Cooperation, Stakeholder Representation and Business Performance (CBR project)

Overview

Aims and objectives

It is now generally recognised that competitive success depends on product and process innovation, improved design, greater variety, and high quality as well as keener prices; these attributes require a highly skilled, flexible and co-operative workforce. The foreword to the British government’s Fairness at Work White Paper of 1998 states: ‘Already modern and successful companies draw their success from the existence and development of partnership at work. Those who have learnt to cherish and foster the creativity of their whole workforce have found a resource of innovation and inventiveness that drives their company forward’. Research carried out under the first five-year programme of the CBR showed that organisations may seek to foster stakeholder-style relations as part of a competitive strategy based on ‘high performance’ values. The circumstances under which such stakeholder relations emerge, the pressures firms face in maintaining them, and their consequences for economic performance, all merit continuing study. In particular, the degree of success of human resource management techniques (HRM) in fostering cooperation is a focus of the new research. In many cases the main benefits of HRM may come not from closer cooperation, but from lower labour costs, savings from the reduction in the cost of conflict management, and from the greater flexibility available to management in the deployment of labour. Team-based employment systems based on independent employee representation may nevertheless offer the basis for a more fundamental development of cooperative workplace relations.

The broad research question addressed was: in what circumstances are individuals and groups motivated to work in the interest of the organisation in such a way as to materially improve its performance? The following issues arise. Firstly, as it is to be expected that employees have interests which are different from those of their employers, how are conflicts arising from their separate interests resolved to their mutual satisfaction, and how are joint interests identified and acted upon to the mutual benefits of the actors? Secondly, what are the procedures for regulating relationships within the firm and what form does representation of the parties involved take? Thirdly, what is the roles of institutions external to the firm (for example, statutory and legal framework and collective organisations) and the norms and rules they generate in influencing intra-firm relations? Fourthly, to what extent are traditional institutional arrangements for resolving disputes and generating cooperation now acting as impediments to the rapid adjustments of organisations to rapidly changing economic, social and political environments?

The project was based around a set of case studies of UK firms which take contrasting approaches to employee and supplier relations. The sample of firms was mostly drawn from the earlier Corporate Restructuring and Takeover Regulation projects which were carried out under the core ESRC grant in the first five year programme of the CBR (1994-99). These firms have been revisited to see how they have responded to competitive pressures over time. The use of these longitudinal case studies provided the essential context in which it was possible to test the claim that ownership and governance structures have a long-run impact on corporate performance and survival.

Results and dissemination

Progress was initially made by Simon Deakin and Frank Wilkinson on a general literature review and on the theoretical framework for the project as a whole. Suzanne Konzelmann, who worked on the earlier corporate restructuring project re-joined the project team full-time as Research Fellow (visiting from the University of Indiana, South Bend) in January 2001. Richard Hobbs joined the project team as research assistant in December 2000. During 2001 the case study organisations and trade unions were recontacted and a further set of interviews carried out, transcribed and analysed. The findings were presented to conferences in Cambridge and Leeds in May 2001 and Vienna in September 2001, and published in a CBR working paper, ‘Partnership, ownership and control’ in June 2001. Following its positive reception at the Leeds conference on Assessing Partnership: The Prospects for and Challenges of Modernisation, the project team were invited to address a workshop of the eastern region of the Engineering Employers’ Federation in Oakham in July 2001, and to prepare versions of the paper for publication in a book of paper from the Leeds conference (to be published by Routledge) and a special issue of Employee Relations.

The Cambridge conference, held on 19 May 2001, was on the theme of ‘Corporate Governance: Reassessing Ownership and Control’, and was organised by Simon Deakin and Richard Hobbs on behalf of the CBR, together with the Centre for Corporate and Commercial Law of the Faculty of Law, University of Cambridge, and the European Centre for Corporate Governance, Bournemouth University. Over 100 delegates attended and there were presentations from a number of overseas speakers in addition to four presentations by CBR project teams.

The basic conclusion of the ‘Partnership, ownership and control’ paper is that while the stress placed on shareholder value in the UK system of corporate governance may sometimes operate as a constraint on partnership, it also provides opportunity for some publicly traded firms to pursue cooperative strategies with their various stakeholder groups, in particular with employees. As a constraint, the nature of shareholder pressure varies depending upon how companies choose to manage investor expectations. Companies that succeed in building a long-term orientation into relations with shareholders have an important degree of flexibility in managing their way through the other pressures to which they are subject (that is, product market pressures and regulatory pressures). For these firms, the corporate governance system offers an opportunity to gain an important competitive edge by demonstrating their ability to better handle conflicting pressures than rivals. Other cases suggest that when confronted with a range of unfavourable conditions (that is, corporate governance prioritises short-term shareholder returns; product markets are volatile and have turned against the UK-based operations; and regulation supports open trans-national competition), partnership may be very difficult to construct and maintain, even if production system stakeholders would choose partnership for their very survival.

In so far as policy intervention can make a difference, its effectiveness depends upon altering the environment within which partnership strategies are developed and implemented. The case studies demonstrate that, in determining how to respond to the governance constraint, corporate actors have a strategic space in which to develop solutions of various kinds. In this, the quality of both management and union leadership at the company level are vital. Strong and strategically-minded managers who are willing to stand up to the board in support of long-term production-level interests are better able to manage the constraints and pressures operating on the firm in such a way as to reconcile the expectations of the different stakeholders. The willingness of top management to support partnership against external questioning and scrutiny from shareholders can provide confidence to partners that it will be defended, thereby engendering trust. A strong union with an understanding of the industry, the pressures to which the firm is subject and a cohesive and sophisticated approach to partnership through the good times and the bad, as well as the ability to manage and mediate both employees and managers, is also important.

The position of the board is critical. Both top management and the union are vulnerable to board-level pressure since in response to stock market concerns, the board can unilaterally eliminate top management. It can also take steps to sell or merge the firm. Both of these approaches have the potential to severely damage production system relationships and viability, and are largely out of the control of management and the union. In companies that are subject to intense scrutiny from the financial markets and frequent pronouncements on the company’s strategy from institutional investors, relations between the non-executive directors, on the one hand, and board-level executives (in particular the CEO), on the other, play a vital role in shaping the conditions for and against partnership.

Two further papers were in preparation in the summer of 2001. One, by Konzelmann, Hudson and Wilkinson, examines the question of partnership from the point of view of organis  ational performance and employee motivation. The other, by Deakin and Hobbs, is concerned with the impact of hostile takeovers on stakeholder relations and performance. Both papers make use of longitudinal case-study techniques.

Project leader

• Simon Deakin

Other principal investigator

• Frank Wilkinson

Senior research fellow

• Sue Konzelmann (from January 2001)

Research assistant

• Richard Hobbs (from December 2000)

Project status

Completed