ArticlePDF Available

How organizational reputation and trust may affect the autonomy of independent regulators: The case of the flemish energy regulator

Authors:

Figures

Content may be subject to copyright.
1
HOW ORGANIZATIONAL REPUTATION AND TRUST MAY AFFECT AUTONOMY OF
INDEPENDENT REGULATORS; The case of the Flemish energy regulator.
Koen Verhoest, Jan Rommel and Jan Boon
Introduction
This chapter explores how an independent regulatory agency can develop a reputation for
being a trustworthy actor and how this reputation and the corresponding trust from the political
principal can affect the autonomy of the agency.
The creation of independent regulators has been one of the most widespread features of the
regulatory state (Jordana and Levi-Faur 2004). Many studies have found that the actual extent of
autonomy from parent ministers may be very different from what is prescribed in formal-legal
statutes (Christensen and Laegreid 2007, Groenleer 2009, Maggetti 2009).
In order to explain differences in formal and de facto autonomy, autonomy has been
regarded as a relational concept. Autonomy is increased or reduced through the relations that
agencies have with their principals. Assuming that actors can manage their relationships with others,
they can also try to influence their autonomy vis-à-vis these actors. In the literature, both reputation
and trust have been named as factors increasing the de facto autonomy of public organizations.
Carpenter (2001) stated that bureaucratic autonomy is politically forged by agency leaders.
Bureaucratic autonomy is said to be the result of agency efforts to gain bureaucratic legitimacy
stemming from a unique reputation, which is grounded in diverse network coalitions (Carpenter
2001). The concept of trust has also been used to describe and explain de facto relationships
between agencies and parent ministers (van Thiel and Yesilkagit 2011). When trust is high, ministers
will enforce controls less rigidly and will allow for more autonomy for their agencies (Lægreid, Roness
and Rubecksen 2005, Verhoest 2002, 2005). However, the question arises how reputation-building
and trust-building relate as explanations for the increase of de facto autonomy of regulatory
agencies. This chapter aims to explore the link between (strategies to increase) reputation-building
and trustworthiness, and the effects on de facto autonomy. While there is some private sector
literature on the link between reputation and trust (see e.g. Aqueveque and Ravasi 2006), this topic
is largely unexplored in public administration literature.
Empirical puzzle
We draw from a case study of the ‘Flemish Regulator for Electricity and Gas’ (VREG). VREG is
a semi-autonomous regulatory agency, involved in the regulation of electricity and gas in one region
of Belgium (Flanders). In Belgium, the authority to regulate energy markets is shared by two levels of
government. The federal level is competent for production (i.e. generation of electricity in power
plants or the pumping up of natural gas) and transmission networks (i.e. transport over long distances,
via high-voltage power lines/ high-pressure pipelines), while the regional level regulates distribution
networks (transport via low-voltage/ low-pressure lines) and supply markets (selling electricity or gas
to end users, notably households and firms). The authority to set tariffs (i.e. tariffs that energy
suppliers must pay to network operators for transporting energy to end users) remains the exclusive
competence of the federal level, even for distribution tariffs. This makes the regulation of
distribution networks highly fragmented, as they are regulated by the federal level (for tariff-setting)
and by the regional regulator (for setting technical standards of networks).
As required by EU regulations (Directive 2009/72/EC), VREG has a high extent of policy
autonomy for operational affairs. VREG is legally competent for making binding individual decisions.
These decisions include economic regulation (e.g. imposing unbundling in case network operators
also have supply undertakings), technical regulation (e.g. demanding more investments from
network operators to increase network capacity) and social regulation (e.g. imposing public service
obligations). For these affairs, the parent minister has no hierarchical authority and cannot simply
reverse the decisions nor take the place of the agency. However, the policy autonomy for strategic
affairs is more restricted by formal control instruments and legal provisions. At the time of the study,
2
the legal statutes of VREG prescribed the appointment of two ‘commissaires du gouvernement’
(Verhoest, Demuzere and Rommel 2012). These are appointed by the minister and have the
authority to appeal all decisions of the agency that they deem incompatible with the interests of the
Flemish government. Their appeal would effectively suspend the decision taken by the regulator.
Moreover, VREG is bound by a multi-annual performance contract, which is concluded with the
Flemish government. This contract defines the strategic objectives of VREG for a period of five years.
These control instruments formally restrict the strategic autonomy of VREG to a large extent. In
addition, VREG is not formally competent for preparing new policy.
In practice however, the de facto policy autonomy of VREG and its role in the policy process
have developed to be much more extended than formally stipulated. For example, the ‘commissaires
de gouvernement’ have never been appointed. Furthermore, the involvement of VREG in regulatory
policy-making has been very substantial. This divergence between formal and de facto autonomy
presents an empirical puzzle. Whereas regulatory agencies are usually separated from policy (Scott
2004), and regulators have little contacts with politicians due to the need for credible commitment,
VREG maintains a close collaborative relationship with its parent minister.
In this chapter, we are interested in how the de facto autonomy of VREG is affected by its
reputational strategies and the trustworthiness that stems from it. We argue that VREG has
developed a specific reputation, composed of organizational characteristics such as technical
expertise and behavioral traits like reliability, openness and being sensitive to the needs of political
principals. The agency built this reputation explicitly vis-à-vis the parent minister, in order to be
perceived as trustworthy. The recognition by the parent minister of this reputation and the
trustworthiness that stems from it has led to trusting behavior by the minister, which has manifested
itself in an increased de facto policy autonomy of VREG.
The chapter is structured as follows. We will first discuss the applied research design and
research context. Next, we will present the results using the theoretical framework, presented in
Figure 1, as a guide to structure our results, by (a) finding evidence for VREG rationally pursuing and
cultivating a unique organizational reputation through several relational strategies which
simultaneously signal VREG’s trustworthiness; (b) finding evidence for the actual recognition of this
reputation and trustworthiness by the political principal; and (c) finding evidence that this
recognition by the political principal and the trust emerging from it has translated into a political
asset (high policy-making autonomy and forms of collaboration).
Theoretical arguments and central concepts
The theoretical framework: connecting reputation, trust and autonomy
In order to explore how reputation serves as a means to achieve de facto autonomy through
the mechanism of trust-building, we use a theoretical model based on the framework of Carpenter
(2001), complemented with insights from trust theory (see Figure 1). It starts from the assumption
that regulators are generally rational and politically conscious organizations that cautiously construct
and protect their unique reputations (Maor, Gilad and Ben-Nun Bloom 2012). They choose agency
traits as the basis to cultivate an organizational reputation. Next, relational strategies are developed
to signal this reputation to other actors, such as stakeholders and principals, in order to foster social
embeddedness of the organizational reputation and recognition by these actors (see phase 1 in
Figure 1). When stakeholders and principals recognize and reassert the reputational signals of the
agency, they will consider the agency as trustworthy regarding the traits that underlie the reputation.
Multiple forms of trust by the political principal can arise grounded in the perceived competences,
routines or the norms of the agency, enabling political principals to accept risks in dealing with the
agency (see phase 2 in Figure 1). Finally, the political principal may reward the agency for its
trustworthiness, by granting a higher extent of autonomy to the agency, or by engaging in more
strategic, ‘deeper’ forms of collaboration with the agency. Other forms of trusting behavior might be
an expansion of tasks and remit of the regulatory agency or an increase of financial resources (phase
3 in Figure 1). In turn, these rewards motivate the agency to further strengthen its investments in
building a strong organizational reputation towards principals (and stakeholders).
3
<insert Figure 1 around here>
The following sections discuss the different parts and concepts underlying this theoretical model
more in detail.
Cultivating agency traits as a basis for organizational reputation
Public entities are increasingly aware of the benefits of having a favorable reputation, and
have implemented measures to nurture, maintain and protect their reputation (Wæraas and Maor
this volume). This chapter subscribes to the political science approach of bureaucratic reputation
(Carpenter 2002, 2010, Gilad, Maor and Ben-Nun Bloom 2013, Maor, Gilad and Ben-Nun Bloom 2012,
Maor and Sulitzeanu-Kenan 2013, Maor 2007, 2011, Moffitt 2010). This literature has studied the
behavior of regulatory agencies in relation to the multiple audiences they aim to address. Whereas
research on independent agencies had traditionally focused on control by political principals based
on principal-agent theory (Jensen and Meckling 1976), the literature on bureaucratic reputation puts
the focus on the strategic behavior of agencies. The central argument of this literature is that
agencies are no passive actors. Instead, they strategically craft and manage their organizational
reputation (Gilad, Maor and Ben-Nun Bloom 2013).
Organizational reputation refers to a set of symbolic beliefs about the unique or separable
capacities, intentions, roles, obligations, history, and mission of an organization that are embedded
in a network of multiple audiences (Carpenter 2010, 33, 45). As such, organizational reputations rely
on external audiences’ perceptions. When regulatory agencies are conscious about their reputation,
concerns about these perceptions can trigger a regulatory agency’s decision-making and actions
(Maor and Sulitzeanu-Kenan 2013, Wæraas and Maor this volume). When a regulator succeeds in
establishing a unique reputation which is recognized by its multiple audiences, this reputation
becomes a valuable political asset used to generate public support, to achieve delegated autonomy
and discretion from politicians, to protect the agency from political attack, and to recruit and retain
valued employees (Carpenter 2001, 491).
Organizational reputation may have different bases residing in an organization: it might
relate to an organization’s performative, moral, procedural and technical traits (Carpenter 2010).
Performative reputation refers to whether an agency can execute its tasks competently and
efficiently. Moral reputation means that an agency is sensitive, flexible, honest and protective of the
interests of its clients. Procedural reputation refers to following accepted rules and norms. Finally,
technical reputation means an agency has the technical capacity and skill required to do its job
(regardless of its actual performance). According to bureaucratic reputation theory, a full
optimization of all these traits would be infeasible. Regulators must choose to which trait they give
priority (Carpenter and Krause 2012).
However, a unique trait as basis for reputation needs to be socially rooted in coalitions or
networks benefiting from and supporting this organizational trait. Without relational strategies to
build and maintain these networks, an organizational reputation is not likely to turn into a political
asset (Carpenter 2001). These relational strategies might target multiple audiences to varying
degrees (political parties, European networks, business groups, etc.). The recognition by the
principals and stakeholders of a unique organizational reputation is of crucial importance (see phase
2 in figure 1). Figure 1 shows that the process of recognition of reputation by the political principal
builds upon signals of trustworthiness of the agency towards this political principal.
Organizational trustworthiness
The strategic value of reputation for organizations is related with the concept of
organizational trustworthiness (Aqueveque 2005, Aqueveque and Ravasi 2006), as it may increase
the set of exchange opportunities for the involved organization. As it is difficult to observe
trustworthiness and the organizational traits that bring forth trustworthiness, organizations send out
signals of their trustworthiness, like organizational reputation. Organizational reputation can be
4
treated as a mechanism for stakeholders to evaluate risk of interacting with the organization
(Aqueveque and Ravasi 2006, Davies and Chun 2003, Fombrun and Van Riel 1998). Smaiziene and
Jucevicius (2009, 96) even define reputation by referring to trustworthiness: “corporate reputation
can be defined as socially transmissible company’s (its characteristics’, practice’s, behavior’s and
results’, etc.) evaluation settled over a period of time among stakeholders , that represents
expectations for the company’s actions, and level of trustworthiness, favorability and
acknowledgement comparing to rivals”. In a similar vein, Carpenter (2001, 20) mentions the interplay
of accumulated expertise (technical reputation) of bureau chiefs through time and the resulting
political trust in ensuring the unique durability and stability of the bureau chiefs.
In the literature on trust, the concept of trustworthiness has been defined as an antecedent
of trust. Trust refers to the confidence of an actor that another actor will not behave
opportunistically, despite uncertainty and risk (Gambetta 1988, Lyon 2006). As such, trusting
behavior takes place when an actor is in a potentially vulnerable position, and is driven by some
knowledge about the other actor (Blomqvist 1997, Lewis and Weigert 1985, Oakes 1990). Before a
‘trustor’ decides to place trust in a potential ‘trustee’, the trustor considers certain characteristics of
that particular trustee. Trust will only be placed when the trustor perceives the trustee as being
trustworthy. Good (1988) posited trust to be grounded in expectations of the behavior of another
actor, based on that actor’s current and previous implicit and explicit claims. In a similar vein, Mayer,
David and Schoorman (1995) suggested that certain traits of these actors act as determinants for the
amount of trust given to them. The link between trustworthiness and certain traits of the trustee has
been corroborated by others (Good 1988, Johnson-George and Swap 1982).
The trustworthiness of an organization encompasses different organization-specific sources
of trust. Competence-based trust is based on previous behavior of the trustee as a predictor of future
behavior. It refers to the competences and expertise of the trustee (Sako 1992). Identity-based trust
is based on repeated interactions between actors that lead to the formation of emotional
attachments (Lewicki and Bunker 1996). A trustor believes in the good intentions and the integrity of
a trustee, who is believed to have internalized the trustor’s norms and values.
In order to decide whether to place trust, a trustor will rely on signals that are produced by
the trustee. The concept of ‘active trust’ has been used to argue that trustees can play an active role
in initiating, shaping, sustaining and changing trust (Möllering 2006, 79). Trustees may partially
determine themselves which signals are being sent to the trustor (Giddens 1994). For instance, In
order to increase identity-based trust, actors may appeal to the norms and values of the trustor, by
‘constructing’ a shared identity (Phillips and Hardy 1997). Such mechanisms include gift-giving and
conforming to the opinion of the trustor (see Bottom et al. 2006, Lawler and Yoon 1996).
Organizational reputation is an important informative signal that functions as a mechanism
for stakeholders to evaluate the risk of interacting with the organization (Aqueveque and Ravasi
2006, Davies and Chun 2003, Fombrun and Van Riel 1998). As such, organizational reputation can be
regarded as an important source of trust (see also Picci this volume).
Trusting behavior
Organizational trustworthiness may lead to trust and several types of trusting behavior. First,
research on inter-organizational relations has pointed towards ‘trust’ as a key factor in explaining
collaboration (Huxham 2003, Lane and Bachmann 1996, McEvily and Zaheer 2006, Nooteboom,
Berger and Noorderhaven 1997, Ring and Van de Ven 1992). Partners that trust each other will
engage in increased information-sharing, especially the sharing of tacit information (Edelenbos and
Klijn 2007). Partners will also engage in joint problem-solving and joint action (Dyer and Chu 2003,
Muthusamy and White 2005). A second effect of high trust is that the need for formal control is
reduced (Ring and Van de Ven 1992).
These effects can also be applied in the context of independent agencies. According to Grey
and Garsten (2001), the concept of trust is relevant in post-bureaucratic environments, which are
characterized by participative management styles and consensus-building. Others have suggested
5
that, when trust is high, agencies will report higher levels of autonomy and ministers will use formal
controls less rigidly in practice (Lægreid, Roness and Rubecksen 2005, Verhoest 2002, 2005).
Similarly, the literature on bureaucratic reputation has also argued that political reactions (in
the form of granting or reducing agency autonomy) depend on organizational reputations. Carpenter
(2001) found that elected institutions delegate autonomy to agencies who had built an
organizational reputation (through capacities and networking) for solving policy problems. Carpenter
and Lewis (2004) showed that failure by an agency, accompanied by negative media coverage (thus
damaging organizational reputation) increases the likelihood of agency termination. A similar
mechanism was described in the context of Australian public service providers (Macintosh 2007).
MacDonald and Franko Jr. (2007) demonstrated a direct link between low agency performance and a
subsequent loss of autonomy.
In this chapter, we will argue that mechanisms of trust-building based on reputation are at
work in the context of the ‘Flemish Regulator for Electricity and Gas’ (VREG). These mechanisms help
to explain why the de facto autonomy of VREG is much more extended than formally stipulated. We
focus on the effects on policy autonomy, which refers to the freedom to decide on content or results
of the primary organizational process (see Verhoest et al. 2010). The extent to which an agency
enjoys policy autonomy depends on the extent to which it is steered on processes, outputs or effects.
Policy autonomy may concern operational issues (e.g. discretion to make decisions in individual,
specific cases, such as deciding to grant a license to a particular regulatee), or more strategic affairs
such as the discretion to prioritize organizational objectives for the next year, or the extent to which
the organization is involved in the policy-making process (i.e. discretion to evaluate current policy
and/or prepare and draft new policy).
Method
The empirical material presented is based on a single case study. Case studies allow to study
a phenomenon (i.e. the autonomy of regulators and their interactions with the minister) within its
real-life context (e.g. the specific routines and rules that have developed over time) (Yin 2009).
Although case studies are not suitable for measuring causal effects, they can be used to identify a
causal mechanism: “they allow to peer into the box of causality to the intermediate causes lying
between some cause and its purported effect. Ideally, they allow one to see X and Y interact”.
(Gerring 2004, 348). Case studies should describe ‘what’ happens, but also ‘how’ and ‘why’ things
unfold (Miles and Huberman 1994, 4). Therefore, the objective of the case study was to describe how
an independent regulator interacts with other actors (e.g. via which mechanisms, on what topics)
and to explain how these interactions affect the decision-making autonomy of the organization.
Interviews were performed according to an interview protocol that was sent to informants
one week before the interview. The protocol contained questions on the perception of autonomy of
VREG for three types of issues: (1) operational affairs relate to daily decisions concerning individual
firms (e.g. granting licenses to specific firms); (2) tactical affairs are more abstract, such as decisions
concerning methodology (e.g. deciding how to perform market studies); (3) strategic affairs refers to
determining objectives and priorities for the next years, the evaluation of current policy and the
preparation of new policy.
The data was transcribed and coded in Atlas.Ti, which allows to define associational relations
between codes. Atlas.Ti allows the researcher to define the following links: ‘is associated with’, which
is used when codes seem to co-vary but the researcher cannot determine whether the relation is
positive or negative; ‘hampers’, which points to a negative relation between codes; ‘increases’ points
to a positive relation; ‘is cause of’ can be used when one finds a causal relation between two codes.
Whereas these links are defined by the researcher, the ‘co-occurrence explorer’ is a tool to assess
proximity or association among coded quotations in a more automated way. Two codes are labeled
as ‘co-occurring’ when they code quotations that are in some way touching each other (i.e. the first
code either ‘overlaps’, ‘is overlapped by’, ‘follows’, ‘precedes’, ‘encloses’ or ‘is enclosed by’ the
second code). A high extent of co-occurrence between two codes points to a certain association or
6
covariance between codes. For instance, when interviewees systematically mention ‘coordination on
operational affairs’ in combination with ‘reduction in autonomy’, it is likely that these codes are
associated (see Malina and Selto 2001). However, while the tool allows to detect association and
proximity, it does not allow to unravel causality. Therefore, we focused mainly on the associational
relations as defined by the researcher and used the co-occurrence explorer as an additional source to
interpret the relations between codes.
Findings
The structure of our findings is based on the theoretical framework presented in Figure 1. We
will first demonstrate that VREG rationally pursued a unique organizational reputation of technical
expertise, which was cultivated and maintained through several relational strategies. We will show
how this socially rooted reputation and related signals of trustworthiness were recognized by the
political principal. However, VREG not only pursued an organizational technical reputation based on
unique expertise. It also aimed to build a moral reputation towards its political principals related to
traits as reliability, openness and sensitive to their needs. After discussing how VREG bolstered its
reputation on these aspects and managed to grow corresponding trust, we will highlight how this
resulted in high levels of de facto policy making and deeper forms of collaboration with the political
principal.
Before we enter into further details, let us first set out that VREG rationally pursues more
policy autonomy and a higher involvement in the policy process. According to the agency head, being
involved in policy is important:
Our core task is to regulate the market, not to prepare policy. But you cannot separate these
two very strictly. Exerting oversight and making rules are complementary: we can see where
things are going wrong and where policy should be adapted. When we feel that the market
needs a new legislative initiative, we signal that to the minister. Sometimes you really have to
take the initiative yourself. (Interview 5, quote 10)
Technical reputation and competence-based trust by developing unique expertise
Organizations actively develop a reputation for technical expertise, in order to be perceived
as having the unique technical capacity and skills required to do their job (regardless of the actual
performance) (Carpenter and Krause 2012) (see phase 1 in Figure 1). Since all regulatory
competences are allocated to VREG, it is evident that the expertise for regulatory policy is only
available at VREG. The capacity of the political principal is limited, since the ministerial cabinet
consists of only two personal advisors to the minister for energy.
VREG accumulated and further developed its technical expertise by extensive contacts with
multiple actors. On the supranational level, VREG coordinated with other national regulators and the
European Commission via European Regulatory Networks (Eberlein 2008). The European Regulators
Group for Electricity and Gas (ERGEG) was established to ‘facilitate consultation, coordination and
cooperation of national regulatory authorities, contributing to a consistent application in all Member
States’ of the energy Directives (European Commission, 2003). ERGEG provided a forum for energy
regulators to participate in policy-making at the EU-level. ERGEG could ‘advise and assist the
Commission in consolidating the internal energy market, in particular with respect to the preparation
of implementing measures on any matters related to the internal energy market’ (European
Commission 2003). The Belgian regional regulators have been a member of the ERGEG working
groups on consumer protection and on renewable energy, whereas the Belgian federal regulator
represented the Belgian viewpoint in the other working groups (e.g. cross-border trade). In July 2011,
the Agency for the Cooperation of Energy Regulators (ACER) replaced ERGEG, but some ERGEG
working groups have continued to meet on a regular basis (Agency for the Cooperation of Energy
Regulators 2011).
7
On a national and regional level, VREG had frequent contacts with the other regional energy
regulators of Belgium (Wallonia, Brussels region) as they exchanged information, practices and
opinions. VREG also targeted regulatees and stakeholders. Via written consultation procedures,
regulatees can comment on draft decisions or opinions of the regulators. In addition, there are
monthly meetings between VREG and the CEO’s of the two distribution network operators (Eandis
and Infrax). A third way of consultation occurred through asking the opinion of market actors via
surveys. Two important examples are the ‘market model study’ (Studie Marktmodel) and the
‘stakeholder survey’. The former is a study undertaken jointly by the regulatees and VREG, with the
aim to develop a common long-term vision on the governance of the energy market (VREG 2009, 1).
The latter is a survey involving consumers, industry federations and social partners.
The networking with international and national regulators, and with the regulated field, is a
deliberate strategy of the agency head: My personal task is to make sure that the relations are well-
managed. It is important that we consult very closely with all involved actors.” (Interview 27, quote
4) It allowed VREG to expand its expertise on regulatory policy and on wider energy policy issues:
It is good to have an informal network to rely on, when we perform a certain market study.
We can ask colleagues to pass on data, or ask their opinions regarding the methodology that
we should apply. (Interview 23, quote 33).)
In addition, it allows VREG to build consensus on regulatory objectives, together with the
other Belgian regional energy regulators. Interviewees indicated that the energy regulators often
shared the same opinions regarding regulatory objectives: The other regional regulators live in the
same situation and we know each other very well”.
However, before a reputation can be used as a political asset, the recognition by the political
authorities of a unique organizational and socially rooted expertise is of crucial importance (see
phase 2 in Figure 1). The minister expressed to have a large amount of competence-based trust in
VREG:
The de facto role that the organization plays differs from the formal role. How can VREG
strengthen its role? By writing valuable reports. Those reports are worthy to be read and
they are widely read. You can see that VREG has developed expertise, its CEO is frequently
interviewed by the media, when it concerns rising energy prices. In a similar vein, when
people have complaints about their energy supplier, they contact VREG, even when the topic
is not a competence of VREG. So, they have become the single point of contact for many
stakeholders and the spokesperson of the Flemish energy policy. (Interview 25, quote 94)
Hence, being considered as a reputable actor by the stakeholders was an important factor for
playing a larger role in the policy process. Reports and advices gained considerable credibility when
VREG could demonstrate that they were supported by these influential and knowledgeable actors.
For instance, interviewees mentioned that ERGEG-membership has led to a higher reputational
power of VREG. ERGEG documents gained a large weight because they represented the uniform
viewpoint of the European regulators, and because they usually resulted in European Commission
decisions. Interviewees indicate that it was much harder for a minister to ignore an advice of VREG
when it reflected the same opinion of the ERGEG network, since “the minister would not risk to
contradict what Europe wants”.
Because it has built such extensive contacts with stakeholders, VREG succeeded in
embedding its capacities in several networks so that the parent minister could no longer ignore its
unique expertise regarding energy policy. As mentioned by a personal advisor of the minister, the
cabinet had really nobody else to turn to”. In other words, since VREG has developed a unique
expertise, supported by multiple audiences at the supranational, national and regional levels of
government, it would be politically costly for the political principal to deny the regulator a role in the
policy process.
8
Moral reputation and identity-based trust by signaling reliability and openness
VREG wants to be perceived by the minister as being honest, reliable and open. Before VREG
formally publishes a regulatory decision, a market monitoring report or a policy opinion, it has
usually discussed this informally with the ministerial cabinet first. Interviewees mentioned that VREG
has frequent informal contacts with the ministerial cabinet via email and telephone as well, almost
on a daily basis:
We have set up a communication system with the cabinet that runs very well. We see them a
lot and we try to maintain those channels, so that they are not surprised of the things we are
doing. That is a kind of informal trust between us”. (Interview 23, quote 9)
The interviewee from the ministerial cabinet confirms this informal way of working: “In
practice the collaboration between us is very informal and goes very smoothly.
VREG and the minister seemed to adhere to the same values, as they both attached
importance to maintaining an informal culture, where policy issues are discussed via personal
contacts. Personal relations were emphasized repeatedly and were reportedly very good. VREG even
signals that it is sensitive to the needs and objectives of its political principal. When the European
Commission presented the Third Legislative Package on energy in 2009, the Flemish minister for
energy asked VREG to prepare and draft the transposition of these Directives into Flemish law. These
Directives are aimed at further developing the Single Market for energy. An important objective is to
safeguard the autonomy of the national regulatory authorities vis-à-vis the parent minister. For
instance, article 35 of Directive 2009/72 states that national regulators should not take direct
instructions from any public entity, including government. When VREG was asked to draft the
transposition of these Directives into Flemish law, it had much discretion to interpret the Directives
and to decide to what extent its legal statutes would have to be modified in order to comply with the
Directives. The Third Legislative Package initially sparked a discussion within the regulatory agency
regarding its structural autonomy. Some actors argued to place VREG under the authority of
parliament instead of the executive. However, in its draft proposal of the Flemish energy law, VREG
confirmed itself as a part of the executive branch and as partly being under the authority of the
minister. The agency head stated that: “You cannot just detach yourself and be completely 100%
autonomous.” In fact, interviewees argued that a sole focus on safeguarding independence might
produce a reverse effect:
Organizations that strictly defend their independence often create the opposite effect: they
get a very strenuous relation. Off course, it works in two ways: when ministers behave in a
very threatening manner, then this will evoke very defensive behavior. (Interview 23, quote
66)
Instead, VREG asked to remove only some steering instruments, while others could be
maintained. The main focus was on removing the possibility that ‘commissaires du gouvernement’
would be appointed and on expanding the Board of Directors, to allow for the appointment of
independent directors (VREG 2010, 44-52). However, VREG still needs to negotiate its multi-annual
objectives with the minister via a performance contract. In addition, the minister still appoints the
chairman of the board of directors. We could say that, even though the Third Package provided
arguments to further reduce the influence of the minister, VREG has not pushed for this. Instead,
VREG seemed to leave some space for steering by the minister and appears to differentiate between
steering instruments that were found to be too intrusive and steering instruments that did not
violate its independence.
Interviewees said that VREG does not want to insulate itself completely from the parent
minister. Instead, it prefers an approach of close collaboration between regulator and minister,
9
which would give the regulator a larger de facto role in policy-making. These relational strategies
resulted in identification-based trust by the political principal in VREG.
Apparently, closeness and informal contact may build up trust, and give influence on the
political leadership because of increased access. But it might be a risky strategy, as this might also
lead to more influence on the agency and its leadership from the ministry.
Effects of reputation and trust: autonomy and collaboration as trusting behavior
There are some indications of the need for reciprocity in the relationship between VREG and
the parent minister. We would argue that a certain extent of ‘gift-giving behaviour’ can be observed.
For instance, despite the alleged need for credible commitment and depoliticization, VREG seems to
leave some space for political influence. In return, the minister has granted a large extent of de facto
policy autonomy to VREG. Although VREG is formally only competent for giving a non-binding advice
on legislative proposals, it plays a more important role in practice. For instance, the transposition of
the Third Legislative Package into Flemish legislation was drafted entirely by VREG, and was adopted
by the Flemish government with only minor adjustments. The minister acknowledged the need for
more autonomy under the Third Package (Van den Bossche 2010). In 2011, a new decree came into
force, to transpose the Directives into Flemish law (Vlaams Parlement 2009, art. 1.1.2). Under the
new decree, the agency head and the members of the board of directors were appointed for a fixed
term of five years, renewable once, making early dismissal by the minister much harder. In addition,
the new decree abolishes the ‘commissaires du gouvernement’.
In fact, many proposals for which it produces a formal advice have actually been prepared
(informally) by VREG:
It sometimes leads to strange situations, where the minister asks us informally to prepare the
proposal. After we have sent it to the cabinet, it returns to us as part of the legally prescribed
procedure, so we then have to give a formal advice on our own proposal. (Interview 23,
quote 4).
Interviewees from the ministerial cabinet considered this high extent of de facto policy
autonomy as a gift to VREG: “I believe it is very motivating for them.” (Interview 25, quote 53).
VREG has even collaborated with the minister in highly political processes. Until 2011, the
authority to regulate distribution network operators in Belgium was fragmented across the regional
and federal levels of government. While the regional regulators were competent for technical
regulation (e.g. monitoring safety and capacity of distribution networks) and social regulation (e.g.
imposing public service obligations), the federal level remained responsible for tariff-setting. From
2008 onwards, VREG requested the Flemish government to negotiate a new division of competences
with the federal government:
In order to be able to develop a coherent Flemish energy policy, the region must have the
authority over distribution tariffs. Flanders should continuously argue for a transfer of this
competence to the regions (VREG 2008, 2).
The Flemish government has supported this request (Van den Bossche 2010). In December
2011, the newly-elected federal government announced that tariff-setting for distribution networks
will be delegated to the regional level, as part of a large-scale reform of the state (Federale Regering
2011). These examples of ‘gift-giving behavior’ demonstrate that both the minister and VREG seem
committed to achieve each other’s objectives, signaling a high level of identity-based trust.
DISCUSSION AND CONCLUSIONS
This article aimed at explaining the high de facto policy autonomy of the Flemish Regulator
for Electricity and Gas (VREG). VREG presented an intriguing empirical puzzle given that both its de
facto policy autonomy and collaboration efforts with its political principal, i.e. the Flemish Minister of
10
Energy, were much larger than formally stipulated. We developed and used a framework based on
bureaucratic reputation theory, integrated with insights from trust literature.
The concepts of organizational reputation and trustworthiness seem to be closely connected,
as they have multiple corresponding elements (cf. Table 1). Both concepts refer to
perceptions/beliefs of one or more external audiences about one or more traits of the agency. Both
reputation theory and trust theory point towards the ability of (regulatory) agencies to actively craft
the signals that are being sent out to external audiences. Both make a distinction between different
types of traits in which reputation/trust is grounded. Whereas reputation theory puts the emphasis
on traits linked to the performative/technical/moral/procedural capabilities of the regulator, trust
theory distinguishes between competence-based, identity-based and routine-based types of the
trustor-trustee relationship. Finally, both theories posit that a regulator, conscious about the
traits/signals that are being sent out, can actively determine which relational strategies to adopt.
<insert table 1 around here>
However, close inspection to both theories also highlights some important differences. First,
reputation theory states that the abovementioned traits (performative/technical/…) that a regulator
might choose to bring forward might be conflicting. Regulators must choose to which trait they give
priority. Trust theory is less clear about this prioritization of strategies, and seems to highlight the
multidimensionality of the trust concept (as opposed to uniqueness). Second, whereas trust theory
seems to focus on dyadic trustor-trustee relations, reputation theory also emphasizes that a unique
reputation must be socially rooted in diverse networks. An agency encounters multiple audiences
which need to be managed simultaneously. Third, reputation theory makes different underlying
assumptions when looking at the behavior of actors. Although it clearly deviates from principal-agent
theory in identifying unique organizational reputations as sources of bureaucratic power,
bureaucratic reputation theory is still grounded in rational choice theory and its assumptions of cost-
calculating behavior guided by self-interest. It is only when the political principals see it in their
interest to grant de facto autonomy to an agency, or when denying this autonomy would come at a
political cost, that we expect to see an increase in de facto autonomy. Trust theory, on the other
hand, in particular when referring to non-rational identification-based trust, sees behavior of political
and administrative actors rather as intrinsically motivated, collectivistic, confident of each other’s
motivations. Fourth, the organizational traits identified by reputation theory refer to features of the
organization and its behavior, which are seen as intangible political assets used to generate political
support. The different types of trust, however, refer to features of the trust relationship and can be
seen as end-results of different organizational and environmental factors rather than pure
antecedents (though they might be antecedents as well). A fifth difference lies in the degree to which
a regulator is in control of the crafting of its reputation/trustworthiness. Reputation theory stresses
the ability of regulatory agencies to craft its own reputation (although Maor takes a different stance
on this than for instance Carpenter, who has less faith in the ability of agencies to strategically
manage their reputation in response to changing circumstances). Trust theory, while also suggesting
strategies that agencies can pursue to actively improve their trustworthiness, places more emphasis
on the reciprocal nature of the relationship between trustor and trustee.
Future research could focus more on how these theories complement each other. First,
reputation can be considered as an antecedent of trust and as an intangible asset for public
organizations, since it underpins the trustworthiness of publics organizations. Moreover trust may
act as a feedback mechanism which might result in the use of other complementary relational
strategies (in this context: strategies which promote moral reputation in addition to technical
reputation). Thirdly, trust complements reputation theory in explaining the mechanisms behind “the
recognition of a unique organizational reputation by the political principal”. Next to this, relational-
based trust points at the importance of moral reputations. At the moment, reputation literature is
strongly focused on “reputations for technical expertise or performance”. Other types of reputation
which refer more to moral and character-based traits like benevolence, openness, sensitiveness
11
should get more attention in literature in terms of how they are created, signaled and sustained over
time. Finally, an important element is that reputation and trust might reinforce each other. But
future research might study what happens in situations where there is a crisis or conflicts will then
this reinforcement work? Or will it become a situation where ministry and agency is trying to avoid
blame? Is in that case closeness and informal contact more a problem than an advantage?
12
REFERENCES
Agency for the Cooperation of Energy Regulators (2011) 2012 Work Programme of the Agency for
the Cooperation of Energy Regulators. Available at:
www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Work%2
0Programme%202012.pdf (accessed 21 July 2012).
Akerlof, G. (1970), The market for “lemons”: Quality under uncertainty and the market mechanism,
Quarterly Journal of Economics, Vol. 84, pp. 448-500.
Aqueveque, C. (2005), Signaling Corporate Values: Consumers’ Suspicious Minds, Corporate
Governance: The International Journal of Business in Society, Vol. 5, pp. 70-81.
Aqueveque C., Ravasi D. (2006). Corporate reputation, affect, and trustworthiness: an explanation for
the reputation-performance relationship. Paper presented at 10th Annual Corporate
Reputation Institute Conference, New York, NY
Barney, J. and Hansen, M. (1994), Trustworthiness as a Source of Competitive Advantage, Strategic
Management Journal, Vol. 15, pp. 175-190.
Blomqvist, K. (1997), The many faces of trust, Scandinavian Journal of Management, Vol. 13 No. 3,
pp.271-286.
Bottom, W.P, Holloway, J., Miler, G.J., Mislin, A. and A. Whitford (2006), ‘Building a Pathway to
Cooperation: Negotiation and Social Exchange between Principal and Agent’, Administrative
Science Quarterly, 51(1), 29-58.
Carpenter, D. (2001). The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy
Innovation in Executive Agencies 1862-1928. Princeton: Princeton University Press.
Carpenter, D. (2002). Groups, the Media, Agency Waiting Costs, and FDA Drug Approval. American
Journal of Political Science, 46(3), 490505.
Carpenter, D. (2010). Reputation and power: Organizational image and pharmaceutical regulation at
the FDA. Princeton, NJ: Princeton Univ. Press.
Carpenter, D., & Krause, G. A. (2012). Reputation and public administration. Public Administration
Review 72:2632., 72, 2632.
Carpenter, D., & Lewis, D. E. (2004). Political Learning from Rare Events: Poisson Inference, Fiscal
Constraints, and the Lifetime of Bureaus. Political Analysis, 12, 201232.
Christensen, T. and P. Lægreid (2007), ‘Regulatory Agencies The Challenges of Balancing Agency
Autonomy and Political Control’, Governance, 20(3), 499-520.
Cornell, B. and Shapiro, A. (1987), Corporate stakeholders and corporate finance, Financial
Management, Vol. 16, pp. 5-14.
Davies, G. and Chun, R. (2003). The use of metaphor in the exploration of the brand concept. Journal
of Marketing Management, 19(1/2), 4571.
Dyer, J.H., and Chu, W. (2003), ‘The Role of Trustworthiness in Reducing Transaction Costs and
Improving Performance: Empirical Evidence from the United States, Japan, and Korea.’
Organization Science 14: 5768.
Eberlein, B. (2008), ‘Formal and Informal Governance in Single Market Regulation.’ In Sverdrup, U.
and J. Trondal (eds), The Organizational Dimension of Politics. Essays in Honour of Morten
Egeberg. Fagbokvorlaget, 304-330.
Edelenbos, J., and Klijn, E-H. (2007), Trust in Complex Decision-Making Networks: A Theoretical and
Empirical Exploration.’ Administration & Society 39: 2550.
European Commission (2003), Commission Decision of 11 November 2003 on Establishing the
European Regulators Group for Electricity and Gas. 2003/796/EC.
Federale Regering (2011), Ontwerpakkoord voor het Algemeen Beleid. Brussel: Federale Regering.
Available at: http://www.premier.be/files/20111206/Regeerakkoord_1_december_2011.pdf
Fombrun, C., and van Riel, C. (1998), ‘The Reputational Landscape.’ Corporate Reputation Review 1:
514.
13
Gambetta, D. (1988), ‘Can we Trust Trust?’ in D. Gambetta (ed), Trust: Making and Breaking Co-
operative Relations. Oxford: Blackwell, 213237.
Gerring, J. (2004), ‘What Is a Case Study and What Is It Good for?’, American Political Science Review,
98(2), 341-354.
Giddens, A. (1994), ‘Risk, Trust, Reflexivity’ in Beck, U.; Giddens, A. and S. Lash (eds), Reflexive
Modernization. Cambridge: Polity Press, 184197.
Gilad, S., Maor, M., & Bloom, P. B.-N. (2013). Organizational Reputation, the Content of Public
Allegations, and Regulatory Communication. Journal of Public Administration Research and
Theory, Advance Access published August 22, 2013. doi:10.1093/jopart/mut041
Good, D. (1988), Individuals, interpersonal relations, and trust. In D. G. Gambetta (Ed.), Trust, pp.131-
185, New York: Basil Blackwell.
Grey, C. and C. Garsten (2001), ‘Trust, Control and Post-Bureaucracy’, Organization Studies, 22(2),
229-250.
Groenleer, M. (2009), The Autonomy of European Union Agencies: a Comparative Study of
Institutional Development. Delft: Uitgeverij Eburon.
Huxham, C. (2003), ‘Theorizing Collaboration Practice’, Public Management Review, 5(3), 401-423.
Jensen, M.C., and W.H. Meckling (1976), Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure.’ Journal of Financial Economics 3 (4): 30560.
Johnson-George, C. and Swap, W. (1982), Measurement of specific interpersonal trust: Construction
and validation of a scale to assess trust in a specific other, Journal of Personality and Social
Psychology, Vol. 43, pp.1306-1317.
Jordana J and Levi-Faur D (eds) (2004), The Politics of Regulation: Institutions and Regulatory Reforms
for the Age of Governance. Cheltenham: Edward Elgar.
Lægreid, P.; Roness, P.G. and K. Rubecksen (2005), ‘Regulating Regulatory Organizations: Controlling
Norwegian Civil Service Organisations’, Working Paper 5 2005, Stein Rokkan Centre for Social
Studies.
Lane, C., and R. Bachmann (1996), ‘The Social Constitution of Trust: Supplier Relations in Britain and
Germany’, Organization Studies, 17(3), 365-395.
Lawler, E. and J. Yoon (1996), ‘Commitment in Exchange Relations: Test of a Theory of Relational
Cohesion’, American Sociological Review, 61, 89-108.
Lewis, D. and Weiger, A. (1985), Trust as a social reality, Social Forces, No. 63, pp.967-985.
Lewicki, R.J., and Bunker, B.B. (1996), Developing and Maintaining Trust in Work Relationships.’ In
Trust in Organizations: Frontiers of Theory and Research, 11439. Thousand Oaks: Sage.
Lyon, F. (2006), ‘Managing Co-operation: Trust and Power in Ghanaian Associations’, Organization
Studies, 27(1), 31-52.
MacDonald, J. A., & Franko Jr., W. W. (2007). Bureaucratic Capacity and Bureaucratic Discretion Does
Congress Tie Policy Authority to Performance? American Politics Research 2007 35: 790, 35(6),
790807.
Macintosh, A. (2007). Statutory Authorities. In Silencing Dissent. How the Australian government is
controlling public opinion and stifling debate (pp. 148174). Crow’s Nest, Australia: Allen &
Unwin.
Maggetti, M. (2009), The de Facto Independence of Regulatory Agencies and its Consequences for
Policy Making and Regulatory Outcomes. Unpublished PhD-Thesis, Université de Lausanne,
Switzerland.
Malina, M.A. and F.H. Selto (2001), ‘Communicating and Controlling Strategy: An Empirical Study of
the Effectiveness of the Balanced Scorecard’, Journal of Accounting Research 13, 47-90.
Maor, M. (2007). A scientific standard and an agency’s legal independence: which of these reputation
protecion mechanisms is less susceptible to political moves? Public Administration, 85, 961
978.
Maor, Moshe. (2011), 'Organizational Reputations and the Observability of Public Warnings in 10
Pharmaceutical Markets.' Governance: An International Journal of Policy, Administration, and
Institutions 24: 55782.
14
Maor, M., Gilad, S., & Bloom, P. B.-N. (2012). Organizational Reputation, Regulatory Talk, and
Strategic Silence. Journal of Public Administration Research and Theory. 23 (3) 561-608
Maor, M., & Sulitzeanu-Kenan, R. (2013). The Effect of Salient Reputational Threats on the Pace of
FDA Enforcement. Governance: An International Journal of Policy and Administration, 26, 31
61.
Mayer, R., Davis, J. and Schoorman, D. (1995), An integrative model of organizational trust. Academy
of Management Review, Vol. 20 No. 3, pp.709-734.
McEvily, B. and A. Zaheer (2006), ‘Does Trust Still Matter? Research on the Role of Trust in Inter-
organizational Exchange’ in Bachmann, R. and A. Zaheer (eds), Handbook of Trust Research.
Cheltenham: Edward Elgar, 280-300.
Miles, M.B. and M.A. Huberman (1994), Qualitative Data Analysis. An Expanded Sourcebook. Second
Edition. Thousand Oakes: Sage Publications.
Moffitt, S. (2010). Promoting Agency Reputation through Public Advice: Advisory Committee Use in
the FDA. The Journal of Politics, 72(3), 880893.
Möllering, G. (2006), Trust: Reason, Routine, Reflexivity. Amsterdam: Elsevier.
Muthusamy, S.K., and White, M.A. (2005), ‘Learning and Knowledge Transfer in Strategic Alliances: A
Social Exchange View. Organization Studies 26 (3): 41541.
Nooteboom, B.; Berger, J. and N.G. Noorderhaven (1997), ‘Effects of Trust and Governance on
Relational Risk’, Academy of Management Journal, 40(2), 308338.
Oakes, G. (1990), The sales process and the paradoxes of trust, Journal of Business Ethics, Vol. 9,
pp.671-679.
Phillips, N. and C. Hardy (1997), ‘Managing Multiple Identities: Discourse, Legitimacy and Resources
in the UK Refugee System’, Organization, 4(2), 159186.
Ring, P. and A. Van de Ven (1992), ‘Structuring Cooperative Relationships between Organizations’,
Strategic Management Journal, 13, 483493.
Roberts, P. and Dowling, G. (2002), Corporate Reputation and Sustained Superior Financial
Performance, Strategic Management Journal, Vol. 23, pp. 1077-1093.
Sako, M. (1992), Prices, Quality and Trust: Inter-Firm Relations in Britain and Japan. Cambridge:
Cambridge University Press.
Scott, C. (2004), ‘Regulation in the Age of Governance: the Rise of the Post-Regulatory State’, in
Jordana, J. and D. Levi-Faur (eds), The Politics of Regulation: Institutions and Regulatory
Reforms for the Age of Governance. Cheltenham: Edward Elgar, 145-174.
Smaiziene I., Jucevicius R. (2009) Corporate Reputation: Multidisciplinary Richness and Search for a
Relevant Definition. Inzinerine Ekonomika-Engineering Economics(2). 2009: 91-100
Thiel, S. van and K. Yesilkagit (2011), ‘Good Neighbours or Distant Friends? Trust between Dutch
Ministries and their Executive Agencies’, Public Management Review. 13(6), 783-802.
Van den Bossche, F. (2010), Beleidsbrief Energie 2010-2011. Brussel: Vlaamse Regering.
Verhoest, K. (2002), Resultaatgericht Verzelfstandigen. Een Analyse vanuit een Verruimd Principaal-
Agent Perspectief. Unpublished PhD-Thesis, K.U. Leuven, Belgium.
Verhoest, K. (2005). Effects of autonomy, performance contracting, and competition on the
performance of a public agency: a case study. The Policy Studies Journal, 33.
Verhoest, K.; Demuzere, S. and J. Rommel (2012), ‘Agencification in Latin Countries: Belgium and its
Regions’. In: Verhoest, K.; Thiel, S. van; Bouckaert, G. and P. Lægreid (eds), Government
Agencies: Practices and Lessons from 30 Countries. Basingstoke, Hampshire: Palgrave
Macmillan, 84-97.
Verhoest, K.; Roness, P.G. ; Verschuere, B. ; Rubecksen, K. and M. MacCarthaigh (2010), Autonomy
and Control of State Agencies. Comparing States and Agencies. Basingstoke : Palgrave
Macmillan.
Vlaams Parlement (2009), ‘Decreet Houdende Algemene Bepalingen Betreffende het Energiebeleid’,
Belgisch Staatsblad, 07 Juli 2009.
15
VREG (2008), Advies van de Vlaamse Reguleringsinstantie voor de Elektriciteits- en Gasmarkt van 29
april 2008 met Betrekking tot het Voorstel tot Wijziging van de Bijzondere Wet tot Hervorming
van de Instellingen op het Vlak van de Energiebevoegdheden. ADV-2008-4. Brussel.
VREG (2009), Project Marktmodel. Visietekst Studie Marktmodel. Brussel: VREG. Available at:
http://www.vreg.be/sites/default/files/rapporten/rapp-2009-1.pdfVREG (2010), Advies van de
Vlaamse Reguleringsinstantie voor de Elektriciteits- en Gasmarkt van 23 maart 2010 met
Betrekking tot de Omzetting in Vlaamse regelgeving van de Richtlijn van de Europese Unie
2009/72/EG van 13 juli 2009 Betreffende Gemeenschappelijke Regels voor de Interne Markt
voor Elektriciteit en tot Intrekking van Richtlijn 2003/54/EG en de Richtlijn van de Europese
Unie 2009/73/EG van 13 juli 2009 Betreffende Gemeenschappelijke Regels voor de Interne
Markt voor Aardgas en tot Intrekking van Richtlijn 2003/55/EG. ADV-2010-1. Brussel: VREG.
Yin, R.K. (2009), Case Study Research. Design and Methods. Fourth Edition. Thousand Oakes: Sage
Publications.
16
Reputation theory
Trust theory
Concept
Definition
Concept
Organizational
reputation
refers to a set of
symbolic beliefs about
the unique or separable
capacities, intentions,
roles, obligations, history,
and mission of an
organization that are
embedded in a network
of multiple audiences
Trustworthiness
Reputation-
consciousness
Agencies are no passive
actors. On the contrary,
they strategically craft
and manage their
organizational reputation
Active trust
Performative
reputation
refers to whether an
agency can execute its
tasks competently and
efficiently
Competence-
based
trust
Technical
reputation
…means an agency has
the technical capacity and
skill required to do its job
(regardless of its actual
performance)
Moral
reputation
…means that an agency is
sensitive, flexible, honest
and protective of the
interests of its clients
Identity-based
trust
Relational
strategies
…strategies to achieve
social embeddedness in a
network of multiple
audiences
Trust as a
relational
concept
Table 1: Corresponding elements in reputation and trust theory
17
Figure 1: Theoretical model
CULTIVATING AGENCY TRAITS AS
BASIS FOR ORGANIZATIONAL
REPUTATION
RELATIONAL STRATEGIES BY
AGENCY TO STRENGTHEN
REPUTATION AND TO SIGNAL
TRUSTWORTHINESS
TRUSTING
BEHAVIOR BY
PRINCIPAL
TOWARDS AGENCY
RECOGNITION OF
REPUTATION AND
TRUSTWORTHINESS BY
PRINCIPAL
TRUST OF
PRINCIPAL IN
AGENCY
Unique organizational expertise as
basis for technical reputation
Behavioral traits ‘reliability, openness
and sensitive to the needs of
principal’ as basis for moral
reputation
Competence-
based trust
(credibility)
Identity-based
trust (norms,
values
Relational strategies by agency to
strengthen technical reputation
and to signal trustworthiness to
principal
Relational strategies by agency to
strengthen moral reputation and
to signal trustworthiness to
principal
FEEDBACK
Increased de facto
policy-making
autonomy
Deeper forms of
collaboration
PHASE 1
PHASE 2
PHASE 3
... for instance argue that perceived competence based on reputation is an important antecedent of interorganizational trust in network settings. Verhoest et al. (2014) similarly observe that an organization with a successful reputation-building strategy for being trustworthy translated its reputation to more trustful relations with its political superior. These contributions indicate that organizational-level factors such as reputation, branding and perceived trustworthiness play important antecedent roles in the formation of interorganizational trust between (public) actors. ...
... In particular, substantial attention has been devoted to the potential benefits of interorganizational trust for interorganizational and network relationships. Various contributions suggest that trust among public organizations or between public and private organizations can be conducive to collaboration and information-sharing Kort and Klijn, 2013), can increase satisfaction with a relationship and could enhance agency autonomy (Verhoest et al., 2014;Bach, 2012). It should be noted that the general management literature has reached similar conclusions. ...
... In terms of areas for further attention, it should first be mentioned that while some public management contributions have begun to acknowledge the multi-level nature of interorganizational trust, its antecedents and its consequences (e.g. Verhoest et al., 2014), many other contributions do not explicitly address the levels at which a trust relationship exists. This produces risks of cross-level fallacy when a boundary spanner is for instance used as the only measurement point for trust in another organization, disregarding the potential meso-level aspects of the pre-existing relationship between both organizations and the reputation of the counterpart organization (Delbufalo, 2012). ...
Technical Report
Full-text available
This deliverable offers a systematic and comprehensive review of the literature on trust and regulation and their relations in three parts. Section 1 provides a brief overview of trust and distrust; their relationship; and antecedents (drivers) and positive and negative consequences. This second part of provides an overview of phases and processes of trust building, maintenance and repair as well as a review of how processes of distrust building or trust-reduction work. The third part suggests that the unfolding of trust relationships varies according to the type of involved actor, i.e. an individual, organisation, or system (such as regulatory regimes) and level of analysis. Section 2 moves to regulation. It reviews the main concepts of regulation and clarifies some of the most important questions around it. This should allow us, in later sections of this deliverable, to point on some of the possible directions that trust and regulation research may take. It starts with definitions and a distinction between narrow and broad approaches to regulation. It then clarifies the concept of regulatory regime; the regulatory agency, the regulatory state and regulatory capitalism. It concludes with an actor centered analysis of the regulation. Section 3 deals with trust and distrust in government. It starts with a summary of the drivers of the dis/trust relations. The main sub-section deals with reviews of the literature on trust and distrust in (a) political institutions and actors; (b) public administration; (c) among courts; (d) citizens by government and (e.) between public organizations. Section 4 brings out the critical aspects of the review. It focuses on the relations between trust and regulation and offer a new conceptualization of their relations. One that will serve as the basis for section 1.3. The first part of the section moves the discussion of the relations forward in an attempt to looking at the relations beyond the current literature by distinguishing between four types of relations: independent, competitive, substitutive and supportive. The second part of the section focuses on the relations of trust between the main actors of the regime. The third discusses the relations between trust and regulation, when they touching on explanations for the processes. The fourth revolves around on assessment of outcomes of the relations. Section 5 deals with the operationalization and measurement of trust. It deals with the ways in which trust between actors in regulatory contexts has been measured in recent scholarship. It informed by, and seeks to expand upon, the current knowledge by more specifically examining measures used in the study of regulatory contexts. It starts with a description of the systematic methodology used. It then summarizes the purely descriptive findings of the review and an overview of the number of studies on trust in regulatory regimes published in recent years. It then presents separate discussions on how trust in different kinds of actors in regulatory regimes has been measured. Section 5 closes with a reflective and critical discussion of the literature. We analyse prominent limitations and gaps in existing empirical work.
... Reputation is a strategic organizational resource that guarantees bureaucracies policy-making autonomy (Carpenter, 2001;Carpenter, 2010;Maor, 2014;Verhoest et al., 2014), fosters performance (Lee & Whitford, 2013) and influences other variables of bureaucratic interest such as enforcement, professional prestige, trust building or power (Busuioc & Lodge, 2016Maor, 2014;Maor & Sulitzeanu-Kenan, 2013). Public agencies' reputations are reflected in the degree of organizational trustworthiness, inducing several types of trusting behavior such as collaboration, information sharing, or joint action (Verhoest et al., 2014). ...
... Reputation is a strategic organizational resource that guarantees bureaucracies policy-making autonomy (Carpenter, 2001;Carpenter, 2010;Maor, 2014;Verhoest et al., 2014), fosters performance (Lee & Whitford, 2013) and influences other variables of bureaucratic interest such as enforcement, professional prestige, trust building or power (Busuioc & Lodge, 2016Maor, 2014;Maor & Sulitzeanu-Kenan, 2013). Public agencies' reputations are reflected in the degree of organizational trustworthiness, inducing several types of trusting behavior such as collaboration, information sharing, or joint action (Verhoest et al., 2014). ...
Article
Full-text available
Bureaucratic reputations are largely shaped by the media's evaluations of such agencies. However, the research overlooks how the media evaluates public agencies, particularly in low-trust contexts. Using inductive machine-learning techniques, we uncover the media's evaluations of Brazilian regulatory agencies based on more than 38,000 stories published within the last 20 years with the aim of exploring what drives their media evaluations and which reputational dimensions are privileged in the negative media coverage of regulatory agencies. We find different patterns of media evaluations that reflect a unique interplay of media logic, agency strategizing, and the quality of the policy context in which the agencies operate. However, even in a low-trust context, some agencies are able to build a favorable media reputation. In contrast, agencies with unfavorable media reputations are systematically questioned along many reputational dimensions and are subject to stronger negativity bias.
... powers. An interesting element in this literature is the extent to which the trust between the regulatory agency and its minister is enhanced by the extent to which the regulatory agency cooperates with other regulators within or across country borders (see Bach & Ruffing, 2013;Verhoest et al., 2015). It would be worthwhile in future research to dig more deeply into this issue: how collaborative relations with other regulatory bodies enhance the reputation and trustworthiness of public regulators for other regulators, and by extension politicians, regulatees and citizens? ...
... Näslund and Tamm How do regulators deal with the conflicts and dilemmas that they inevitably face when these multiple audiences make contradictory demands? This mirrors to a high extent the dilemmas that organizations face in enhancing and maintaining their organizational reputation (as an important dimension or predictor of organizational trustworthiness) vis-à-vis their different audiences (see Baekkeskov, this volume; Carpenter & Krause, 2012;Luoma-aho, 2008;Rousseau et al., 1998;Verhoest et al., 2015). How do regulatory organizations manage these different demands? ...
... Public-sector organisations build, maintain and protect their reputation, in order to, among other things, accrue autonomy and discretion from politicians (Carpenter, 2001;Carpenter and Krause, 2012;Maor, 2015). Empirical studies have shown that trustworthy agencies can gain autonomy from their political principals (Verhoest et al, 2014). A recent study by Lee and Van Ryzin (2019) showed that the public's conceptions of reputation correlate positively with support for increased autonomy. ...
... Ez ugyanakkor nemcsak szűkebb autonómiát, hanem -nagyobb bizalom eseténakár bővebb autonómiát is jelenthet, pl. amikor a minisztérium nem érvényesíti azokat a jogosítványokat, amelyek egyébként a rendelkezésére állnak (Verhoest-Rommel-Boon 2015). ...
Article
A tanulmány1 célja két kérdés megválaszolása. Az egyik kérdés, hogy miért lett az elmúlt évtizedekben a bizalom kutatása aktuális és népszerű téma oly sok tudományterületen, és e sokszínűségből milyen dilemmák fakadnak. Ez alkalmat ad néhány olyan alapfogalom és összefüggés bemutatására, mint az intézményi és személyközi bizalom, vagy a bizalom, a bizalomraméltóság és a bizalom magatartási különbségének megkülönböztetése. A másik kérdés, hogy milyen kapcsolat van a bizalom és a kockázat, illetve a bizalom, a kontroll és az autonómia között. Mayer, Davis és Schoorman (1995) modellje, a megbízó–ügynök és a stewardship-elméletek alapján hogyan alkalmazhatóak ezek a személyközi és a szervezetközi viszonyokra? = Th e aim of the study is to answer two questions. Th e fi rst question is why in recent decades, the search for trust has become a current and popular topic in so many disciplines, and what dilemmas come from this diversity. Th is provides an opportunity to present some basic concepts and relationships such as the distinction between institutional and interpersonal trust, or the distinction between trust, trustworthiness and the behavioural consequences of trust. Th e other question is the nature of relationship between trust and risk, and trust, control and autonomy. Based on the model by Mayer Davis & Schoorman (1995), the principal-agent and stewardship theories, how this can be applied to interpersonal and inter-organizational relationships?
... What these different perspectives on prioritization have in common is an underlying assumption of a rational process during which politically conscious agencies strategically weigh the pros and cons of dedicating their limited time, energy, and resources towards specific audiences. Bureaucratic reputation theorists have so far primarily, and rather implicitly, suggested that prioritization is a precondition for an agency's ability to cultivate a favourable reputation which ultimately leads to autonomy in the relation with the political principal (Maggetti & Verhoest, 2014;Verhoest, Rommel, & Boon, 2015). However, we take the position that agencies are not only political actors able to read, adapt to, and even manipulate their environments, but that they are also open systems that are affected by their environments. ...
Chapter
How agencies perceive, process, and prioritize multiple (potentially conflicting) audiences’ expectations of components of their reputations is a core interest of bureaucratic reputation theorists. Agencies must choose which dimension(s) to stress towards specific audiences, a process referred to as ‘prioritizing’. Boon, Salomonsen, Verhoest, and Pedersen challenge a central argument of contemporary bureaucratic reputation theory, namely that prioritizing assumes government agencies to be rational, politically conscious organizations with incentives to avoid reputational damages and political sanctions. The chapter tests the claim that agency behaviour is (at least to some extent) driven by the distinctive logic of the media rather than by assessments of the relative strength of different dimensions of an agency’s reputation that are subjected to threats, or by the nature of the agency’s task.
... First, regulatory agencies can increase their de facto autonomy towards the responsible minister by using reputation as a trust-building mechanism. One important way in which regulatory agencies can build reputation towards their minister is by accumulating technical expertise and reputational power through the interaction with other regulatory agencies in the context of European regulatory networks or cross-sectoral collaborations (Rommel 2012;Verhoest, Rommel & Boon 2015). Second, Rommel (2012) shows in case studies of labour and social inspections as well as energy regulation in the multi-level context of federal Belgium that the emergence of deeper forms of collaboration between regulators within and between levels of government depends upon trust between them and the extent to which one regulator can signal its trustworthiness to other regulators. ...
... In a similar line, building a strong reputation in the eyes of relevant audiences and embedding the agency in a strong network of support, enables agencies to forge more autonomy or to protect their autonomy in times of crisis (Carpenter 2001, Carpenter andKrause 2012). Similarly, the emergence of trust between an agency and its political and administrative principals may result in more de facto autonomy for the agency (Verhoest, Rommel and Boon 2015), while trust is being enhanced by more intense contacts and reporting towards their principal (van Thiel and Yesilkagit 2011). This indeed contradicts the commonly held belief that agencies will be reluctant to have close contacts with their principals in order to safeguard their autonomy, but it is in line with agencies acting as trust-worthy stewards (Schillemans 2013). ...
Chapter
Full-text available
Agencification, referring to the creation of semi-autonomous public organizations at arm’s length from government, has been a major trend. After highlighting the features of public agencies in their different appearances in Europe, we discuss how NPM and Post-NPM have changed the motives for agency creation and agency governance. The basic dimensions of organizational autonomy and control are discussed as well as what research has learned us about them as static phenomena. We outline how agency autonomy is influenced by organizational, task-related factors and politico-administrative culture. Agency autonomy and control is increasingly understood as dynamic, relational and socially constructed phenomena. We discuss relevant studies and delve into relations between autonomy, reputation and trust. Future challenges for research and practice like effect studies are listed.
Article
We know that European regulatory networks tend to broaden the gap between regulators and executives in the member states. But what is their impact on inter-agencies relationship at the national level? The scope of issues addressed by European regulatory networks may cover the competences of several independent regulatory agencies in the domestic arena. Who is competent to participate in the European regulatory network? What happens with the independent regulatory agency that cannot participate? This can trigger confusion, competence conflicts, but can also be an opportunity to develop coordination among the concerned independent regulatory agency. This situation is particularly delicate in federal states when the concerned independent regulatory agencies are located on different governmental levels. Against the background of interdependent regulatory competences across levels, this article examines the conditions for the rise of inter-independent regulatory agencies coordination regarding their participation in European regulatory networks. Theoretically, we engage with the literature on coordination between federal and subnational governmental actors for European Union affairs and extend its application to regulatory actors. Based on a longitudinal case study on energy regulation in Belgium, we bring three key findings. First, the federal regulator’s acceptance to coordinate is explained by the rising interdependencies between regulators across levels. Second, the regional regulator’s move from a contentious strategy to a more cooperative one is explained by learning. Third, bilateral coordination arrangements may pre-empt the emergence of multilateral ones.
Book
Full-text available
This book suggests that the scope and breadth of regulatory reforms since the mid-1980s and particularly during the 1990s, are so striking that they necessitate a reappraisal of current approaches to the study of the politics of regulation. The authors call for the adoption of different and fresh perspectives to examine this area.
Article
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.