and predictability. Distrust is associated with negative expectations and a lack of confidence in the other party. Distrust also involves the belief that one party may not care about the other’s welfare and may act harmfully (Lewicki et.al, 2006; Gillespie & Dietz, 2009). Mutual trust and perceptions of trust play a crucial role in trustworthiness pertaining to cooperation and interpersonal and inter-group relationships in organizations (Ferring et. al., 2008). Personality is also a strong facet of trusting (Ben-Ner & Halldorsson, 2010).

Trust and Trustworthiness

Trust influences organizational processes such as communication, cooperation, and information sharing, and it affects productivity. Accordingly, trust is one of the most frequently examined constructs in recent organizational literature. Following the well known definitions of Deutsch and Rotter (1962 and 1967), trust comprises a person’s beliefs and expectations on how the trustee will behave. Interpersonal trust is defined as the individual’s or group’s expectation that the word or promise – verbal or written – of another individual or group can be relied upon.

Human resources management has become more and more competence-oriented in the knowledge-intensive society. Organizations focus on offering career opportunities for personnel and fulfill their motivational needs in order to build commitment. An employee’s commitment to their work and the organization is related to mental well-being, and both affect the success of the organization. Trust appears at many levels, organizational or managerial, and is manifested in the way, frequency, and quality of interaction between employees and managers.

Trust is a basic element of functioning relationships in organizations. Employees in organizations create trustworthiness by their daily behaviour and actions. Feelings of insecurity appearing in workplaces may be often a reason for atmosphere- related problems such as teasing, conflicts, and disputes. All of them affect the level of trust. Mental well-being is largely sustained by emotional support such as appreciation, respect, openness, and feedback. A commitment to the work and the organization is reflected in employees’ work motivation and satisfaction (i.e., work welfare).

Employees that trust their leader work effectively and have a high level of commitment. In addition, they share ideas and knowledge, tacit knowledge in particular. Trust in the behaviour of other people grows when cooperation is reciprocated. Psychologically, trust declines most often when positive expectations are disconfirmed (Lewicki et al., 2006). Respect and appreciation stimulate the development of trust, while poor leadership underestimates employees’ personal competences and this eventually results in declining work and company performance.

Building trust is considered an essential activity in managerial leadership. However, the task of building and maintaining trust is complex. A leader’s traits, behaviour, leadership style, and skills all matter in building trust and creating an impression of trustworthiness. By implication, a leader’s mundane behaviour plays a key role; trust is built and maintained by a leader’s “daily deeds.”

In addition to leader behaviour, organizational culture plays a key role in the development of trust and distrust in an organization. Culture is largely influenced by leaders’ actions. In the case of a very authoritarian management style, for example, employees become socialized by the actions of their leaders and adopt the style. As managers act as role models to subordinates, leaders who fail to behave in the expected ways earn disrespect and may block promotions in management careers. This has consequences to the entire organization. Further, subcultures within organizations play a role in employee socialization and commitment. Subculture may be even more strongly related to work commitment than the overall organizational culture.

Two Cases of Leader Trust

In this article, we present two cases of leader trust, which are based on an inductive, qualitative empirical study made in two manufacturing companies. Both companies are SMEs and are well recognized in their own business fields.

The primary data were gathered from several actors and sources: the leaders, employees, and human resources manager. The data consist of narrative material, collected through informal, open discussions (i.e., storytelling) with employees and the general manager. The themes of the interviews focused on trust, leadership style, and leader behaviour.

The secondary data is based on an empirical study which formed the second author’s graduate thesis. Empirical material consists of three different kinds of data: i) 75 employee questionnaires; ii) open interview questions with the human resources manager of the case company following analysis of the questionnaires; and iii) a participant observation diary and notes written and analyzed by the researcher during the process.

Case Company A

Company A manufactures and sells valves and pumps, and it operates worldwide. The company’s headquarters are in Finland. At the time the research was done, 43 people worked in the company. Four of them were middle managers and one was a general manager. Half of the employees worked in the manufacturing department and the rest were office workers in marketing, purchasing, sales, and financial administration. Some of the functions, such as cleaning and maintenance, were outsourced. The company has sales representatives all over the world.

The leadership style in company A was fairly authentic and the organization structure was quite hierarchical. Middle managers had formal responsibility, but this was not actualized; the general manager made all the decisions. Also, the behaviour of the general manager was neither predictable nor equal toward employees. Open dialogue between managers and subordinates did not occur. Fear and suspicion were prevalent reactions to the general manager’s attitude. Thus, co-operation and co-creation could not develop between employees and management in the organization.

Case Company B

Company B is a vegetable supplier with customers who are predominantly professionals in the food industry (e.g., restaurants and catering companies) in Finland. The company’s 25 staff members include a general manager, a financial manager, and a sales and marketing manager; the rest of the employees work in production.

The leadership style in company B was democratic and participative. The atmosphere in the organization encouraged open communication and debate. The company has a flat organizational structure with flexible job descriptions; authority, responsibilities, and liabilities are more dispersed and shared, which lead to a more diverse division of daily work. Collaboration was successful between employees and managers and it was found important.

Key Findings from the Cases

In these cases, it seemed that employee trust or distrust towards the organization and leader develop as a result of appreciation or undervaluation of people by skilful or unskilful management, and authentic (democratic) or authoritarian leadership styles.

In company B, as an indication of the trustful atmosphere and a demonstration of trustworthiness, spontaneous sociality emerges between organization members (Fairholm & Fairholm, 1999). In company A, a distrustful atmosphere prevails, which hinders communication and interaction. Poor leadership underestimates employee competences. As a result, trust does not develop, and disputes and conflicts occur. Eventually, such situations show declines in employee and company performance.

Low leader trustworthiness in company A was associated with the development of subcultures. Employees did not trust managers, particularly the top management (i.e., the owner-manager). This manager lacked business knowledge and knowledge of the industry, and did not possess the necessary leadership and management skills. As a result, leader behaviour by top management was perceived as untrustworthy due to incompetence in business and leading people. This was reflected in the leader’s actions, which aroused suspicions and mistrust among employees. Incompetence and unethical behaviour by the leadership of company A lead to emerging distrust in the organization. In the course of time, distrust permeated the organization and resulted in declining well-being and a low level of commitment to the organization.

An interesting finding in company A is that, despite the lack of trust, the employees were still confident with their own competencies and skills, but felt that the organization was not worthy of them. They still had faith in themselves and trust in a future outside the organization. It is also somewhat contradictory that people were highly confident with the continuity of work and felt physically well, despite evidently low levels of mental well-being. Trustworthiness and untrustworthiness of general managers is represented by the leadership style. In contrast to company A, the leadership style in company B is very democratic and participative, thus stimulating interactions and co-creation with employees. Internal communication is flowing and frequent; this is supported by the flat organizational structure. The structure also enables open communication and high morality in the treatment co-workers.

Implications and Conclusion

In the case studies presented here, the behaviours of the two leaders clearly demonstrate the difference between trustworthy and untrustworthy leader behaviour and their consequences to employees. In these cases, there are a few important lessons to be learned. Firstly, you can favourably influence the workplace atmosphere by showing trustworthiness through competence, integrity, benevolence, and predictability. In case company B, a trustful climate prevails, along with evidence of enthusiasm, high commitment levels, effective communication, and knowledge sharing. In contrast, case company A reveals a distrustful atmosphere, fear, low commitment levels, and a lack of willingness to collaborate and share knowledge. Secondly, employees become socialized by a leader’s good or bad habits and the action style of their trustworthy or untrustworthy leader. As culture develops by unwritten, enacted daily manners strictly influenced by the leader, a lack of respect and appreciation stimulates feeling of distrust (Fairholm & Fairholm, 1999).

Leadership by trust matters in innovative and co-creative work environments. The two cases presented here imply that it is the small mundane deeds of the leader that matter for employees in forming opinions of trustworthiness. Leaders should increase their awareness and knowledge about building trust, and they should develop behavioural skills for demonstrating trustworthiness. Trustworthiness cannot be overemphasized as a leadership trait and managerial skill. It should be on the top-three list of leader competences, along with the social skills of collaboration and communication.

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