SOCIAL CAPITAL, TRUST,

1
SOCIAL CAPITAL, TRUST, SOCIAL EMBEDDEDNESS
What do we mean by a trust relationship? Does
trustworthiness differ under varying social,
political, economic conditions? How?

• How important is risk-taking in any trust
  relation?
• Are some cultures more trusting or more
  suspicious?
• Which soliciting charities would you trust to
  use your Hurricane Katrina relief-check properly?
• Why dont right-wing Republicans trust Pres.
  Bushs nomination of Harriet Miers to the Supreme
  Court?
• Do you agree with Pres. Reagan Trust but
  verify?

Lets examine trust as an alternative to power
forms of social control in relations among
economic orgs their employees. Trust relations
are embedded within exchange networks, comprising
an important component of social capital
formation.
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Interorganizational Trust
In what ways does trust among organizations
differ from personal trust?
In repeat business exchanges among firms
(suppliers customers), contracts may be more
costly to negotiate and to enforce than relying
on interorgl trust.

• In transaction cost theory, organizations are
  constantly tempted by opportunism (Williamsons
  self-interest seeking with guile)
• Exchange partners could turn out to be
  incompetent or deceitful and fraudulent (Problem
  How to safeguard against Internet rip-offs?)
• But, impossibility to screen every option, write
  iron-clad contracts, buy insurance to cover all
  possible risks (Unavoidable moral hazards issues)
• Orgs desire the flexibility to adjust their
  contractual agreements if an unforeseen
  catastrophic event should occur (Act of God)
• By building corporate trust into their long-term
  relations, orgs can cut risk of partners taking
  advantage can reap benefits of cooperation.

3
Two Forms of Corporate Trust
Which forms of corporate trust forge the
strongest ties? How does interorgl cooperation
evolve new governance structures?
Peter Ring and Andy Van de Ven (1994) identified
two types of interorganizational trust Business
risk objective confidence in a partners
predictable behavior how dependable is the deal?
Psychological trust subjective confidence in
the partners goodwill (moral integrity) to ones
interests
In negotiations, potential partners develop joint
expectations about risks and trust of their
collaboration, assessed in terms of efficient
equitable/fair outcomes (see next slide). P4
Informal psychological contracts increasingly
substitute for formal contractual safeguards as
reliance on trust among parties increases.
Familiarity breeds trust observed in research
on New York better-dress industry, where
handshake deals trumped formal contracts (Uzzi
1996).
4
SOURCE Ring Van de Ven (1994)
5
The Strength of Weak Ties
Mark Granovetters (1973) classic article on
finding a job argued that weak-tie relations
(casual, indirect) give actors better access to
new information and opportunities. But, strong
ties (emotionally intense, frequent, direct)
restrict the flow of new information from
diverse, distant sources.
? Intimates (kin, close friends) widely share
same knowledge, norms, beliefs ? Although strong
ties offer beneficial social support (haven in a
heartless world), they also result in impacted
information coercive conformity to the social
circles expectations (folkish society) ? Weak
relations (acquaintances, coworkers) serve as
bridges to other social groupings having
information resources unavailable within ones
intimate social circle provide opportunities of
individual autonomy via unique structural
location Simmelian cross-cutting ? Persons with
many weak ties can gain speedy advantages in
learning about and cashing in on new
entrepreneurial opportunities ? Irony that weak
ties actually provide stronger form of social
capital for career advancement, financial
dealings, conference invitations
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Social Capital
Social Capital Resources accruing to an ego
actor through direct indirect relations with
its alters that facilitate egos attainment of
its expressive or instrumental goals
What conceptualizations do these diverse
definitions of social capital have in common?

• inheres in the structure of relations between
  persons and among persons (Coleman 1990302)
• at once the resources contacts hold and the
  structure of contacts in the network (Burt
  199212)

• resources embedded in a social structure which
  are accessed and/or mobilized in purposive
  action (Lin 200112)

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Closure vs. Structural Holes
James Coleman High trust in communities with
full closure networks (i.e., a graph strong
component), whose strong ties foster mutual
assistance obligations and social control of
deviant behaviors (neighborhood children) Ronald
Burt Ego gains numerous competitive advantages
and higher investment returns if egos weak,
direct-tie relations span structural holes, thus
serving as bridge between its alters
Holes create social capital via brokerage
opportunities ? Ego actor gains earlier access to
flows of valuable information ? Ego fills
structural holes by forging new ties linking its
unconnected alters, extract commission or fee
for providing brokerage services ? Low network
constraints result in high performance rewards ?
Ego maximizes its self-interests by controlling
exploiting information, playing one actor against
another (tertius gaudens)
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Who Has Greater Information Control Benefits?
B
1
A
3
2
7
James
C
Robert
6
4
5
S-hole is the mechanism underlying Granovetters
claim that weak ties are more useful because they
give actors access to nonredundant information
Modified after Burt (200133)
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Mobilizing Social Capital
Job-seekers, entrepreneurs, work teams try to
deploy their network ties to acquire the use of
resources held by their alters. But, they may
not always succeed in gaining access. Johnson
Knoke (2005) argued that volume of social capital
to which ego actually has access is the aggregate
of resources that ego could probably mobilize
from its alters
SCi ego is social capital from the J alters in
its ego-network pji egos perceived probability
of access to use alter js resources Rj total
resources controlled by alter j that could be
useful to ego i

• Find a simultaneous equation solution for all J
  actors in the system
• Create plausible quantitative measures of the
  two variables
• Identify network and environmental conditions
  that change the probabilities of resources
  flowing across the links from alters to ego

10
How much SocCap could EGO mobilize?
R14
p1.8
p4.5
R46
p1.5
p4.8
R27
EGO
p1.2
R53
p1.2
R35
p1.8
R69
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Corporate Social Capital
Corporate Social Capital (CSC) Social relations
embedded in work-related organizational roles
(e.g., workers, teams, executives, owners), not
in their personal networks.
Corporate social capital, then, refers to The
set of resources, tangible or virtual, that
accrue to a corporate player through the players
social relationships, facilitating the attainment
of goals. (Leenders Gabbay 19993)
Social liability incurred as transaction-cost
opportunism A managers dark side of social
capital might also limit his ability to change
the composition of this network as required by
his task environment (Gargiulo Benassi
1999299).

• Youre obliged to reciprocate a sponsors
  assistance and advice
• - Your friendship with an inept team leader
  blocks your promotion
• - Your mentor insists that you build paint his
  boat dock
• - Attending the boss soirée thwarts your plans
  to watch the Big Game

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CSC via Strategic Alliances
A firms ties to organizations in a strategic
alliance network increases its probability of
accessing and using the valuable resources held
by the firms partners, including their

• Financial resources, credit extensions
• Knowledge, information, technologies/patents
• Marketing expertise, country/culture penetration
• Orgl status, corporate/brand reputations
• Trustworthiness and low risk (moral hazards)

Organizations aware of such CSC advantages may
act strategically in pursuing new alliances,
partnering with firms that maximize its CSC
portfolio. At the field-net level, an evolving
strategic alliance network comprises a collective
CSC structure which simultaneously facilitates
and constrains the opportunities for its member
firms.
13
Guanxi Networks in China
Guanxi networks entail reciprocity, obligations,
indebtedness among actors, as well as the
aesthetic protocol that comes from cultivating
these relationships. (Vanhonacker 200449)
Guanxi networks are based on strong ties of
blood/marital loyal relations or social
identities (classmates). Chinese gain face
by knowing how to act appropriately. Outsiders
can enter when a mutual friend vouches.
Guanxi networks facilitate economically efficient
exchanges in a fragmented, weak-rule-of-law
society. They enable Chinas rapid transition
from a command to a market economy since 1978.
Chinese culture views the guanxi obligation to
reciprocate as ethical behavior, not as a using
relationship. But, guanxis dark side is
potential to cover-up corrupt transactions within
relations.
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References
Burt, Ronald S. 1992. Structural Holes The
Social Structure of Competition. Cambridge, MA
Harvard University Press. Burt, Ronald S. 2001.
Structural Holes versus Network Closure as
Social Capital. Pp. 31-56 in Social Capital
Theory and Research, edited by Nan Lin, Karen S.
Cook, and Ronald S. Burt. New York Aldine de
Gruyter. Coleman, James S. 1990. Social
Capital. Pp. 300-321 in Foundations of Social
Theory. Cambridge, MA Harvard University
Press. Gargiulo, Martin and Mario Benassi. 1999.
The Dark Side of Social Capital. Pp. 298-322 in
Corporate Social Capital and Liability, edited by
Roger Leenders and Shaul Gabbay. Boston
Kluwer. Granovetter, Mark. 1973. The Strength of
Weak Ties. American Journal of Sociology
781360-1380. Johnson, LuAnne R. and David
Knoke. 2005. Skonk Works Here Activating
Network Social Capital in Complex
Collaborations. Advances in Interdisciplinary
Studies of Work Teams 10243-262. Knoke, David.
2001. Changing Organizations Business Networks
in the New Political Economy. Boulder, CO
Westview. Leenders, Roger Th. A. J. and Shaul M.
Gabbay (eds.). 1999. Corporate Social Capital and
Liability. Boston Kluwer Academic
Publishers. Lin, Nan. 2001. Social Capital A
Theory of Social Structure and Action. New York
Cambridge University Press. Ring, Peter Smith and
Andrew H. Van de Ven. 1994. Developmental
Processes of Cooperative Interorganizational
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1990-118. Uzzi, Brian. 1996. The Sources and
Consequences of Embeddedness for the Economic
Performance of Organizations The Network
Effect. American Sociological Review
61674-698. Vanhonacker, Wilfried R. 2004.
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