Partnership, ownership and control. The impact of corporate governance on employment relations
| Date | 01 June 2002 |
| DOI | https://doi.org/10.1108/01425450210428480 |
| Pages | 335-352 |
| Published date | 01 June 2002 |
| Author | Simon Deakin,Richard Hobbs,Suzanne Konzelmann,Frank Wilkinson |
| Subject Matter | HR & organizational behaviour |
Partnership,
ownership and
control
335
Employee Relations,
Vol. 24 No. 3, 2002, pp. 335-352.
#MCB UP Limited, 0142-5455
DOI 10.1108/01425450210428480
Partnership, ownership and
control
The impact of corporate governance on
employment relations
Simon Deakin
Centre for Business Research and Judge Institute of Management,
University of Cambridge, Cambridge, UK
Richard Hobbs
Faculty of Law, University of Cambridge, Cambridge, UK
Suzanne Konzelmann and Frank Wilkinson
Centre for Business Research, University of Cambridge, Cambridge, UK
Keywords Partnering, Governance, Mergers and acquisitions, Human resource management,
Employee relations
Abstract Prevailing patterns of dispersed share ownership and rules of corporate governance
for UK listed companies appear to constrain the ability of managers to make credible, long-term
commitments to employees of the kind needed to foster effective labour-management
partnerships. We present case study evidence which suggests that such partnerships can
nevertheless emerge where product market conditions and the regulatory environment favour a
stakeholder orientation. Proactive and mature partnerships may also be sustained where the
board takes a strategic approach to mediating between the claims of different stakeholder groups,
institutional investors are prepared to take a long-term view of their holdings, and strong and
independent trade unions are in a position to facilitate organisational change.
Introduction
Most large UK private-sector organisations are listed companies that are
subject to intense pressures to prioritise shareholder value. The question arises
of whether this constrains the ability of managers to pursue genuine
partnership arrangements with long-term stakeholders, including employees.
We present empirical evidence addressing this question in the form of
qualitative case studies of labour-management partnerships in companies
operating within different corporate governance structures. Building the trust
required for partnership is indeed problematic in some companies with the
``dispersed shareholder ownership'' which is typical of the UK. Companies with
continental-European forms of ``concentrated ownership'' are often better able
to make credible commitments to their employees. However, ownership is not
decisive on its own. Regulatory factors, in particular relating to product
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The authors are grateful to the ESRC for funding the research reported here, through its core
grant to the Centre for Business Research. They would also like to thank participants at the
Conference on Assessing Partnership: The Prospects for and Challenges of Modernisation, held
under the auspices of Leeds University Business School and Pinsent, Curtis Biddle, 24-25 May
2001, and two anonymous referees, for their comments on earlier drafts.
Employee
Relations
24,3
336
markets, are also important, as is the strategic role of the boards of particular
companies in shaping their approach to corporate governance. We review cases
of companies which have developed enduring labour-management
partnerships while continuing to be active in the market for corporate control
and maintaining a wide share ownership base. We suggest that where the
corporate governance system can be seen to support partnership in this way, it
operates in conjunction with regulation underpinning quality standards,
relative stability in product markets, and, above all, a willingness on the part of
senior management to mediate between the claims of different stakeholder
groups, rather than seeing themselves simply as agents of the shareholders.
The significance of corporate governance for labour-management
partnerships
The benefits of labour-management partnerships are, in principle, well
understood. Partnership allows for the full exploitation of technical
complementarities in production, it facilitates the sharing of knowledge, and,
above all, it fuels the organizational learning processes by which new
information and knowledge are created and diffused, and by which new
products, processes and organizational forms are developed (Wilkinson, 2000).
The hallmark of partnership is that the parties give open-ended commitments
to cooperate, in the expectation that these benefits will follow. This necessarily
entails an extended time horizon. It also involves an acknowledgement on both
sides of their mutual exposure to risk. In this sense, to qualify as an ``influential
stakeholder group'' within an enterprise, employees ``must bear significant
residual risks, contribute valued resources, and have sufficient power to affect
organizational outcomes'' (Kochan and Rubinstein, 2000, p. 370). In other
words, employees must not only put valued resources at risk, in the sense of
incurring costs if the enterprise fails or their relationship with it terminates;
management must in return accept that employees should be able to exercise a
degree of power in the context of corporate decision making. At the very least,
this implies that they should be meaningfully informed and consulted when
decisions over the shape and structure of the enterprise are made.
The corporate governance literature increasingly recognizes that fairness of
treatment, job satisfaction, high quality of work environment and, particularly,
income and job security are important factors in generating investments in
firm-specific capital by employees (Blair, 1995; Kelly and Parkinson, 1998;
Slinger and Deakin, 2000). Equally, a growing body of work in the theory and
practice of human resource management (HRM) points to a link between
effective HRM and improved corporate performance (see Guest (2001) for an
overview). However, it is also clear that the possibility of these gains will not
necessarily induce management to adopt a pro-stakeholder stance. A low-
commitment, low-cost alternative may be to pursue increased market share
through a strategy of cost reduction, involving minimal commitments of job
security and a marginal role for employee voice. The product market has been
identified as a factor shaping this aspect of corporate strategy; cost-reduction
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