Promoting Employee Voice in the American Economy: A Call for Comprehensive Reform
Kenneth Glenn Dau-Schmidt
Indiana University Maurer School of Law
Marquette Law Review, Vol. 94, No. 3, p. 766, Spring 2011
Indiana Legal Studies Research Paper No. 225
It has become apparent that there are serious deficiencies in the American model of production. Our model of corporate governance has recently come under intense scrutiny in the academic literature and the popular press. There are increasing concerns that American corporations are too focused on short-run profits and stock prices, at the expense of long-term strategies and investments that would benefit the long-run value of the firm, employees, and the American economy at large. In the pursuit of short-run shareholder interests, American corporations have bestowed on senior executives enormous compensation packages that seem increasingly divorced from any notion of rationality, let alone equity. At the same time, there is increasing concern that our system of labor relations is yielding declining benefits for workers and undermining the position of the American economy as a whole. Workers’ wages and benefits have been stagnant - or even declining - for decades, increasing income inequality in our economy as risks of job loss, medical expenses, and training obsolescence have devolved from employers to employees. At the aggregate level, personal debt levels are at all-time highs while we suffer burgeoning trade deficits and the loss of vital jobs overseas.
Although there are many factors that contribute to these problems, there is at least one underlying cause - the under-representation of employee voice in the American economy. Among the three founding corporate stakeholders, shareholders, management, and labor, the interests of labor are treated as subordinate and less important. In the American model of corporate governance, the shareholders and management are perpetually allied, leaving labor to fend for its interests largely through individual bargaining. This subordination of labor in firm governance leaves the shareholders without an important in-house ally in the monitoring of management performance and leaves management without an important long-term ally in considering the merit of long-term strategies and investments. Similarly, within the American system of labor relations, labor’s interests are treated as subordinate. For the most part, the terms and conditions of employment are set by management through a unilateral offer without any express voice by the employees. Employee interests are, once again, left to the vagaries of individual bargaining and the inefficient signaling mechanism of exit. Once the terms of employment are offered and accepted by performance, employees are left with no effective means of enforcing those rights, short of suing their employer. The subordination of employee interests in labor relations ensures that those interests are not adequately represented, increasing turnover and ensuring under-consumption of public goods in the workplace.
In this essay, I will examine the problems caused by the current lack of employee voice in American corporate governance and labor relations. In Part II, I discuss the current state of corporate America, including both our system of corporate governance and our system of labor relations. In Part III, I discuss the current problems in the American system of production. Although the problems of the American system of production are much broader than just our most recent setbacks, a discussion of the near collapse of our financial sector and the Great Recession will feature prominently in this exposition. In Part IV, I discuss alternative formulations of corporate governance and labor relations and the potential benefits of promoting employee voice. Examples are drawn from the law and practice of corporate governance and labor relations in Germany and Japan. In Part V, I present proposals for amending American law to promote employee voice in our corporate governance and labor relations. Although a proposal to promote employee voice by necessity must favor the interests of labor over those of capital, in my proposal I attempt to include a balance of initiatives, some of which will probably appeal to employers. My hope is to not only present a workable collection of proposals, but also one that is politically feasible. Finally, I close with my conclusions.
Number of Pages in PDF File: 75
Keywords: Labor, Management, Capital, Corporate Governance, Employee Voice, Unions
JEL Classification: G30, G32, G39, J50, J51, J58, K20, K31, L21, L23, M10, M14
Date posted: August 29, 2011 ; Last revised: July 12, 2013