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An international team including researchers from the University of Passau has shown in a study that the cognitive similarity between companies is decisive in determining whether “good faith” is favoured over specific regulations in cooperation agreements.
Good faith provisions, as the Romans already knew it, can still be found in many legal systems today. Such a provision expresses that the contracting parties rely on each other in the respective aspect of the contract and therefore see no need to regulate the aspect down to the smallest detail. This is the advantage of “good faith provisions”, and at the same time their disadvantage. This is because such clauses are inherently vague, and if disputes arise, they can sometimes cause great damage. This was the case, for example, with the pharmaceutical companies SIGA Technologies and PharmAthene. Their cooperation agreement contained a ‘good faith’ clause, which the contracting parties interpreted differently. After years of legal disputes and a compensation payment in the millions, SIGA Technologies had to file for insolvency.
"Given the extent of the damage and the ubiquity of 'good faith provisions', it is surprising that management research has not yet systematically looked at them," says Professor Carolin Häussler, innovation researcher at the University of Passau. She and Professor Andreas König, who studies the cognition of managers at the University of Passau in particular, are part of an international research team that published a large-scale study on this topic in the renowned Strategic Management Journal at the end of August. Its title: "Kindred Spirits: Cognitive Frame Similarity and Good Faith Provisions in Strategic Alliance Contracts".
In their study, the research team developed a method of using computerised text analysis to measure the “cognitive frame similarity” of alliance partners. In sociology, “frame” refers to a type of cognitive glasses or ‘lens’ through which social actors selectively perceive their environment - i.e. subconsciously coloured, for example, by values, norms and beliefs. Over time, members of a company develop organisation-specific ‘frames’, similar values and beliefs and company-specific routines for processing information. This corporate cognition is also reflected in a company's communication and thus becomes visible to the outside world. The research team capitalised on this and recorded the similarity of the corporate cognition of strategic alliance partners in the ‘About us’ sections of the company websites.
For their study, the researchers analysed 1225 contracts from the biopharmaceutical industry that were signed between 2005 and 2015. They analysed these according to the “good faith” clauses they contained. They looked at the relevant “About us” pages of the companies six months before the effective date of the respective contract.
Using a qualitative and quantitative content analysis, the research team was able to distil a total of five overarching cognitive “frames” from the “About us” pages: Time, Responsibility, Motivation, Innovation and Strategy. In the study, the researchers argue that these cognitive frames are reflected in the frequency with which the associated vocabulary can be found on the “About us” pages. In this way, they determined whether organisations are similar in their views.
"With the help of computerised analysis of the language of company websites, we were able to determine whether organisations are similar in their cognitive frames. And our data shows that ‘cognitive frame similarity’ really does have a great deal of significance for the use of ‘good faith’ clauses," says Professor Häussler, explaining the approach.
The data supports the following correlations:
- The greater the cognitive frame similarity of the alliance partners, the more the alliance contracts exhibit ‘good faith’ provisions.
- Technological uncertainty reinforces this statistical correlation.
- Experience and routine of the alliance partners in negotiating business relationships reduce the effect.
"Our study illustrates the extent to which negotiations, particularly in the context of strategic alliances, are influenced by subtle and possibly unconscious cognitive structures and biases," says top management researcher Professor Andreas König. "If managers become aware of these mechanisms, our work could help to create more sustainable and effective contracts," he explains the significance of the study for practice.
About the team of authors
Professor Carolin Häussler holds the Chair of Organisation, Technology Management and Entrepreneurship, is a German Research Foundation (DFG) Lecturer at the University of Passau and project leader in the DFG Research Training Group 2720 "Digital Platform Ecosystems". She is a member of the Federal Government's Expert Commission on Research and Innovation (EFI) and sits on the scientific advisory board of the ZEW Innovation Surveys. Professor Andreas König holds the Chair of Strategic Management, Innovation and Entrepreneurship and is spokesperson for the DFG Research Training Group 2720 "Digital Platform Ecosystems".
The study is the result of an international collaboration between the two researchers and academics with close links to the University of Passau. Marvin Hanisch, Professor of Innovation Management and Strategy at the University of Groningen and first author of the study, and Lorenz Graf-Vlachy, Professor of Corporate Management at TU Dortmund University, completed their doctorates and habilitations at the University of Passau. Theresa S. Cho is Professor of Strategic Management at Seoul National University. She visited Passau 2024 for the second time, this time on the occasion of the 13th EIASM workshop on "Top Management Teams and Business Strategy Research", where the team was able to celebrate the joint publication.
Professor Carolin Häussler
University of Passau, Chair of Organisation, Technology Management and Entrepreneurship
Innstraße 27
94032 Passau
Mail: Carolin.Haeussler@Uni-Passau.De
Professor Andreas König
University of Passau, Chair of Strategic Management, Innovation, and Entrepreneurship
Dr.-Hans-Kapfinger-Straße 14b
94032 Passau
Mail: Andreas.Koenig@uni-passau.de
Marvin Hanisch, Lorenz Graf-Vlachy, Carolin Haeussler, Andreas König, Theresa S. Cho (2024): "Kindred spirits: Cognitive frame similarity and good faith provisions in strategic alliance contracts", Strategic Management Journal
https://onlinelibrary.wiley.com/doi/10.1002/smj.3660
Video abstract of the research team
Symbolic picture for cooperations
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The From left: Theresa S. Cho (Seoul National University), Carolin Häussler (University of Passau), ...
Ulrich Schwarz
University of Passau
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