Organizational Governance and Ethical Systems: A Covenantal Approach to Building Trust

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.''

How Corporate Social Performance Is Institutionalised Within the Governance Structure

“…This increasingly gives empirical evidence for how stakeholder-learning-dialogues are developed within a governance system (Daboub and Calton, 2002) and how trust can be build in organisational governance (Caldwell and Karri, 2005). The Dutch case supplies proof of Caldwell and Karri's (2005) plea for building trust in economic systems by developing a stewardship model of the firm.…”

“…The Dutch case supplies proof of Caldwell and Karri's (2005) plea for building trust in economic systems by developing a stewardship model of the firm.…”

“…Insight in the influence-pathways may lead to a different manner of handling ethical questions and social dilemmas, as suggested by various authors (Caldwell and Karri, 2005;Daboub and Calton, 2002;Leader, 1999;Zadek, 1998). Instead of regulations for actions, it turns out that the dialogue with stakeholders may take shape in the governance structure.…”

Principles and Principals: Do Customer Stewardship and Agency Control Compete or Complement When Shaping Frontline Employee Behavior?

“…The foundations of stewardship can be traced to the notion of covenantal relationships (Hernandez 2012), which reflects a sense of moral responsibility between two actors that ties them to an implicit obligation not to take advantage of each other (Caldwell and Karri 2005). Employees act in the best interests of the other(s) in the relationship because they perceive that behaviors that fit their moral compass have a greater utility than individualistic, self-serving behaviors (Davis, Schoorman, and Donaldson 1997).…”

A Discussion of the Suitability of Only One vs More than One Theory for Depicting Corporate Governance

“…Later, Block [40] suggested the stewardship role as "service over self-interest" believing that both organizational and individual needs will be achieved at the best by honouring relationships and treating followers like "owners and partners". In extension of stewardship theory definition, Caldwell and Karri [41] posited that there are covenantal duties owed to all stakeholders that acknowledged the importance of a systemic fit of organization governance with the conditions of its environment. However, stewardship can simply be defined as a behaviour that places the long term interest of the organisation as well as the shareholders a head of individuals' self-interest.…”