Restoring trust in the financial sector : a stakeholders perspective on the continuous increase of rules and regulations.

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Restoring trust in the financial sector: A stakeholders perspective on the

continuous increase of rules and regulations

A study at Rabobank Zaanstreek

Tim Sombroek (6348858)

Supervisor: Dr. F.J. de Graaf

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Abstract

This study investigates how different stakeholders in the governance structure of Rabobank Zaanstreek (a local cooperative bank in the Netherlands) talk about restoring trust in the financial sector under continuous increase of rules and regulations. This is done by conducting desk research and interviewing stakeholders from Rabobank Zaanstreek. Results from this study suggest that the continuous increase of rules and regulations does not succeed in rebuilding trust in the sector. The influence of the stakeholders is unbalanced and in favor of the indirect influence pathways. Currently those indirect influence pathways have the upper hand in changing the governance structure. They try to restore trust in the sector by continuously implementing more rules and regulations which have to be obeyed by banks. Consequently, direct influence pathways are becoming less important, which causes the role of dialog in the governance structure to be almost vanished. Therefore only two of four antecedents of trust are properly being addressed. As a result, the measures taken by supervisory authorities are at best only partly able to restore trust in the financial sector. It is therefore important that the balance of power in the governance structure becomes more equal again. By balancing the input of both influence pathways all antecedents of trust can be properly addressed. When executed properly, this should ultimately result in restoring trust.

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1. Introduction

Currently we are facing a financial crisis, a crisis for which, according to politicians, the financial sector itself is responsible in a significant way. This financial crisis has resulted in the fact that banking nowadays is among the least trusted sectors worldwide (Edelman Trust Barometer, 2013). Given the important role of banks in society it is of great importance that trust in this sector will be restored. In order to restore trust several measures have been taken, such as for example the installment of the ‘Monitoringscommissie Code-Banken’ in 2010 (20). The main task of this

independent commission is to make recommendations for a better functioning Dutch banking system which ultimately should lead to a restored level of trust in the sector. According to the

Monitoringscommissie Code-Banken banks should focus more on the clients and restore their social role. Furthermore there is an obligatory bankers oath with severe penalties for infringement, this oath is a pledge to put the clients interest first. Also all bankers are screened by Autoriteit Financiële Markten (AFM). But another important result of the financial crisis is a continuous increase of rules and regulations imposed by supervisory authorities, De Nederlandsche Bank (DNB) and AFM, in order to restore trust in the sector (KPMG, 2012). The objective of this study is to assess if growing and intensifying rules and regulations are able to restore the trust in the banking sector by investigating the interaction between stakeholders and a company in the governance structure.

All these measures, rules, regulations, demands and close monitoring from supervisory authorities combined with the demands and values of the bank itself – based on the input and demands of its stakeholders – are defined in the governance structure of a bank. The governance structure is the result of the characteristics, identity, requirements and responsibilities imposed by stakeholders (De Graaf & Herkströter, 2007). The governance structure is dynamic and is changed via the stakeholders in direct and indirect influence pathways.

The stakeholders in influence pathways (both direct and indirect) are in turn influenced by the amount of trust they have in the sector. If trust is low something needs to be done to restore it. These efforts are imposed through the different influence pathways. In order to restore trust in the financial sector stakeholders in indirect influence pathways, the supervisory authorities, seem to continuously impose new and stringent rules, regulations and procedures (KPMG, 2012). In an ideal situation, both the stakeholders in indirect influence pathways and the stakeholders in direct influence pathways should have the ability to give their input and views in order to restore trust. A firm has to deal with the demands of the stakeholders in direct as well as indirect pathways, which results in a changing governance structure. This has an impact on the daily practice of the firm (current policy and outcomes). It is interesting to see how a firm copes with this dilemma in practice. Since it is clear that there are attempts to restore trust in the sector and that the different

stakeholders play a significant role it is important to understand what ‘trust’ actually is and what it consists of. Given the crucial role of banking in society it is of great importance that trust in banking is restored. It is difficult for example to predict the economic choices (consumption, investment, etc.) when there is a lack of trust. Therefore different stakeholders in the governance structure of Rabobank Zaanstreek, a local cooperative bank, are interviewed in this study to see how the

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6 structure and trust. Based on the objective of this study, the following research question and sub-questions are formulated.

How do stakeholders of Rabobank Zaanstreek perceive the development of trust under increasing rules and regulation in the financial sector?

The following sub-questions are formulated to answer the research question. They form the guideline for the review of the existing literature:

1. What is the relationship between trust and regulation?

2. What is the role of stakeholders in the governance structure of a firm?

3. What is the relationship between the governance structure and the antecedents of trust and its characteristics?

The outcome of this study will contribute to the existing literature by linking the relative importance of several characteristics of trust to the governance structure. This will be done by demonstrating the influence rules and regulations have on the relationship between the financial sector and its

stakeholders. This study tries to answer a part of the request for future research by De Graaf and Herkströter in their article How Corporate Social Performance is Institutionalised within the

Governance Structure (2007). They argue that lessons can be drawn from investigating the

governance structure at cooperatives and the relationship with clients.

First there will be an overview of the relevant literature on this subject which is structured by the formulated sub-questions. This is followed by a case and method section which explains how the fieldwork is done. Next there will be a discussion section with implications and recommendations followed by the conclusion of this study.

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2 Literature review

2.1 Crises and the changing organization

As argued in the introduction, we are currently facing a financial crisis, which affects the trust in the banking sector in a negative way. According to academic literature a crisis is defined to be a major threat to system survival with little time to respond (Hermann, 1963). It involves an ill-structured situation (Turner, 1976) and resources are inadequate to cope with the situation (Starbuck & Hedberg, 1977; Webb, 1994). Whenever a crisis occurs (also within organizations) a variety of behaviors will occur in response. It is hypothesized that communication complexity is reduced, that power and influence become centralized, that there is more concern about the possibilities to increase efficiency and that there is a decrease of trust (Cameron, Kim & Whetten, 1987; Staw, Sandelands & Dutton, 1981). Pfeffer (1978) also stated that centralization is an outcome which provides a rationale for legitimately reasserting centralized control. The assumption that there is more centralized control when a company is facing crisis is supported by a research conducted by D’Aveni (1989). He found that bankrupt firms suffer from greater centralization of authority.). Thus, in case of a crisis, power and influence will become centralized. As a result of this centralization all subsidiaries must meet the same criteria and obey the same rules and regulations. In order to solve the financial crisis and to restore trust, more rules and regulations are imposed by the supervisory authorities (KPMG, 2012). These growing and intensifying rules and regulations can both have a positive and negative effect. Well-designed rules and regulations can have a positive effect whereas less well-designed rules and regulations can have a negative effect (Majumdar & Marcus, 2001). The negative effects of rules and regulations are that they create rigidities and a possible erosion of trust. This is because these less well-designed rules and regulations do not encourage entrepreneurship, creativity and risk taking (Majumdar & Marcus, 2001). The increase of rules and regulations causes organizations to feel that they have to obey them in order to be compliant (Reed,2001). So based on the literature it is argued that when trust is low there is a tendency towards centralization and the increase of rules and regulations. This makes it plausible that more formal procedures (at a local level) will be implemented, that employees must meet more criteria (for example more box-ticketing), that there is an intensified control mechanism in place (more internal controls and justification) and that as a result there is more internal focus in order to be compliant.

In order to understand how these intensified rules and regulations affect the organization it is important to know the governance system a firm operates in. This affects the governance structure of the firm and also determines the amount of influence the stakeholders have.

2.2 Governance system

In the Netherlands the governance system is network-based (see table 1 below). A governance system is the legal context in which the governance structure of the firm is embedded (De Graaf & Stoelhorst, 2009). Due to the financial crisis and the reaction of the supervisory authorities the network-based governance system and its characteristics might face a change towards a market-based governance system which affects the governance structure of a firm.

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8 The difference between the agency and stewardship theory will be discussed first, secondly the governance structure and the influence pathways are discussed and finally the governance mechanism is discussed.

Table 1: the characteristics of the market-based and network-based governance systems

Governance system Market-based Network-based

Theory Agency/stakeholder Stewardship

Countries US and UK Europe and Japan

General characteristics Market orientation. Short term

relations. Competition

Internal orientation. Long-term

relations. Cooperation

Governance structure Capitalist form, focus on financial market and shareholders

Collective form, focus on a group of stakeholders Stakeholders influence

strategies

Emphasis on indirect influence pathways (law)

Emphasis on direct influence pathways (co-decision) Characteristics of stakeholder

influence pathways

Laws and Regulation Consultation

Governance mechanism Contract Trust

Note: the original table (De Graaf & Herkströter, 2007, page 180) consist of more characteristics

2.2.1 Agency and stakeholder theory

The traditional corporate governance approaches are the agency theory and stakeholder theory (Caldwell & Karri, 2005). These two theories focus on short term profits and the organizational systems that failed in order to achieve those results (Baucus & Beck-Dudley, 2000). It is argued that these traditional corporate governance approaches are inadequate for building trust (Caldwell & Karri, 2005).

The agency theory states that the only interest of a firm should be the shareholders. This theory furthermore states that people are self-interested and prone to opportunism (Eisenhardt, 1989; Jensen, 1988; Jensen & Meckling, 1976). The stakeholder theory was proposed as an alternative theory to the agency theory as the interest of other stakeholders should also be taken into account (Donaldson & Davis, 1989; 1991). According to Carrol (1996, p. 23) “the stakeholder theory concept is based on the ethical premise that the task of management is not only to deal with various

stakeholder groups in an ethical fashion but also to reconcile the conflicts of interest that occur between the organization and the stakeholder group.” The agency and stakeholder theories are profound in the United Kingdom and in the United States. In Continental Europe and Japan the organizations are more network-based as in Europe and Japan this network-based theory is called the stewardship theory.

2.2.2 Stewardship theory

The stewardship theory is introduced by Caldwell and Karri (2005). This theory ought to be ethically superior to the stakeholder theory and agency theory because it honors societal obligations and duties to all stakeholders. The strength of this theory is that it looks at internal and external factors (full context) and that it focuses on long term, wealth producing interests for all stakeholders (Block, 1993). This theory of pursuing long-term wealth, multiple stakeholder interest, and morally beneficial purposes is thought to be conflicting with the profit focused thinking of many leaders, managers and traditionalists (Caldwell & Karri, 2005). The network-based theory states that in the governance structure firms balance stakeholders interest, that the emphasis is on direct influence pathways and

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9 that consultation is important instead of laws and regulations.

2.3 Governance structure and the influence strategies

The governance structure of a firm is the sum total of all formal procedures and processes in which decisions are made (Nooteboom, 1999; Williamson, 2000). It is the result of the characteristics of the company, its identity and of the demands imposed on the company by stakeholders in direct and indirect influence pathways (De Graaf & Herkströter, 2007; Frooman, 1999 & Gargiulo, 1993). Examples of direct ways to influence a company are: entering in negotiations with the company, meetings with members and/or shareholders, meetings with work councils, meetings with labor unions, negotiations with clients, employees and so on (De Graaf & Herkströter, 2007). In network-oriented systems like for example the Netherlands the emphasis is on direct influence pathways. Most of the companies in the Netherlands put all these parties in charge of the direction and social interest of the company (De Graaf & Herkströter, 2007). The other way of influencing is via

stakeholders in indirect influence pathways. Forms of indirect influence pathways are: governmental rules and regulation (in this study the supervisory authorities DNB and AFM) and other forms of regulation, corporate governance policy, covenants, procedures, articles of association (De Graaf & Herkströter, 2007). Mainly this is about third parties or the government helping stakeholders (and the government itself) to influence the decisions made by the organization. The media and politics are also considered important indirect influence pathways. During the last years the shareholders of Dutch firms argued that too much emphasis is placed on the wellbeing of employees of the company. Because direct influence pathways like for example the shareholders meetings seemed to be

ineffective, the shareholders are more and more using indirect influence pathways such as the media and legal actions to change the actions and direction of a firm (De Graaf & Herkströter, 2007). The stakeholders in the different influence pathways determine, change or form the governance structure of a firm and are therefore very important. Based upon the network-based perspective the focus of a firm in the Netherlands should be on balancing both stakeholders interest (Davis,

Schoorman & Donaldson, 1997; Kochan & Rubinstein, 2000). As a result of the decline in trust it is assumed that stakeholders in indirect influence pathways, more concretely the supervisory authorities AFM and DNB are currently more important (perforce) than the stakeholders in direct influence pathways for firms in the financial sector.

The amount and intensity of interference by the different stakeholders in influence pathways seems to be linked with the amount of trust they have in the firm or sector. It is plausible that in times of prosperity the interference of the supervisory authorities is less ‘tangible’ than in times of economic downturn. Since the financial crisis in 2007 a total of 38 new rules and regulations are implemented (KPMG, 2012, p. 20). Because of this increase of rules and regulations since the start of the financial crisis in order to restore trust the amount of trust in a sector appears to be an important factor. Therefore trust seems to play an important role in changing the governance structure of the firm via its stakeholders. The governance structure in the Netherlands should be influenced by both the stakeholders in direct and indirect influence pathways and the governance mechanism should be based on trust according to the network-based governance system (De Graaf & Herkströter, 2007). In this context it is necessary to further elaborate on the relationship of the governance structure and the antecedents of trust and its characteristics. Firsts the antecedents of trust will be discussed followed by the proposed relationship with the governance structure.

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2.4 The antecedents of trust

2.4.1 Ability

According to Mayer, Davis and Schoorman (1995) ability enables someone to have influence in a specific domain. This is because someone can excel in one area (like for example finance) but can be inexperienced in another (for example technical engineering). Hence ability is all about a group of skills, competences that enable a person to have influence in a specific domain in which he or she is capable. In earlier scientific literature a lot of similar constructs have been used as affecting trust. A lot of researchers considered ability to be a fundamental element (Cook & Wall, 1980; Deutsch, 1960; Jones, James & Bruni, 1975; Sitkin & Roth, 1993). Other researchers used the word competence to define a similar construct (Rosen & Jerdee, 1977).

2.4.2 Benevolence

According to Mayer et al. (1995) benevolence is the extent to which a trustee is believed to do good to the trustor. It suggests that the trustee has an attachment or that there is a perception of positive orientation towards the trustor. So there is no egocentric motive. An example of benevolence is when someone wants to do good for another while not getting an extrinsic reward in return. Dietz and Den Hartog (2006) defined benevolence as reflecting benign motives and a personal degree of kindness toward the other party, and a genuine concern for their welfare.

2.4.3 Integrity

According to McFall (1987) following a set of principles defines personal integrity. However, when this set of principles is not acceptable according to the trustor, the trustee is considered not to have the integrity for the purpose. According to Dietz and Den Hartog (2006) integrity involves adherence to a set of principles acceptable to the other party, encompassing honesty, fair treatment and the avoidance of hypocrisy. So when a trustee acts purely out of profit seeking this person does not score high on integrity. On the other hand this person will be considered integer when this behavior is accepted by the trustor. In judging integrity, past actions and consistency, ethical behavior, credible communication and sense of justice are important factors. In estimating integrity it is important to note that it is about the perceived level of integrity and not about the reasons why the perception is formed. According to Mayer et al. (1995) it is apparent that the three factors (ability, benevolence and integrity) are commonly used in scientific research on trust. But earlier work did not combine the three factors together or a much larger set of antecedents was used (Butler, 1991; Gabarro, 1978). Based upon the literature review of Dietz and Den Hartog (2006) predictability or reliability should also be included as an antecedent of trust.

2.4.4 Predictability

Although both predictability and trust are means of reducing uncertainty they should not be treated as equal according to Mayer et al. (1995). There are multiple researchers whom, in their definitions, treat predictability and trust as equal. Gabarro (1978, p. 294) for example formulated a definition of trust like: “the extent to which one person can expect predictability in the other’s behavior in terms of what is normally expected of a person acting in good faith.” Others have definitions which appear to overlap (Dasgupta, 1988; Gambetta, 1988; Good, 1988; Rotter, 1967).

According to Dietz and Den Hartog (2006) predictability (or reliability) relates specifically to consistency and regularity of behavior and is as such distinct from ability and integrity.

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2.5 Antecedents in relation to the governance structure

Earlier in the theoretical overview it is argued that the amount of trust has an influence on the governance structure of the firm via its stakeholders in direct and indirect influence pathways. After theoretical research it is argued that trust has four antecedents: ability, benevolence, integrity and predictability. These four antecedents are influenced in a different way. Ability and predictability seem to be more prone to rules and regulation. This view is supported by Majumdar and Marcus (2001); “The positive impacts of rules and regulations are the protection of rights, the ensuring of fairness, equal treatment and predictability” (p. 176). The two other antecedents; benevolence and integrity are considered to be social elements which are more susceptible to dialog and not to rules and regulations (Bovens, 1998). This view is also supported by De Graaf and Herkströter (2007) who argue that in the network-based governance approach dialog, next to a framework of rules and regulations, is also a critical mechanism for building trust. This becomes apparent because

organizations in the Netherlands are not obliged to implement certain measures when they have a proper motivation (De Graaf & Herkströter, 2007)

But in the current financial crisis it is argued that the supervisory authorities have the upper hand in influencing the governance structure of the firm. The supervisory authorities seem to want to restore trust in the sector by continuously implementing more and intensified rules and regulations (KPMG, 2012). This could indicate a movement toward the stakeholder or agency theory within the financial sector where dialog is less common and laws, rules and regulations are more important (De Graaf & Herkströter, 2007). Because rules and regulations does not affect all four antecedents of trust in a proper way, the current measures by the supervisory authorities could only be partly successful in restoring trust in the financial sector.

2.6 An alternative approach towards the increase of rules and

regulations

Norman (2011) argues for self-regulation as an alternative or supplement to the increase of rules and regulations imposed by the supervisory authorities. A powerful argument for self-regulation is the fact that due to market failures it is assumed that there is a need for regulations or interventions which in practice do not settle the matter. New rules and regulation (imposed by authorities) are introduced while there are also still old regulations in place which were in fact poorly designed. The implementation of (new) rules and regulation often cost more than they gain and are complex (Norman, 2011). After the implementation of new rules and regulations the authorities often cannot keep up with a credible monitoring of compliance (Norman, 2011). Instead it is argued that firms should solve their collective problem. This movement towards intensifying the amount of rules and regulations is also observed by Cools (2005). He states that the instrument of rules and regulations is becoming increasingly important because there is no confidence in self-regulation. Cools (2005) furthermore states that rules and regulation are not the ideal instrument to restore trust because it leads to bureaucracy, it distracts from the purpose and leads to risk-averse behavior.

As a result of the ongoing financial crisis there seems to be no confidence in self-regulation and dialog as a result is becoming less important (in favor of rules and regulation).

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2.7 Schematic presentation

In order to have a clear understanding of the discussed relevant forces in restoring trust, a schematic visualization is presented. It shows that when trust is low it is argued that indirect influence

pathways, by means of supervisory authorities, are becoming more important for firms in the financial sector than the direct influence pathways (Cools, 2005; Reed, 2001). The supervisory authorities continuously impose (new) rules and regulations which lead to a changing governance structure of the firm (KPMG, 2012). It is argued that these growing and intensified rules and

regulations imposed by the supervisory authorities can successfully influence the antecedents ability and predictability but not benevolence and integrity (Bovens, 1998; De Graaf & Herkströter, 2007; Majumdar & Marcus, 2001). Therefore the growing amount of intensified rules and regulations by the supervisory authorities currently does not contribute in restoring trust in the financial sector (Cools, 2005; Majumdar & Marcus, 2001).

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3. Case and methodology

3.1 Rabobank

This study is conducted at Rabobank Zaanstreek. Rabobank Zaanstreek is a local Rabobank in the Randstad region of the Netherlands. Rabobank Zaanstreek currently has about 230 fte and 7 local offices. Rabobank is chosen for this study because Rabobank appears to be one of the most stable banks during the financial crisis. Furthermore it has a different governance structure than its competitors. It is a cooperation and therefore has members instead of shareholders. According to Rabobank, cooperative banking is the force in binding customers and the real economy. All Rabobank products and services feature four characteristics: customer participation, long-term relationships, commitment to a sustainable society and offering a sound (solid) basis, this is in line with

stewardship theory (The four characteristics of cooperative banking, n.d.).

In times of deregulation and internationalization, Rabobank did not grow as fast as its competitors due to its cooperative structure (bureaucratic decision making). In the past there were discussions about the cooperative principles and a movement towards a publicly held company. This movement did not take place although changes in the governance structure have taken place since. The

members and/or clients received less influence as opposed to management and employees. Because of the fact that DNB did not accept large differences in governance structures of banks, Rabobank Nederland had to take over supervisory roles from the local banks. More debate about the

cooperative structure has taken place ever since, currently the governance structure of Rabobank is more or less equal to a publicly quoted firm except for the fact that it has members instead of shareholders (But the question rises to what extend those members still significantly control the banks). The local banks own the central organization and the member association in turn owns the local banks (De Graaf & Stoelhorst, 2009). The governance structure of Rabobank is summarized in Table 2.

Table 2: the governance structure of Rabobank

Main principle Cooperative banking (since 1898)

Financial structure Cooperative (local member banks own the

central organization)

Statutory policy orientation Members (the banks creditors)

Supervisory body Supervisory board at central level accountable to meeting of member banks

Shareholders No shareholders

Employees No formal role

Clients Members formally control the local banks

Table derived from: The Role of governance in corporate social responsibility: Lessons From Dutch Finance; De Graaf & Stoelhorst, 2009, page 12.

As a result of the ongoing financial crisis in the Netherlands, Rabobank is looking at its resources. It is about to close 400 of its offices and about 8.000 jobs will be lost (R18; R19). Also Rabobank

Zaanstreek is closing offices and reducing its workforce according to a column of one of the directors (R18; R19). Furthermore within the Rabobank organization, centralization is currently taking place as a result of the intensified and growing rules and regulations from supervisory authorities. Rabobank

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14 Nederland is giving local banks less and less space for local entrepreneurship (N5; N7; N9). Especially because traditionally local banks have had a lot of freedom, this centralization supposedly gives a lot of tension within the Rabobank organization (N9). For Rabobank this new reality seems to be difficult because a cooperative is more organized around trust than on rules and regulations. As already mentioned the employees of Rabobank consider the cooperative as organized on trust while DNB with its box-ticking lists is organized on distrust. The new direction of the supervisory authority is more rule-based than principle-based and as a result the relationship between the supervisory authorities and Rabobank seems to be under pressure (N5). Media also observed this and the articles state that supervision and regulation are rampant (N5; N7; N9). As a result, processes and compliance become increasingly important which apparently has a paralyzing effect and creates a fear of supervisory authorities.

Rabobank Zaanstreek is directly influenced by Rabobank Nederland which in turn is directly influenced by the supervisory authorities. As Rabobank Nederland has to obey the continuous increase of rules and regulations by the supervisory authorities it is crucial that all local banks in turn completely obey the translation (in procedures) of these rules and regulations by Rabobank

Nederland. Rabobank seems to be struggling with this translation and has difficulties in making sure that all local banks are compliant, this is a consequence of their organizational structure. Therefore the research question of this study is:

How do stakeholders of Rabobank Zaanstreek perceive the development of trust under increasing rules and regulation in the financial sector?

In order to answer the research question, a total of thirteen stakeholders were interviewed. Interviews were conducted with management, employees and large corporate clients, three important stakeholders from different places in the governance structure of Rabobank Zaanstreek. By interviewing the respondents about the current financial crisis, the lack of trust and its relation to the antecedents of trust and the governance structure, valuable insight is given. It shows how respondents with different perspectives and interests view the intensification of rules and regulations in order to restore trust in the sector.

The research question is answered by using a qualitative research method in the form of a case study. A case study is suitable for an "in-depth, qualitative study of one or a number of cases" (Hagan, 2006).

3.2 Primary data collection

An interview is defined as a conversation with the purpose to gather information (Berg,2007, p. 101). The conducted interviews are semi-structured, meaning that the interviews are more or less

structured but the interviewer is allowed to go beyond the guidelines in order to collect more useful data. By using a semi-structured interview approach the interviewer is able to show his knowledge of the organization. Another advantage of the semi-structured approach is that whenever certain answers are not clear, you can easily ask to clarify them or ask another question to go more in depth or to seek explanation (Berg, 2007). During the interviews open and probing questions were used to gather additional relevant information. Furthermore, style flexibility was used to level with the interviewee and to create an atmosphere of trust and mutual understanding and in that way to gather more information (Berg, 2007).

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15 During the interviews the sense making and storytelling guided the interviewer in his approach towards the interviewees. Sense making is all about finding out what the interviewees really think, feel and dream (Dervin, 1998). The central activities of sense making are information seeking, processing this information, creating and using this information (Savolainen, 1993). Storytelling is a method which can be used in order to understand, explain and compare different corporate cultures (Hansen & Kahnweiler, 1993). Stories are interesting because they are a way for people to express and tell their past experiences, events and problems (Martin & Powers, 1983; Hansen & Kahnweiler, 1993).

The questions of the semi-structured interviews are partly based on the appendix in the emerald article: Measuring Trust inside organizations by Dietz and Den Hartog (2006) by using some of the questions by Mayer and Davis (1999), Sharfman and Dean (1991) and Cummings and Bromiley (1996) which are presented in the appendix of this article. In the interview guideline (appendix 1) the

questions to measure trust, divided per antecedent, are presented. When the respondent talks about the different antecedents on its own initiative, not all questions from the semi-structured interview guideline are used. Furthermore, the data and statements from the respondents are labeled with respect to characteristics belonging to the governance structure of a firm. The statements were labeled according to information regarding process, stakeholders in direct and indirect influence pathways, rules/regulations and finally with respect to the cooperative structure. Statements from the respondents are quoted in the results section of this study and refer to a specific interview using an I (as an abbreviation for interview) and the number of the corresponding interview in appendix two.

To avoid interviewer bias all interviews are audio-recorded (with permission), typed out afterwards and analyzed. The interviews were conducted at a place and time convenient to the interviewee. By assuring confidentiality the goal is to let the interview be as open and honest (regarding sensitive information) as possible (Berg, 2007).

Coding and analysis

The transcripts of the interviews were analyzed and coded. By coding and labeling passages of the transcripts it is possible to count (frequencies). The results of this method formed the basis for conducting content analysis. A complete description of the results is included in appendix three. Content analysis is a careful, detailed, systematic examination and interpretation of material to identify patterns, themes, biases and meaning (Berg & Latin, 2008; Leedy & Ormrod, 2005; Miles & Huberman, 1994; Neuendorf, 2002).

3.3 Secondary data collection

In order to gather more and additional data, information from the Localweb and Raboweb (internal source) of Rabobank Zaanstreek was collected (with permission). For example columns of

management, information about the ambition statement and values of Rabobank as well as eight internal documents which can be found in the appendices (R12-R19). Furthermore, eleven

newspaper articles about Rabobank in relation to trust and/or stakeholders and public sources are used to triangulate the gathered primary data within a theoretical framework (N1-N10).

Triangulation is used to refine, broaden and strengthen relationships and in that way to compare secondary data with primary data (Goetz & LeCompte, 1984). Statements from news articles are

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16 referenced by using the letter N and the corresponding number of the article in appendix four. The same method is used for (internal) Rabobank documents, these are referenced with an R and the corresponding number of appendix 4.

3.4 Quality of data

A good quality of data is of great importance when conducting a study. Therefore the objectivity, reliability and internal and external validity of this study are discussed.

Objectivity

The objectivity of the study is guaranteed by the fact that the general methods and procedures are described. It is therefore clear how the data are collected and processed. Furthermore the data is retained and available for further research (Miles & Huberman, 1994, p. 278).

Reliability

The reliability is guaranteed by the fact that the research question is clear. Furthermore after transcribing the interviews, the output was checked once again while replaying the recorded interview. The transcripts were printed out and coded on paper before processing it digitally. This method ensured another critical look on the transcript and coding (Miles & Huberman, 1994, p. 278).

Internal validity

Internal validity and consistency of the research process has been achieved by the fact that the interviewer asked more or less identical main and probing questions and that the structure of the interview was the same following the pre-developed interview guideline (Everaert & Peet, 2006). The questions regarding the antecedents of trust were derived from the study of Dietz and Den Hartog (2006) who presented different questions in order to measure the antecedents of trust. These questions are embedded in the interview guideline (appendix 1). Also the interviewees had the opportunity to see the concept of the transcription and could comment on it (member check). In this way distortion of the researchers collected data is prevented (Van Zwieten & Willems, 2004).

External validity

The external validity is guaranteed by archiving the interview guideline, the research question and the transcripts. The research can therefore be replicated (Miles & Huberman, 1994, p. 279).

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4. Results and discussion

4.1 Results and discussion

The answering of the sub-questions in order to eventually answer the research question is based upon the comprehensive summary of findings from the interviews which can be found in the appendix three. Based on the formulated sub-questions the results of this study are discussed while directly linking them to the assumed relationships in the framework (see paragraph 2.7).

4.1.1 Rabobank Zaanstreek and the impact of the continuous increase of rules and regulations

Findings suggest that the current increase of rules and regulations does not contribute in an increase of trust in the financial sector. Employees, management as well as the large corporate clients of Rabobank Zaanstreek express this. This finding is in line with the fact that new rules and regulations can create rigidities and that trust might further erode (Majumdar & Marcus, 2001). The respondents do acknowledge the fact that rules and regulations are necessary as a framework, that it is not strange that they increase due to the economic situation, but that they are too stringent

momentarily and have an unwanted large impact on daily practice. This is illustrated by statements like: “On the other hand, I wonder where and if it (rules and regulations) stops. You could try and capture everything in systems, rules and regulation, but just using common sense is still

important”(Blijft aan de andere kant ook wel zo dat ik denk van waar houdt het op. Want je kunt natuurlijk alles vastleggen in systemen en regels en wetten. Maar gewoon gezond boerenverstand blijven gebruiken is ook belangrijk”) (I3). No, it is not a legitimate development, it is a logical one. In the past there was too much deregulation and now there is too much regulation” (“Nee het is geen terechte ontwikkeling, het is wel een logische ontwikkeling. Waar je eerst ben doorgeslagen om alles vrij te geven slaan we nu door om alles te reguleren”) (I5).

This continuous increase of rules and regulations results in a bank that is far more internally focused, which inevitably leads to clients who do not get the attention they deserve or expect. As one

employee said: You are much more working on an ad-hoc base to meet your regulatory requirements, so you're much more internally focused (“Je bent veel meer ad-hoc bezig te voldoen aan je wet- en regelgeving waardoor je veel meer intern gericht bent”) (I7).

This in turn has a negative effect on building trust. The increased rules and regulations seem to make employees of Rabobank Zaanstreek almost scared to function and very apprehensive to engage in financing constructions. This is because of the control mechanisms and the heavy justification processes that are in place. Employees and management of the bank also find the increased rules and regulations to have a negative effect on creativity, flexibility and entrepreneurship. This is illustrated by statements such as: “It definitely has an impact on the handling speed towards clients, for example the ability to quickly open an account. Furthermore we need more time in answering the demands by our clients as a result of the imposed demands. The flexibility and creativity is decreased and control/compliance has become very important” (“Heeft absoluut een impact op de snelheid van handelen naar klanten, het minder snel kunnen openen van rekeningen. Het minder snel kunnen beantwoorden van klantvragen omdat er eisen zijn gesteld. Dus flexibiliteit naar de klant toe is teruggelopen, efficiency is teruggelopen en banken zijn heel zwaar op control gaan leunen”) (I8). This leads towards a negative attitude of employees and management which in turn radiates towards

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18 their clients, which increases distrust. Some of the interviewed large corporate clients wished that their account management is more able to make their own decisions within the current framework of rules and regulations (I12; I13). An interviewed large corporate client even thought that the bank was hiding behind the current rules and regulations (I12). All of this does not result in an increase of trust. Management of Rabobank Zaanstreek nowadays judges the functioning of employees by their risk attitude and the results (physically detectable) from all checks with respect to compliance (I10). In times of crisis and economic downturn the emphasis seems all about being in control and not about commerce or serving the clients’ will (within boundaries). This change of focus within the organization seems to have a negative effect on the employees. Employees state that for years they executed their job in a certain and accepted way and now something completely different is asked as a result of influence of the supervisory authorities (I9; I10). They find this very difficult and are afraid to make decisions which they easily made a few years back.

The gathered data from the interviews is supported by secondary data. For example, the internal document ‘Regels voor regels’ (R15). This document states that the Rabobank Group has to obey the rules and regulations by supervisors and tries to do that as efficiently possible. It also states that when principle-based regulation has turned into work-instruction it becomes rule-based. The data from the interviews suggest that the ‘efficient’ part of this statement has come under threat for Rabobank as a result of the demands imposed by the stakeholders in indirect influence pathways. In two articles of Het Financieele Dagblad ‘Cooperatie toe aan heroverweging’ (N2) and ‘DNB zet Rabo onder druk’ (N4) statements are included about the presumption that the current rules and

regulations from the supervisory authorities are in fact blocking the requests of clients more than the economic downturn. This last assumption makes the current corporate ambition statement

interesting (R12). Rabobank communicates that they are very involved with their clients while all respondents conclude that they are apparently unable to do so because of the demands imposed by the stakeholders in indirect influence pathways (rules and regulations). Based on the interviews and gathered data it is fair to say that the continuous increase of rules and regulations does not

contribute in building trust.

4.1.2 Rabobank Zaanstreek and the role of stakeholders in indirect influence pathways Both employees and management feel that stakeholders in indirect influence pathways currently are influencing the governance structure of the bank much more than the stakeholders in direct

influence pathways. Findings also suggest that the role of supervisory authorities is more important for the bank than the view, wishes and demands of the stakeholders in direct influence pathways. The general belief of the respondents is that it is unthinkable that Rabobank Zaanstreek (or Rabobank at general) does not obey to the demands imposed by supervisory authorities.

Respondents clearly express that the indirect influence pathways are currently far more important for Rabobank Zaanstreek and Rabobank in general. This becomes clear in statements such as: “If Piet Moerland (current chairman Rabobank) was to visits us with demands imposed by the supervisory authorities which might also affect our members negatively..What should you do? Of course we do what Piet Moerland tells us to do” (“Ga maar na als Piet Moerland (bestuursvoorzitter Rabo) op bezoek komt omdat hij vanuit toezichthouders iets moet doorvoeren wat de leden mogelijk niet willen..Wat doe je dan? Natuurlijk doe je wat Piet Moerland je opdraagt.”) (I4) and “We listen to the DNB. They just impose rules and regulations and there is no way around it. Denying those demands is not an option” (“Er gewoon geluisterd wordt naar de DNB. En die leggen gewoon de regelgeving op

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19 en daar kan je niet omheen. Dan kan je wel zeggen ik ben het er niet mee eens maar dat is geen optie”) (I6).

This view is supported in an article in Het Financieele Dagblad ‘DNB zet Rabobank onder druk’ (N4). The article states that it is very important that the relationship of Rabobank with the supervisory authorities remains good. If DNB was to completely take over monitoring, all local banks would come directly under control of DNB. This in turn would affect the cooperative structure in its core.

Furthermore there is a strong movement towards centralized control by Rabobank Nederland and closing of local banks. This is also a result of the pressures by indirect influence pathways. Among the 136 local banks there is a reasonable amount that is not compliant with the demands of DNB and AFM and are therefore under intensified monitoring of Rabobank Nederland (N5; N7; N9). For the large corporate clients of Rabobank Zaanstreek it appeared to be difficult to determine if the current ‘attitude’ of Rabobank Zaanstreek is a result of the demands by the supervisory authorities or an ‘own’ choice by the bank.

The role of media and politics

Not only the supervisory authorities are mentioned as an indirect influence pathway during the interviews. Primary data as well as secondary data suggest that the media are a negative influencer of trust. News articles and TV shows generally have a negative approach and stance towards the financial sector (they only seem to cover negative news), this does not contribute in building trust (I1-I11). The government and politics were also mentioned in a negative way with respect to

restoring trust. According to the interviewed managers and employees, the politicians (always) react primarily and (always) seem to blame the financial sector. The respondents argue that these

reactions are a result of short term voting gains and satisfying of their followers and voters. According to the respondents, this ‘attitude’ does not contribute in restoring trust in the sector 4.1.3 Rabobank Zaanstreek and the role of stakeholders in direct influence pathways Stakeholders in direct influence pathways were also mentioned during the interviews (appendix 3). Although all respondents agreed that the stakeholders in indirect influence pathways have the upper hand compared to the stakeholders in direct influence pathways, some mentioned that Rabobank Zaanstreek is focusing more on its members (I1; I4; I5; I7; I9). This statement seems to be supported by an internal document with respect to the growth in the amount of members (R17). On the other hand almost all interviewed employees, management and large corporate clients argue that the actual influence of members is very much restricted in practice (I1; I2; I3; I7; I10). From the interviews with the large corporate clients it became clear that they were members of Rabobank Zaanstreek but did not bother to attend the member meetings (I12,13). Findings from this research suggest that in times of financial crisis the influence power between both groups of stakeholders is unbalanced and in favor of the indirect influence pathways.

4.1.4 The relationship between the governance structure of Rabobank Zaanstreek and the antecedents of trust and its characteristics

Based upon academic literature it appears that the antecedents of trust regarding ability and predictability are susceptible to rules and regulations but benevolence and integrity are not. These antecedents are more responsive to dialog.

Ability and predictability

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20 limited nowadays. The focus is more on being compliant with the growing rules and regulations (contained in processes). As a manager puts it: “Creativity and flexibility of employees and the concept of ad hoc decisions disappears in favor of institutionalization and rules. Standardization is the norm”(I8). (“Waarbij creativiteit en flexibiliteit van medewerkers en het begrip ad-hoc

verdwijnen ten koste van institutionalisering en regeltjes waarbij creativiteit en flexibiliteit ingeleverd wordt. Standaardisering wordt de norm”) and (I1; I3; I10). As a result employees and management are far more careful and cautious regarding for example finance applications. In this context, respondents find it a good development that products and services that appeared to be too difficult for employees, management and clients are currently banned from the product range. Despite this development, large corporate clients of Rabobank Zaanstreek notice that due to the growing amount of rules and regulations banks still face difficulty in communicating terms and agreements (I1; I4; I8). Statements like: “We have to be much more careful in communicating expectations” (“en dat je dus een stuk voorzichtiger moet zijn met het scheppen van verwachtingen”) (I1) are common during the interviews.

According to management and employees this is a result of the increased amount of intermediaries (control mechanisms; a results of the demands imposed by the stakeholders in indirect influence pathways). The increase of rules and regulation has an impact on the antecedents ability and predictability. Employees of Rabobank Zaanstreek are much more restricted in their freedom and in making their own choices, so their ability to function is limited. On the other hand the current increase of rules and regulations ensures that every employee acts the same way and every application is checked by compliance. This ensures that predictability is guaranteed. This view is supported by Majumdar and Marcus (2001); “The positive impacts of rules and regulations are the protection of rights, the ensuring of fairness, equal treatment and predictability” (Majumdar & Marcus, 2001, p. 176).

Benevolence and integrity

During the interviews management and employees collectively talked about the fact that the bonus culture has disappeared. According to them all incentives and impulses aimed at sales and profit margins are erased from performance management documents of all local Rabobanks. These

bonuses were more important out of self-interest than the actual wellbeing of their clients. All of the respondents see this as a clear and positive signal towards society (I1; I2; I3; I4; I5; I6; I7; I8; I9). Although this kind of decisions have been made by the organization bonuses as an instrument are not forbidden (only guaranteed bonuses) by law (rules and regulations). Very recently Rabobank was negatively in the news because it granted big bonuses for key personnel from Robeco if they

remained employed (N10). This gratification of bonuses was approved by DNB and not conflicting with current rules and regulations, but it did shed a negative light on the sector and as a result did not contribute in rebuilding trust. All respondents, including the large corporate clients, mentioned this as an example of distrust in the sector. These kind of actions which can be related to

benevolence and integrity (profit seeking) are difficult, if not impossible, to regulate and therefore have to be embedded in the principles of the organization and discussed via dialog in the governance structure. These findings are in line with the findings of Colombo (2010) who states that behavior is difficult to regulate. Furthermore the interviewed large corporate clients of Rabobank Zaanstreek observed that they are currently not the primary focus of the bank. According to them Rabobank Zaanstreek is much more internally focused (I12; I13). As one corporate client puts it: “I have the

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21 feeling that the word relationship has a negative connotation nowadays” (“Ik heb wel eens het idee dat het woord relatie tegenwoordig een vies woord is”) (I12).

The fact that Rabobank Zaanstreek is currently more internally focused is obviously not written in the imposed rules and regulations by the supervisory authorities. It is a practical implication of the measures taken by the supervisory authorities to restore trust. The clients however want banks to be focused on them. This friction in the relationship and (mis)understanding between banks en clients should be discussed and adjusted via dialog with stakeholders in both of the influence pathways.

4.2 Contributions

Previous research focused on trust and its antecedents. Also research has been conducted on the role and importance of the governance structure of a firm. This study combines both research areas and relates this to a financial crisis. By linking the antecedents of trust to the governance structure of a firm in times of a financial crisis – that results in the continuous increase of rules and regulations – new and valuable knowledge on how to rebuild trust is provided. It shows that an increase of rules and regulations results in a change of balance between the stakeholders in the different influence pathways of a company.

4.3 Practical implications

In order to clarify which lessons can be drawn from the study conducted, the most important practical implications are discussed below.

4.3.1 Balancing the influence of the stakeholders

In times of distrust the stakeholders in indirect influence pathways (supervisory authorities) seem to want to rebuild trust by implementing more and tightened rules and regulations which have to be obeyed by banks (KPMG, 2012). These rules and regulations imposed by stakeholders in indirect influence pathways seem to sort a paralyzing effect on the daily practice of banking. As a result banks become more internally focused and tend to forget their most valuable asset, their clients. Large corporate clients seem to miss flexibility, creativity and the willingness to find solutions that are acceptable for both parties. Banks have to discuss this issue with the supervisory authorities.

Furthermore it is important to actively involve the stakeholders in direct influence pathways in order to balance the influence on the governance structure and discuss the current situation (and new reality) for the bank. It is important that all clients and members are familiar with the role and influence they have in the governance structure of the firm. It is vital that clients attend the member meetings and give their feedback on the current situation. It is also an important mechanism for the bank to discuss the difficulties they face as a result of the crisis. This could lead to mutual

understanding which in turn might result in rebuilding trust. 4.3.2 The importance of benevolence and integrity

Because trust exists of four antecedents and those are influenced in different ways it is important to understand how they are addressed. The current measures by the supervisory authorities sort an effect on ability and predictability. But the antecedents benevolence and integrity are equally important en get much less attention: dialog seems to be decreasing in times of financial crisis. It is important to understand how the different antecedents are influenced to increase the likelihood to rebuild trust in the sector.

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22 4.3.3 The media and politics

Media and politics play an important role in forming and keeping the negative stance toward banking. The financial sector should aim to actively involve the media in the difficulties they face and as welll in the measures that are taken to restore trust in the financial sector. Banks should be fair, honest and transparent in their course of action, measures and products or services in order to restore trust. Furthermore it is important that the management of banks tries to engage in dialog with politicians in order to mutually understand their position. This might lead towards a more positive stance towards banks.

Trust is earned very slowly and disappears very fast: all it needs is one negative issue. Because of the large impact of the supervisory authorities it is important that those authorities themselves have sufficient practical banking experience. The question rises whether this is currently the case (N3). A closer look on the formation of the supervisory authorities is desirable.

4.4 Adjusted framework: an ideal situation

In order to restore trust in the financial sector something needs to be changed. The results from this study show that in order to restore trust in the financial sector there should be a balanced input of both influence pathways. The direct influence pathways also have to be properly addressed and should get the opportunity to express their point of view. This is in line with the network-based governance system, which ensures that all parties are consulted in finding a solution for the problem at hand. This should lead to a mutual understanding and a good base for taking decisions.

Furthermore the measures collectively taken to restore trust should be addressed via both dialog and rules and regulations. As trust consists of different antecedents that have their own dynamics, this is very important. The primary reaction to a crisis is to impose rules and regulations, this study shows that this only affects the antecedents predictability and ability. The antecedents benevolence and integrity, which are equally important, are not susceptible to rules and regulations and are therefore not properly addressed. A good understanding of the different antecedents of trust is therefore essential to implement new measures or take decisions in order to restore trust.

The proper use of both rules and regulations and dialog in order to restore trust in the sector leads to a changing governance structure. This in turn should make the organizational principles to suit the current time frame and also affect the current policy and outcomes of the firm. Such changes in the organization in result will affect the amount of trust (positive or negative) a society has in the financial sector as a whole. This is a dynamic and continuous process. By being transparent and open and actively involving the wishes and demands of both influence pathways, this should contribute in rebuilding trust. These collective efforts might also lead to a more positive stance by other indirect influence pathways like the media and politics. Summarized, in an ideal situation the framework should look like this:

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4.5 Limitations and future research

During this study a total of thirteen respondents has been interviewed. The respondents included five employees, five respondents from management and three large corporate clients. In order to obtain a better view, it is admirable to increase the amount of respondents in each group. In addition, this study only studied the opinion of large corporate clients. This group of respondents could have a different view than the typical SME enterpreneur. Large corporate clients are well organised enterprises that have staff available with different aeras of focus. It could be that these large corporate clients perhaps have higher educated personnel employed that has a better understanding of the current attitude of the bank than the typical SME entrepreneur.

Furthermore, this research is executed at Rabobank Zaanstreek. In order to give a more general statement it is desirable to conduct the same study at other local Rabobanks and at competitors of Rabobank. These competitors have a different governance structure which might lead to interesting additional data. Also, the frequently mentioned indirect influence pathways are not confronted themselves with the findings of this study. As a result they did not have the opportunity to elaborate on their point of view. A repetition of this study that includes this point of view would be interesting. This study is conducted in the Randstad region of the Netherlands, it could be that in other parts of the Netherlands there is another conception. Furthermore it is interesting to subdivide between private and corporate clients, maybe private clients have different views on and opinions about restoring trust in the financial sector. This study is conducted at the time that trust in the sector (and overall trust) was (very) low, it would be interesting to repeat this study in an upward economic situation.

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5. Conclusion

The research question of this study was:

How do stakeholders in the governance structure of Rabobank Zaanstreek perceive the development of trust under increasing rules and regulation in the financial sector?

Based on the literature review and the conducted case study, a proper answer to the research question can be formulated. Among employees and management of Rabobank Zaanstreek there seems to be consensus on the fact that in times of financial crisis the indirect influence pathways have the upper hand in changing the governance structure. It is argued that supervisory authorities seem to want to restore trust in the sector by implementing new rules and regulations which have to be obeyed by the sector. But according to employees, management and large corporate clients of Rabobank Zaanstreek these increasing rules and regulations from the supervisory authorities are exaggerated at the moment and have a paralyzing effect. The fact that banks are regulated and restricted in a very severe way (which is sometimes internally used as an excuse) does not contribute to restoring trust in the sector: Employees and management of the bank think that their flexibility and creativity is framed and blocked by those rules and regulations, while the large corporate clients of their bank think precisely those assets are essential in times of economic downturn and in the process of rebuilding of trust. This issue could be addressed via dialog in the governance structure of Rabobank Zaanstreek.

Beside the fact that the increase of rules and regulations has a paralyzing effect on banks, the influence of media and politics also plays a negative role. During the interviews media are clearly mentioned as strong negative influencers of trust and the opinion of the financial sector. According to the respondents, all coverage in the media is negative. According to them a more positive stance of the media could perhaps result in a contribution to building trust. Also politics, as an indirect influence pathway, is mentioned to be a negative influencer. The respondents think that politicians react primarily (for the sake of voting gains) and the respondents think that it is desirable that they as well have a more positive stance towards the sector.

Rabobank has already taken some important decisions in order to restore trust. . An example is the deletion of the bonuses and other incentives (to sell certain products or services) from performance documents. Employees and management of Rabobank Zaanstreek think this is a good development. They see this as a clear signal that banks have learned from the mistakes made in the past. This change is in line with stewardship-theory by pursuing long-term wealth and multiple stakeholder interest (Caldwell & Karri, 2005).

Nevertheless, although indirect influence pathways currently have the upper hand in changing the governance structure, the direct influence pathways still have the ability to change the governance structure. Surprisingly, all respondents in this study seem to think that the members and member meetings are not that important. The large corporate clients that were interviewed are all members and did not bother to attend these meetings. In these meetings (an example of a direct influence pathway) clients do have the opportunity to communicate their wishes and complaints. The reason why the large corporate clients of Rabobank Zaanstreek did not attend the members meeting could be because there is unfamiliarity with this phenomenon (membership), or because they in advance

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25 think it will not sort the issue. Therefore management states that Rabobank Zaanstreek is currently trying hard to give membership and the possibilities members have more attention (R16; R17). They still see the cooperative as something that sets Rabobank apart from its competitors and as

something to cherish.

The results of the conducted research indicate that stakeholders in the governance structure understand that more or tightened rules and regulations can sort a positive effect in restoring trust. Yet in the current situation they find the increase of rules and regulations has gone too far. It is sorting an undesirable, paralyzing effect. To find a solution however, rules and regulations are not the only thing to worry about. First of all, it is very important to actively involve the stakeholders in direct influence pathways. By balancing both influence pathways all antecedents of trust can be properly addressed which should ultimately result in restoring trust. Furthermore it is important to understand that media and politics, stakeholders in indirect influence pathways, play an important role in influencing the general societal opinion on the financial sector. Therefore they should also be involved in the dialog in order to rebuild trust in a constructive and structural way.

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Restoring trust in the financial sector : a stakeholders perspective on the continuous increase of rules and regulations.