||| Quiénes Somos || Staff || Anteriones ||1ª Época ||Colaboraciones || Suscripción|||| Enero-Marzo 2006 || Nº 66 Segunda Época|
||About internet contribution to transparency and efficiency in capital markets
Trust is an ethical value that fundamentally affects a company’s relationships with its community, customers, employees, stockholders, and suppliers. When trust is present, communication and problem solving are relatively easy. When distrust occurs productivity and the value of the firm can suffer significantly. Researchers have advocated that trust lowers transaction costs in more uncertain environment, thus providing companies with a source of competitive advantage.
Distrust emerges when the suspicion arises that the disruption of expectations in one exchange is likely to generalize all through other exchanges. Further, without an attribution of “intentionality,” trust can be disrupted, that is no trust, without producing distrust. Trust improves long-term relationships between firms, and is an important element in successful strategic alliances.
We provide additional insights into “trust” as a corporate knowledge asset by depicting it as part of a decision making model. The idea is that different conceptions of trust as a corporate asset can lead to alternative pathways supporting decisions (Figure ( 1)). Knowing which pathways support decisions may assist corporate strategies providing to competitive advantages.
This Throughput Model provides a broad conceptual framework for examining interrelated processes that have an impact on decisions effecting organizations. It incorporates the constructs of (1) perception (framing), (2) presented information to the user, (3) judgment (analysis of information/ experiences), and (4) decision choice as it applies to individual, relational, and institutional levels.
Six different philosophical trust positions are the basis for corporate knowledge assets in terms of individual, relational, and institutional levels. These six trust positions are considered by some researchers to be useful in depicting individual, relational or institutional behaviour.
They are: (1) trust as a rational choice, (2) rule-based trust, (3) category-based trust, (4) third parties as conduits of trust, (5) role-based trust, (6) history-based trust/ dispositional-based trust. The six trust positions include economic, legal, psychological, and sociological perspectives affecting individuals, relational, and institutional corporate knowledge assets.
First, trust may be considered as a rational product coming from sensitive observing and posterior sensible judging. One can trust because he rationally recognizes competitive advantages or positive characteristics in the subject he is examining when entering into stakeholder, commercial or inter-individual relationship.
Second, trust can be seen as a rational product, not reached from external and objective directly observed evidence, but indirectly reached from a previous common, universal and standardised analysis that other people have made to produce a legal statute, a regulation or a code according to which the compared individual or stakeholder deserves such a trust, that is to say, is trustworthy. Thus, we can rely on someone because of its legal or rule compliance, whenever we judge laws, statutes or rules adequate for benchmarking and qualifying situations or individuals submitted to its jurisdiction or logical extent.
Third, category-based trust is generated when the examined individual or situation belongs to the previously settled category judged as adequate. As in the second trust position, the trust logical support is indirect and established before.
Fourth, we may rely on third parties as representative conduits of trust. In this case there is no rational personal judgement, as far as the judging function has been delegated in the proxies.
Fifth, trust may mean inductive disposition to rely in the one who efficiently or properly plays a key function. The institution is deserving confidence, so that every efficient role-player will deserve confidence. But trust has its rationale and fundament, once again, beyond the individual.
Last and sixth, history or dispositional-based trust, on the contrary, is based upon common empirical evidence on individual skills or dispositions along time, which is reasonably expected to be maintained.
We use a decision making model to identify and analyze these levels that encourage or constrain trustworthy behaviour in organizations. In doing so, we provide insight into how organizations can create an environment that supports trustworthy behaviour as a knowledge asset.
The links among knowledge production and its exchanges are becoming an increasingly important management issue in all sectors. People in companies contribute not only to produce tangible goods, but also intellectual goods. This creation of knowledge requires an adequate diffusion inside the company for achieving a positive organizational impact. The effectiveness of such processes is conditioned by the trust.
Trust behavior is a prerequisite for knowledge production and its exchanges. Individuals are not machines, they think and have feelings. When they pursue activities or communicate ideas, they are trusting in others. Trust is one of the most valuable assets of an organization in supporting competitive advantages. Thus, trust can be viewed as a knowledge asset that adds value to the company.
Trust integrated into a Throughput Model offer several advantages to companies from a strategic point of view:
a) First, the model assists in the awareness of a particular philosophy dominant in its decision-making and bases of trust as a knowledge asset. Trust positions have associated underlying philosophical perspectives, and inducing changes in individuals’ dominant philosophies can influence these positions. The managerial behavior and the group membership relationships also have a trust base. That is, the effectiveness of the interchanges of knowledge created in the companies is based upon trust. The trust positions in the Throughput model can be addressed as sources of competitive advantages. They may be used as a valuable asset in the creation of organizational value.
b) Second, the model provides an analysis of the role performed by information used in individuals’ decision-making processes. Trust positions that emphasize more on ethical care and values tend to be associated to decisional routes with information for supporting them.
c) Third, the model helps to determine what pathways should be examined based upon levels of trust, no trust and distrust. Acting on the decisional routes, companies can design and implement strategies in their aim of achieving different trust positions.d) Fourth, it provides different model designs for organizations as a result of a changing environment. Trust values included in external social exchange helps to increase the influence of stakeholders. Hence, trust is a knowledge corporate asset that may add, or rest, value to an organization.
In accordance with what has already been sustained, how can be defined and explained the use of Internet in capital corporations in terms of stakeholders’ trust enhancement?
No doubt, Internet is today the main technological tool available in capital corporations to strengthen communications, and so that, to provide a higher level of transparency. Transparency itself must be understood, otherwise, as quantity of information received by relevant stakeholders, mainly owners/proprietors (stakeholders), in opportune time, to efficiently develop their corporate investment strategies and its plans concerning the corporate decision-making process. Naturally, transparency contributes decisively to efficient financial resources allocation and to value-creating effective development, not only concerning a single category of stakeholders, but also expanding the capabilities of reliance in corporations throughout financial markets and alongside cross-border stakeholder structures involved in corporate operational processes. The latter affirmation is supported on a very simple evidence: everyone relies on highly transparent corporations more than in those which supply no data or insufficient or partial information to the markets.
Internet must play, and in fact plays, a key role in enhancing:
a) Trust as a rational choice, as long as Internet owns objective characteristics providing higher levels of efficiency in all processes connected to data distribution ( 1). Internet tools provide quicker and broader information about the firm and its key stakeholders. No doubt that Internet provides more information more quickly and at smaller costs than other informative systems, ceteris paribus, as it has been settled here today before this contribution.
b) Rule-based trust, whenever Internet regulations and corporate legal framework provide additional confidence on corporations, since those regulations supply public details on: what corporations must do to be properly governed; how they must be guided by their managers; why and how illegal behaviours can be pursued; corporate guidelines on social corporate responsibility, and its control by directors and managers; the relationships between corporate governance and social corporate.
c) Category-based trust, on one crucial condition: that Internet is seen as a wholly integrated informational system, universally available and efficient in each single informative use. The previous condition (that is to say, that informational efficient systems enhance communications) is necessary for Internet to be considered as a tool enabling market transparency and market efficiency enhancement. However, Internet use is not yet universal. And, besides, true and fair communications through Internet are not yet thoroughly secured. So that, we can hesitate about the efficacy of Internet as a source of trust based on such category (informative efficiency). There is still a long way to run.
d) We might see the millions of Internet users as third parties conducting trust. However, corporative use of Internet, as outlined above, is a restricted use with specific aims and purposes, and massive misuse by third parties of this technology might distort or modify the corporative managerial, entrepreneurial or social corporative aims. Seen from the corporate standpoint, there are third parties (partner enterprises, back-office employees, or the States) which might act as conduits of trust, strengthening confidence on Internet corporative using. But there are many other Internet users acting as potential conduits of… mistrust or distrust. For example, unserious competitors, misleading informers, or Internet hackers.
e) Role-based trust is created by Internet means, mainly, when we are considering the capabilities of this technology for enhancing transparency in the markets. Capabilities shared by other cyber technological means like email ( 2).
f) Last, history-based trust would be seen as a week point of the Internet capabilities for trust enhancement, as far as there is not yet much empirical evidence on the efficiency improvement brought to firms by transparency improvement through Internet use. First empirical analyses are being consolidated right now. Anyway, the results from such analyses should produce a kind of trust more likely to be considered as a dispositional-based trust.
As a conclusion, we define two hypothesis:
One. There is a positive correlation between Internet using, investor satisfaction with e-governance, and shareholder (or investor) confidence in managers and directors of companies issuing in stock markets, for three main reasons:
a) Internet information properly served to investors develops enterprise knowledge, particularly in traditionally opaque areas like corporate governance.
b) Internet use by investors lets them meditate, reflect and propose corporate strategies criticizing current and actual inadequate or inefficient corporate governance policies, turning them into adequate and efficient ones for the value-creating corporate process.
c) The broader Internet corporate external using is, the more demanding corporate governance policies and public controls will be, and so that, the bigger will also be market confidence in stock exchange issuers.
Two. Issuer-investor relationship improvement via Internet alleviates costs, broadening corporate governance efficiency and, attached to it, corporate value generation and, once again, rational reliance on markets and investor satisfaction. Herein the arguments are:
a) Shareholder corporate cyber-communications (corporate webpage, corporate services on-line, investor relationship offices, corporate-to-investor and investor-to corporate e-mail) guarantee the on-line reception of relevant information, whenever cyber-codes and security technical conditions are fulfilled.b) Shareholder corporate cyber-communications cut down the environmental impact of tradicional corporate communication systems (e.g., paper printing). Besides, Internet reduces corporate governance costs. Significantly, control costs incurred by the Annual General Meeting, which can be turned into a cyber-meeting or virtual meeting, enabling shareholders to perform an enhanced governance control over the board of directors which proposes and predetermines the contents of such meeting ( 3).