Pathways to Power Sharing in Today’s Corporations
Corporations Can't Keep Living a Contradiction.
Most public and private corporations are run today as autocratic hierarchies, where decision-making is concentrated at the top and non-management employees are deprived of any meaningful voice in policies that affect their welfare.
This is demonstrably undemocratic. It’s undemocratic because it denies employees the chance to co-create a work life that serves both their own well-being and that of the organization they’ve joined. As I argued in my last column, such mutual engagement is not only good for workers but for employers as well.
Similarly, I’ve argued before that while corporate leaders must lift their voices against cronyism and corruption to save our constitutional democracy, they must also look inward to the culture of their own firms.
Power sharing is the only practical pathway to true mutual engagement. As a central feature of any activity that claims to be democratic, power sharing must also be a central feature of any corporation that aspires to be democracy- supporting.
In the public sector, power sharing among politically equal parties and their elected representatives is required to forge workable legislation and to carry out the peaceful transfer of power after elections.
But in the private sector, true power sharing between capital and labor – beyond that embedded in increasingly rare collective bargaining – typically only happens as a response to dire economic emergencies. It can happen, for instance, in the rebuilding of a nation after a war (think post-World War II Germany and Japan) or, more commonly, in response to some major market collapse (Japan’s successful small-car invasion of the United States in the 1980s) or financial catastrophe (like bankruptcy). Absent existential crisis, however, capital and labor in the private sector are not generally political equals.
Apart from a few notable exceptions in the U.S. and abroad, power sharing on matters of business policy and administrative practice has therefore never been an established element of our corporate governance regime. Neither has the existence of democracy-supporting firms been considered an essential building block of American-style democratic capitalism.
And therein lies the challenge.
When you take a job in a business enterprise, you typically agree to let the employer tell you what your role is and what the rules are. Job descriptions and titles are on offer, as are wages and various conditions of employment, including benefits. Unless the applicant has an unusual skill in high demand and therefore unusual negotiating power, it’s “take it or leave it” — either you want to join the enterprise and agree to the terms of employment, or you don’t.
Further, in both publicly and privately owned companies, decision rights over the conduct of the business have long been legally retained by shareholders who risk capital in the enterprise and delegate these rights to a board of directors and the firm’s senior leadership. For both reasons, when joining an established firm, employees can’t expect to play a major role in this decision and control structure unless senior management explicitly invites them to do so.
But we shouldn’t think of this reality as set in stone. There’s nothing natural or inevitable about the way corporations distribute decision-making power internally. It reflects legal and administrative choices.
And such choices can be revisited.
To create true democracy-supporting firms, much of the traditional approach to management would need to change – enabling employees to participate in corporate deliberations that affect their lives in ways that do not compromise the efficiency and competitiveness of the enterprise.
This kind of mutual engagement is not, of course, a completely new idea. Four approaches have been pursued for decades.
Four models that work – but fall short
1. Unionized Firms and Collective Bargaining
Consider, for example, the case of unionized firms.
At the 6 percent of private-sector companies that are unionized (employing only 11.3 percent of the U.S. workforce), employees have indeed gained significant voice in the determination of wages, work rules, length of the workweek, health benefits, and other conditions that enable them to live healthy, balanced, and increasingly secure lives.
Over the years, the organizing and bargaining process has been codified and protected by federal law, as both unions and management tested ways to gain advantage in protecting their interests.
Despite this grudging progress, however, unionization rates remain extremely low despite the increasing interest of workers to join unions if given that opportunity, collective bargaining covers a limited range of issues, and labor-management relations are often antagonistic. Collective bargaining often leads to a power struggle, rather than a deliberative process of co-creating systems that could pre-empt hostility. It is little wonder, then, that few of the negotiating methods and union gains have generated collaborative problem-solving beyond the bargaining table. Most decisions pertaining to organizational strategy and performance remain firmly in the hands of corporate executives and their boards of directors.
2. Employee Ownership
Employee ownership – typically through an Employee Stock Ownership Plan (ESOP) – has had limited impact on sharing decision rights within firms, despite some notable pioneers. ESOPs give workers an equity share that allows them to gain directly from the company’s growth and profitability. The adoption of ESOPs is often associated with strong employee motivation, increased employee productivity and product quality, lower employee turnover, and a culture of collaboration resulting in lower “coordination costs.” ESOPs also offer multiple tax advantages; for example, the profits attributed to employee ownership (the ESOP) are not subject to federal income tax, which means that more money stays in the business.
Employee ownership, it must be said, can also be a risky investment for employees. For “undiversified” employees investing heavily in their company’s stock, their retirement savings can be wiped out if their company fails. This was the case for many employees at United Airlines and Enron after their 2002 bankruptcies.
Publix Markets (230,000 employees) and W.L. Gore and Associates (maker of Gore-Tex, 12,000 employees) are two examples of successful ESOP companies. At Publix, employees own about 80 percent of company shares, and the Jenkins family owns the rest. W.L. Gore is also a privately held company.
ESOPs have been around since the mid-1950s, yet employee-owned firms currently make up only a small portion of the nation’s businesses. According to the National Center for Employee Ownership and the U.S. Census Bureau, there are 6,257 U.S. companies offering an ESOP and 6.1 million others. Less than 3 percent of these ESOP firms are publicly owned.
While many employees in ESOPs appear to be enthusiastic about engaging with management and thrashing out problems together, not all ESOPs give employees a direct voice in management decisions, and many employees in ESOP companies do not seem interested in board representation.
3. B Corps
Benefit Corporations (or B Corps) are not designed explicitly to promote power-sharing among corporate stakeholders. But the value system and management practices that underlie them are more likely to support new decision-making and power-sharing practices than other firms.
The mission of certified B Corps is to use business as a force for good. Certification involves committing to nonfinancial impacts of corporate actions and conforming to high standards of accountability and transparency. Many B Corps, for example, pay specific attention to employee benefits and fair employee practices in their supply chains. Others, like Patagonia, focus predominantly on an environmental agenda.
There are only about 6,000 B Corps in the U.S. and Canada, including a few large public firms such as Nike and Walmart. But publicly listed B Corps all tend to be closely held by founders or founding families that can establish and protect internal governance practices that traditional shareholders might reject. Together, private and public B Corp companies represent a tiny portion of the corporate economy.
Codetermination
Created after World War II, German-style codetermination involves the legal right of employees to participate in managing their companies through board representation.
While codetermination can be seen as a democracy-supporting practice in the workplace, it is in many respects inconsistent with existing U.S. state laws governing corporations. Many of these laws are premised on the idea that corporations should be managed primarily in the best interests of shareholders, and there is little evidence that that commitment to shareholder wealth maximization is weakening. To the contrary, the rising importance of institutional investors, the ever-present threat of hostile takeovers, and legal reforms on proxy access have arguably increased shareholder power over corporations.
A full-scale adoption of the governance structure would require re-legislating and, inevitably, re-litigating our corporate governance model on a state-by-state basis — or else it would need to be somehow superseded by a new federal incorporation statute. This would not be easy to implement nor, perhaps, even desirable, in the U.S.
In short, in the modern American corporation, the sharing of decision rights with non-management employees remains extremely limited.
The workplace as a relational environment
What’s left to be considered is a new strategy for changing U.S. corporate governance in ways that empower workers to claim greater agency in their workplaces, but that do not freeze decision-making through an employee veto or otherwise compromise operating efficiencies. The goal of such an effort would be to shift traditional command-and-control management to a philosophy creating a more “relational environment.”
What a relational environment means in administrative terms is that business problems affecting the well-being of a firm’s members are solved with and not for its members. In such an environment, corporate executives and their boards consider business policies, practices, and strategies for what they often become in practice — namely, agreed-upon outcomes rather than directives.
Relational companies understand that few matters exist that involve employees (and other critical participants in the enterprise) where management can realistically expect to hold unitary decision rights, because there are too many interests and blocking behaviors involved.
In addition, senior executives operating in a relational environment recognize the legitimacy of a company’s key constituencies as partners in discussion and negotiation on matters directly affecting their interests.
The United States has a long history with power-sharing forums where the full range of matters affecting employee interests and welfare can be addressed – forums where information can be shared, joint problem-solving can take root, and power sharing can eventually become a recognized and validated pathway to finding practical solutions to problems.
Such forums have existed, and exist today, under many names: labor-management committees at local and corporate levels, joint study committees and employee engagement committees, continuous improvement councils, quarterly town hall meetings, and face-to-face meetings with top-level executives. They build truly cooperative organizations with low coordination costs based on reciprocal relationships, rather than disunited organizations generating unnecessarily high costs of coordinating parties with permanently conflicting interests and agendas.
None of this requires a revolution in corporate law – what’s needed is a change in corporate culture. Executives and boards need to recognize that employees are not simply inputs to be managed but participants whose cooperation and creativity are what make an enterprise competitive.
Such a relational workplace is not a utopian idea. In joint labor-management committees, employee engagement councils, and continuous improvement teams, it is already happening.
But the hard work is building the forums, the habits of consultation, and the culture of reciprocity that make power sharing real. Corporations that claim to support democracy while practicing something closer to autocracy are living a contradiction — and in the long run, neither employees nor the broader society will keep tolerating it.
In the world of business and democracy renovation, ideas matter less than execution. Implementation is the key. Accordingly, in subsequent columns I will provide specific examples of power-sharing practice and describe the various types of forums that can promote mutual engagement, solve difficult problems and support greater industrial democracy.
This is the second in a series of columns by Malcolm Salter on expanding equality in the workplace. These columns were adapted from his book, The Fading Light of Democratic Capitalism, published by Cambridge University Press in 2024.