Table of Contents
In most organizations, the explicit representation of employees’ interests in strategic decision-forming processes is rather rare. The participation in strategic decisions, which influences the basic direction of the organization, is unusual even when employees’ interests are represented collectively by trade unions. This paper considers management-union experiments according to two basic approaches through which strategic involvement for unions might be examined. They are as follows: union representation on corporate boards and union-management partnership agreements.
Legal authorization for works committee and representation of workforce on management board of directors are typical of many European companies. On the contrary, currently American companies do not have any legal structure that directs them to encourage employees’ participation on the management board. Strategic involvement of the United States unions has appeared from the unplanned set of private initiatives. This paper examines these initiatives by considering the union participation in company’s management activities and reviewing the logic behind strategic partnerships. The study also explores negotiated partnerships and union involvement on a corporate board of directors and discusses the dilemmas and challenges unions encounter when searching for strategic partnerships. Therefore, this research is summarized by reviews on these relationships between union and management.
The Rationale for Strategic Partnership between Union and Management
Strategic partnerships permit the involvement of unions and management in deciding on competitive strategy, financial planning, technology, production, and investment processes. In spite of the implementation of new work practices in the 1990s, some unions believed that neither employee participation nor collective bargaining could provide the means to tackle the turbulence connected with increasingly global competition, corporate restructuring, and availability of capital. For instance, some evidence on the expansion of new work practices reflects that such systems did not include the provisions of employment security and the companies, which adopted them, were likely to dismiss workers. In the 1990s, the workers became less enthusiastic for the fact that reforms were associated with corporate strategies that made jobs rather insecure. Union leaders noticed that restructuring and downsizing presented a threat to their members, yet they were delivering a significant improvement in performance. Additionally, these threats initiated more active representation through more skeptical attitudes and collective bargaining systems with the management. Some unions started initiatives by engaging themselves in strategic decisions, seeking corporate practices, the distribution of revenues, and the allocation of resources, financial information, and other business-related information upon which such decisions were based. Moreover, risky strategic partnerships gained popularity with union members as they supported such institutions. For example, United Auto Workers and AFL-CIO leaders showed interest and inclination toward strategic engagement (Buttigieg, Deery, & Iverson, 2014).
Strategic partnerships management not only gathers support among workers, but also has a fundamental economic rationale. Employees who invest in company’s specific skills offer unconditional interest in the performance of the company that hires them. This rationale becomes severe under prevailing conditions of competitive environment, which highlights implementation of high-performance work systems and continued downsizing. These practices demand that employees should contribute to firm-specific skills. With investments of corporate shareholders in company’s physical capital, the returns to investments are achieved over a certain period of time as the firm uses these skills to enhance revenue. The question whether strategic considerations are fair and justified, when firms decide to fire employees before they have an opportunity to recover the value of their skills they have invested in the company. In many organizations, workers have no legal means to protect their skills; therefore, a role of unions in these decisions has become necessary to increase the credibility of commitments made by management (Briskin, 2014).
The Prevalence of Strategic Labor-Union-Management Partnerships
Drakopoulos and Katselidis (2014) reviewed the collective-bargaining agreements (those expiring before September 30, 2007, and covering more than 2,500 workers) and have found that nearly 45 percent of the United States collective bargaining agreements involved some sort of partnership. A research into these agreements reflects that strategic partnerships were exceptionally rare: only 30 of 1,025 contracts contained provisions for “full partnership.” These agreements covered nearly 200,500 workers. The example of high-profile union-management partnerships between Xerox and the Amalgamated Clothing and Textile Workers Union (ACTWU) shows that strategic partnerships may grow from needs of management at a particular time where the involvement of workers is necessary for enhancing organizational performance. These partnerships may develop from low levels of cooperation and grow into full strategic partnership with union involvement (Drakopoulos & Katselidis, 2014).
A small survey was conducted by Soon (2014). The author surveyed thirty researchers in labor-relation, human resources, and management, and received responses from ten researchers. Out of the general number, four researchers stated that the management-union partnership they examined led to no strategic involvement for unions. For example, At IT manufacturing company, a partnership established between management and the union officials failed to deliver high-level decisions for shifting some processes at another plant. Similarly, a communication company, which had included more cooperative work practices with affiliated union, never encouraged strategic involvement. Furthermore, six researchers reported on unions and companies that encouraged cooperative relations, but not strategic partnerships, which resulted in the relationship ending with discussions and consultation on some strategic issues. The cooperative relation between the management and local union with one auto-parts manufacturer, for instance, was based on sharing information on operational and business-related issues. However, this relationship was not established for a strategic partnership. In such type of relationships, both parties protected their rights and obligations to ther constituencies. This sort of partnership involved trust, consultation, and communication, but there was neither shared decision forming nor union involvement in decisions that relate to investments, financial planning, production processes, and competitive strategies. Many companies offer different viewpoints on strategic partnership. They emphasize that such processes as production, finance, and investments are the internal areas managed by company’s shareholders, but the management can include union’s representative on the board only for addressing problems related to workers’ interests (Soon, 2014).
Union Representatives on Company’s Management Board
The abovementioned descriptions and reviews of partnerships agree with the findings that fewer than four percent of collective-bargaining contracts feature these arrangements, because full partnerships seem to be extremely difficult for unions in establishing and maintaining strategic partnerships. Negotiated partnerships establish precarious ground. They are prone to collapse as union members are doubtful about the value of such participation. Their effectiveness and survival also depend on the commitment of management to the partnership, since joint decision making and information sharing processes are integral parts of strategic involvement. It is also not clear whether unions have a right to force such commitment on management, given adequate bargaining power, or whether commitment depends on the good faith in management (Allen et al., 2015).
Several American unions who are familiar with the tenuous feature of negotiated partnerships agreements have tried to strengthen their strategic effect by seeking seats on the corporate boards of companies where they can represent members. Board representation of unions is not necessarily linked with shared approaches or a partnership in decision forming, but also with protecting employees’ interests and employment. For instance, throughout the 1980s to 1990s, unions’ representation on the board of directors resulted from negotiations over the implementation of Employee Stock Ownership Plans (ESOPs). In these cases, protection of the employees’ ownership interests, rather a commitment to strategic issues, motivated union to seek representation on company’s board. In addition to this, board nomination can be valuable in terms of strategic partnerships, because directorship offers more rights to decision making and sharing of information processes. Such seats on corporate board have appeared as a result of collective bargaining programs such as the IAMAW’s HPWO partnerships and the USWA’s New Directions in the United States (Fiorito & Russell, 2014).
Geppert et al. (2014) confirm three prime restrictions on the abilities of union-nominated representatives to use the boardroom to represent employees’ interests in strategic decisions. First, union representatives have to represent shareholders’ interests and are legally liable if they fail to act effectively and efficiently. Their fiduciary duties prohibit nominees from specific representing of members’ interests, except from the case when they can convince that such interests are coherent with protecting the investments of shareholders. Second, this limitation of interest representation is normative: the role of corporate boards that affect managerial and directors’ communities. On typical boards, outside directors rarely participate in day-to-day governance, so their involvements can be seen only in major events, such as changes in top executives, take over, or annual general meetings. Board functioning depends on consensus instead of constituency representation or some specific negotiation among competing interests. Third, managers’ interests always do not align with union’s interests and concerns, thus resistance to shared control may even block strategic engagement (Geppert et al., 2014).
International Brotherhood of Teamsters experience with board directors is informative. The deregulation and the weakening of collective bargaining in the 1990s forced trucking firms to seek wage concessions. In several companies, employees agreed for stock in return for wage concessions. The IBT insisted on the company allocating board seats to protect the stock held by the workers. Several of the Teamster-nominated directors envisioned involvement with management as a vehicle to promote discussion of the strategic issues that the union and firm might encounter, but this never occurred in reality. Alternatively, the boardroom became the venue through which the IBT nominees struggled to protect its members’ financial investments.
The management stopped sharing the information with union nominees and made decisions outside the boardroom. Most of the IBT nominees were characterized by mistrust between inside managers and outside directors. Hence, all board schemes disappeared as the companies bankrupted or were acquired in the fierce competition followed by deregulation. Consequently, awareness of these normative, legal, and practical limitations has discouraged unions enthusiasm in corporate board representation as a platform for strategic engagement (Soon, 2014).
Another common practice by the union is the nomination of friendly “neutrals” such as advocates, consultants, and even college professors to serve as nominees on behalf of the union. In many instances, these nominated directors have improved the company governance in the interest of shareholders. These nominees embody characteristics of effective directors who can maintain a balance between interests of the workers and the company. Union representatives that possess right skills, commitment, and wisdom can prove to be an effective channel in resolving critical issues of workers and meeting the requirements of shareholders at the same time. Some corporate boards of firms in Table 1 (see Appendix) have established a platform for strategic partnership between management and union. This relationship usually occurs when the boardroom is visualized by the parties as an appropriate venue of resolving crucial issues with labor-management cooperation, and both of the parties have valid reasons for cooperation due to the demands of the competitive market (Tony, 2014).
Kumar and Babu’s (2015) study of the Western Airlines management board, for instance, demonstrated that board participation was effective when it was accompanied by employees’ involvement; and the participation was stronger when unions were more influential in the management. Regarding other partnerships, the institutional security of the union and the apprehension of the union thhat management is not strong enough to compromise that security are significant conditions for success.
Union-nominees have a huge impact on strategic decision forming in many areas. These nominees can use tools of consensus to delay or stall decisions by withholding approval, for example, union-nominated officials can discourage management from implementing plans, which unions perceive as destructive or divisive. Typically, unions can use their positions by raising issues for discussion and negotiations, and by requiring management to address the arguments, which evoke resistance from the union as it may be dangerous for management in the long-run perspective. Unions with their participation in the management can also affect the compensation and selection of top executives. Union-nominated directors can force management to hire managers who are committed to enhancing partnership and safeguarding the institutional interests of the union and may also be able to block or stall the inclusion of managers that they consider as hostile. They can also ensure that executives’ compensation and benefits packages are established in a way that preserves partnership rather than breeds discontent or distrust. Union representation on the management board can also be helpful in performing a role of collective bargaining while giving significant importance to strategic context. Moreover, the union presence on corporate boards can be beneficial to each side; thus, forming the credibility and establishing additional channels for communication. While the board representation can promote partnership and joint decision making, it is commonly understood that such representations do not offer guarantees that the management and the union will work together to address joint issues amicably (Kumar & Babu, 2015).
Dilemmas for Unions
In the United States, it is unlikely that public policy or managers will create joint participation in strategic management decisions. For this reason, strategic partnerships will largely depend on initiatives of the unions. This section discusses the dilemmas that such partnerships pose between unions and management and consider the approaches in which union leaders have addressed these challenges. The joint involvement of unions and management has created three different orientations to strategic partnerships. First, since employees have invested in the company through ESOPs and stock purchases, trade unions can bargain for ways to monitor management more cautiously from the angle of workers investment. Second, the involvement of both parties can follow defensive approach by protecting union jobs and responsibilities of its members. Third, the partnership can be an overall attempt made by the union nominees to involve more deeply in the processes and functions of the management, in which union representatives seek to employ their expertise to enhance company performance. Strategic approach, whether applied through board seats or negotiated partnerships, raises serious challenges for unions.
Problems evolving at local level of participation are easily understood. The commitment of union representatives to management-labor participation increases their chances of success, but such commitment demands local representatives to define their roles and convince their members of the value that can be obtained with cooperation. The stakes are extremely high at the strategic level. Several issues brought at the strategic level impact security of workers’ job and the existence of the organization, as well as the union itself. Several instances provide the evidence where union nominees on the board have been reluctant to accept even the smallest responsibility for managerial decisions. They remain uncertain that by means of such involvement considerable impact may be achieved, believing that management is not inclined to share decision-forming authority. Thus, successful partnerships require that unions decide that management can commit to participation or can be forced to engage in the partnership. To gain the workers’ support, the strategic partnership must safeguard not only workers’ investment and interests but also the security of the union itself (Daud & Tumin, 2013).
Management opposition to the union partnership in the boardroom may derive from the calculation that the potential costs outweigh the advantages of cooperation. There is a strong conviction for this calculation: if the cooperation between management and labor is lesser, there are more possibilities that the union and the management will not be able to reap shared gains. In the absence of such benefits, management may believe that such partnerships with unions show their inability to manage, and as a result, will be reluctant to pursue joint partnerships (Sheehan et al., 2016).
Few businesses encourage active involvement of unions in strategic decisions at management level. Instead of this, the construction of such platforms demands strong common interests and determined union involvement to survive in difficult competitive conditions. The strategic partnerships in the U.S. have not evolved from workers involvement or other kinds of partnerships. Although management continues to search for performance advantages from workers, they avoid inviting unions to the boardrooms or strategic participation. The primary logic behind management-union partnerships is to increase the competitive position of the company’s inconsistency with the protection of the employees’ investments in the organization, whether in form of human or financial capital. In some circumstances, both parties may not show common interests to make partnership feasible. The findings also reflect a fatal problem with cooperation as they cannot address the instability outside the company that appears to be prevalent in the current economic environment. Management resistance to union representation may derive from the calculation that the potential costs prevail over the benefits achieved from cooperation. The strong reasoning behind this calculation is that the less cooperation in enhancing the union-management relationship, the more likely it is that both of the parties will not be able to achieve joint gains. Since advantages and possible benefits are unknown, management may oppose union involvement in the boardrooms. A further concern is that labor laws in most countries do not protect workers’ rights. Even in unionized organizations, management avoids attempting of union representation and seeks opportunities for nonunion environments. Therefore, management ability to avoid unionization also offers another reason for management unwillingness to pursue the strategic partnership with the unions.
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