A Multiple-Stakeholder View of Firms

Since the New Deal, American firms have been assigned two competing responsibilities—to serve as agents for shareholders, by maximizing shareholder wealth, and to meet a series of (growing) responsibilities around which employment policies are built. These dual responsibilities have always been difficult to balance, and emphasis on each has risen and declined at different times. Paradoxically, just as pressures from shareholders have intensified, so too have human capital, knowledge, and learning come to be recognized as more critical strategic assets and organizational processes. And, to complicate matters further, these dual pressures come at a time when the boundary of the firm appears to be increasingly uncertain and blurred, as organizations restructure to find their "core competencies" and contract with other organizations in their value chain or networks for other necessary services and resources.

If the number of firms characterized by unstable organizational boundaries and uncertain tenure continues to grow, the locus of responsibility for employment policies may need to shift from the individual firm to the network of labor market institutions, across which employees are likely to move over the course of their careers. Individual firms then need to be more open to participating in a network of institutions that support and govern employment practices and opportunities, just as these same firms are now interacting with their networks of suppliers and vendors.

The range of interdependencies outlined suggests the need to shift political discourse and organizational analysis to conceive of firms as having multiple stakeholders, to whom they owe a fiduciary and social responsibility. This means accepting the view that employees who share residual risks by investing their individual and collective human capital should have a right to participate in the governance of the firm.[5] It also means accepting the reality that firms as employers will be held accountable for meeting the goals society sets for employment standards and human rights at work, and for working cooperatively with external labor market institutions. The task then is to design institutional forums and processes to allow these multiple stakeholders (in this case managers, employees, government agencies, and external labor market institutions) to work effectively together to achieve these multiple objectives. Given the uncertainties facing firms and their legitimate needs for flexibility and adaptability, these arrangements need to be decentralized and well informed of the needs of the different stakeholders that share an interest in these outcomes.

How might this be done? The labor policies of the New Deal envisioned collective bargaining as the central (essentially the sole) instrument for engaging and resolving worker and shareholder interests. While collective bargaining (and the threat of unions and collective bargaining on nonunion employers) performed well in structuring and adjusting a social contract that achieved a broadly shared prosperity from the 1940s through the 1960s, as a sole instrument it has not been able to cope with the changes encountered in markets, technologies, workforce demographics, and employer structures and practices since then. As a result, these last two decades have been a period of both tumultuous decline in collective bargaining coverage and significant innovation in firms and unions that are struggling to adapt to these changes.

The innovations largely take the form of more flexibility in work organization, employee participation in problem-solving at the workplace, and greater information sharing, consultation, or, in some instances, formal representation in strategic management decisions and corporate governance. In their most developed forms, we have tended to call these "labor-management partnerships". They certainly aren't perfect, nor are they a panacea, but they are the best ideas we have going at the moment. As our former IRRA president Lynn Williams put it, "the problem with labor-management partnerships is we just don't have enough of them". Therefore, we need to continue to study and practice how to make these partnerships work and to understand their limitations, while supporting and encouraging them in public policy, public discourse, and in our varying roles as professionals in this field.

These partnerships have proved most difficult to sustain in settings where the boundary of the firm is unstable, as it is in an increasing number of settings where technological changes and uncertain markets and emergence of new narrowly focused competitors make it difficult to assure employment security.[6] Because there are so few partnerships, and the basis for them is limited, we need to look for other institutional structures as well. The biggest challenge lies in how to substitute for the partnership model in nonunion or weakly unionized firms. Management culture (which abhors power sharing unless necessary), labor law (which limits such arrangements), and lack of employee power to influence strategic levels of decision making all rule out this option at the present time. There are no easy answers to this problem, and it may be the biggest institutional design challenge we will face in the upcoming years. In keeping with American tradition, we need to experiment with new options that bring the full range of voices into the process.

Experimentation is possible, and especially needed, to envision how government agencies and progressive firms might work together to achieve the goals embodied in workplace regulations. On the one hand, the increased variety of employment settings makes standard, uniform regulations inefficient and, from the standpoint of the individual firm, inflexible instruments for achieving the goals society has set for these policies. At the same time, many leading firms are implementing practices that go beyond minimum government standards. One option is to encourage firms, working together with their employees (and unions), to develop workplace institutions capable of internalizing responsibility for adapting and enforcing employment policies to fit their particular circumstances. In return, firms gain greater flexibility from government agencies over how they meet these policy objectives. Indeed, some government agencies are already experimenting with this type of approach.

In settings where the boundary of the firm is unstable and firms can no longer make a reasonable promise (tacit or real) of long-term employment security, the locus for employment policy and institution building needs to move from the work site and the individual firm to the labor market and the network of institutions that facilitate mobility. This implies that the individual firm is only one participant in a network of organizations and institutions that is capable of facilitating mobility, efficiently matching people to jobs, and sharing responsibility for investing in human capital and monitoring and improving employment standards.

This too requires significant institution building, but again, the process is already under way. The variety of labor market intermediaries, i.e., groups and organizations that operate outside the boundaries of individual firms, is expanding rapidly. I will discuss their roles in more detail later. The challenge is to build stronger alliances and collaborative relationships among these institutions and among firms participating in these labor markets.

[5]See Blair (1994), Blair and Kochan (2000).

[6]I am indebted to Richard Locke for emphasizing this point. See also Rubinstein and Heckscher (1999).

Inventing the Organizations of the 21st Century
Inventing the Organizations of the 21st Century
ISBN: 026263273X
EAN: 2147483647
Year: 2005
Pages: 214

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