Corporate governance and workplace governance are remarkably similar.
October 2, 2019
With Responses From
Oct 2, 2019
5 Min read time
Individuals can’t engage in democracy if they are struggling to survive.
Image: Kheel Center
“Neoliberalism” is a contested and protean term, but it does capture something quite clear and important: the tendency, in recent political-economic governance, to prioritize markets and property rights over democracy. While there is nothing wrong with markets per se, neoliberalism often “encases” markets against political oversight, in the process enabling all sorts of private domination. The influence of shareholder primacy norms on our corporate governance is an excellent example, as Palladino shows. Here the governance of corporations—complex social entities, populated by human beings, with their own internal cultures and conflicts—was reduced to a simple command: maximize returns.
As Palladino also notes, that is never quite how corporate law worked. The business judgment rule protects corporate directors from legal liability for decisions that lead to losses, so long as they acted in good faith to advance the corporation’s interests and upheld duties of loyalty and care. But in another demonstration of neoliberal ideas’ influence—and of the structural balance of power in our economy—directors often acted as if shareholder primacy was the law, and that shareholders “owned” the corporation, regardless of the effect on workers, other stakeholders, and society.
Neoliberalism is far from dead, though it does seem ill, and scholars and activists are busy developing alternatives. Many invert neoliberalism’s basic dictate, insisting that we re-organize institutions of capitalism so as to subordinate markets and private property rights to public power, and thus to democracy. Democracy is also a protean concept, of course, but the impulse is clear enough. As John Dewey once put it, democracy requires that “all those who are affected by social institutions must have a share in producing and managing them.” Understood that way, democracy has both procedural and substantive aspects. It is not just a matter of aggregating preferences, nor of subjecting social affairs to majority rule. Democracy is also a process through which we better understand and articulate our own values and needs as we collectively address problems. Crucially, however, individuals can’t engage in such processes if they are struggling to survive or have no legally protected rights to speak and debate in the first place.
In that regard, corporate governance and workplace governance are remarkably similar. In the vast majority of private sector workplaces, employers need not consult workers before making decisions with profound effects on their livelihood. Unionized workers have some rights to participate in workplace governance, of course, but unions have been in steady decline in large part due to legal encasement of employers’ property rights.
For example, union organizers typically have no rights to access the employer’s property to speak with workers; workers’ own rights to speak about unionization on the employer’s property are sharply constrained; workers who strike must do so in ways that do not pose a risk to the employer’s business interests; and, perhaps most importantly, the employer can end its contracts with workers and exclude them from its property without notice or cause. In other words, employees have literally no property rights in their jobs, no rights to due process before they are terminated, and no legally-backed expectation of future employment. That rule casts a pall over workers’ decisions on whether to challenge their working conditions or not, since an individual complaint, even to a regulator, can lead to termination. Even if most employers act reasonably most of the time, the reality is that they have tremendous reserve powers, as workers either know intuitively, or learn very quickly when they demand a voice.
Even if most employers act reasonably most of the time, the reality is that they have tremendous reserve powers.
Much as shareholder primacy has come under pressure, these basic rules of the workplace are under scrutiny today. There is a widespread sense that our model of collective bargaining law—where workers organize and bargain at the firm or even worksite level, with their immediate employer, in a private ordering process—is no longer a good fit for today’s economy. That system emerged in the 1930s, a time when workers were trying to organize en masse, but the courts often stood in their way. Given all the means employers have to resist their efforts, it has become clear over time that enabling workers to organize isn’t enough. The outcome of organizing, after all—bargaining rights at one’s immediate employer—gives workers little or no power in the broader economy.
Perhaps unsurprisingly, one of the leading labor law reform proposals is structurally analogous to proposals for co-determination in corporate governance. Legal scholar Kate Andrias and others (myself included) have proposed that Congress establish “wage boards” with the power to set minimum standards for workers within particular sectors (fast food, large retail, building services, home care, etc.), through a tripartite process involving representatives of workers, employers, and government. As in the case of co-determination, this would guarantee representation, rather than just creating pathways for representation. In this regard, it also parallels other recent efforts to democratize governance by guaranteeing citizen voice—such as participatory budgeting processes, civilian police oversight agencies, and community benefits agreements in economic development—which have been explored by Sabeel Rahman and others.
When successful, these efforts can spark a dialectic of mobilization and legal reform, as citizens organize to make use of the platforms, in the process building collective power and voice that they can use to press for further governance reforms. In that way, state power can be used not just to regulate private conduct, but to enable citizens to build new sorts of associations—and deeper forms of democratic self-governance.
This model could also be extended. For example, Congress could mandate that certain terms of the employment contract be unenforceable unless collectively negotiated, and it could establish a process for workers to select representatives who would lead those negotiations. Wages, schedules, and general disciplinary policies could fall in that category, as could agreements to arbitrate and non-compete clauses, which substantially limit workers’ power today. To protect existing unions, Congress might implement this model only in non-union workplaces. It could also enable unions to help guide local bargaining representatives, without necessarily giving particular unions bargaining rights unless and until workers’ select them.
The classic analogue here are European “works councils,” which are worksite- or firm-level bodies that have rights to consult with management over issues including scheduling, technological changes, and local work rules. Those bodies are unlawful in non-union workplaces in the United States, however, due to a provision of the National Labor Relations Act that sought to promote unions’ independence from management. U.S. unions are typically opposed to enabling works councils, out of fears that management would co-opt them and use them to resist bona fide unionization efforts. Unions’ skepticism here is also related to their (accurate) assessment of political realities, namely that any legislation supported by companies is likely to be a bad deal for unions and workers. But those same politics constrain co-determination—by which I mean, if our politics shift to the point that worker representation on boards becomes a real possibility, then guaranteed local representation may also be a real possibility.
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