REASONS TO MOVE TO A GLOBAL IFRS
2.6 Industrial and organizational democracy in a
Flatter organizations with less of a hierarchy, participative decision making and increased self-determination by workers seem to be inevitable steps in the organizational development of firms. Sweden, Norway, Germany, the Netherlands and Denmark have lead the way with such developments; Finland, Ireland, United Kingdom, France, Belgium and the Latin- European countries such as Italy, Greece, Spain and Portugal are some distance behind these north-west European countries. Increasing industrial democracy enables firms to better realize their societal responsibilities and to act in a more ethical way. Participative arrangements are often implemented in the belief that participation will improve productivity and performance.
A movement towards various forms of organizational democracy (which began after the Second World War) is still underway, though the changes are now slower and taking different forms. They are also occurring in a different and somewhat piecemeal fashion. Students and worker uprisings in France, Germany and the Netherlands in the late 1960s and early 1970s gave new momentum to legislative processes in several European countries. Industrial democracy might again become an issue and could be somewhat accelerated by European Union (EU) legislation which permits and promotes different styles of participation and democratic processes. Respecting existing differences in national cultures and value patterns and acknowledging pluralistic national regulations seem likely to be important in future EU legislation.
At the Maastricht Summit (December 1991) the EU member countries – with the exception of the UK – agreed to strengthen employee participation rights in the states of the European Union and to further harmonize employment practices and laws. British firms, operating in other EU countries or doing business with clients in EU member countries, will of course be affected by these socio-political decisions of the EU.
The notion of joint decision making is already accepted and established as a feature of corporate life in the majority of countries in Western Europe (see Table 2.4 for a Europe-wide overview). Managers in Germany, Sweden and the Netherlands, for example, are already working within the institutional and legal framework of joint consultation with works councils on the one hand, and boards of directors which include worker representatives on the other.
Flatter organizations
industrial democracy
EU legislation
© Noordhoff Uitgevers bv
The European works council
The European directive of 1994 in respect of the establishment of a European works council led to the implementation of the Act on European Works Councils in the Netherlands on 5 February of that year. The guidelines and the law aim to improve the right of information and consultation of employees about cross-border cases involving multinational companies.
To make it clear what organizations this affects, in simple terms, a multinational company is an organization with at least a thousand employees spread across the EU member states, with in a minimum of two member states at least one hundred and fifty employees. By
‘consultation’ is meant the exchange of ideas and the establishment of a dialogue between employee representatives and the main board of directors.
The European works council has gained ground gradually. European works councils (including Dutch works councils) have already been established in a few international operating
companies. The corporate seat of most of these companies is located in Germany or France.
England also has a few European works councils in operation; these have been established on a voluntary basis.
Research (2000) has shown that one hundred and five Dutch companies have been obliged to have European works councils (though this number includes thirty-five companies which already had a European WC, including Philips, Shell, Unilever, Hoogovens and Canon).
The European works councils have a right to information concerning cross-border
developments and activities such as mergers or company foreclosures which have effects on establishments in the various European countries. Every state member has the freedom to adjust the law to his own view. The multinationals have to act in conformity with the law of the country in which their corporate seat is located.
Of the approximately 820 European work councils, a handful of them are doing a good job as managerial sparring partners. Too many of them are pining away. A necessary revision of the guidelines, expected in 1999, has still not been completed, despite the fact that experience has long since shown what measures are necessary to improve effectiveness: information and advisory rights that conform to those that appear in other European documents, the obligation to be timely in providing information, more meetings with management, the right to attend preparatory sessions and post-meeting discussions, to training and expert advice and the right to extraordinary sessions in the event of a crisis.
Ideally, European work councils make arrangements with top management in respect of themes such as internal job mobility within the company, the creation of a system of financial participation by employees and harmonization of personnel policy. But responding in a timely way to major reorganizations constitutes one of the tasks of a European works council: the campaign aimed at keeping the Enci cement works in Maastricht open for longer – at this stage until 2011 – is one example. This campaign took place in close consultation with the Dutch and European works councils of Heidelberger Cement.
2.6.1 Organizational democracy
Organizational democracy in its broadest sense encompasses a considerable variety of interpersonal and/or structural arrangements which link organizational decision making to the interests and influence of employees at all levels of the organization. It determines the degree to which employees can influence the decision making of the firm or institution in which they work.
Examples of relatively weak forms of organizational democracy, where employees have only a small measure of influence over decision making, include quality circles and informal work consultation during meetings on certain aspects of work. However, many people only use the Exhibit 2.3
the European works council
decision making work consultation
© Noordhoff Uitgevers bv
word ‘democracy’ to describe circumstances involving substantial influence on important decisions – not only consultation with workers at the operational core or via a works council, but also decision making at top management or board level. Supervisory boards – with members elected by employees or nominated by a union to represent the views of employees – as a form of decentralized decision making from the top of the organization, as well as a vehicle for initiatives relating to safety, health care and working conditions at the bottom of the organization can indeed be seen as forms of organizational democracy.
Research among British managers and shop stewards has shown almost unanimous (95 per cent) support for work group meetings and job design, with a large majority considering these to be of interest to employees as well as management in organizations. These findings are consistent with further research which showed that employees welcomed direct participation – as well as indirect participation – in every respect, and at the same time recognized that such participation was of advantage not only to themselves but also to the company for which they work.
It is significant that the great majority of workers do not expect participation (either direct or indirect) to affect power differences between management and workers. These findings therefore indicate that it is functional democracy that is beneficial from the workers’
perspective.
Various studies have produced circumstantial evidence to support the fact that participation not only influences the atmosphere of an organization in a positive way, but ultimately also has a positive influence on efficiency and effectiveness. Research studies into US experiences (Crouch & Heller 1983, Wilpert & Sorge 1988) with the Scanlon plan and the Quality of Working Life (QWL) programs, the long-term effects of socio-technical reorganization in Indian textile mills, Swedish organization development (OD) programs and Norwegian industrial democracy experiments all point to the successful implementation of functional democracy, and an accompanying increase in performance and improvement in the working climate of the organization.
Mini case study 2.3
Trade union official: Opel Antwerp will close
A German trade union official says General Motors Corp.
plans to close Opel’s Belgian plant, with the loss of more than 2,300 jobs.
Franco Biagiotti, the head of the Bochum work council, told the DAPD press agency that Opel’s head Nick Reilly had said this week that the plant would close.
Opel had no comment on speculation that it would announce the plant’s closure later Thursday.
Workers at Antwerp have blockaded the factory’s parking lot in protest at the job losses.
Source: The Associated Press State & Local Wire, January 21, 2010
2.6.2 Future EU legislation and directives on industrial democracy
On 22 September 1994, the EU member states implemented a directive (Directive 94/95 Concerning the Institution of the Euro Works Council) that could lead to fully fledged employee participation across Europe. The directive states that employees in companies and institutions which meet certain criteria have to be informed and/or consulted on cross-border affairs. This EU directive was to be included in national legislation no later than 22 September 1996. Negotiations to establish a European Works Council (EWC) are continuing. It must be said, however, that in this respect EU harmonization, not to mention unification, is still a long way off.
No further directives have been published since 1999. The somewhat unrealistic belief within
supervisory boards
decentralized decision making
Scanlon plan Quality of Working Life
(QWL) programs
CASE
European Works Council
© Noordhoff Uitgevers bv
EU political circles is that the four models of employee participation which can be identified in the EU at this point in time and which reflect the degree of workers’ influence in the diverse corporate governance structures are equivalent to each other. These models are:
1 A minimum of one-third and a maximum of one half of the members of the supervisory board are nominated by the employees (the German Mitbestimmungs variant).
2 The members of the supervisory board are all nominated according to the system of controlled co-optation (the Dutch variant).
3 An employee representative body is installed at the highest level of the organization and has to be kept informed and consulted on all matters which are on the agenda of the supervisory board (the French-Italian variant).
4 There is compulsory regulation of employee participation through collective labor agreements (the so-called Swedish collective bargaining variant).
These official models can be seen as more or less a reflection of three dominant patterns of thought, patterns which are recognizable in the various structures of industrial relations at corporate levels in the EU member states – negotiation, opposition and integration – currently applied most unambiguously and coherently in the United Kingdom, France and Germany respectively. In other countries we often see combinations of these three approaches (see Table 2.4).
2.6.3 The German and Dutch system
The German and Dutch system of industrial democracy is regarded as the most comprehensive in Europe. The system comprises a works council (Betriebsrat/
Ondernemingsraad), representative from the board of directors or supervisory board (Aufsichtsrat/ Raad van Commissarissen) and the executive board or board of management (Vorstand/Raad van Bestuur).
Works councils exist in organizations in all areas of both the private and public sectors.
Representatives on works councils are elected by their fellow workers. The works council has three basic rights:
1 The right to receive information concerning the financial position, performance, future prospects and strategic position of the organization
2 The right to be consulted by top management on decisions of strategic importance such as major investments, reorganization, changing of location, acquisitions or closing down of subsidiaries, and so on
3 The right of co-determination with regard to essential aspects of the management of personnel. By law the works council has discretionary power in relation to policies relating to work regulations, regulations concerning pensions, profit sharing or savings, working day and holiday arrangements, regulations concerning safety, health care and the welfare of personnel, regulations on appointment, dismissal or promotion, salary policy, position of junior workers within the organization, and so on.
The works council also has the right to be consulted about any decision to appoint or dismiss an executive manager at board level and to veto board appointments.
The formal authority to appoint members of the board of management is vested in the supervisory board (or board of directors). If necessary, the supervisory board can veto policy decisions made by the board of management – for example, in the case of a merger or an excessively risky acquisition – or can urge the board of management to abandon a policy.
Representatives on the supervisory board – whether nominated by shareholders, workers or unions – are always required to act and make decisions on behalf of the company or the institution as a whole. Supervisory board members should not simply represent the interest of a specific group.
employee participation
works councils
co-determination
© Noordhoff Uitgevers bv
The board of management in German organizations (Vorstand) includes a so-called Arbeitsdirektor – a personnel director. This Arbeitsdirektor cannot be appointed without the consent of a majority of worker representatives on the Aufsichtsrat (the supervisory board), according to the Mitbestimmungsgesetz 1976. The chosen Arbeitsdirektor has the same rights and legal status as the other members of the board of management. Naturally, the works council is an important point of reference for the execution of the duties of the
Arbeitsdirektor.
2.6.4 Industrial democracy in Europe: a comparative survey
A range of attitudes to work councils across the European Union is shown in Fig 2.9, with the individual approaches to industrial democracy described in greater detail in Table 2.4.
Germany and the Netherlands are influenced by a different view of the organization (it is considered as a cooperative working organization rather than as an arena) and a different concept of the works council (as a meeting point between the entrepreneur/owner and the unions – the works council is seen as a representative body for the employees).
Figure 2.9 Position of works councils in relation to different views of the organization in some EU countries
Belgium Denmark
Germany The Netherlands
France Spain
Works council as meeting point of entrepreneur and unions
Works council as representative
of employees
The firm as a co-operative working organization; not
as an arena
The firm as an arena
The countries in the upper boxes of the diagram in Fig 2.9 – Belgium and Denmark, Germany and the Netherlands – have in common the notion of joint decision making through
cooperation with the works council; they are different with regard to the position of the works council vis-à-vis the unions and vis-à-vis the owner/entrepreneur. In the lower boxes, this notion is less developed; the firm is organized as an arena in which the entrepreneur meets with the unions. The works council is still regarded as a ‘strange intruder,’ although in several ways regulations are similar to those in the countries in the upper boxes.
The left-hand column indicates the dominance of unions in the works council. The works council is not the most important instrument for democracy and participation; that remains union representation. In the right-hand column the works council is relatively removed from union influence. It enjoys greater autonomy with respect to the unions compared to those in the left-hand column, but not complete autonomy (as regulations concerning the nomination of candidates for the works council might show).
In the right-hand column, the formal authority of the works councils is more extensive, but this is balanced out as a rule by the weaker presence of unions in the firm’s organization – something that applies more to Germany and the Netherlands than it does to Spain.
works council
© Noordhoff Uitgevers bv Austria, Germany,
Luxembourg and the Netherlands (North-West European model)
• Legislation exists concerning participation and joint decision making in enterprises and public institutions.
• The instrument for joint decision making is the works council (Betriebsrat/comité mixte d’enterprise/Ondernemingsraad) with a varying level of influence (more in Austria, Luxembourg and Germany; less in the Netherlands) through the supervisory council and/or board of management.
• The influence of employees is enhanced through representation on the supervisory council and board of management.
• There is a right of co-determination in personnel affairs and a right of consultation and information in economic and organizational affairs.
Ireland and the United Kingdom (the Anglo-Irish model)
• No legislation exists concerning participation and joint decision making in enterprises and public institutions (voluntarism).
• The instrument for employee participation is the union through the shop steward. No participation or representation of employees on the board of directors (the two-tier system of supervisory board/
board of management is rare), with the exception of Ireland where in public institutions employee representatives have been
nominated to the board of management since the end of the 1970s.
• There is no right of co-determination; negotiations are the way to influence social policy and the economic affairs of an organization (including conditions of employment).
Denmark, Finland, Norway and Sweden (North-West European/ Anglo-Irish mixed model)
• Legislation exists concerning participation and joint decision making in enterprises and public institutions in Sweden and Norway; in Denmark the existence of works councils (Samarbejdsudvalg (SU)) goes back to a gentlemen’s agreement between employers’
organizations and unions (DanskArbejdgiverforening (DA)) and the Landsorganisationen (LO) in Denmark in 1947, renewed in 1986).
The degree of statutory participation is a step behind that of the other Scandinavian countries.
• Instruments for employee participation are the unions through the shop stewards, in Denmark the representation of employees on the supervisory council (the Bestyrelse), in Sweden the appointment of two workers’ directors on the board of directors and in Norway the election of one third of members of the board of directors and supervisory board by employees, after nomination by local unions.
• There is a right of co-determination in social policies, conditions of employment, pension fund administration and the organization of the production function. Only rights of information and consultation apply in economic affairs.
Table 2.4 Diversity in patterns of industrial democracy in EU countries
© Noordhoff Uitgevers bv
Belgium, France, Greece, Italy, Portugal and Spain (Latin-European model)
• Legislation exists concerning participation in enterprises and public institutions. Instruments for employee participation in two- or three-way structures include:
a union representation through syndical delegation (Belgium, Greece, Italy, Portugal and Spain);
b works councils in all countries (in Belgium Ondernemingsraad; in France comite d’enterprise (CE); in Spain comite de empresa (CE);
in Italy consiglio difarica dei delegatr, in Portugal comissoes de trabalhadores (CT).
c personnel council (in France delegues du personnel and in Spain the delegados de personal)
• No worker representatives on supervisory councils in Belgium; in France a CE member has the right to attend a meeting of the board of management or supervisory council (conseil d’administration); in Italy, there are no legal obligations to have employee representatives on the boards. In 1984, on the basis of so-called protocol, some major industrial groups including IRI, ENI, EFIM created bilateral committees to be consulted on the economic affairs and social strategies of the firms. In Greece, Portugal and Spain employees are represented on the board of management of government enterprises and public institutions.
• No prescribed rights of co-determination, with the exception of the conditions of employment; rights of information and consultation exists concerning social and economic policies, pension funds and production organization.
• In all these countries (with the exception of Portugal) there are health and safety committees prescribed by legislation. In Portugal, existing health and safety committees in the bigger firms are installed on the basis of collective bargaining.
In Fig 2.9, Germany and the Netherlands are placed in the same box because of the common logic behind the formal works council regulations and legislation. However, there are substantial differences between these two countries, the most important of which is representation by the employees and the unions on the supervisory council, which is not particularly strongly or explicitly regulated in the Netherlands.