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October 23, 2012

"The Most Successful Companies Use Unspoken 'Relational Contracts' To Get Ahead"

Interesting theory on how successful companies become so.

Company culture is governed by unspoken rules and expectations, which come from the top down. Gibbons and Henderson call these "relational contracts," and the most successful companies have "understandings so rooted in the details of the parties’ relationship that they cannot be shared with a court." In other words, these expectations aren't detailed in writing, but are conveyed in how companies treat their workers. 

You can write a rule on how to do any process, but encouraging care, pride, and a constant effort to improve takes something more. . . . 

The Harvard professors found that relational contracts are hard to replicate because they take a long time to develop, are hard to communicate, and require a great deal of trust between employees and management. But the results of having one are invaluable: they give employees responsibility for maintaining quality control and improving production. 

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Brent Buckner

Seems much like what I have heard termed "mental contract".

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