What's Wrong With American Business Culture And The Economy?

[Jacob]

holy feisty fahds... I wonder if something's changed in his life recently? 

[Jacob]

Yeah, I'd argue that modern economics, as it's being utilized, is as much a humanity as a science by Yi's definition (which I quite like, by the way).

[Valmy]

Sure.  And who gets to decide if it joins or walks away.

Well the shareholders.  Capital has a way of fleeing a country pretty quickly if they no not like the business environment.  Labor is generally less free to do that if the labor market is particularly bad.

[DGuller]

Astronomy doesn't really have the same kind of impact on the lives of human beings as economics does. It also contains no choice, whereas in economics one can choose what is important and make one's decisions accordingly.

I was not equating the two, I brought up astronomy as an extreme example.  Astronomy, limited to solar system anyway, is pretty damn hard of a science, and still it was distorted by politics when politics had a stake in what it concluded.  Economics is inherently less hard of a science even with the best of intentions and the least of bias.

[Zanza]

Help me pin down your position here.  Would your argument still hold if instead of a corporation, you had a really large partnership with no limited liability?  Are employees the steakholders with a vote because they're citizens of a country that grants a limited liability status to the corporation, or is it simply because they're employed by said company?

I don't really have a position on American corporate governance. It's just food for thought for this thread.

I don't really understand the peculiarities of the law, but as far as I know a partnership of natural persons is not a legal entity of itself, whereas a corporation is a legal entity in its own right. Assigning a partnership and a corporation different obligations with regard to stakeholder participation in their governance thus seems at least reasonable. Not sure where exactly I would draw the line as partnerships obviously can also employ people and I guess in a big enough partnership these employees might need some kind of representation as well.

In our globalized world, I would not make the question of whether employees should be represented in corporate governance dependent on citizenship. One of the employee representatives in my company is from Brazil, although all the rest are from Germany, which is not a proportional representation of our employees worldwide. As far as I know our own legislation on co-determination is only applicable to German parts of corporations, i.e. a foreigner working for a foreign legal entity that is owned by a German corporation is not considered in the law. There is very little interest among German politicians, managers and union bosses to change that any time soon, although it certainly is unfair for the foreign employees. I have a lot of contact to my colleagues in our foreign daughters and their employment conditions are nowhere near as good as those of the German employees.

[DGuller]

For what it's worth, I think treating employees as stakeholders is just good business.  There are intangible, but real monetary benefits towards having a workforce that's happy, secure, empowered, and planning to stick around for the long term.  However, I'm having trouble seeing why it has to be legally mandated, rather than just be a talent management decision of the agents of shareholders.

[Zanza]

Yes. Now we just need to define how we want each group of stakeholders to participate in corporate governance. I don't see it as evident that shareholders should be the only stakeholders participating in that.

If you agree that everyone has a stake in everyone else, and that stakholderdom is what entitles a say in decisions,

I don't say that having a stake entitles you to a say in decisions. 

why is it only corporate decisions that you treat this way?

As I said, I don't want to advocate a certain model. However, my first post in this thread was as a response to a claim about corporations so that's where I got the context from.

Why don't stakeholders get a voice in the decisions of employees and customers as well?

In general, while a lot of parties might have stakes in a give decision (a bit like a butterfly effect), there are obviously degrees of involvement. In my economics classes, stakeholders in companies were differentiated into internal and external or primary and secondary stakeholders (or whatever they were called) and I am sure you can find all kinds of categorizations that make sense for a certain context and base the degree of involvement in a decision making process on those categorizations. Not all stakeholders are equal.

[Admiral Yi]

For what it's worth, I think treating employees as stakeholders is just good business.  There are intangible, but real monetary benefits towards having a workforce that's happy, secure, empowered, and planning to stick around for the long term.

Agreed, just as it is in the enlightened self-interest of employees to work for companies that are profitable and financially secure.

[Zanza]

For what it's worth, I think treating employees as stakeholders is just good business.  There are intangible, but real monetary benefits towards having a workforce that's happy, secure, empowered, and planning to stick around for the long term.  However, I'm having trouble seeing why it has to be legally mandated, rather than just be a talent management decision of the agents of shareholders.

The biggest benefit of co-determination is certainly for average and below-average workers that are easily replaceable. A lot of jobs in a corporation aren't in focus of talent management as you don't need talents to flip burgers, operate forklifts, answer calls in a call center, assemble a product on the assembly line or doing basic administrative tasks. Those employees by themselves have very little power and there is no rational reason for a company to keep them happy, secure, empowered to planning to stick around for the long term. If they don't perform anymore, just replace them. Co-determination is not (as) necessary for the elite employees as those will usually have an easier time to actually walk away from the job and get another and thus companies do indeed have a rational interest in keeping those employees happy, secure, and empowered so that they do stick around for the long term. But that's maybe 10-20% of the workforce in a big corporation. "A big corporation is an ocean of mediocrity with small islands of brilliance" 

[DGuller]

For what it's worth, I think treating employees as stakeholders is just good business.  There are intangible, but real monetary benefits towards having a workforce that's happy, secure, empowered, and planning to stick around for the long term.  However, I'm having trouble seeing why it has to be legally mandated, rather than just be a talent management decision of the agents of shareholders.

The biggest benefit of co-determination is certainly for average and below-average workers that are easily replaceable. A lot of jobs in a corporation aren't in focus of talent management as you don't need talents to flip burgers, operate forklifts, answer calls in a call center, assemble a product on the assembly line or doing basic administrative tasks. Those employees by themselves have very little power and there is no rational reason for a company to keep them happy, secure, empowered to planning to stick around for the long term. If they don't perform anymore, just replace them. Co-determination is not (as) necessary for the elite employees as those will usually have an easier time to actually walk away from the job and get another and thus companies do indeed have a rational interest in keeping those employees happy, secure, and empowered so that they do stick around for the long term. But that's maybe 10-20% of the workforce in a big corporation. "A big corporation is an ocean of mediocrity with small islands of brilliance" 

That's a reasonable point. 

[Zanza]

From what I can tell, the employee representatives in my corporation are usually veterans with decades of history in the corporation. They have a love-hate relationship with the company, it's their lifelong employer, but in the end, they want the company to succeed and make sure the employees participate in that success. They are critical, but usually constructive and do not just try to get the maximum short-term benefit out of the company as they have very little means to get a personal benefit out of any of the decisions they can influence.

[Jacob]

What sort of decisions do employee representatives typically influence?

[The Minsky Moment]

That point may be valid, but the extra responsibilities on top of profit maximization still have to be spelled out, and not just vaguely alluded to.  In a competitive environment, implicit gentlemen's agreements don't have a long lifespan.

There is no general obligation of profit maximization - this has come up recently in case law in Delaware.
Directors of corporations can consider a broad range of objectives.

[Zanza]

What sort of decisions do employee representatives typically influence?

Normal worker councils (usually per plant)
Social issues (work time, work rules, vacation, performance control measures, safety regulations, general regulations on renumeration, social institutions like corporate kindergartens or sport facilities): The workers council may actively suggest policies.

Personnel decisions (hiring, job assignments, assigning employees into pay grades, restructuring the organisation etc.): The workers council can react to management decisions and can under certain circumstances reject them.
Management decisions to fire someone are a bit different in that the worker's council can only dissent the decision which gives the fired worker more protection until a court has clarified the case.

Business decisions (everything else): The workers council is informed regularly and detailed, but has no right to participate in decisions. In certain decisions management is obliged hear the suggestions and concerns of the workers council and take them into consideration.


Employee representatives in supervisory boards
All the same rights as the shareholder representatives. The most important task is to supervise, hire and fire the board of executive directors such as the CEO, CFO etc., confirm strategic decisions for the corporation (such as mergers, huge investments etc.) and audit the annual reports.
The supervisory board of big corporations (>2000 employees, smaller companies have more ownership representation) will always have the same amounts of shareholder and employee representatives, but one of the employee representatives actually represents the upper management employees and the president of the supervisory board has a tie-breaker vote and is always from the shareholder side.

[The Minsky Moment]

I have some exposure to the German system.  Big German companies have a dual board structure.  The management board runs the business day-to-day and consists entire of shareholder representatives.  The supervisory board *Aufsichtsrat* oversees the management board.  It doesn't make management decision.  That board is divided 50/50 between shareholder and worker reps but as Zanza says the chair is always a shareholder rep and has the tiebreaking vote.  So the employee reps can never prevail unless the shareholder reps disagree.  The real value for labor in the system is the right to consultation and information about the companies operations and strategic plans.  The value for the company is to bring labor "inside" so they have more of a stake in the long-term success of the company.

It is important to realize this all occurs in the context of a bargaining system in which  it is common for wages and employment terms to be negotiated between labor organized in work councils or federations on the one hand and associated groups of employers on the other in a quasi-corporatist fashion.