OA Masthead
Online Resources Section Header
Home Button
Home Button
New Button
Services Button
Ownership Culture Survey Button
Online Resources Button
Resources: Articles & Pubs Button
Resources: E-Learning / Tutorials Button
Resources: Survey Questions Button
Resources: Downloads / Products Button
Resources: Links Button
Resources: By Topic Button
Resources: By Name Button
About Us Button
Contact Button
Quick Tip

The Frontiers and Boundaries Handbook gives a step-by-step guide to clarifying decision making structures in your company.

store

home >> online resources >>

Representative Structures in Employee-Owned Firms

Christopher Mackin and Fred Freundlich
Ownership Associates, Inc.
Published in The Journal of Employee Ownership Law and Finance,
Oakland: National Center for Employee Ownership
Vol. VII, No. 2, Spring 1995, pp. 91 - 115.


For ESOP companies committed to fostering an authentic ownership culture, a simple commitment to "communication" will sooner or later yield diminishing returns. The achievement of an ownership culture will eventually require the introduction of stable, representative structures that enable employees to engage in dialogue with management about the meaning of ownership. Resistance to the idea of representative structures in work organizations is widespread. The authors explore various sources of that resistance, making use of the work of quality management expert W. Edwards Deming as an ally in their search. In their rendering of a positive theory in favor of representative structures, they distinguish a range of roles such structures could play and comment on how these ideas intersect with contemporary debate in American labor law.

Over the course of the past few years there has been a gradual shift in the preoccupations of the field of employee ownership. While throughout the late 1980s the mail was thick with announcements for conferences dedicated to plumbing the array of tax savings and financing advantages available to corporations interested in installing ESOPs, more recent messages have taken on a somewhat different tone. Opportunities for tax savings may still drive the field, but one now detects an intriguing variety of more qualitative, value-based concerns that have joined the discussion at the ESOP table.

More and more of today's ESOP conferences advertise their purpose as helping companies figure out how to "Develop an Ownership Culture," "Make Ownership Real" or "Help (Your) Workers Think Like Owners." Explanations for this apparent shift could be several. A tightening of credit in the early 1990s slowed the volume of new ESOP transactions, perhaps contributing to a focus on existing ones. Critical press treatment, memorably launched by the April 1985 Business Week cover story entitled "Employee Ownership: Revolution or Ripoff?" has continued to challenge the field to declare its true purposes. Finally, a gradual, developmental trend in which 1980s ESOP transactions have technically matured in the decade of the 1990s with a greater percentage of "vested" employee shares and increasingly significant percentages of employee shareholding (over 50%), may be leading more and more employees to challenge their managers to spell out the difference ownership should make.

These trends are provocative. Our interest in them, however, is more practical than empirical. We wish to explore the qualitative challenges posed by these new slogans in conference brochures. Why is it that the transfer of substantial ownership stakes has not been a sufficient offering to employees? What steps will be necessary to "Make Ownership Real" and to help workers "Think Like Owners"?

A complete answer to these questions would involve a variety of components. Heading the list might be employee and management education about concepts of ownership and participation. Basic ownership values are also critical. "Technical" education about business and financial concepts that can increase the ability of employees to understand the language of business is also an important part of the equation.

We endorse and will speak more to these educational themes. Our focus in this paper, however, is deliberately structural. We wish to explore the ways in which the qualitative challenges of the field of employee ownership may be grounded in fundamental dilemmas of organizational power. We will contend that these dilemmas, while amenable to progress, are finally not of a kind that will yield to the power of education. They will also require structures: abiding, consistent structures that can deliver the psychological safety necessary for the uninhibited exercise of employees' voices.

Theoretical Context: From Deming to Good Intentions

For over a decade, the field of Total Quality Management (TQM) has dominated the agenda of organizational reform in American corporations. The three most recognized leaders in the TQM field--Philip Crosby, Joseph Juran, and W. Edwards Deming--have each spawned groups of dedicated followers. [Both the Crosby and Juran organizations have ESOPs. Ed.] Of these three, W. Edwards Deming is widely considered to be the Total Quality Management thinker most concerned with issues of employee participation and dilemmas of organizational power.

Deming's eighth principle (out of fourteen), which he calls "Driving Out Fear," captures for him a primary obstacle to organizational change. It also serves as a useful launching point for our arguments about problems of organizational power.

8. Drive Out Fear. No one can put in his best performance unless he feels secure. Se comes from the Latin, meaning without, cure means fear or care. Secure means without fear, not afraid to express ideas, not afraid to ask questions.[1]

Deming's statement supports the claim that power is a problem worth exploring. If one of the leading advisors to American management identifies fear as a significant problem, then that should at least theoretically make fear difficult to ignore. We will argue that if Deming's eighth principle is to be taken seriously, then a central challenge for work organizations will be to create conditions of employment where fear is, if not abolished, then at least minimized.

As we will see below, Deming is rather thin in proposing solutions to problems of fear. Nonetheless, this mainstream organizational theorist has posed the problem more clearly than did commentators considered more radical. In simple language he identifies problems most would rather avoid.

Our position in favor of representative structures may be eventually understood by appeal to a contrasting, if not an opposing, point of view about how to achieve psychological safety in work organizations. We characterize that perspective as the "management by good intentions" or "good people" perspective, a point of view that finds sufficient hope in the abilities and commitment of both leaders and led to be able to "voluntarily" maintain an atmosphere of sufficient openness and candor to be able to avoid the use of representative structures. We will explore this view, which also appears to be the prevailing view in contemporary thinking about the American workplace, in the course of sketching out our own perspective on these issues.

Finally, while the arguments of this paper speak primarily to the idea of psychological safety as seen from "below," we also recognize and will speak to a similar and equally important need for psychological safety from "above," from management's point of view. This second application of the idea of psychological safety is not centrally concerned with issues of power. It is instead comprised of judgments concerning "realism" and business results. Here we will attempt to describe and respond to important questions put forward by management groups regarding how programs of participation and shared power might be reconciled with technical requirements for the use of expertise and for meeting the functional responsibility of achieving competitive business results.

Definitions

We should clarify our definition of what we mean by employee ownership. The typical "employee-owned" firm in the United States today is a 200-employee, privately-held manufacturing firm that reserves approximately 35% of its stock for employees through a trustee-voted ESOP trust. Generally speaking, with a few notable exceptions, such a firm operates with no pretense of democracy or representation. Private owners in such cases use their ESOPs as mechanisms for achieving liquidity over a part of their stock ownership. Many of these firms, some infected with a democratic virus, others simply seeking further liquidity, do tend to migrate over time toward majority employee ownership with all of the attendant representational dilemmas that circumstance creates. Others are simply purchased by third parties who usually dissolve employee ownership, buying out ESOP shareholders as part of the transaction (as required by law), and integrating the firm within the prevailing enterprise ownership and management structure.

The arguments of this paper are directed toward that segment of the employee ownership field which either has formally arrived at or is self-identified as being within the "democratic" and majority employee ownership end [2] of a theoretical spectrum. It is within this select group of firms where the questions we raise seem to be most relevant. More specifically, our questions and propositions are directed toward an imagined rivalry within that sector about alternative means for arriving at mutually agreed upon ends in favor of "democratic" ownership.

Realizing Democracy

There is an implicit relationship between majority employee ownership, where ownership rights commonly concentrated in the hands of a few are shared with the many, and values of justice and democracy. If the distinguishing value of the external structure of employee ownership is economic justice--allocating the risks and rewards of production to those who produce it--then the corresponding distinguishing value for its internal structure might be viewed as social or organizational justice--the effective and fair management of power. This division of labor between the external and the internal is not total. Still, as a matter of relative emphasis, we believe it is valid to distinguish between these two spheres in this way. There are few practitioners of employee ownership who would hold that a strong external structure is sufficient to create a democratic internal culture in an employee-owned workplace. Where differences among practitioners show themselves is in the anatomy of the internal challenge and in the structure and content of specific alternatives for responding to it.

Power as a Problem

Were businesses to function like Quaker meetings on a Sunday morning, where people sit in a circle and speak when the spirit moves them, there would be no problem with the exercise of organizational power. Unfortunately, businesses exist in contingent time, time that is framed by the demands of cost and of competition. It is not always possible within the business world to deliberate. The clock is ticking. The rent and the payroll have to be met, customers must be serviced. Scarce resources must be intelligently allocated so the business can live to fight the next day. Decisions must be made.

Contingent time seems to require the efficiencies provided by a division of labor. The organizational manifestation of a division of labor is the familiar hierarchical model of authority that differentiates responsibility between managers and managed. Managers lead through these hierarchically structured organizations. What primarily interests us about that familiar fact, however, is that managerial leadership is sanctioned by power, in fact by several important "powers": the power to direct, to evaluate, to marginalize, and ultimately to fire.

Where there are no counter-institutions in place to challenge its judgment, the everyday, unfettered exercise of workplace power is not considered a problem. It is considered normal. Also, the existence of a free hand for management has not always led to its abuse. Actual management styles in these environments vary widely, from autocratic to democratic. On the other hand, without "standing," without recognized and protected platforms from which to challenge managerial behavior, employees are by and large relegated to being "subjects" of unfettered power. And subjects of power, even seemingly happy ones, are not likely to be able to be counted upon to speak their mind when it comes time to make workplace democracy or ownership "real." The exercise of democracy, it turns out, involves risks, because the exercise of democracy, if it is to be at all "real," inevitably involves challenges to power.

Power and Fear: Back to Deming

Power is a scary word to many people. To invoke it at all conjures images of military dictatorships, if not whips and chains. Life in work organizations, however, with and without representative structures, is generally far more genteel, and perhaps downright friendly and enjoyable. Life in work organizations is also complex. Resistance to managerial authority is not a one-dimensional pursuit. It can take many forms, from slowdowns to obscure memoranda, from humor to sabotage. Subtlety is resistance's greatest ally, and employees generally know how to play their part with appropriate understatement.

Thus, when Dr. Deming invokes fear as one of the plagues that infects our workplaces, one may be inclined to discount it as so much melodrama. But let's take a closer look and determine for ourselves the extent to which the problem he is describing (fear) may be attributed to the primary cause we are positing (unfettered power):

Fear takes on many faces. A common denominator of fear in any form, anywhere, is loss from impaired performance and padded figures... A department had failed miserably for months to produce enough items for the market. The general manager appointed a task force (one man) to discover what was wrong. What he found was inspectors overpowered with fear. They had taken the idea into their heads that if the customer found an item to be faulty, the inspector that passed the item would lose his job. As a consequence, the inspectors held up almost the total output. They were incorrect about the consequences of passing a faulty item, but it is rumor that runs an organization.[3]

Some actual expressions of fear (from Deming interviews) follow:

I am afraid that I may lose my job because the company will go out of business.

I am afraid to put forth an idea; I'd be guilty of treason if I did.

I am afraid that I may not always have an answer when my boss asks something.

I am afraid to admit a mistake.

My boss believes in fear. How can he manage his people if they don't hold him in awe? Management is punitive.

I'd like to understand better the reasons for some of the company's procedures, but I don't dare to ask about them.[4]

Are Deming's findings representative? We cannot answer that question definitively here, but we can analyze what Deming's findings seem to have in common. First, the problems Deming describes sound systemic. While it may be tempting to attribute them to bad people and brute power, most of these complaints seem traceable to irrational measurement and reward systems for production, quality, and people. A good Total Quality consultant might recommend an overhaul of these systems to introduce such features as an alternative point of view, longer term measurement horizons, "in-process" quality control, and group rewards. But would these system changes sufficiently reduce the problem of fear? Would they sufficiently reduce the problem of unchecked power?

Let us consider some of Dr. Deming's prescriptions for what to do about the problem of fear in organizations:

We must break down the class distinctions between types of workers within the organization--physicians/non-physicians, clinical providers versus non-clinical providers, physician to physician. Discontinue gossip. Cease to blame employees for problems of the system. Management should be held responsible for the faults of the system. People need to feel secure to make suggestions. Management must follow through on suggestions. People on the job can not work effectively if they dare not inquire into the purpose of the work that they do, and dare not offer suggestions for simplification and improvement of the system.[5]

It is not entirely fair to look to sample paragraphs to answer complex questions such as how Dr. Deming might "drive out fear" in work organizations. The approach that he and the consulting colleagues who have survived him take when retained by companies interested in their ideas is comprehensive, involving substantial restructuring of company policies and practices.

Nonetheless, there is something revealing in the tone of these remarks. They sound exhortatory and moralistic--in a word, simplistic. Dr. Deming was trained as an engineer, not a social scientist. His influence may far exceed that of most social scientists but what his prescriptions seem to lack is an understanding of the dynamics of social organizations. The problems he is describing are not only rooted in bad incentive systems; they are also rooted in interpersonal, political struggles to maintain power and discourage dissent.

It is important to note that many of Deming's prescriptions are moralistic and social psychological or "atmospheric" in tone. They encourage "better" behavior; fewer prima donnas and more egalitarianism, less control and more openness, less blame and more psychological safety. These prescriptions imply that the foundation of these problems lies in the hands of those who hold most of the power in organizations. But can Deming's ad hoc moralizing solutions get to the root of the problem? What if you are the first worker or foreman to try and break the mold, but your supervisor has not yet gotten religion? Is it realistic to expect heroism from individuals, whatever their place in the organizational hierarchy, to solve these problems?

Despite its apparent limits, what is finally most interesting to us in Deming's anatomy of the problem is his use of moral and social psychological categories to describe the problems facing work organizations. According to Deming, employees must feel psychologically "safe" to voice criticisms and describe problems. They must also feel fairly treated. But these are social, not individual, prescriptions. How can employees who are not socially or collectively represented authentically name and then solve potentially controversial problems? And if that individual or small group of individuals who address problems is selected by management or is self-selected, how are we to judge their legitimacy in the eyes of their peers?

Alternative Perspectives

Up to this point, we have attempted to make a clinical case for representative structures in work organizations, seeing in representation a rational remedy to a series of natural problems that follow from the inevitable dynamics of organizational power. We have only hinted at alternative methods for contending with organizational power. Before launching into a positive description of our representative model and the problems it must confront, we should acknowledge alternative perspectives on these issues.

There is one school of thought on this subject that perceives no real problems of organizational power to begin with. This school promotes the familiar free market ideology of "exit" for employees who do. It is difficult to imagine a dialogue with this group since they do not recognize the existence of a problem in the first place. We will let them pass.

A second, more serious school of thought was characterized at the beginning of this paper as an enlightenment-inspired, "management by good intentions" or "good people" perspective. This perspective finds sufficient hope in the abilities and commitment of both leaders and led to be able to "voluntarily" maintain an atmosphere of sufficient openness and candor to avoid the use of representative structures. According to this school, there are no serious obstacles that stand in the way of communication. Communication will ultimately overcome all difficulties.

This second, "structure-averse" group is intentionally or unintentionally blind to the implications of status and power. Followers believe fervently in the power of people to "reason together" and in the power of reason and persuasion to lead people (including themselves) to conclusions that they might at first have opposed. Further still, these hopeful beliefs are not merely situational. They do not describe the potential for occasional conversions to the truth, but a consistent preparedness to follow the dictates of the truth at all times and under all circumstances. Given an explicit, stated commitment to values of openness and honesty and a presumably parallel commitment against vengeance toward their opponents in any controversy, advocates of this position expect that problems will bubble up to the surface, through a series of "open doors," where people of good will (both leaders and led) will commit to resolve them together. Education is a valued resource for this group. It helps fill in the missing pieces that may be obscuring solutions. Foremost, however, is the atmosphere and "ethic" this group espouses for their organizations: no secrets, no hidden agendas, all trust, all the time.

Perhaps we do this position a disservice, but we ultimately find it to be naive. A position in favor of representative structures does not embrace opposite values. We agree with the "good intentions/good people" school of thought that employees should be expected and even exhorted to tell the truth and be prepared to restrain their sense of personal advantage in favor of what is best for the group. We strongly believe as well in the power of education to change minds and broaden perspectives. These premises should be openly, aggressively, and continually advocated in work organizations. Having stated our hopes, however, we are prepared to deal with reality as it exists and, just as importantly, as it is "perceived" by different groups. And organizational realities, while changeable and subject to development, are substantially tainted by imagined or real dynamics of power.

Psychological Safety from Above

A third school of thought should also be seriously considered before we move on to describing representative structures and the problems they must also confront. This third school is more generous in its interpretations about the motivations of those in power. It locates management resistance in a genuine and objectively valid state of confusion about how participation and representation would actually be carried out in modern, complex work organizations operating under high-pressure competitive conditions, for which leaders in management positions are most often held accountable. This confusion (perhaps a more accurate word for it is "anxiety") reveals itself in interesting ways. The most frequently heard story that best captures it is the catastrophic fantasy managers often share that imagines that a commitment to participation and representative structures will inevitably lead down the road to the vote, to the catastrophic fantasy of "management by referendum."

It is often difficult to get managers to back away from that particular fantasy. The reasons for this are not simply rooted in self-interest or a desire to hold on to a maximum degree of power. Their resistance is also rooted in the dearth of persuasive alternative models for participation that might honestly change their minds. In the absence of concrete alternatives, radically democratic fantasies will prevail. Unless models can be introduced that fill the gap, and also provide management with the same kind of "psychological safety" we argue that employees need, progress toward workplace democracy will be limited at best.

Figure 1 is an adaptation of a table first used by Paul Bernstein in his 1976 book Workplace Democratization.[6] This table illustrates a simple, "generic" list of business decisions ranked roughly in order of the level of technical complexity they involve. The three lines running across this chart mark off what might be considered "clusters" of decisions that could be rationally allocated to different groups of employees in a work organization. Taken together, these twenty-one generic decisions might be considered a "vertical" spectrum of decision-making power.

Figure 2 extends the Bernstein model by adding a horizontal dimension. Along the horizontal (or "x") axis of this chart, we add a spectrum of possible participation structures that can be associated with corresponding, vertically portrayed clusters of decisions. This chart teaches some simple lessons. First, it illustrates that participation is not a monolithic concept, and that there are different kinds of participation and influence, from relatively direct, democratic work teams, to "joint" decision making, to consultative influence, and finally to direct voting.

"Zone Charts"

The "Influence Allocation Chart" is now called the "Decision Zone Chart." Zone Charts are part of the Frontiers and Boundaries set of tools.

Second, the chart indicates that there are general principles that guide the differentiation process. Those principles should be clear and commonly accepted. The first principle is expertise. Decisions should be made primarily by people with the requisite expertise to make them. The second principle, however, is one of inclusion, regardless of primary responsibility and expertise. For example, even in the more technical cluster of decisions depicted here, which would be primarily made by management personnel with the requisite expertise, we hold out for the value of "Consultative Influence" by employees.

We will not use space here to introduce formal definitions of each of the categories of participation described ("Direct Influence," "Shared Influence," "Consultative," etc.). More important is the general idea of establishing boundaries that clarify the ideas of "necessary expertise" and "spheres of primary authority." The process for establishing those boundaries with an exercise like this is also important for establishing their legitimacy. It should itself be participatory. Our experience with this process has demonstrated that management's darkest fears (i.e., that employees harbor a deep desire to introduce "management by referendum") are, in fact, groundless. Employees generally understand the limits of their expertise. They do not typically strive to exceed those limits. Given an open forum to discuss these issues, it becomes apparent that they seek influence, not control, over what have generally been viewed as "management decisions." Like their management counterparts, however, they also seek clarity. They wish to know who is responsible for what.

Our model of an "Influence Allocation Exercise" is primarily intended to introduce clarity to the participation process. Along with the representative structures we argue for elsewhere in this paper, it attempts to foster conditions of "psychological safety" for both managers and employees to support the participatory process. The effort the model makes to specify rational boundaries for participation is metaphorically inspired by Robert Frost's dictum that "good fences make good neighbors." The feeling of safety provided by fences erected within the world of participation ultimately serves its larger purposes of inclusion and empowerment. We depart significantly from Frost's dictum, however, by virtue of our belief in the power of education. The metaphorical "fences" that this model erects around categories of issues and different types of participation are, unlike the frozen implications of Frost's words, moveable. Fences can and should be moved when evidence of increased competency on the part of employees can support their inclusion in an ever-broader and more substantive range of issues, much as movable partitions are in many flexible work design architectures.

A Positive Theory of Representation

There is widespread resistance to the idea of representative structures in work organizations. It is an idea that cuts against the status quo. Therefore, if representative structures are to be accepted in work organizations, it will likely be for two reasons: first, because the primary sources of resistance to the idea have been correctly anticipated, and second, because a sufficiently compelling positive model has been put forward that adequately contends with legitimate problems from models tried in the past. Having so far attempted to chronicle and dispute the primary sources of resistance, we will turn now to sketching positive arguments and models for representation.

Representative structures are the most efficient way for leaders (management) to consult with the led (employees). The non-structural, "open-door" alternative, advocated by what we have referred to earlier as the "management by good intentions" school, can never be confirmed as truly representative. Evidence suggests that it self-selects for the personally and politically assured. Employee leaders, who are selected by their peers for regularly scheduled dialogue with company leadership, can, on the other hand, provide at least a base of credibility. Less time, if any, needs to be invested in checking the validity of their points of view.

A positive theory of representation will require distinctions about various forms of representation. We will summarize four distinct representational forms below.

Naming Leaders: Accountability

Perhaps the most fundamental precept of democratic theory is that leaders should be accountable to the led. The democratic idea was, after all, born in reaction to a historical period where leadership was literally inherited or passed down through blood. Inspiring as the idea of accountability might seem, advocates of democratic ideas did not restrict themselves to moral arguments. They also stressed the potential for superior results. For example, under democracy, leadership could actually be "earned" by merit and not simply passed down by force. Better quality leadership would result.

The conversion of democratic ideas from history and politics to the workplace has never been a seamless one. Enterprises, operating under competitive market conditions, are different from states or governments. Markets can destroy firms quickly. States are more durable. So, while the democratic analogy remains a powerful and useful one, substantial qualifications are necessary.

In the matter of naming leadership of a business enterprise, common law has traditionally turned to shareholders as the relevant enfranchised body. Shareholders typically elect boards of directors, who in turn appoint management. Under employee ownership, shareholder voting takes on an immediacy and focus not seen in traditional corporations where shareholding is often dispersed geographically or concentrated in a few hands at the top of the organizational chart. Employee participation in board of director elections helps to validate the identity of those leaders in the eyes of the electorate. It also introduces (via the mechanism of the board) accountability between "leaders" in management to the "led" in the workforce.

Electoral influence over the naming of enterprise leadership is, however, an occasional event. Staggered terms for service on boards of directors insure that annual elections (if they are held annually at all) will most likely result in incremental changes over the composition of leadership. Further, and more to the point, the function of this form of representative body is different from our primary concern in this paper. The primary function of a board of directors is to help enterprise management interpret and eventually conquer obstacles in the marketplace. Its concerns are primarily "external," out in the marketplace, not "internal," concerned with the quality of the dialogue between management and employees about how the organization should be managed.

Qualifications for membership on this kind of executive-oriented representative body should be linked to its primary, business function. Prospective members should be acquainted with the language and categories of analysis that boards of directors use. These are matters that can certainly be learned by non-executive members but ideally not at unreasonable expense to the efficiency of the body.

Despite the limitations of employee representation on executive bodies, there is an important positive argument to be emphasized in favor of a consistent employee presence. It is a mistake for any representative body to be segregated, to be seen as belonging to only one type of employee. While the business-advising purposes of a board of directors, for example, should not be sacrificed, it should have some form of direct employee participation, both to add a potentially different "employee" perspective to its deliberations and to send a message to the membership at large about a commitment to openness on the part of enterprise leadership.

Protecting Rights: Due Process

Turning to the domain of representation for primarily "internal" purposes, we must further distinguish between two types of day-to-day representation; the representation of individuals holding grievances against the decisions of their superiors, and the representation of the workforce as a whole in an ongoing dialogue with management about policy matters concerning the governance of the enterprise.

The first type of representation, what we will call protective representation, is easier for all sides in this debate to accept. The clear asymmetry of power that exists between an individual and his or her superiors has generally legitimized this form of representation. As a result, most modern workplaces have in place some type of formal two- or three-step grievance process, many with a final appeal to outside, "third-party" arbitrators.

Protective representation enjoys its own historical linkage with American and European judicial traditions and their ideas of due process and procedural fairness. As is the case with those traditions, protective representation, involving employees both as participants and potential beneficiaries (users), should not be confused with policy or rulemaking representation. The role of protective representation is to interpret the implementation of policies, particularly as they affect the fortunes of individuals who find themselves ensnared in disputes.

Expressing Voice: Group Representation

Representation for individuals is commonly acceptable. Representation for groups is controversial. It is here where the power of management can potentially be challenged by the power of a stable and protected body rooted in the workforce as a whole. It is here where, at least theoretically, the "collective voice" of the workforce can speak to its leadership as one. Names that might be given to this kind of representative body are several. Under employee ownership, such a group would presumably be identified by their common circumstance as employee shareholders as some form of "Ownership Committee."

The issues that might apply to this kind of group representative structure are imagined to consist primarily of resource allocation decisions: decisions about how a firm might spend, or restrict its spending upon, resources of relevance to employees. Examples of such resources include the obvious, wages and benefits, but could also extend into purchasing or using assets such as machines or service contracts that employees make use of in carrying out their day-to-day tasks. Other, non-resource related concerns of group representation may include evaluations (and critiques) of management styles and proposals for alternative supervisory arrangements.

Apart from these kinds of details, the essence of group representation is to make possible a dialogue between parties at interest to the resolution of problems. A dialogue implies an arrangement of roughly equal power and conditions of psychological (in this case employment) safety between the discussants. Both parties must also be able to claim legitimacy in representing the relevant constituencies in the dialogue. Without representative bodies to consult on these matters, management is forced to imagine the perspectives of the workforce as a whole. With such bodies, a dialogue can take place.

The controversy surrounding the idea of group representation has been linked earlier in this paper with a range of speculations about managerial fears and assumptions. Joining forces with those concerns is a further challenge to this discussion, the fusion of the idea of group representation with the known institutions of traditional collective bargaining. However one might wish to emphasize the unique character of group representation under employee ownership, it is nearly impossible to escape association with collective bargaining. There are similarities, both good and bad. But, as we will see, there are substantial grounds for highlighting differences as well.

Solving Problems: Task Forces

A fourth and final form of representation deserves a brief mention here. While representative bodies such as ownership committees can play a key role in addressing and solving company problems, there is no reason to restrict the problem-solving franchise to one small group of elected leaders. Task forces, small committees of employees charged with specific responsibilities and operating under specific time and budget parameters, can also play a significant role.

The limits of task forces as a method of employee representation pertains primarily to their lack of "standing," their lack of a stable platform from which to articulate and carry out their particular agendas of change. As time-limited bodies, task forces can easily be ignored, forgotten, or "waited out." When combined with more stable representative structures, however, task forces can provide a fresh set of new perspectives on matters of substance to an organization.

Methods for Representation

Methods for introducing representative structures within the workplace seem fairly straightforward, which does not mean they are without controversy. The first challenge is how to insure credibility or authenticity of voice in naming the leadership of such bodies. While isolated examples of purely self-selected, "voluntary" bodies have been tried, the more effective method for achieving credibility is the use of secret ballot elections with open nomination procedures. The burden of proof for the authenticity of other methods for naming representative leadership should be placed upon the architects of non-elective methods. No alternatives aside from elections have come to our attention that meet minimal conditions of clarity of implementation, authenticity, or credibility of results.

A second major methodological challenge pertains to the matter of constituencies represented by these representative organizations, and the related question of who is empowered to vote in elections for their leadership. Two models for following an elective procedure have generally been adopted. The first and more common model conforms to the letter of contemporary labor law, which mandates that the leadership of representative organizations, whether affiliated with labor unions or not, must be chosen strictly by non-supervisory personnel. A second, "unofficial," but still not uncommon, alternative ignores labor law and enfranchises all employees, supervisory and non-supervisory alike, to participate in elections, even though, with the exception of very small workplaces, non-supervisory personnel will statistically dominate the results of the election process.

Except in those rare cases where small size would make management inclusion decisive, the defense of the "workers-only" rule for representation strikes us as problematic. Supervisory employees deserve representation as well. Their inclusion in discussions taking place within the representative context would, more likely than not, enrich the quality of the dialogue. Just as we argued earlier for worker representation on more executive-oriented bodies such as boards of directors, managers should ideally be represented in employee organizations. In majority employee ownership settings, where the interests of management and workers are materially joined, the case against managerial inclusion is even harder to make. Were the employee ownership community to be persuaded of the general case in favor of representative structures and be prepared to voice its support for such an idea, it would be in a uniquely strong position to resist contemporary labor law's exclusion of management.

Summary and Conclusions: Labor Law and Organizational Power

Early on in this discussion we asked whether power could be managed without the use of structures. We questioned whether the good intentions of management could serve as an adequate substitute for structures that create the possibility of dialogue between managers and managed.

Advocacy of our position in favor of representative structures must eventually contend with the assumptions of current labor law. How do our arguments conform with the current debate on the future of labor law and how does the content of that debate reinforce or contradict our position?

Much of the criticism of contemporary labor law begins with the premise that it is outdated. To the critics, existing labor statutes describe an almost cartoonish drama of "good guys" versus "bad guys," where the good guys (the workers) must be protected from the greedy and powerful owners and their agents in management. While these same critics often acknowledge that oppressive conditions such as these were perhaps more common in the era when most of these laws were written (1934-1950), they claim that today's workplace has largely transcended those difficulties and is more accurately characterized by qualities of openness and trust than the antagonistic, "class struggle" model of suspicion that underlies existing labor legislation.

Furthermore, these critics argue that labor legislation is fundamentally paternalistic. It places big government in between management and workers and looks down on workers. It assumes, or so certain management groups hold in interpreting governmental intent, that those workers "cannot speak for themselves." The controversy surrounding section 8(a)(2) of the National Labor Relations Act, which is designed to prevent management domination of labor organizations, is an illustrative case in point.[7] This provision, often ignored in practice by many management and employee groups, explicitly prohibits discussions between management and any non-registered (with the U.S. Labor Department) group of employees (whether affiliated with a labor union or an "independent" labor organization) concerning issues of wages, benefits and working conditions. When held to the letter of the law, as was the case in the recent Electromation and Dupont decisions,[8] management groups have bridled dramatically at these restrictions.

The findings of the Bush-era National Labor Relations Board (NLRB) hearing on the Electromation Corporation and its management-created "Action Committees" are nevertheless revealing. The NLRB found that "[t]he purpose of the Action Committees was . . . not to enable management and employees to cooperate to improve 'quality' and 'efficiency,' but to create in the employees the impression that their disagreements with management had been resolved bi-laterally" (emphasis added).[9] In other words, while management's "espoused" intention in this case was one of equal dialogue, the NLRB found that the true intent of these committees was the furtherance of management plans without subjecting those plans to real employee influence.

Whatever the particular point of origin of the criticism, it is refreshing to hear management leaders invoke social-psychological norms such as paternalism when commenting upon the state of the contemporary workplace. Ironically, however, these same leaders are seldom "first to the bar" when similar norms, such as those embodied in our argument for "psychological safety" and "independence" of the employee voice, are invoked. Challenging the premise that workers might need a truly "independent" structure to partake of employee participation as yet another case of liberal paternalism, they retreat to the rugged terrain of laissez-faire economics. For them, the workplace is simply another open and free marketplace of buyers and sellers, in this case, employers and employees. Employees, because they are adults, can and should negotiate with and, if they are so inclined, protest to those in management on their own, without the "protection" of representative structures. Such interactions with management, they implicitly argue, should resemble nothing less familiar than the friendly bartering between a neighborhood customer and the owner of the corner hardware store.

Aside from the news that the corner hardware store has been taken over by Home Depot, we find this argument, as well as the analogy, to be lacking. The employment relationship is not a simple, casual marketplace relationship. It is a relationship of far more consequence and content. It is a relationship where, regardless of the manners of the moment, there still lurks a serious day-to-day drama of the relatively powerless dealing with the relatively powerful over matters of great significance.

We are inclined to believe reports that the norms of the modern workplace are different than those of the workplace of the 1930s. In all likelihood there may be an increase over earlier periods in the degree of civility and good will that existed between employer and employee. Public education, greater leisure time, the requirements of more demanding customers, and even television may have helped to humanize modern workplace relationships. Throw in employee ownership, particularly majority employee ownership, and we find employment relationships that are characterized by common economic interests between managers and managed. The present-day controversy around employee representation is therefore a complicated one, which is not enhanced by gross caricatures about the "true" interests of supposedly adversarial opponents facing off across the great class divide.

Despite the humanistic rhetoric of the times, employees are still too often considered a "variable cost" to be "downsized" whenever possible to maximize short term economic results. There may be more humanistic managers working in today's economy than at any other time in history. These people feel these contradictions and do whatever they can to resist them. They are exceptional people but their hands are often tied--not only by external economic forces larger than their individual firm, but also by "internal" pressure from their professional peers in the lunch room or at the country club who may be as likely as not to tar progressive thinkers with the career-damaging label of being "softhearted" or "liberal" as they would be to hear them out.

Structural ideas are conceived because of the essential facts of disproportionate power between groups and variable motivations among individuals. By designing workplace organizations with representative structures, we need not succumb to the lowest common denominator of negative expectations between managers and managed. Instead, we will merely be recognizing the existence of forces that are larger than the heroic acts of a courageous few.


ENDNOTES

1. Deming's Fourteen Principles are as follows:

1. Create constancy of purpose for improvement of product and service.
2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End practice of awarding business on the basis of price tag alone. Instead, minimize total cost by working with a single supplier.
5. Improve constantly and forever every process for planning, production and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations, and targets for the workforce.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
12. Remove barriers that rob people of pride of workmanship. Eliminate the annual rating of merit system.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work to accomplish the transformation.

W. Edwards Deming, Out of the Crisis (Cambridge, MA: MIT Center for Advanced Engineering Study, 1982), 23-24.

2. Our definition of "majority ownership" is that greater than 50.1% of voting stock is held broadly by greater than 50.1% of permanent employees.

3. Deming, Out of the Crisis, 59-61.

4. Deming, Out of the Crisis, 60-61.

5. Deming, Out of the Crisis, 202.

6. Paul Bernstein, Workplace Democratization: Its Internal Dynamics (New Brunswick, NJ: Transaction Books, 1980), 52, fig. 4-3.

7. National Labor Relations Act 8 (a)(2), 29 U.S.C. 158(a)(2).

8. E.I. du Pont de Nemours & Co. and Chemical Workers Association Inc., International Brotherhood of Dupont Workers and Chambers Works Central Safety and Occupational Health Committee, Antiknocks Area Safety Committee; Jackson Lab Programs and Publicity Committee, Freon Central Safety Committee, Chambers Works Fitness Committee; et al., 311 NLRB 893 (1993); Electromation Inc. and International Brotherhood of Teamsters, Local Union No. 1049, AFL-CIO, and Action Committees, 309 NLRB 990 (1992).

9. Electromation, slip op. at 38-39.

Online Resources: Articles & Publications

home | what's new | services | ownership culture survey | online resources | about us | contact us

Ownership Associates, Inc., 17 Story Street, Cambridge, MA 02138
tel: 617-868-4600, e-mail: cm@ownershipassociates.com

© 1991 - 2016 Ownership Associates, Inc.