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Inside the Firm Review: Part V

Enterprise Governance, Worker Organisation and Labour-Management Relations

Do workers have board-level involvement (i.e. at the level of Board of Directors) in large firms? The Confederation of Indian Industry, for example, is not in its favour, and so must be the employer associations elsewhere. In India, in Mumbai, some independent employee unions have made attempts to intelligently factor themselves into corporate governance at the board level by arguing on the basis of modern company law that there is no reason why they should not be part of the board-level decision making. Unfortunately, as of now, corporate governance is underpinned by the largely ideological rather than the really legal doctrine of 'shareholder primacy', and the established political unions in India have accepted this ideology and thereby killed the potential of labour movement extracting workers' rights in the new economic order. Some of the central trade unions have also accepted the argument of the big business that there should be no interference in the internal management of their affairs. What is the degree to which employees are represented in corporate governance through institutions such as works councils or joint labour-management committees and what is the extent to which workers are at least consulted informally by management in the auto industry?

Again, there is a wide variation. In Germany, the role of works councils has increased relative to that of the unions, as 'qualitative' issues such as the introduction of new technologies, training and work organization have gained in importance. However, the end of the German 'economic miracle' has imposed considerable strains on the existing system and conflict has flared. Employers have sought to decentralize decisions which were formerly negotiated with the industry-wide union, to the plant level, where union representation is often at its weakest. Furthermore, many firms within and outside the auto industry are promoting direct forms of employee involvement which do not require the participation of the works council.

Although unions remain strong within the auto industry, there has been a gradual decline in unionization. This is a trend which can be understood as the structure of the labour market continues to evolve in a direction that favours white-collar and service-related occupations, which are less unionized than the blue-collar and manufacturing-based jobs. Sweden does not have highly institutionalized works councils as in Germany, but the workplace reforms of the 1970s strengthened the role of union representatives in decision-making within the enterprise. While unions directly challenged management prerogatives and championed radical plans for wage-earner funds, economic difficulties in the 1980s and 1990s saw the balance of power swing back to the employers. Employers sought to end the centralized wage agreements and some withdrew from cooperative arrangements with the trade unions. Yet, as a result of continued union influence at the enterprise level, direct forms of employee participation in decision-making are said to persist. Of course, it should be noted that such renewed interest in consultative approaches is dependent on the presence of a Social Democratic government.

Employee involvement programmes have been prevalent in the USA for a number of years, under various terminologies, but tend to be found more often in unionized than non-unionised workplaces. Canada has a similar pattern of firm-level governance to the USA, in that management has the right to make business decisions based on corporate law, regarding hiring and firing of employees, investment, plant closures and technological change. Yet, the Canadian Auto Workers union has gained significant influence through occupational health and safety laws at the workplace level but has been opposing employee participation proposed by management. In the Canadian auto industry, as in the USA, most strategic decisions remain the prerogative of management. In Japan, the presence of formal labour-management consultative committees tends to be highly correlated with union presence within a firm. But the Japanese approach to consultation is said to be highly idiosyncratic and difficult to compare with Western systems.

All the same, a number of activities which are present in most large enterprises, such as Quality Circles, have been used by automakers in other countries. During 1983-96, under successive Labour governments, Australia saw a thick nexus between the federal government and the union movement. This gave the Australian Council of Trade Unions unprecedented influence in strategic economic and political decisions. The union movement cooperated with the government and employers in the introduction of greater flexibility in the wage determination system through enterprise bargaining. But unions remained weakly represented at the workplace level, even in the auto industry where there is a very high level of unionization. This can be ascribed partly to many years of reliance on the centralized arbitration tribunals. Consequently, there has been only a moderate role for unions and employees in corporate governance, even though there has been a steady growth of interest in various forms of consultation.

In discussing enterprise governance, there are two problems. First, it is difficult to ascertain the extent to which human resource and/or industrial relations professionals play a key role in strategic decision making within automotive firms in various countries. Secondly, there is the difficulty of measuring employee involvement in decision making at the plant level for making comparisons even as employees generally perceive a low level of influence that they have. The label 'despotic regimes', reminiscent of the early capitalism in which coercion prevailed over consent, is commonly found in the vertical supply chains; A more sophisticated management style found in the lead firms, in relation to the core workforce, is “despotic paternalism” or “hegemonic factory regimes” wherein consent is manufactured by offering better labouring conditions and it somehow prevails although never to the exclusion of coercion. Management style in enterprise governance or production chain governance in the auto industry is mostly of the type labelled variously as 'macho management', 'autocratic or authoritarian management', 'union hating/busting management', and 'military-style discipline-and-punish management'.

So, industrial democracy is still a far cry. And this kind of undemocratic management culture persists despite the evidence that workers and their unions do not impede competitiveness and that they may even further competitiveness. Whether indeed employers and managers are really interested in creating good labour relations is a moot, fundamental question, in light of this. Big and strong industrial unions such as IG Metal in Germany or the union of unions such as the International Metalworkers Federation, Geneva have contributed to the rise of a “new model of unionism” wherein the union drops the old 'job control unionism' and gets integrated into managerial decision making without compromising on workers' interests by playing a more active role in employee training and thereby facilitating diversified, quality, high volume production in Germany against the Japanese and other foreign competition. It is interesting to see how unions like IG Metal have broken free from the shackles of the earlier industrial unionism in the Western countries. This kind of unionism promotes productivity and quality which is a departure from the traditional trade union role of collective bargaining.

It may be noted that in the post-war period, “the very success of industrial unionism also sowed the seeds of its eventual decline. In order to defend workers against the abuses of (Taylor’s) scientific management, the new industrial unions accepted, even embraced, all that went with it—in particular, the rigid separation of thinking from doing, 'managing' from 'working'. Cut off from decision-making responsibilities, unions focused on protecting workers from exploitation by using Taylorism as a base of shopfloor power. They negotiated multiple job classifications, linked wage rates to the job instead of a worker's skills, and established seniority as the basis of promotion. This 'job control unionism' gave unions a negative power to hamstring management but not a positive power to influence operations. Rules bred more rules, eventually straitjacketing the production system and creating unproductive hierarchies in both companies and unions.

The costs of this system were obscured as long as the US mass- production economy dominated the world. But since the late 1960s, changes in the world economy have threatened to leave both US companies and unions behind. In a global economy, wage competition is also global. And under the impact of changing markets and technologies, companies around the world are scrapping the old mass-production systems and converting to flexible manufacturing, flattening hierarchies, blurring the boundaries among functions and jobs, and encouraging—indeed, demanding—that workers make critical decisions on the factory floor. Neither traditional American management nor American unionism fits in well with this new economic environment—a fact that even strong union supporters now recognize”. In contexts where there are no such proactive strong industry-wide unions as IG Metal, or contexts where proneness to conflict of the industrial relations system such as in India is not giving way to labour-management cooperation for productivity and quality, employers and the civil society, in general, see the adversarial unions hooked only to collective bargaining as irrelevant. Financially weak independent enterprise-level unions are finding themselves ill-suited to meeting the needs of both workers and companies. And the paradox of growing worker discontent and union decline continues to rule the roost.

In this connection, there are two points, one in general and the other in relation to India: first, there is no doubt that the primary objective of HRM (human resource management) is to marginalize trade unions given its emphasis on Unitarism, non-unionism and individual bargaining. Many employers have been overtaken by this but they failed to institute new institutions even as they destroyed the old ones. The destruction of the traditional adversarial industrial relations is found to be associated with the lack of a significant increase in 'new' forms of employee representation or communication so much so that this has resulted in a vacuum in the nonunion organization. This coupled with the fact that “employees were treated as 'factors of production' testifies both to the depraved content and degenerated process of HRM philosophy.” It is the task of unions to expose and fight the degeneracy of HRM; secondly, “…field experience does not lend any support to the argument that non-unionism is any better than unionism, nor that the unionized organizations are placed in a relatively disadvantageous position. On the contrary, a strong trade union has several positive features in terms of accountability and enforcement of contracts. It is observed that in almost all cases, conflict and cooperation coexist and inform employment relations, by turns, and ultimately it is only through the good offices of the union that employers sell the concepts of productivity and quality to the vast mass of workers."

But the complacent political trade unionism that has evolved in India in the “most unscientific, haphazard and defiant manner over decades” is now facing extinction as its leadership generally drawn from one political party or the other has had a dampening effect on employees' attitudes towards the efficacy of unions in meeting their expectations. And this anachronistic leadership is damaging labour movement in India by resorting to unmindful violence—“One peremptory requirement is that trade unions should eschew, at all costs, the kind of violence exhibited in Bata Shoe Company in July 1998. Industrial organizations cannot be treated as battlegrounds for rival unions to display their combating skills. And an employer is under no obligation, whatsoever, to remain a helpless spectator. He may opt for and can afford, a long-drawn lockout if driven with his back to the wall. Can the workers afford it? Such misplaced heroism, wherever practised, has brought disrepute to unions and misery to workers, depriving them not only of their jobs and earnings but also public sympathy and legal support, regardless of the legitimacy of their demands. Union leaders should pose the question 'would it be wrong, and what would happen, if employers, as a class, decide to pay them in the same coin' and also find an answer for themselves”. “Enterprise union” is integral to the so-called conflict-free Japanese enterprise governance.

But most unions outside Japan take it as sort of pro-management “yellow union” wherein leadership often is dominated by managerial personnel and as such it provides little resistance to the unilateral direction of work. Workers in Japan have little autonomy vis-à-vis the production supervisor—the first-line manager—who often is also their union representative. As such, it is not surprising that in order to implement JIT-TQM production not only Japanese transplants but also non-Japanese companies impose managerial prerogatives on the shop floor by going to greenfield sites and setting up shop without unions or with 'strike-free agreements' with very weak or marginalized unions and with highly selective recruitment of psychologically “suitable workers”. The Brazilian experience with Japanese methods as both anti-union and beneficial to labour is as follows: “Even when the union is weak or has been marginalized by management, improvements to employment conditions are evident: increased stability, better relations between workers and supervisors and more training.” In this milieu, no wonder, unions in brownfield sites are generally hostile to Japanese type methods as a calculated strategy to undermine union power.

All in all, with growing unemployment, even militant unions have been falling in line to facilitate top-down, management-led programmes of quality, productivity and flexibility enhancement, as part of their own survival strategies, which in turn fuels the fire of macho management so much so that there is a trend towards the conversion of 'hegemonic factory regimes' into 'despotic regimes' even for the so-called core workforce. Unions in the process are locked into the contradiction of assisting the management in mobilizing workers to increase productivity and profits of the enterprise on the one hand and representing and protecting workers' interests on the other.

Their management of this contradiction becomes eventually tragic in that they become less and less effective in dealing with workers' grievances and protecting workers' rights. As far as the rank and file workers are concerned, they are unhappy with their ineffective unions and there are cases where they have voted against their 'soldout' unions even as their wish to have a “true union” has become a hopeless dream. If this is the state of frustration and helplessness at the lead firms and large component firms, the prospects of keeping alive the old agenda of industrial democracy that strong independent democratic union is needed to keep the companies honest and to give a bigger voice for workers in the way things are done at the plant, are very bleak indeed. In this milieu, it is safe to conclude that unions do matter for the dignity of workers despite the fact that there are grave difficulties accounting for the low and declining union density-there are external difficulties by way of anti-labour bias of the laws, the exceptionally close alliance between business and the government, and the deep animosity of the media toward organized labour; and there are internal failings of trade unions in terms of failure to aggressively organize new members, internalizing the employer strategy of divide and rule, corruption in the labour movement, lack of consistent union democracy and the lack of an independent labour politics. How trade unions should reinvent themselves in the present context wherein they are sandwiched between addressing the issues of profound alienation faced by workers on the one hand and the need for shifting from collective bargaining to participative or quality of work- life programmes on the other in conjunction with the need for integrating with a larger social and political movement, has now become a hot frontier research topic.

There are cases where workers in the restructured factories—reorganised on the JIT/TQM lines—in greenfield sites say they do not need unions. In such cases, the workers are hand in glove with the anti-union campaign of their employers. In such workplaces, the employers “devise company-dominated arrangements which they hope will serve as substitutes for unions. The basic idea is to group the workers into 'quality circles' which then brainstorm more efficient ways to work, or into 'teams', which serve as problem-solvers for management. Each team member is trained to do every other member's job. Management provides special training for circles and teams, often outside of the workplace and under the supervision of supposedly neutral experts. This training deliberately imparts the impression that the employer is concerned with the workers as human beings with needs beyond the workplace. Employers may even provide special technical training and give workers access to company data so that the teams can, in fact, solve problems and take on some of the work previously done by lower-level management. Workers, desperate for any kind of attention, often are enthusiastic about teams. But in time most find that management uses teams for one reason only—to increase productivity and profits. Since most jobs have been engineered to require as few real skills as possible, the fact that team members know each other's jobs means that management will not have to hire replacements when a member is sick or injured. Workers may find it more interesting to keep exact track of every move they make on a job, but employers have them do this in order to reduce the amount of labour used. When workers make suggestions for increasing productivity, they are giving their employer the knowledge which will eventually allow the employer to speed up their work or eliminate their jobs.

When jobs are re-evaluated with team assistance, workers may be helping the employer to discover which jobs can be profitably contracted out. When team members are called 'associates' instead of workers, the employer is using manipulative psychology to give the workers the trappings of power without relinquishing any real control”. Sooner or later, workers in such non-union workplaces will realize that even as they are resurrecting the employers' workplaces, they are actually digging their own graves and will have to accept that unions do matter in dealing with the super-cleverness of employers in the field of 'enterprise governance'. In the nonunion sector, disputes between labour and management are settled usually by the informal handling of the immediate supervisors or a formal 'grievance redressal mechanism'. But there is a downside to this in that there are reprisals against those workers who file grievances.

There is “evidence that workers who file nonunion grievances have poor subsequent work histories on average than nonfilers.” This is not all. The replacement of collective bargaining by individual bargaining is theoretically as also practically unjustifiable: “As a matter of fact, every organization bargains at an individual level in two situations: first, while recruiting employees—an exercise aimed at fixing entry-level salary which is determined by a complex set of factors including the last pay drawn; and second, throughout their stay in the organization, but restricted to the managerial personnel. HRM seeks to extend the latter version of this concept to workmen who fall within the ambit of industrial relations legislation.

The feasibility of this proposal depends on a range of factors, such as the right of workmen to organize and bargain collectively, problems of inequity and the de-motivating influence of unilateral decisions, the need for uniform standards of administration, legal restrictions on unfair labour practices and the extent of unionization of the unit. Direct linkage of pay, in its entirety, with individual performance, means that intra-grade heterogeneity in pay and benefits becomes the accepted norm of personnel management, with its concomitant evils of demotivation, interpersonal disharmony, politicking and, not infrequently, even sabotage. Employees engaged in small-scale units might reconcile with such glaring imbalances, but not those engaged in large corporations. Grievances soon pile up leading to a rich crop of dysfunctional consequences. Given the superior bargaining power of the employer, individual bargaining stands reduced to an arbitrary and unilateral grant of salary increase at the sole discretion of management, which, though manifestly capricious, is final and not open to question. All that an employee aggrieved of internal inequity can do is to request his superior, rather slavishly, for reconsideration, and nothing more. This is the ultimate form in which the HRM brand of 'mutuality' is practised in non-union organizations!

By Annavajhula J.C.
Bose, PhD Department of Economics, SRCC

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