Relational Quality: Managing Trust in Corporate Alliances

Abstract

The management literature has often argued that "trust" plays a key role in economic exchanges, particularly when one or another party is subject to the risk of opportunistic behaviour and incomplete monitoring, or when problems due to moral hazard or asymmetric information arise. These conditions are almost always present in the case of corporate alliances and joint ventures. We propose that one aspect of trust, what we call "relational quality", is fundamental to the maintenance of good working conditions in two-party alliances where past experience and the shadow of the future play important roles. Relying on a growing body of theory and a number of case studies, we develop a framework for thinking about trust in dynamic and practical terms. We conclude that a reservoir of relational quality exists in any such relationship, and that the level of trust implied in such a reservoir will not only influence whether and how future conflicts are resolved, but also is itself affected by the positive (or negative) resolution of such conflicts. Finally, we identify three elements that contribute to the relational quality reservoir in alliances: 1) the initial conditions surrounding the alliance formation; 2) the cumulative experience of the parties with each others' behaviours as the alliance unfolds; and 3) the impact that external events or behaviours outside the alliance's context have on the perceptions and attitudes the parties have about each other's trustworthiness. We conclude with some recommendations for more effective management of corporate alliances.