Why Institutional Trust Breaks Down and How to Rebuild It

Every day we rely on trusted institutions to safely go about our lives, manage risk and uncertainty, and meet needs we couldn’t fulfill on our own. Governments provide the rule of law and the security we need to run a business. Financial institutions give us the peace of mind to safely transfer and invest money, trade securities, and ensure our retirement accounts are managed properly.  We rely on our workplaces to not only use our abilities and dedication, but also to treat us and our communities fairly.

“Institutional trust is a psychological state in which we accept vulnerability based on the positive expectations we have for an institution,” said Sim Sitkin, the Michael W. Krzyzewski University Distinguished Professor at Duke University’s Fuqua School of Business. “Our institutions are viewed as legitimate because we expect them to meet our expectations.”

But organizations can lose trust, and it is important that we understand why that trust is fragile and what organizations can do to rebuild it when it is lost.  As an example, the way organizations responded to the COVID-19 pandemic may have strained their relationships with employees, at a time when policies became divisive and polarizing. That and other crises have shown how institutional legitimacy can falter over time, Sitkin said, making it ever more urgent to address the root causes of the erosion of trust and understand how to respond.

In the article, The Role of Institutional Logics in Institutional Trust Formation: A Cognitive Frames Perspective for the Academy of Management Annals, Sitkin and Chris P. Long (St. John’s University, Fuqua PhD) describe the important role that institutional logics play in shaping trust.

“We need to create a framework that allows us to understand how institutional logics are formed, how the representatives of those logics are perceived, and what to do when stakeholders lose trust in their institution,” Sitkin said.

The driver of distrust

Trust in institutions has been declining for years, Sitkin said, despite efforts to rebuild it. What’s missing, he argues, is a clear understanding of how contradictory institutional expectations can undermine trust in the first place. 

“Institutional contradictions arise when an institution enacts two or more fundamentally opposing values or principles,” Sitkin and Long write.

These tensions are embedded in how modern organizations function, Sitkin said. Health care companies, for example, are expected to be efficient, transparent and inclusive, but sometimes the managerial call for efficiency or for specialized high-end procedures may clash with the expectations of patient care. Financial service companies act as stewards of client money, yet their professional logic can at times appear in conflict with investor or depositor expectations. 

Over time, these competing demands create friction that stakeholders notice and can interpret in ways that erode trust.

“Think about how some see new findings from scientific institutions,” Sitkin said. “When findings are updated, that could be seen as learning inherent in the scientific method, but if it is seen as evidence for bias or incompetence it can lead to distrust of science.”

Five tensions every organization faces

The research identifies five recurring contradictions that shape how people judge institutions. Each one reflects a balancing act that leaders navigate every day.

• Adaptation/Learning vs. Predictability/Stability
  Organizations must innovate while delivering consistent results. But when strategies shift too often — or don’t shift enough — stakeholders can see either chaos or stagnation. 
• Inclusiveness vs. Exclusiveness
  Opening access promotes diversity and innovation. Limiting access preserves identity and standards. When institutions signal both at once, stakeholders can feel the rules are inconsistent or unfair. “Think about prestigious universities that propose to be inclusive, yet maintain high standards for entry,” Sitkin said. “This can be viewed positively if handled well or as hypocrisy if handled badly.”
• Standardization vs. Customization
  Uniform policies signal fairness and efficiency — like getting a reliable product or service. Tailored approaches address individual needs. When stakeholders encounter different standards, they may question why unequal opportunities are offered by an institution that values equal treatment.
• Authority vs. Participation
  People expect institutions to listen—but also to decide. When leaders solicit input but act unilaterally, trust can erode quickly.  Similarly, when leaders have clear expertise, and yet they put issues to an ill-informed vote—because they don't want to take responsibility for what might be a unpopular or controversial decision—that can diminish trust.
• Transparency vs. Opacity
  Sharing information builds accountability. Withholding it protects confidentiality. When institutions toggle between the two, stakeholders may begin to wonder what the institution is choosing not to reveal.

For leaders, these tensions are conditions to acknowledge, manage, and explain.

Why contradictions feel like betrayal

Stakeholders observe contradictions and interpret them through their expectations.

“Stakeholders rely on institutions to manage risk and uncertainty,” Sitkin said, “and they form trust based on whether those expectations are met.”

In related research on trust in public sector organizations, Sitkin and Long show that when expectations are violated, even in small ways, people experience what they call “reliability transgressions.” 

These can often be forgiven, but when contradictions appear systemic—embedded in policies, leadership decisions, or culture—they signal something more serious. Stakeholders begin to see not just inconsistency, but a fundamental misalignment of values.

At that point, people are no longer asking whether an institution made a mistake. They are asking whether it can be trusted at all.

A new playbook for rebuilding trust

If contradictions are inevitable, the path forward is to manage how they are understood.

Sitkin’s research suggests that institutions rebuild trust by making contradictions explicit, rather than hiding them, and explaining how they will be addressed and why.

The authors cite the example of a Jordanian textile factory during the October 2000 Intifada, which strained the relationship between Israeli owners and local factory managers. In that instance, the owners rebuilt trust by implementing shared governance policies that signaled a shift in institutional logic, which increased cooperation between managers and leaders.

Leaders also need to show how decisions align with core values over time. Not every value can be prioritized equally in every situation. However, consistently acknowledging the validity of both competing values—and explaining how trade-offs are handled — helps stakeholders make sense of decisions.

Equally important, trust is shaped not just by leaders’ words, but by policies, processes, and everyday behaviors. When organizations show that these elements reinforce the same underlying logic, stakeholders are more likely to see consistency rather than contradiction.

Trust as an ongoing negotiation

Sitkin’s work with Chris Long suggests that institutional trust is continuously reassessed as stakeholders interpret what institutions do and why they do it.

Contradictions will not disappear. If anything, they will intensify as organizations face more complex and polarized environments "in a world in which social media tend to shine a light on apparent inconsistencies," Sitkin said.

The question for leaders is whether stakeholders recognize contradictions as unavoidable challenges in a complex world, and that institutional leaders are sincerely trying to strike a fair balance between competing needs.

“Institutions need to demonstrate to stakeholders that they are making efforts to eradicate the contradiction in ways that allay fears of future inconsistencies,” Sitkin said. “Organizations become trustworthy when they show they are willing to initiate policy or organizational changes that promote consistency, while also adapting to complex and evolving situations.”