Mitbestimmung: Employee Participation or the Alternative to Thatcher’s Britain
By Fraser Marlow, Head of Research, BlessingWhite
So Margaret Thatcher died on April 8th. You might think 23 years since her stepping down would have been long enough to disperse the dark cloud of social divisiveness that overshadowed the United Kingdom for most of her tenure as Prime Minister. Yet her leadership legacy remains a major cause for debate in the UK and beyond.
At the heart of the Thatcher years was a political and economic doctrine which echoes – even today – the leadership dilemma of many CEOs. How do we balance the need for rapid change and adapting to new market realities with the engagement of the workforce?
For Thatcher, there was no room for partnering with unions or workers on transforming industries: only raw market forces and private industry could be trusted to do that. Conversely, the Unions showed no interest in working with ‘management’ to enact change, to consider making the sacrifices required to secure the nation’s vitality. There was no room for dialogue in either direction.
As I debated the legacy of the Thatcher years with my peers in the UK – Gen Xers in the UK are still referred to as “Thatcher’s Children” – I was more interested in asking “what were the alternatives?” Clearly the coal and steel industries needed to change. Social benefits introduced after the second world war were becoming unsustainable and Britain was losing its power privilege in the world. But did the change period have to be so acrimonious and divisive? Did it have to be a decade of “crushing the unions” – of us vs. them?
What were the alternatives?
If there is an economy we can look to as a comparison, it would be Germany. The economy in Germany was reliant on many of the same heavy industries. The emerging global competition was the same. The economies were roughly the same size (before the reunification of East and West Germany in 1990), and the workforce enjoyed approximately the same levels of education.
Since 1970 Germany’s GDP has grown faster than the UK’s. Today Germany’s GDP stands at $3.6T vs. $2.5T for the UK. Gross domestic savings as a % of GDP is substantially higher. Germany has experienced higher unemployment, but considerably less “vulnerable employment” and part-time employment. Germany’s tax revenue as a % of GDP is half that of the UK, and its Trade (as % of GDP) is the strongest of all the larger economies. [Ref.]
So what is the big difference between the policies and culture? For one, Germany took a much more inclusive approach to bringing workers – or worker representatives – to the table. This was not a smart decision by the captains of industry at the time – it was a national policy called co-determination or Mitbestimmung – and, of all places, this practice started in these two challenging industries: Coal and Steel. By 1976, if a German firm had more than 500 employees, the workers were guaranteed a seat at the boardroom table. A similar measure was proposed in the UK in 1977 but never adopted.
Co-determination is credited with giving workers a voice in the running of the organization, resulting in high productivity. It lead to higher profit margins, faster innovation, higher product quality and fewer industrial disputes. These benefits in turn were shared back with the workforce in the form of better pay and conditions for employees.
The almighty German car industry
The outcomes of such an approach can be seen in articles such as “A Tale of Two Systems” by Kevin C. Brown. Despite the US being a much cheaper labor market for German car manufacturers, firms like Mercedes-Benz still manufacture 3 out of 4 cars in Germany – and like other German car firms (BMW, Volkswagen) is it nicely profitable. Because the relationship is collaborative, German executives view their workforce as a value-adding asset, and not a cost to be contained or trimmed at every opportunity. As Frederick E. Allen puts it in a 2011 piece in Forbes called “How Germany Builds Twice as Many Cars as the U.S. While Paying Its Workers Twice as Much,” – “union-management relations in the U.S. are ‘adversarial,’ whereas in Germany they’re ‘collaborative.'” The result is higher quality, faster speed-to-market with new innovation and fewer labor disputes.
Not just in the knowledge economy
The benefits of employee involvement can be seen in many industries and across cultures. It is not just the purview of western high-techfirms or knowledge workers.
Take India’s main power grid [http://www.powergridindia.com/]. Established in 1989 to bring together several disparate power distribution networks, POWERGRID built into its operating principles 7 employee involvement and empowerment practices referred to as EIEPP.
Writing in the Indian Journal of Industrial Relations1, Srinivas R. Kandula concludes that “EIEPP is the single most influential factor for [POWERGRID’s] phenomenal business growth.” The impact is measured in terms of pure financial performance, unified work culture, and productivity. During a decade which saw a 400% growth in the business, POWERGRID added only 12% to its headcount. “This is directly attributable to increased performance of employees,” writes Kandula. “A 400 KV sub-station, which was manned by about 75 to 100 employees 10 years ago, is today managed by 20 to 25 employees.” Attrition rate is 1%.
It’s all about context
It’s understood that companies operate within a broader cultural and socio-economic context. When German car companies open shop in the US, they now favor “right to work” states over the unionized and regulated states of the rust belt. They understand that the history of unionization in the American car industry suggests that neither American unions nor executives are instinctively going to jump on the Mitbestimmung bandwagon. But this does not prevent these firms from seeking German style worker-participation benefits without opening the door to old-school unionization or acrimonious labor relations.
As a CEO or senior leader, if you are truly looking for options to future-proof your company the way political leaders seek to future-proof their economies, you would benefit from examining employee participation. This is the type of approach that resulted in Germany’s high-tech exports hitting $160B a year compared to the UK’s $60B.
How to get started
Involving the rank and file in managerial decisions is not an instinct that most senior executives have developed. Companies ask for more innovation, but would rather keep most employees out of the decision-making process. For an enthusiastic employee with good ideas, it’s hard to know when to step up to the plate.
Edward E. Lawler III, Professor of Business at USC’s Marshall School of Business, encourages us to think about a high-involvement workplace in terms of Power, Information, Knowledge and Rewards — how are these shared and developed in the organization?
Here are some ideas your senior leadership team might explore to foster more employee participation:
- Discuss as a senior team where you might be missing opportunities to bring the broader employee base along, to achieve buy-in through employee involvement
- Identify current decision-making teams or forums and ask how much representation the front-line employee has in that forum. If the answer is “none,” ask yourself how you can safely provide more insight from the shop floor .
- Think about upcoming change initiatives or process improvement activities – could you safely entrust these to a cross-functional team of front-line representatives rather than delegate this to a Director or Vice President in any one division?
- How much information is shared with staff at different levels? If you are expecting involvement and participation, people will need context and data on those aspects of the business that they can influence. Some departments may be getting regular feedback on performance (Sales, Customer Service, logistics…) but others may be short on knowing what KPIs they should be affecting.
- What is your cultural bias towards delegating authority? Do you reward initiative? Do you recognize and credit division leaders rather than individual contributors? Give employees the tools to take ownership for their own success in the context of their employer’s business priorities – then support them in making local changes when they take ownership of how the work gets done. We know from our experience that employee-driven discussions of mutual success ignite high performance and long-term collaboration.
Be sure to establish some boundaries up front – make sure expectations are not vague or the participants might assume they are being given more free-range and more power than you intended. An advisory team or fact-finding team is very different from a decision-making body – but often they are left guessing what their real influence will be.
Fraser Marlow is BlessingWhite’s head of research and marketing. Born in the UK, he was 5 years old when Margaret Thatcher was elected leader of the opposition and attending University when she finished her tenure as prime minister.
1 Employee Involvement and Empowerment for Business Results: A Study of POWERGRID – Vol. 39, No. 4 (Apr., 2004), pp. 517-532 – http://www.jstor.org/stable/27767926