Finance, Corporate Governance and the Management of Labour: A Conceptual and Comparative Analysis
| Author | Howard Gospel,Andrew Pendleton |
| Published date | 01 September 2003 |
| Date | 01 September 2003 |
| DOI | http://doi.org/10.1111/1467-8543.00287 |
Finance, Corporate Governance
and the Management of Labour:
A Conceptual and Comparative Analysis
Howard Gospel and Andrew Pendleton
Abstract
This article explores links between the firm’s financial structure, corporate gov-
ernance, and the management of labour. It reviews various literatures, in par-
ticular drawing from financial economics and political economy, and combines
these with industrial relations, and human resource management. We develop a
model that identifies how financial institutions and pressures impact upon labour
management. Managerial discretion is at the centre of the model, and six key
influences and constraints upon management are identified. We present evidence
from comparative analysis of labour management which illustrates how man-
agement decisions and practices are affected. A benefit of this approach is that
it can take account of within-country variations.
1. Introduction
This article explores linkages between the firm’s financial structure, corporate
governance and the management of labour. Although the role of finance has
been relatively neglected in industrial relations and human resource man-
agement, various literatures have recently started to consider the influence of
finance and corporate governance on the management of labour. The vari-
eties of capitalism and business systems literatures have examined relation-
ships between national patterns of business organization, including finance
and governance, and systems of employment (Dore 2000; Hall and Soskice
2001; Lane 1995; Whitley 1999).
Within financial economics, a recent strand of inquiry has focused on the
impact of capital structures on employment, wages and employee represen-
tation (Bronars and Deere 1991; Hanka, 1998; Perotti and Spier 1993; Sharpe
1994). In turn, but slowly, these literatures are beginning to influence
British Journal of Industrial Relations
41:3 September 2003 0007–1080 pp. 557–582
Howard Gospel is at the Management Centre, King’s College London, the Centre for Economic
Performance, London School of Economics, and the Said Business School, Oxford. Andrew
Pendleton is in the Faculty of Management and Business, Manchester Metropolitan University.
© Blackwell Publishing Ltd/London School of Economics 2003. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
industrial relations analysis (Blair and Roe 1999; Cappelli et al. 1997). Two
major developments lie behind this new interest. One is a set of debates
about corporate governance which has occurred in business and political
circles over the last decade in various countries (Cadbury Report 1992;
Greenbury Report 1995; Hempel Report 1998; Inagami 2000; Kommission
Mitbestimmung 1998; Porter 1997; Conference Board 2002). A second is
the coincidence of changes in finance and governance systems, such as the
development of the ideology of shareholder value, with major changes in
labour management, such as the apparent decline of internal labour markets
and other traditional industrial relations arrangements (Cappelli 1999:
chapter 3; Blair and Kochan 2000).
In this article, we develop a model to show how finance influences labour
management via corporate governance systems and practices. We identify
three key features of finance: the sources and types of finance, the objectives
of finance providers, and the intervention rights and practices associated with
different forms of finance. These provide a set of constraints, pressures and
opportunities that mould managerial choices in the labour area. Drawing on
the stakeholder capitalism (Hutton 1996; Porter 1997) and varieties of capi-
talism (Hall and Soskice 2001) literatures, six main aspects of management
practices and decision-making that are influenced by finance and governance
factors are identified: the balance of support given by management for the
interests of labour and capital, the time-frame of managerial decision-
making, the nature of business strategies, the importance ascribed to finan-
cial factors in decision-making, the approach to securing managerial and
employee commitment, and the degree of co-operation with other firms. In
turn, these have implications for labour management decisions and practices.
Managerial strategic choice, as influenced by finance and governance, is
central to the model. This is used to explain differences between national vari-
eties of capitalism, because there are systemic differences in the influence of
finance and governance on management, and also differences within systems,
because some managers find ways of enhancing their degree of strategic
choice vis-à-vis finance.Much of our attention focuses on differences between
national systems, and we show that there are clear differences in the influ-
ences on management decision-making, and then on labour management
practices and outcomes, between two types of finance/governance regime.
Towards the end of the article we focus on sources of divergence within
national regimes, and show how managers may expand their degree of choice
by shaping their finance and governance.
The emphasis on strategic choice advances the analysis of finance and cor-
porate governance by allowing for within-system as well as between-system
variations. Earlier literature either has been unduly deterministic, thereby
allowing little managerial scope for manoeuvre, or has tended to emphasize
system coherence (‘institutional complementarities’), thereby downplaying
variations within countries. We argue that managers can be active partici-
pants in governance systems rather than just passive victims or agents of
shareholders and other claimants. Indeed, it will be suggested that in some
558 British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2003.
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