Towards a moderated-trust governance theory : explaining the dimensional structure of trust and distrust between a board of directors and a CEO

Abstract

Trust is a central feature in corporate-governance theory and practice. While trust is advanced as a motivational factor in dominant organisational theories and practices, it is conspicuously absent in corporate-governance literature. At one extreme, scholars discount trust, which leads to theories that characterise the relationship between governance actors as goal-conflicted and as something that potentially exposes organisations to distress. At the other, scholars approach trust as a given and characterise governance actors as locked in mutually beneficial relationships that inspire trust, even if organisational distress also occurs. Neither extreme characterisation has been useful in explaining how governance actors organise themselves to avoid or escape financial distress. Using a multiple-casestudy method, underpinned by a critical-realist perspective, this study provides an explicit exploration of trust and its complement—distrust—and explains the complexity of the trust relationship between governance actors such as chief executive officers, board chairmen, and board directors. This study seeks to demonstrate that distrust, as characterised within agency theory, and trust, as portrayed within stewardship theory, detract from understanding effective board task-performance. Some scholars have relied on proxy variables such as board composition and financial performance to assess board task-performance, but this often leads to weak theoretical explanations. Moreover, this study specifies how optimal levels of trust and distrust could explain effective board task-performance, which scholars have shown partially contributes to financial performance. This study proposes that optimal trust and distrust between governance actors occurs where levels of trust and distrust are simultaneously high. This study develops a theory of moderated-trust governance that is underpinned by generative processes with supporting propositions. Therefore, this study contributes to literature on both trust and corporate governance.