Economic democracy is critical to stimulating the economy, ensuring good corporate governance and encouraging companies towards a more inclusive culture of working together with their employees in a holistic manner that provides a platform for their voices to be heard and to participate in decision-making. This policy brief examines the terrain, how to address challenges and work towards creating social pacts between companies and staff.
Introduction
Employees, trade unions and civil society in African and developing countries must push for increasing workplace democracy in local private, state and foreign companies as a way to deepen economic democracy.
Workplace democracy, in simple terms, is using democratic practices in companies, giving employees a bigger say in decision-making, allowing for more participation and greater partnerships. Companies also engage more responsibly with all stakeholders impacted by the company’s actions, including the environment, and behave as good corporate democratic citizens.
Workplace democracy is the missing link in building economic democracy. Carole Pateman (1970: 22) argues democracy should not only be limited to the political sphere, it must include all arenas where individuals live, act and have relations with. Pateman takes it further arguing that, for example, if a country’s democratic system is based on “participation”, the decision-making in all institutions, including business, in society must then be “participatory” (Pateman 1970: 42).
So, for example, if South Africa’s democratic system is based on both participation and representation, decision-making in all institutions of society must then be based on participation and representation. If this is not the case, it is unlikely that citizens will buy into broader democratic decisions at the political level (Pateman 1970: 42- 44), get educated into the ways democracy works and develop a democratic culture. The US philosopher John Dewey, for example, argued that if democracy is absent in one sector, social group or aspect of society, this is bound to stunt the development of democratic citizenship across society (Dewey 2008: 221). “Citizens cannot become convinced democrats if they – in their daily lives, in schools and in their workplace – do not experience democracy” (Pausch 2013: 16).
Some democracy theorists such as Robert Dahl have gone so far as to argue that workplace democracy for employees is a “moral right” (Dahl 1985: 25). “If we agree that they (employees) have a moral right to participate in governing a state, don’t they have a comparable moral right to participate in governing a firm?” (Dahl 2001: 250-251).
Companies predominantly managed top-down
Generally, across the globe, companies are mostly run top down, hierarchical, in a pyramid structure, where the board makes decisions, the executives manage the implementation and the workers implement unquestioningly.
Such top-down management strategies have their origin in the militaries, whether the ancient Roman or Chinese armies or the first multinational companies during colonial times, such as the Dutch East India Company (Kotler & Singh 1981; Mostert 2007).
The decline of the trade union movement across the world, including in Africa, has further stunted workplace democracy (Hatcher 2007; Sweeney 2004). Trade unions have traditionally been at the forefront of pushing for workplace democracy. Technological changes, the rise of the “gig” and automation economy have transformed the nature of work – and trade unions have been unable to respond effectively to this.
Although there have a flurry of suggestions that new technology, the knowledge economy, and new management practices, organisational development and human resource development which advocate flatter organisational structures and more bottom-up decision-making, would make modern workplaces less autocratic, workplace democracy has not been implemented on a mass scale (Skelley 1989; Hatcher 2007) .
Workplace democracy in action
Nevertheless, more recently, some companies have introduced more participative workplaces, using what is termed total quality management, work teams whereby the employees involved make decisions rather than managers, flexible workplaces, job rotation schemes and employee profit-sharing (Greenberg 2006).
In some smaller new technology companies in mostly industrial economies, workplace democracy practices are more frequent. The Norwegian IT company, Kantega, came about after employees bought part of Taskon, a Norwegian IT company, renamed it Kantega, and now run it on workplace democracy basis. Kantega’s board has representatives elected from staff and outsiders – and every employee can vote on their appointment. The company has an annual general assembly where all employees can participate in, although only those who have shares can vote (van der Vliet 2012). All employees are entitled to buy shares, which are made as low as possible as allowed by Norwegian law.
The UK John Lewis Partnership, which runs the John Lewis and Waitrose stores, is one of the world’s oldest and most successful democratically run companies, having introduced employee participation and involvement since its formation in 1929. The John Lewis company was started in 1864, but the John Lewis Partnership was established in 1929 when John Spedan Lewis introduced democratic structures in the company (Lewis 1954).
John Lewis has representative bodies on which employees sit, including forums and a company-wide council. An employee is seen as a partner who can vote on key decisions, elect representatives to the council and the board. As incentives to productivity, employees benefit from a profit-share scheme.
US Fortune 500 healthcare company DaVita has also introduced workplace democracy. In 1999, DaVita was on the edge of bankruptcy. The company was under investigation by the SEC. DaVita employed a new CEO, Ken Thiry, who repositioned the company to make it a “democratic community” (Hesselbein 2012: 61-62). DaVita started town hall style meetings with staff reflecting on the mistakes the company made, and how to improve the business. The company resolved to decentralise decision-making to its local clinics. Thiry called himself “Mayor”, rather than CEO, to show the symbolic change (Hesselbein 2012: 62). The decline in the company was reversed. Productivity went up. It raked in US$6bn in revenue.
Spain’s Mondragon, founded in 1956 in the Basque region, operates in 30 countries, has about 85 000 employees, and operates in four sectors namely finance, industry, retail and knowledge, along co-operative lines. It is run on workplace democracy principles, with employees involved in decision-making on profit-sharing, strategy and appointing directors.
Employees can become members, who participate in running the company as a federation of employee cooperatives through a general assembly, which elects a governing council, which appoints the executive and decides on strategic decisions and profit-sharing. It also has a social council which represents members to internal structures of the company.
Semco, the Brazilian company and family-owned business founded in 1953, and originally manufacturing centrifuges used in the vegetable oil industry, was transferred in 1982 when Ricardo Semler took over as CEO from his father. Semler not only diversified the company but introduced workplace democracy (Semler 1993, 2003). The company has a federal structure.
Semco took away traditional titles, called workers “associates”, introduced the title of “counsellors” for its executives (or vice-presidents in Brazil), who run the strategy, called those who run the business units “partners”, and called the first line of managers “coordinators” (Semler 1993, 2003). Each of the counsellors rotates as CEO for six-month. There is job rotation throughout the levels of the company. Remuneration is tied to production performance. In the nine-member board, two seats are reserved for employees and the rest for the heads of the business units (Semler 1993, 2003).
Each business unit has an elected factory committee, which excludes management, and includes a union representative. The factory committees engage with management on policies, strategy and related issues. Each employee has a vote on key decisions such as mergers, acquisitions and new investments. Semco has a monthly company-wide meeting open to all, where new ideas are discussed – and everyone can vote on these. Financial information is accessible to all. The company has a special women program, with women forums at every unit, where the state of women progress in the organisation can be raised (Semler 1993, 2003).
Israel’s Kibbutzim is run on workplace democracy and have over 300 industrial plants, with more than 100 000 employees (Hatcher 2007). Kibbutz industrial enterprises have general assemblies, where all key economic decisions are made through the participation of all members, including the appointment of the general manager. Boards have representatives from both management and workers (Buber Agassi 1974; Tsuk 2002; Kedem-Tahar 2014). Middle and lower managements positions are elected on a regular basis. Workers participate in profit-sharing and jobs are rotated.
After the 2001 financial crisis in Argentina, many companies closed down. Many employees banded together and reopened some of the companies. This movement by desperate employees to rescue companies abandoned by owners and shareholders is called the recovered factories movement. About 200 such companies were rescued. The new employee owners set up the companies based on workplace democracy. The Argentinian phenomenon is called autogestion (Pausch 2013).
Workplace democracy strengthens broader democracy
The economic democracy theorist Carole Pateman argues convincingly that democracy in the workplace is the most important place where citizens can learn the art, the practice and habits of democracy because most individuals “spend a great deal of their lifetime at work and the business of the workplace provides an education in the management of collective affairs that is difficult to parallel elsewhere” (Pateman 1970: 43).
Other democracy theorists have argued that democracy in the workplace “also enhances civic engagement and political democracy” in broader society (Hatcher 2007: 3). Mass and systemic alienation of individuals in the workplace could also lead to mass and systemic individual anxiety and stress, which in turn could undermine broader democracy, as individuals withdraw from political participation also (Diamond and Allcorn 2006).
Research has shown that increasing workplace democracy could have a transforming impact on individuals in companies, making them more democratically spirited (Dahl 1985). They could change individuals into more “democratic, politically aware and active, social, public spirited, cooperative and concerned for the general good” (Hatcher 2007: 4). Furthermore, employees emerged in workplace democracy expand their political understanding of public issues. Their sense of solidarity with others also increases.
Workplace democracy has the ability to reduce social inequalities based on race, class and gender (Sen 1966; Collom 2000). Blacks, ethnic minorities and women are often the worse off in terms of decision-making, participation and having a voice in workplaces. Workplace democracy empowers them.
Workplace democracy improves company performance
A number of research studies have shown that companies run on along democratic practices are “as competitive and efficient” as those run on the traditional hierarchical management structures (Hatcher 2007; Altman 2002).
Kantega has been regularly included in the Financial Times newspaper’s “100 Best Workplaces in Europe” (van der Vliet 2012). John Lewis was awarded “Britain’s favourite retailer” four years in a row and has been profitable even during the height of the 2007/2008 global financial crisis.
The company’s ranking in the machinery sector grew from the 56th to 4th. Semco grew 40% in some years, and one year grew 900%, growing its employees from 90 in 1982 to 3000 in 2003 (van der Vliet 2012; Bigley 2014). Over the period of Semco’s phenomenal growth, Brazil had experienced hyperinflation, high unemployment and a series of currency devaluations (van der Vliet 2012; Bigley 2014). Semco is regularly voted the best company to work for in Brazil.
Throughout Spain’s recent economic crisis, Mondragon, as a company has consistently performed well (Bigley 2014). Of the rescued companies only 7% have closed down since they have been run on democratic lines (Palomino et al 2010).
How to implement workplace democracy practices in Africa
African governments will need to introduce labour relations frameworks which encourage workplace democracy. The rights of employees, as well as their right to participate and have representation in governing the workplace, must be strengthened. The right to collective bargaining to allow employees to negotiate wage levels, working hours and benefits with management – which is enforceable under law, is a crucial start.
Corporate governance in many countries has been focusing mostly on governing the relationships between shareholders and executives. However, ensuring that companies consider the welfare of employees and communities impacted by a company’s activities and the environment must form an integral part of corporate governance regimes.
Companies should provide shareholding and board representation to employees, and share profits. When shares of state owned companies are made available to the public, shares to employees, communities and ordinary citizens must be part of it. Industrial country companies invested in Africa must provide the same rights, representation and profit-sharing to employees as they are required to provide in their home countries.
The EU has comprehensive laws allowing employees representation and to be consulted in the workplace. For example, the European Works Council Directive, which mandates large EU firms to have works councils, elected by employees whom management, should consult regularly on major issues affecting a company. EU companies must follow the same standards on employee involvement as prescribed by the EU when they invest in Africa.
Similarly, emerging market companies, whether from China, India or Saudi Arabia, should respect basic employee rights in Africa. Furthermore, emerging market companies must also provide similar benefits to their employees in Africa, as they do in their home countries. Chinese and Japanese companies for example, often provide their employees with housing and other benefits – there is no reason why such companies when they are in Africa, can’t do the same to locals in their employ.
African governments and civil society must promote social pacts between state and private companies and employees, trade unions, civil society and local communities. In such social pacts, employees could agree on productivity targets and wages, and companies on basic rights, profit sharing and employee participation.
Selected Bibliography
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