New research from the University of Passau highlights the critical role of cognitive alignment between companies in determining whether “good faith” provisions take precedence over detailed regulations in cooperation agreements.

Good faith clauses, rooted in Roman law, remain prevalent in legal systems worldwide. These clauses signal that parties trust one another and see no need to micromanage every contractual detail. While this can simplify agreements, it also introduces risks. Vagueness in such clauses has occasionally led to costly disputes, such as the multi-million-dollar legal battle between SIGA Technologies and PharmAthene, which ended in bankruptcy for SIGA Technologies.

Despite their ubiquity and potential risks, the researchers note, “it is surprising how little systematic attention management research has paid to ‘good faith’ provisions.”

Addressing the gap

The study addresses this gap by developing a novel method to measure the “cognitive frame similarity” between alliance partners. Drawing on sociology, a “frame” is a mental lens shaped by values, norms, and beliefs that influences how people perceive the world. Over time, organizations form shared “frames” that guide their communication and operations.

To assess this, the researchers analyzed the language used in the “About us” sections of company websites. By applying computerized text analysis, they measured cognitive alignment between partners. The study focused on 1,225 contracts in the biopharmaceutical industry signed between 2005 and 2015, cross-referencing the language of partner companies six months before each contract’s effective date.

The analysis revealed five dominant cognitive frames: Time, Responsibility, Motivation, Innovation, and Strategy. The frequency of related terms in company communications indicated the degree of alignment. The findings were clear:

• Greater cognitive frame similarity correlated strongly with the use of good faith clauses.
• Technological uncertainty amplified this relationship, suggesting that shared frames provide stability in uncertain contexts.
• Experience and negotiation routines reduced the reliance on good faith provisions, as seasoned partners often prefer explicit terms.

Alignment matters

“Our data demonstrates that cognitive alignment between organizations significantly influences the inclusion of good faith clauses,” the researchers explain. “This alignment stems from subtle, often unconscious, shared mental structures.”

The implications extend beyond contract drafting. By understanding these cognitive patterns, managers can design agreements that foster trust while minimizing ambiguity. As the authors conclude, “Awareness of these mechanisms can help create more sustainable and effective partnerships, especially in strategic alliances where trust is key.”

This study offers a fresh perspective on how shared understanding, even at the subconscious level, shapes the frameworks of modern business collaboration.