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Trust Violations: How dysfunctional innovation and cultural drift lead to stakeholder trust betrayals

This paper takes a multi-level, organizational trust perspective on sustainability and stakeholders relations in the context of the Global Financial Crisis (GFC). Drawing on strain theory, complexity theory and concepts in organizational learning and risk management, we show how dysfunctional innovation, driven by investor demands for abnormal and unsustainable growth, often creates unbalanced organizational pressures and cultural drift. What sometimes passes for “normal” organizational behavior is dysfunctional innovation that is not tempered by a sustainability perspective, a concern for stakeholder trust and effective governance and control. This paper adds to our understanding of why labeling disasters like the GFC, Wells Fargo fake accounts, Volkswagen defeat device scandal as cases of isolated failures or bad apples, obscures the more fundamental underlying dynamics that cause these crises and often lead to their reoccurrence. Data from Universal Banks during the GFC are used to explore the application of this theoretical framework.