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Keep the faith: Breaching an implicit psychological contract can undermine trust and engagement

Relationships between public service providers, such as hospital trusts, and regulators are fraught at the best of times.

This is no surprise when taxpayers’ money is at stake, and the consequences of regulatory failure are severe, not only financially and reputationally, but also in relation to people’s lives.

Yet, the nature of these relationships can often impede service delivery, prioritising top-down compliance over a genuine culture of improvement and learning.

In healthcare, the demands on the NHS are expanding rapidly, while resources are not. At the same time, providers are under pressure from those above them – be it politicians, regulators, or both – to meet targets that are often quite narrowly focused.

That leads to a degree of game-playing to ensure those narrow targets are met, even though this may not deliver the best services or care outcomes.

This has resulted in several cases in which financial or institutional concerns have been prioritised over an organisation’s duty of care. One extreme example was at the Mid Staffordshire Trust, where patients died unnecessarily because of the trust’s focus on financial targets over patient safety.

When high-profile failures occur, the public demand for accountability often triggers a ‘blame culture’ that singles out individuals and favours short-term fixes over solving systemic problems.

To avoid both the initial failures and the ensuing blame culture, we need a different form of governance.

What is meta-regulation?

One suggestion has been to move away from a top-down hierarchical approach towards ‘meta-regulation’.

This is a reflexive process in which the regulator not only monitors hospitals but also monitors itself. Developing closer relationships with those they regulate allows them to ‘hold up a mirror’ to their own practices and how they influence a hospital’s capacity for improvement.

The goal is to move beyond traditional oversight by learning to adjust their own behaviours to better support hospital leaders in nurturing a culture of continuous improvement within their organisations.

However, this shift requires a foundation that is often missing in hierarchical oversight: mutual trust.

Our study, published in Public Administration Review, assessed a five-year partnership that offers one way to enable a meta-regulatory approach that could be applied across other public-sector services.

This partnership brought together the regulator NHS Improvement, five hospital providers in England, and the Virginia Mason Institute, a US consultancy that specialises in helping healthcare organisations implement a management system to support a continuous improvement culture based on lean principles.

The aim was to support the five hospital providers in developing a sustainable culture of continuous improvement within their organisations, each of which had experienced performance challenges and had significant potential for improvement.

With the relationship between the five hospital CEOs and their regulator under the microscope, our research explored how to build mutual trust in practice.

How does a psychological contract work?

In any professional relationship, trust is governed by what HR professionals call a ‘psychological contract’. This is an implicit set of mutual expectations and perceived obligations that govern the relationship, covering relational factors such as fairness and transparency, as well as transactional elements such as autonomy in return for meeting performance standards.

Perceived breaches of an implicit psychological contract can lead to a breakdown in trust and, sometimes, in engagement. Because these mutual expectations are often unspoken and subjective, they are easily misunderstood.

Making the obligations explicit is a necessary first step. Our research found that a written agreement outlining what is expected of each party helped build trust and create an environment in which meta regulation was possible.

 

The EPC also helped maintain trust, even when performance-based challenges arose and things got difficult.

But how is such a contract actually lived, and how does it build trust? In our study, the EPC was not a document that sat in a drawer.

The partnership established a stable context through monthly face-to-face meetings, with ‘reflections on the EPC’ as a standing agenda item. These formal meetings and regular reflection were crucial for building mutual trust, particularly when things weren’t going well.

The meetings made the relationship ‘visible’. It allowed both parties to discuss progress in person and in (close to) real-time.

The value of an explicit psychological contract

The EPC provided opportunities to celebrate its fulfilment and, in doing so, strengthened the relationship between the regulator and the hospital CEOs.

It also fostered accountability between them, providing a platform for raising and addressing breaches, thereby strengthening trust amongst group members rather than reducing it.

For example, when the regulator’s actions failed to represent the behaviours set out in the EPC, the meeting provided a safe relational space for the CEOs to call out the breach without fear of reprisal.

It also allowed the regulator to ‘hold up a mirror’ to its own actions that failed to align with its commitments contained in the EPC.

By making such breaches visible, the meetings transformed the EPC from a static agreement into a living tool for reflexive learning and sustainable service improvement.

Our research also found that maintaining trust sometimes requires knowing when not to draw attention to a breach.

On occasion, individuals knowingly chose not to flag a breach at the monthly meeting, judging that drawing attention to an unresolvable problem could damage the relationship and its long-term goals more than the breach itself.

How to manage a power imbalance

EPCs could be applied to many public-sector partnerships where different groups work together to serve a third party (e.g., the general public) but face cultural legacy problems in doing so, particularly when there is a large power imbalance.

Meta-regulation is one way to address the shortcomings of top-down governance, but it requires an ongoing commitment to new relational ways of working, for which mutual trust is essential and must be actively developed and protected.

This is a case study in which an EPC has been an effective mechanism for building and maintaining trust, even when things go wrong.

We would love to hear from people in other organisations who want to try enacting a more collaborative and relational approach to governance, including meta-regulation, through the use of EPCs.

More research tracking the use of EPCs will help further our understanding of their benefits and how they can be adapted to different institutional contexts.

Further reading:

How to build a more ethical team

Six key lessons from the NHS and Virginia Mason Institute Partnership

Demonstrating the value of continuous improvement

Can joy improve our performance at work?

 

Tina Kiefer is Professor of Organisational Behaviour. She teaches Leadership on the Executive MBA and Executive MBA (London).

Graeme Currie is Professor of Public Management.

Nicola Burgess is Professor of Operations Management at the University of York and a Visiting Professor at Warwick Business School.

 

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