How to Build Trust in an Organization - Case Study Example

Trust Case Study: Siemens and Severn Trent Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 Introduction 3 Topic representation 3 Severn Trent and Siemens 4 Root causes of loss of trust 5 Severn Trent 5 Siemens 6 Effectiveness of the mitigation actions 6 Severn Trent 6 Siemens 7 Implications for failure to publicly address issues 8 Rebuilding companies’ reputations 9 How the companies did/what could have been done better 11 Conclusion 12 References 13 Introduction Trust is an important asset for any business organization. An organization’s actions and conducts can break the bond of trust between an organization and its stakeholders. Additionally, it can create mistrust, threaten the organization’s social legitimacy and lastly, threaten an organization’s capability to survive. Among the underlying implications is reputational damage and ultimate financial losses. Consistent with this background, this paper presents a case analysis on Siemens and Severn Trent to establish the root causes that led to loss of trust, the effectiveness of the taken mitigation actions, likely implications on failing to address the issues and whether the companies’ reputations can be rebuild. Topic representation Trust refers to the psychological state that consists of the intent to accept a state of vulnerability based on positive anticipation of the intent or tendency of the other (Nguyen et al 2012). According to McClellan (2014) trust can be divided into two main forms: cognitive trust and affective trust. Cognitive trust is anchored in making rational conclusions on the trustworthiness of the other party. On the other hand, affective trust is anchored in intuitive and emotional perceptions of trustworthiness. In addition to these emotional and logical bases of trust, some findings have also established that trust is dependent on interactional frequency, value congruence, sharing, openness reputation, and credibility. Trust can be depicted using several organisational factors, such as empowerment-oriented, current risks and inclusive processes and structures. Others include high cooperation, competition, and reputation (McManus and Mosca 2014). On the other hand, the factors that tend to limit organizational trust include, lack of job security, scarce resources, and cultural mistrust. Put differently, the stakeholders get to perceive an organisation as less reliable, by making an assumption that once the company has done something reproachable, then it can still do it once again (Williams et al 2012). Behind this idea is the concept of reputation, which McClellan (2014) defines as collective judgements of an organisation grounded on evaluation of social, financial and environmental impacts credited to the company over time. Fernández (2012) considered reputation as significant for survival of any enterprise, which should be preserved due to its fragile nature and which signals stakeholders regarding equality. Severn Trent and Siemens Severn Trent is a water services company that is based in the United Kingdom. Its services range includes supply and sale of water and water treatment supplies to homes, school, commercial enterprises, and hospitals. The company is regulated by OFWAT, which is the industry’s regulator. The company has faced major trust crisis issues that put its reputation at risk. Two major cases are significant in this regards. The company was fined £35.8 million in 2008 by OFWAT for its substandard services and deliberate misrepresentation of information to the regulator. Later that year, OFWAT further fined the company £2 million for lack of conformity to reporting procedures. Siemens is a German transnational company headquartered that deals in the manufacture and sale of wireless technologies and home appliances for cooking and laundry. In 2006, the company faced major trust crisis. German regulators investigated the company in November 2006 and uncovered large-scale corruption. Hundreds of Siemens’ employees had, for seven years, continually engaged in siphoning off huge amounts of money to pay-up bribes to governmental officials and businesses in order to win contracts. The scandal caused damages worth 1.6 billion Euros. Among the implications included putting Siemens’ trustworthiness and integrity under public scrutiny, leading to loss of trust. Root causes of loss of trust Severn Trent As indicated in the case study, the root causes of loss of trust at Severn Trent were deep-seated management issues, such as inefficiencies in handling of whistleblower issue, neglect of issues that could have led to litigation concern and avoidance of disclosure with the hope of safeguarding the reputation of the company. In fact OFWAT’s interim findings showed the primary cause to be associated with “poor internal processes and controls.” Additionally, Severn Trent had for a long time upheld dishonest cultural values. Eventually, some of the managers and other employees saw deceit as being virtually acceptable. Severn Trent had also formed a habit of assuming a defensive stand whenever it was accused of misdemeanours. At one moment, one of the employees became incensed by the company’s inability to respond to whistle-blowing effectively. The employee leaked the evidence to the press leading to publishing of articles that condemned the company publicly for fraud and misrepresentation of information. Ultimately, Severn Trent lost its trust after being fined £35.8 million in 2008 by OFWAT for its substandard services and deliberate misrepresentation of information to the regulator, and another £2 million for failure to conform to standardised reporting procedures. Siemens Several root causes of loss of trust at Siemens can be traced in the case study. Siemens had a weak organisational structure that had erred in establishing an organisational culture that would discourage the management from getting tempted to engage in bribery. As established in the case study, the company’s corporate culture at the time of the scandal tolerated corrupt tendencies, such as issuing bribes. This contributed to the general perception that although bribery was acceptable, it could be unreservedly encouraged. Siemens also overemphasised the need for aggressive growth and to channel all energy towards attaining this objective. This was, however, disastrous as the management began to perceive bribes as enticing short cuts to attain growth targets. The company’s complex decentralized and matrix-like structure encourage the subsidiaries to make autonomous decisions while expecting minimal or no regulation from the headquarters in Berlin. This was combined lack of transparency, oversights, and accountability that facilitated payment of bribes. Siemens was also reluctant to admit and respond to mistakes. Indeed, the first response issued by Siemens during the trust crisis was largely a defensive acknowledgement that appeared as intended to downplay scandal, before investigations. Effectiveness of the mitigation actions Severn Trent Severn Trent had an effective strategy for mitigating the effects of the trust crisis. The company made a decision to address the issue of trust in timely manner, with focus on ensuring that the company maintained its value to its stakeholders. Led by Tony Wray, who was the Managing Director during the period, Severn Trent’s management decided to restore the company’s reputation by taking a fast decision rather than endure likely long-term damage to its reputation. One effective method was undertaking speedy internal investigations that were launched in February 2006, after OFWAT made inquiries on the SFO and to probe the complaints at the Customer Relations department. The company used internal investigation as it believed it would serve to show its transparency in order to strengthen trust from stakeholders and the regulators. The internal investigation provided the public with reasons to reinstate their confidence on the company as it stressed the likely deficiencies viewed by the public to have been beyond internal management. Another mitigation strategy included making public apologies. The mitigation action managed to restore the trust. Siemens Like Severn Trent, Siemens implemented effective mitigation strategies. From the outset, the company made a commitment to implement a system that could detect and deter unethical and unlawful practices, and that could serve as benchmarking for measuring effective mitigation strategies in other organisations. This objective was achieved, indicating the mitigation actions were, to a greater extent, effective. Still, the mitigation action were also effective as Siemens was able to face the challenge of creating an organisational culture that would prevent the managers from doing away with the unlawful and unethical practices. In this regards, the company set up strict rules and practices to prevent corrupt practices and to promote conformity to the established rules across organisational units. Hence, Siemens quickly transformed into a trustworthy business that can be attributed to its three-pillar strategy called Compliance Programme, namely ‘prevent, detect, and respond to corruption.’ The company also hired experts to implement the desired corporate culture. Siemens helped the company to hire 500 full-time compliance officers to oversee trust issues. A critical issue the company faced in fulfilling the objectives of the mitigation actions included organisational resistance to change. Siemens effectively responded to the issue by starting a training and education programme to promote anti-corruption practice for the employees. In fact, some 200,000 of the company’s entire workforce was trained by the year 2008. Implications for failure to publicly address issues Failure to effectively address the issues of trust could have had significant implications on both Siemens and Severn Trent. Contiguous implication could have been loss of trust on Siemens and Severn Trent, which would have led to reputational damage, as a result limiting the company’s survival in the market. In regards to th economic losses, Siemens and Serven Trent could have experienced plummeting profits and losses. This is since loss of corporate reputation implies poor financial performance. To expound on this, it could be reasoned that once the companies failed to pursue effective mitigation actions against their respective trust issues, it is likely that their customers would have lost confidence in their products. This also means that customers would have resorted to substitued products from companies with more established reputations. As a result, Severn Trust and Siemens would have realised plummeting profits. When it comes to the legal implications, Severn Trust and Siemens would have become exposed to legal issues, such as class actions, litigations, product liabilities and corporate lawsuits. The legal implications would have triggered greater loss of trust and financial losses, as the companies would have used their profits to payoff the damages or pay for legal fees. Internally, loss of trust would have led to organisational cultures that facilitate corrupt tendencies. Additional implications would have included loss of trust on the company by the workforce, low motivation and high turnover rates. As showed in the Severn Trust case study, a number of employers had started to feel ashamed, which was an indication of decreased loyalty and motivation. Apart from the customers, the shareholders would have lost their confidence and trust on the two companies, hence selling off their stakes in favour of companies with greater levels of trust and corporate reputation. A likely consequence would have been lowering of prices of the shares to attract more shareholders. Still, it implies that the companies’ shares would become less competitive. Finally, the decreased revenue base, low-priced shares and loss of competitive edge would have led to low finances and limited accessibility to financial facilities, such as credit. Rebuilding companies’ reputations Severn Trent and Siemens both have high chances of re-building their reputation to after their respective trust issues. As indicated in the case study, both Severn Trent and Siemens had set up effective mitigation strategies to overcome the developing distrust. The two companies’ integrity, values, and ethical practices can be significant in reinstating trust. While distrust will be significantly discouraging, there is a range of actions Severn Trent and Siemens can take to restore relationships internally, as well as beyond the organization. This would entail promoting cultures of inclusive management that allows employees to take part in decision-making, such as voting on issues that affect them. Additionally, strategies for rebuilding trust include regular monitoring on opinions on external job-rating sites to establish current company reputation. Additionally, the employees could be engaged in effective cultural management. They could also be tapped as the ambassadors of corporate culture. Next, reinforcing effective communication practices can be effective. To examine how Siemens and Severn Trent can rebuild their trusts, a mnemonic TEST model developed by Corsum Consulting is suggested (Hitch 2012). The model recommends five steps companies can use to rebuild trust. T = Teach. Everyone at the company should be taught how things work. The procedures should be made as much transparent as possible (Hitch 2012). R = Reward. The companies should ensure that the reward systems are in line with the corporate value and objectives. U = Unconditional support. The companies should promote unconditional innovation, where they create environments where mistakes are transformed into opportunities for learning rather than punishing. S = Share information. The management should promote effective communication atmosphere, where issues are communicated fast and frequently. T = Trustworthy. The companies should make commitment to promote attractive organisational reputation (Hitch 2012). How the companies did/what could have been done better The causes of distrust at Severn Trent and Siemens were different. Still, they pointed at failure of effective organisational management. The causes of distrust at Severn Trent included delivery of substandard services, deliberate misrepresentation of information to the regulator, and poor whistleblower policies. On the other hand, Siemens had encouraged corrupt tendencies across the organisation. The companies had ineffective organisational cultures and communication strategies. McManus and Moscam (2014) suggest that having organisational cultures and communication strategies that are effective can rebuild an organisation’s reputation. Therefore, Severn Trent should have engaged employees in training and employee development in order to promote helpful corporate cultures. At this rate, ethical training would have been critical. Nguyen et al 92012) argues that companies with effective ethical policies in place and practice are likely to be trusted by the stakeholder, as they are viewed to be showing the readiness to accommodate the interests of the stakeholders. Productive organisational cultures, viewed to be attractive and desirable in the eyes of the employees and customers, are likely to promote good internal and external reputation. Severn Trent set up reforms across the company to overhaul the dominant corrupt cultural norms and traditions. This was effective. Indeed, Fernández (2012) shows that by establishing companywide reforms, companies can easily rebuild their reputations. Severn Trent’s reform strategies were comprehensive and focused on six organisational elements. These included ethics training, where the company provided employees with opportunities to communicate freely regarding issues that posed as ethical dilemma, leadership development programs by stressing on ethics and honesty, revising whistle-blowing policy and code of conduct, instituting strict financial control mechanisms, and promoting transparent governance structure. To promote a culture of trust, Severn Trent and Siemens should have ensured commitment from the top management downwards. As Williams et al (2012), argues, double standards by the management destroys trust. Hence, the executive management should lead by example by committing to honest standards and ethical practices. Additionally, the companies’ management should have showed concern for employees, exhibited proficiency, and reliability across the operational process. They should also have communicated honestly and openly and in a timely regarding the trust crises that faced the companies. As McClellan (2014) demonstrates, having honest and open two-way communications across the organization is specifically significant in promoting trust. Conclusion The causes of distrust at Severn Trent and Siemens pointed at failure of effective organisational management. The root causes of loss of trust at Severn Trent were deep-rooted management issues such as inefficiencies in handling of whistleblower issues, neglect of issues that could have led to litigation concern and avoidance of disclosure in the hope safeguarding the reputation of the company. Siemens had a weak organisational structure that had erred in establishing an organisational culture that would discourage the management from getting tempted to engage in bribery. Like Severn Trent, Siemens implemented effective mitigation strategies. From the outset, they showed commitment to implementing a system that could detect and deter unethical and unlawful practices. The two companies have high chances of re-building their reputation to after their respective trust issues. In this regard, ethical training would have been critical. To promote a culture of trust, Severn Trent and Siemens should have ensured commitment from the top management downwards. They should also have ensured honest and open communication and in a timely regarding the trust crises that faced the companies. References Fernández, G 2012, Rebuilding a Brand’s Reputation: Strategic Decisions To Overcome Past Mistakes, viewed 14 Dec 2014, Hitch, C 2012, How to Build Trust in an Organization, UNC Executive Development, London McClellan, J 2014, "Promoting Trust through Effective Advising Administration," The Mentor Journal McManus, J & Moscam J 2014, "Strategies To Build Trust & Improve Employee Engagement," The Clute Institute International Academic Conference, p.511-515 Nguyen, N, Leclercm A & LeBlanc, G 2013, "The Mediating Role of Customer Trust on Customer Loyalty," Journal of Service Science and Management, vol 6, 96-109 Williams, M, Buttle, F & Biggeman, S 2012, "Relating Word-of-Mouth to Corporate Reputation," Public Communication Review, Vol. 2 No. 2, pp.3-16 Read More