Strong mutual trust between managers and employees boosts company’s financial performance

Employment & Skills | Reports

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Companies that have a high-level of mutual trust between their management and employees are much more likely to have a greater economic and financial performance, according to new research from Durham University Business School.

The study also found that increased levels of trust in the management-employee relationship also correlated with higher levels of labour productivity and a greater harmony and understanding in a company’s workforce.

This research was conducted by John Addison, a Professor of Economics at Durham University Business School, and Paulino Teixeira, a Professor of Economics at the University of Coimbra, in order to evaluate the impact of trusting relationships between managers and employees on firm’s performance.

The researchers used data on 28 countries (including the UK) from the European Company Survey, which asked managers and employee representatives to discuss and provide context on their relationship with each other. Managers and employees were asked of their opinion on each other’s contribution to the workload, the wider company performance, and the trust in each other’s ability.

Then, researchers were able to compare this manager-employee relationship to a firm’s economic and financial performance, levels of labour productivity and the strength of the industrial relations at the company, to identify whether there was a link between these factors and the strong levels of trust.

In fact, the researchers found that if employee trust increased by one unit (on a scale of 1 to 5), the likelihood of observing a very good economic/financial situation would increase by 4 to 5 percentage points. Furthermore, the likelihood of observing the highest relative labor productivity (in comparison with other establishments in the same sector of activity) would increase by 6 percentage points.

Professor John Addison said: “Trust between the parties (and no less an important absence of trust or disaffection) are important drivers of good (and bad) firm performance. And good industrial relations trumps any specific type of employee representation.”

The researchers suggest that for managers, these findings showcase the importance of strong industrial relations in a workforce, and ensuring that both managers trust employees and allow them to work autonomously, and employees feel their management is competent and trusting too.

For companies who may be experiencing low levels of productivity, and relatedly a lower financial and economic performance, the researchers suggest it may be wise for managers to review their industrial relations and attempt to collaborate further with their employees and their workplace representatives to leverage this key resource.

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