Strategies for an Employee Role in Corporate Governance

Abstract

One way to make U.S. corporations more sustainable is to broaden the group of stakeholders whose interests are considered in making decisions. This Essay evaluates a number of possible strategies for creating a role for employees in corporate governance. The strategies include: Using areas other than business association law to enhance the legal rights of individual employees; Encouraging officer or director power, hoping that officers and directors will side with employees and other interests more than shareholders; Encouraging shareholder power, hoping that employees agree with shareholders on the need to keep managers accountable; Supporting unions as a source of countervailing power; Promoting means for directly giving employees a collective voice within corporations, e.g. through employee representation on the board, employee councils, nonbinding employee votes on particular matters, employee surveys, or similar means; Promoting noncorporate legal forms of business association in which employees can play a greater role; or Promoting changes in corporate culture and norms that empower employees.

This Essay suggests criteria for evaluating these strategies. One must balance the probability of success of a strategy with the net benefits it would achieve if successful. The benefits and costs of each strategy must include effects on the internal efficiency of corporations, on employee well-being, on the environment, and on the broader community. One must also balance short-term and long-term effects of the differing strategies. This Essay applies these criteria to the seven listed strategies, and suggests a mix of strategies that appears most attractive at this point. No strategy has much chance of improving sustainability in the short run. But, in the long run, the last three strategies above — experimenting within states and corporations with various ways of giving employees voice within corporations and other legal forms — look most promising (or more accurately, least unpromising).

Keywords: sustainability, corporate governance, employees, corporate social responsibility

JEL Classification: G30, J54, K22, L21, M54, G28