Organizational Governance and Ethical Systems: A Covenantal Approach to Building Trust |
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Authors: | Cam Caldwell Ranjan Karri |
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Institution: | (1) Assistant Professor of Management, University of Houston, Victoria Campus, Victoria, TX, 77901, U.S.A;(2) Assistant Professor of management at Bryant university, Bryant College, Smithfield, RI, 02917, U.S.A |
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Abstract: | American businesses and corporate executives are faced with a serious problem the loss of public confidence. Public criticism,
increased government controls, and growing expectations for improved financial performance and accountability have accompanied
this decline in trust. Traditional approaches to corporate governance, typified by agency theory and stakeholder theory, have
been expensive to direct and have focused on short-term profits and organizational systems that fail to achieve desired results.
We explain why the organizational governance theories are fundamentally, inadequate to build trust. We advance a conceptual
framework based on stewardship theory characterized by “covenantal relationships” and argue that design of governance mechanisms
using a covenantal approach is more effective in building trust in organizations. A covenantal relationship is a specialized
form of a relational contract between an employee and his or her organization. We argue that regardless of incentives and
control mechanisms carefully designed through contractual mechanisms, in the absence of covenantal relationships it is extremely
difficult to build trust within organizations. We propose that organizations are more likely to build trust – both at the
organizational level and at the interpersonal level – when they create reinforcing and integrated systems that honor implied
duties of “covenantal relationships.” |
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