Friday, March 19, 2010

Symposium on Shared Capitalism and Worker Appropriation

Commentary
by Richard McIntyre, Ph.D.
Professor of Economics

The ongoing economic crisis in the U.S. and world economies has called the governance structures of both financial and non-financial enterprises into question. I organized a symposium at the recent International Labor Process Conference at Rutgers School of Labor Management Relations to bring together two strands of research on employee ownership and economic democracy.

Research on "shared capitalism" covers a variety of forms of worker participation and gains sharing that are already quite common in the US. The new research shows just how common these arrangements are – covering between a third and half the workforce – and effectively addresses longstanding concerns that such arrangements might not be competitive because of collective action problems.

The notion of "worker appropriation" grows out of a critique of socialism as central planning and public ownership of the means of production. Worker appropriation means that labor and not capital is the residual owner of the firm's net product. A case can be made that it is collective and democratic control of the surplus, with or without ownership and whatever the role of markets in society, that would most effectively address concerns about justice in the workplace, in the boardroom, and in the distribution of income.

Building on cases studies and statistical analysis of survey data these research programs tell us quite a bit about the potential economic and political benefits and costs of providing workers both more voice in management, as well as greater dependence on the financial health of their enterprises. They come out of different traditions in political economy and social theory, and while there were no tensions on our panel over this there were such tensions in the conference as a whole, which I will recount at the end.

According to Doug Kruse (Rutgers University) almost half of American private-sector employees participate in employee ownership, profit sharing, gain sharing, and/or broad-based stock options. He refers to these plans that directly tie worker pay or wealth to workplace performance as "shared capitalism." Such plans are often associated with greater employee participation in decision-making and information sharing, and may help increase worker pay, wealth, and quality of work life. More broadly, they have attracted interest for their potential to affect economic performance and societal income and wealth distribution. They can also, however, present serious issues of financial risk for employees, particularly if they substitute for other pay or wealth, and have the potential to worsen workplace relations.

Kruse's presentation was based on the National Bureau of Economic Research (NBER)'s Shared Capitalism Research Project. For an extensive view of shared capitalism, he put questions on the 2002 and 2006 General Social Surveys, containing representative samples of American workers. For an intensive view he conducted detailed surveys of over 40,000 employees in 14 companies with different combinations of shared capitalism plans, analyzing a wide variety of measures affecting workplace performance (e.g., turnover, loyalty, response to shirkers) and worker outcomes (e.g., pay, supervision, training, job security), with special attention to how shared capitalism may interact with other workplace policies. Shared capitalism is generally linked to positive outcomes for both workers and firms, with more positive outcomes when it is combined with employee involvement, training, job security, and above-market wages, and less positive outcomes when it is combined with close supervision. The results indicate that there may be significant potential for broad expansion of shared capitalism.

Erik Olsen (University of Missouri-Kansas City) discussed his research on the growth of majority employee-owned (MEO) enterprises in the U.S. Overall employee ownership in the U.S. has grown to the point where more than one in six workers currently own some equity in the company for which they work. The number of U.S. workers employed in firms where the employees of that firm own the majority of the equity has also grown rapidly. These enterprises add an additional dimension to shared capitalism because the employees have an enhanced degree of control over of the firm. These MEO firms range from worker cooperatives, which typically combine employee ownership with egalitarian principles and participatory management, to firms that are majority employee-owned but operate in ways that are not substantially different from conventional capitalist enterprises. In the U.S. there are currently several hundred worker cooperatives employing only a few thousand workers, but there are several thousand MEO firms with close to one million employees. Thus majority employee-ownership is no longer an ephemeral or utopian endeavor, but rather has become a viable, and increasingly common, way to organize an enterprise in the U.S.

MEO firms could conceivably support a different kind of industrial policy in the United States, to replace the war of the tax cutting states that only seems to impoverish everyone. It is plausible that MEO firms are less likely to outsource or offshore jobs, but no one has investigated this. Olsen recently received a Beyster Fellowship from Rutgers to conduct the first national survey of majority employee owned firms, so as to answer these and other questions

Daphne Berry (Doctoral candidate, Isenberg School of Management, UMass-Amherst)
and Stu Schneider (Cooperative Home Care Associates) examined the decision-making processes for allocating the net profit earned by one business that utilizes shared-ownership and participatory decision-making practices. Cooperative Home Care Associates (CHCA), currently the nation's largest worker-cooperative by employment, has developed an innovative process for determining the allocation of its annual net profit as: a) retained earnings; b) dividends; c) 401(k) plan contributions; and d) bonuses. While structured as a worker-cooperative, CHCA is actually a hybrid, also embodying some characteristics of a shared-capitalist enterprise. Because the work is dispersed across many sites and also because of the low levels of education of most of CHCA's 1,600 employees, some non-owner involvement is sensible in their opinion. However, worker-owners make final determinations regarding this surplus. Berry is a recent recipient of a Beyster Graduate Fellowship for this work and Schneider was able to give real insight into the practices used by CHCA to help its 1,600 home care workers learn about the company's finances so they can make informed decisions with respect to the annual vote on a proposed allocation of net profit.

Using her case study of Broadway musicians, Cathy Mulder (CUNY) argues that worker or collective "ownership" of the means of production may be sufficient but is not necessary for a democratic workplace. She gave concrete suggestions on how workers through their union might become the residual claimants to the firm's surplus with or without employee ownership.

Taken together these papers suggest the U.S. has a wide range of work organizations and that the possibilities for workplace transformation are much greater than is commonly believed. Worker ownership and cooperative production may be effective answers to the inefficiencies of traditional socialism as well as the inequality and social disintegration associated with market driven neo-liberalism. Whereas the standard political script seems to be a debate between those favoring more and those favoring less government, proponents of shared capitalism and worker appropriation say neither of these is the answer. Worker ownership in particular finds political support on both the left and the right of the political spectrum.

Our symposium came at the end of a long second day of conferencing and stood apart from the conference stream on "alternative work organizations" of which I had hoped it would be a part. This was especially unfortunate in that there was real tension in that stream between those interested primarily in worker cooperatives as socialist experiments in countries like Venezuela and Argentina, and those more interested in a variety of ways to increase worker voice in the very different political context of the United States. And while "shared capitalism" and "worker appropriation" share an emphasis on increasing worker voice they differ in their normative goals. Though we were not able to fully explore these tensions in the symposium, I intend to do so in a forthcoming paper in Employee Rights and Responsibilities Journal.

Monday, March 8, 2010

Central Falls Teachers: Lessons from Behavioral Science

Commentary

by Richard W. Scholl, Ph.D.
Director & Professor


The attempts at transforming the educational system at Central Falls High School have now made national news. In order to qualify for federal grant money, the high school administrators had to select from among four improvement options. The options were school closure, charter school takeover, transformation, and turnaround. The final decision became a choice between the last two. Initially the transformation model was chosen, but when discussions between the superintendent and the union president broke down as to how to implement the transformation, the district adopted the turnaround model which requires termination of the entire high school staff with no more than 50% of the staff rehired.

As a response to the termination of the entire teaching staff, the union filed three unfair labor practice charges. Recently, representatives of the teachers' union presented a proposal that appears to have turned the discussion back to the transformational model. The legal issues regarding this case are unlikely to be resolved any time soon. Now that the naming of heroes and courage award nominees has pasted, at least for the time being, I want to offer some thoughts from the perspective of a behavioral scientist. Let's pretend we are really interested in improving learning. What can we learn about organizational change from the experience of organizations that have implemented change successfully?

In teaching and doing research on organizational behavior, leadership, motivation, performance management and human resource strategies, I have uncovered a number of well established principles. My students in the master's program in Labor Relations and Human Resources are taught continually that the most effective organizations have human resource strategies that are both strategic and integrated. When human resource systems are aligned with an organization's strategies, our behavioral science knowledge is put to use in developing methods of employee selection, recruitment, performance management, compensation, employee development and conflict resolution that work to motivate and direct employee behavior towards building a strong competitive advantage. Integrated human resource systems exist when all of these functions work together in developing and maintaining an organizational culture that supports the mission of the organization.

Let's look at the Central Falls High School change effort from this perspective.

Models for Change

There are two things we know about all organizational changes. The first is that an organizational change is someone's solution to a perceived organizational problem. The second is that no matter how grandiose the change, it must manifest in the behavioral change of employees of the organization, that is, some people in the organization have to do some things differently. In the Central Falls case, the stated problems are low student test scores and low graduation rates. While there has been disagreement as to the cause of these problems, I have read of no disagreement that these are problems. The real issue here is what is the most effective way to change teacher and student behavior? While many organizations can use power and force to remove resistance to a proposed change, years of research and experience has taught us that when those required to make the most dramatic change in behavior participate in the problem solving process and eventual development of solutions, the result is generally not only a better solution, but one that is accepted rather than resisted. We all know of situations where employees actually impede the implementation of new methods that are forced on them, and situations where people commit themselves to the success of plans they have helped to develop.

While we have read about the four models of change, we do not know who developed these choices. Why is there only one method, the transformation method, which involves actual change in educational methods? Are the six conditions demanded by the superintendent1 the only way to improve learning in a school and is there any evidence that these methods work in all schools? While the superintendent did attempt to negotiate the implementation of transformational plan with its 6 demands, there did not appear to be any real participation on the part of teachers (not union officials) in the development of an improvement plan.

Change is rarely achieved through force, fiat, and fear

Negotiation and Bargaining

Throughout our master's program, our students learn about the differences between positional and interest-based bargaining (IBB). A related concept involves the difference between adversarial and cooperative labor relations strategies. In positional bargaining each party presents is position (alternative) and then attempts to get the other party to accept its position, generally through demonstrating its relative power. When one party does not have a decided power advantage, the parties generally move to a compromise. The compromise position lies on a continuum somewhere between the two positions. Interest-based bargaining uses a different framework. Rather than presenting positions, which are a party's means to one their goals, the parties identify their interests. Interests are the party's goals or outcomes they which to achieve through negotiation. In the CFHS case, we are told that negotiations2 broke down over an irresolvable conflict between paying teachers $30/hour or $90/hour for additional time spent implementing the six elements of the transformational model. This is a clear case of positional bargaining in an adversarial relationship. What are the actual interests of the two parties? Were the teachers only concerned about income or was there some disagreement about the ability of the six new actions to actually improve learning and resultant test scores. Asking someone to devote more time to an activity that will actually bring about improvement in something that you value for no additional pay is one, while asking the same for increased effort with little chance of success is quite another. What were the interests of the commissioner and superintendent? If improved learning is the primary interest, is there no other way it could be achieved? I cannot answer these specific questions, but I am confident that is this situation was approached in a collaborative, interest-based approach; the changes for school improvement would increase.

Human Resource Strategy

The successful management of human resources involves developing integrated approaches to recruiting, selecting, evaluating and developing skilled people. In addition, highly effective human resource strategies seek to develop and maintain high levels of commitment in employees rather than develop intricate external control systems. One of the recurring arguments made by those opposed to teachers' unions is that union hamstring administrators' ability to get rid of bad teacher and must use seniority as a basis for hiring. Additionally, one of the parts of the transformational model is that teachers must accept a more rigorous evaluation.

Here is a model for a successful human resource system. Selection processes are developed that discriminate between individuals in the job pool that have the ability and will to perform. These processes have proven ability to predict employee job performance based on data. Likewise performance evaluation methods are developed that are proven to measure actual job behavior and performance. They are based on behaviors and outcomes over which employees have control. The behaviors and outcomes expected of employees is clearly communicated to new recruits. Employees are evaluated on the performance dimensions of this system by collected information from multiple sources and this data is fed back to employees. An employee improvement plan is developed to improve areas of weakness. When these communication and development efforts fail and employees consistently are rating below acceptable levels, termination results.

At this point that all of the teachers at CFHS have been terminated and some might be asked to return in the fall. The superintendent has recently stated "But even in the "transformation model," every person there has to be rigorously evaluated, and an explicit decision has to be made about whether they come back or not." I am sure that there are teachers at CFHS that represent all points on a performance continuum from excellent teachers to poorly performing teachers.

While this sounds great in principle, how can a rigorous evaluation method that has yet to be developed, the elements of which have not been communicated to faculty members be used as a basis for deciding who will be asked back? What is going to be the real basis for the re-hiring decision? If the educational methods used at CFHS have not worked in the past, does it make sense to evaluate teachers on some failed educational model?

Most successful organizations have cultures that reinforce effective employee behavior. Organizational culture affects employee behavior through peer support and reinforcement, rather than through administrative structures. Cultures are the most effective when members value acceptance from other group members and there is a high level of cohesiveness among members. While culture and structure represent two different mechanisms to control group behavior, cultures work best when there is consistency between culture and structure, rather than conflict between satisfying peers and satisfying administrators. A strong culture of excellence can be a much more powerful force than any administrative control system a district can develop through incentives and evaluation.

Let's assume the administrators of CFHS follow through and bring a portion of the faculty back and hire a substantial number of new teachers. What do you think the relationship between the veterans and the replacements will be? Does anybody think they will form a cohesive and mutually reinforcing team of educators? We also have to consider the role of leadership in the development of strong culture. CFHS has had quite a few different principals over the last couple of years and we do not know if the current principal will return. Consistent and supportive leadership is a must for strong cultural development.

There has been a lot of rhetoric regarding the fact that students are, or should be, the most important stakeholder in this case which various stakeholders laying claim the group that values student learning the most. How can anyone disagree with that? However, it is one thing to say that your value learning and our kids and another thing to make this so. How will the current CFHS seniors benefit from the current approach? Do the proposed changes have any chance of improving learning? For example, will 20 minutes more a day of doing what has not worked improve learning? Is it learning we are after or is this all a way to winning grant money?

If one really cares about students and their futures, I don't see how advancing a political agenda furthers that. Find a way to involve those that work with students every day and have to actually implement any new system work collaboratively with leaders to create a way to improve learning at CFHS.
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For my graduating master's students, here are some practice comprehensive examination questions.

Question 1: You are the superintendent or the principle of the CFHS. You are committed to improving learning and graduation rates in your school. What problem-solving and change approach would you use that has the greatest chance to develop a solution that works and that will be accepted by those who are required to implement it?

Question 2: How would you approach negotiation with the union leadership using an interest-based bargaining approach? Contrast the expected outcomes from a positional versus interest-based approach.

Question 3: Design a performance management system that has the high probability to creating a faculty of effective teachers.
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1. The six conditions that teacher were told they must accept are: (1) school day increased by 25 minutes, (2) formalized tutoring schedule for before and after school assistance, (3) agree to eat lunch with students at least one a week, (4) Attend two week of professional development in the summer; (5) Stay after school once a week for 90 minutes to work with colleagues to analyze student work and test data, (6) accept more rigorous evaluations starting March 1st.
2. It is not clear what the nature of the discussions between the superintendent and the union president were. Since the contract was not expiring, they did not seem to contract talks. Was this a contract re-opener or just a discussion of the principles of the plan between two individuals? It is clear that the teachers did not vote on any proposal.