How do direct and indirect forms of participation – separate as well as in combination – affect organizational performance?

UNDERSTANDING WORKER
PARTICIPATION AND
ORGANIZATIONAL
PERFORMANCE AT THE FIRM
LEVEL: IN SEARCH FOR AN
INTEGRATED MODEL
Jan Kees Looise, Nicole Torka and Jan
Ekke Wigboldus
ABSTRACT
Last decades scholars in the field of human resource management
(HRM) have intensely examined the contribution of HRM to organizational
performance. Despite their efforts, at least one major research
shortcoming can be identified. In general, they have devoted far too little
attention to an aspect of HRM potentially beneficial for organizational
performance: worker participation, and especially its indirect or
representative forms. In contrast, for academics embedded in the
industrial relations tradition, worker participation is a prominent theme,
even though less emphasized in its relationship with company objectives.
One might defend traditional scholars’ reservations by arguing that
participation’s main goal concerns workplace democratization and not
Advances in Industrial and Labor Relations, Volume 18, 87–113
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organizational prosperity. However, several writers state that industrial
democracy involving worker participation can channel conflicts of interest
between employees and employers and stimulate desired employee
attitudes and behavior, consequently enhancing organizational performance
(e.g., Gollan, 2006; Ramsay, 1991; Taras & Kaufman, 1999).
And, indeed, several studies have shown positive effects of both direct
participation (e.g., European Foundation for the Improvement of Living
and Working Conditions, 1997) and indirect participation (e.g., Addison
et al., 2000, 2003; Frick & Mo¨ller, 2003) on organizational performance.
Nevertheless, to date, the absence of an integrated model explaining the
connection between worker participation and organizational performance
leads to the following question that still is in need of an answer: how do
direct and indirect forms of participation – separate as well as in
combination – affect organizational performance? This chapter aims to
contribute to the filling of the aforementioned knowledge gaps. In so
doing, we focus on direct and indirect, nonunion participation on the firm
level, using a Western European and especially Dutch frame of reference.
Keywords: Direct participation; indirect participation; firm-level;
performance; the Netherlands
INTRODUCTION
Industrial democracy is still a central theme in industrial relations (IR)
debate and research. Industrial democracy refers to worker participation in
both its direct and indirect or representative forms. Direct participation
refers to employees’ immediate communication, interaction, and co-decision
making with management; indirect participation to one or more employees
who act in a representative function for other employees in dealings
with management. This happens in a vast variety of organizational forms
including committees, councils, and unions (Kaufman & Levine, 2000; Taras &
Kaufman, 2006).
The global economic downturn in the mid-1980s pushed adherents to the
emerging human resource management (HRM) rhetoric to advocate onesided
employer demands, undermining IR’s position in teaching and research
(themes) (Clarke et al., 2009). One of the most influential HRM models (e.g.,
Beer, Spector, Lawrence, Quinn Mills, & Walton, 1984) advocated worker
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participation as one of the so-called ‘‘high performance management
practices’’ that contribute to organizational effectiveness, and later research
supported this assumption (e.g., Addison et al., 2000, 2003; Frick & Mo¨ ller,
2003). However, compared to other practices such as job design, pay, and
development opportunities, participation – particularly indirect forms – and
its effects have received relatively little interest in HRM studies. Many IR
scholars also remained silent on the relationship between worker participation
and organizational performance. This is not surprising given IR’s
traditional view that worker participation epitomizes industrial democracy.
Yet, an increasing number of IR scholars focused attention on the fact that
worker participation, and mainly nonunion representation on the firm level,
also has a fundamental economic value. These researchers emphasize that from
a managerial point of view employee involvement can be seen as a business
tool: worker participation as a means to reduce transaction costs associated
with the employee-organization relations and, consequently, improving
productivity (e.g., Colling, 2003; Frenkel, Korczynski, Donaghue, & Shire,
1995; Freeman & Lazaer, 1995; Gollan, 2006, 2010; Kaufman & Taras, 2000;
Kaufman & Levine, 2000; Ramsay, 1991; Rogers & Streeck, 1995; Taras &
Kaufman, 1999). Moreover, it can be argued sustainable successful worker
participation on the firm level has to meet employers and employees interests:
in this view enhanced organizational productivity and performance are
aligned with an improvement of the ‘‘social good’’ for workers in terms of
higher wages, improved working conditions, and increased job security. After
all, only companies with sustained productivity and profitability are able to
ensure further enhancement of workers’ conditions.
Against this background, investigating the effects of worker participation for
organizational performance is legitimate. This chapter addresses this issue by
focusing on direct and indirect nonunion forms of worker participation on the
firm level using aWestern European and especially Dutch frame of reference that
we know best. More specifically, the goal here is to explore possible solutions to
the following puzzle: how do direct and indirect forms of participation – separate
as well as in combination – affect organizational performance?
We decided to leave union involvement out of our consideration because in
most Western European countries (like the Netherlands, Germany, Austria,
Belgium, France, and Spain) union interference is restricted to collective,
sector-level bargaining with a strong focus on remuneration packages and
decision making in regard to individual organizations lies outside the unions
mandate. Furthermore, Gollan (2010, p. 212) states that in Anglo countries
the interest in nonunion firm-level participation is increasing because union
density is in decline, and legislative changes more and more ban closed shop or
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compulsory union arrangements. For example, in the UK nonunion joint
consultation between management and worker representatives seems to be
growing (Hall, 2009) partly under influence of the recent European Directive
on information and consultation of employees. In contrast, in the Netherlands
(and other European countries) indirect nonunion worker participation
is a rather old phenomenon.We can thus by concentrating on countries with a
long tradition offer arguments for those who want to promote these forms of
participation in countries and firms with a different history.
At the end of this chapter we present an integrative model that can guide
future research on the participation–performance link and policymaking in
this field. We will explore two streams of research which have shaped this
model. The first concerns the connection between direct participation and
employee outcomes like commitment, and consequently organizational
performance. After presenting a brief overview, we proceed to concentrate
on the indirect participation–organizational performance connection, with a
strong focus on the role of Dutch works councils. By combining insights
from the direct and indirect participation–performance links we are able to
present our integrated model in the last paragraph.
DIRECT PARTICIPATION AND ORGANIZATIONAL
PERFORMANCE
Direct participation can potentially touch all workers directly in relation to
their work tasks, work organization, and working conditions. Such
participation is strongly contingent on a voluntary management decision
and can be seen as an HRM-practice (see Introduction). Despite the vast
amount of research on the performance effects of HRM-practices, very little
work has been done to illuminate the contribution of direct participation to
organizational performance. The EPOC Group’s research (European
Foundation for the Improvement of Living and Working Conditions,
1997) showed it was valuable to investigate this relationship.
The EPOC Research Group studied direct participation in 10 Western
European countries.1 Close to 6,000 general managers participated in this
survey about the coverage, scope, and intensity of different forms of direct
participation (total response rate: 17.8%). They found evidence of direct
participation in 82% of the workplaces in Western European countries, with
group consultation in permanent groups as the leading form (43% of the
workplaces: 29% permanent and 14% temporary), followed by individual
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consultation (33%), group delegation (13%), and individual delegation
(11%). The Netherlands and Sweden had the highest scores in workplaces
with direct forms of participation: 90% and 89% of the workplaces (see also
Gill & Krieger, 1999). This means that in almost all workplaces in these
countries forms of direct participation exist. Positive effects of direct
participation were found for three categories of performance outcomes,
namely:
1. economic performance (cost reduction, reduction of throughput time,
improvement of quality of product or service, increase in output);
2. indirect labor costs (decreases in sickness, absenteeism); and
3. direct labor costs (reduction in number of employees, managers).
Table 1 gives an overview of the performance effects of different forms of
direct participation as perceived by the respondents as reported in the EPOC
survey. In the table only three of the six investigated forms of direct
participation are shown, namely, individual consultation (‘‘face-to-face’’),
group consultation (permanent groups), and group delegation. Not included
are individual consultation (‘‘arms length’’), group consultation (temporary
groups), and individual delegation.
Table 1. The Effects of Different Forms of Direct Participation
(EPOC, 1997).
Effects Individual
Consultation (%)
Group
Consultation (%)
Group
Delegation (%)
Economic performance
Reduction of costs 61 61 56
Reduction of throughput time 64 62 66
Improvement in quality 92 94 94
Increase in total output 52 53 58
Indirect labor costs
Decrease in sickness 39 37 32
Decrease in absenteeism 42 39 37
Direct labor costs
Reduction of number of employees 27 26 30
Reduction in number of managers 26 22 31
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The results show direct participation has the strongest effect on economic
indicators, especially quality improvement, but also on reduction of
throughput time and cost and increase of the total output. The effects on
indirect (i.e., decrease in sickness, decrease in absenteeism) and direct labor
costs (i.e., reduction in number of employees, reduction in number of
managers) seem to be weaker, but are still important.
When we take into account different forms of direct participation, the
EPOC research shows that effect differences between the diverse forms of
direct participation are rather small. This is also the case with reference to
the forms that are missing in the table. Only group delegation seems a little
more effective when it comes to direct labor costs. Another interesting
finding is that temporary group delegation can be as effective as more
permanent forms. It thus seems reasonable to conclude that it is more the
opportunity of direct participation as such less the form of that opportunity
that is decisive for organizational performance.
Although the EPOC study seems to suggest an immediate relationship
between direct participation and organizational performance, based on
HRM rhetoric and research, it is wise to acknowledge that intervening
factors cause this connection. Numerous HRM scholars present models
aiming to illustrate the HRM and performance relationship (e.g., Beer et al.,
1984; Fombrun, Tichy, & Devanna, 1984; Guest, 1997; Paauwe, 2004;
Paauwe & Richardson, 1997) and they all agree there is a relationship
between the organizations’ strategy, the choice for a certain HRM approach
(or system), and specific outcomes or effects. For example, when choosing
for quality as a strategy to foster competitive advantage, this target has to be
aligned within the various HR-practices (e.g., Baird & Meshoulam, 1988).
Concerning the effects, a distinction has been made between employee and
organizational outcomes. Employee outcomes refer to the effects of HRM
on employee attitudes (e.g., satisfaction, commitment) and consequent
behavior (e.g., absenteeism, turnover, organizational citizenship behavior
[OCB]), and these are expected to influence organization outcomes. Thus,
employee attitudes and behavior are the missing link in the direct
participation and organizational performance relationship (see also Cox,
Zagelmeyer, & Marchington, 2006; Purcell & Georgiadis, 2006)
Organizational performance refers to both objective (e.g., profit, return
on investment; productivity, growth) and subjective performance outcomes
(e.g., quality of products and services, client satisfaction, innovativeness).
Several researchers (e.g., Paauwe, 2004; Addison & Teixeira, 2006; Forth &
McNabb, 2008) emphasize the current common research approach to
organizational performance in its sole focus on financial performance is
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too narrow. They urge an alternative use of a multidimensional performance
perspective that includes further objective (e.g., employment growth) and
subjective performance measures (e.g., employee well-being, societal wellbeing).
We fully agree about expanding the parameters in studying
organizational performance, but here limit our discussion to the more
economic effects of (direct) participation.
Building on the general notions we have raised about the connection
between HRM and performance, we can assume the following relationships
between direct participation and organizational performance (see Fig. 1).
As Fig. 1 shows, direct participation appears to have an impact on
organizational performance in three rather basic ways.
First, employees with direct participation opportunities can influence
organizations’ performance directly: they can offer suggestions leading to
more efficient processes or better product quality. In doing so, employees
can contribute to higher labor productivity and process innovation (e.g., De
Leede, 1997).
Second, like other HR policies and practices, direct participation
influences employee attitudes which in turn support employee behavior
that is beneficial for organizational performance (e.g., reduced turnover
and absenteeism, improved productivity and product quality; see also
Doucouliagos, 1995; Dundon, Wilkinson, Marchington, & Ackers, 2004).
Recent findings support the assumed relationships: Torka, Schyns, and
Looise (2010) found direct participation is significantly connected to
affective organizational commitment, and Meyer et al.’s (2002) metaanalysis
shows that this form of commitment strongly influences employee
Organizational
strategy
cost (cost efficiency)
focus (quality)
differentiation
(innovation)
HR policies and
practices
function/job design
hr flow
appraisal and reward
Employee
outcomes
Attitudes:
commitment
motivation
Behaviour:
absenteeism
turnover
collaboration
flexilbility
Organisation
outcomes
growth
labour
productivity
product
quality
product
/process
innovation
direct participation
Fig. 1. The Relationship between Direct Participation and Organizational
Performance.
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health and well-being, turnover, absenteeism as well as task- and extra-role
performance (i.e., OCB). Thus, direct participation can impact organizational
performance indirectly through the just mentioned employee
outcomes.
Third, the model shows that direct participation has a rather prominent
position as part of the HR policies and practices. In other words, managers
should offer employees opportunities to (co-)decide on those HR issues
that clearly affect them. Older research by Beer et al. (1984) supports this
idea with two arguments: (1) ‘‘If ’’, they claim, ‘‘employees are major
stakeholders in the enterprise, then it is critical that managers design and
administer various mechanisms for employee influence’’ and further
(2) ‘‘employee influence in its broadest sense is a central perspective in
the formulation of all human resource management policies.’’ This last
proposition about the critical role of both direct and indirect participation
has been ignored by many scholars and practitioners. Just a sparse handful
of investigators have recognized the point and gone so far as to claim
direct participation should even have a special status within research on
performance: direct participation presumes listening to employee needs and
only when meeting their needs will desired outcomes be gained (e.g.,
Bryson, 2004; Bryson, Charlwood, & Forth, 2006; Gollan, 2003; Torka,
Van Riemsdijk, & Looise, 2007). Given our review of unmistakable
patterns of blind sight in the accumulated evidence, when compared to
other HRM-practices, there can be little doubt that participation deserves
at least equal attention in organizational performance research and
practice.
Finally, Cox et al. (2006) state that more emphasis needs to be placed on
the perception of direct participation. Therefore, it can be argued that
getting insight into the absence or presence of participation opportunities
(see, for example, Forde, Slater, & Spencer, 2006) is less important than the
quality of the given opportunities as perceived by employees. Employees’
satisfaction and justice perceptions can be seen as indicators of the
employee–organization relationship (EOR) quality (e.g., Coyle-Shapiro,
Shore, Taylor, & Tetrick, 2004; Kuvaas, 2008). We know from prior
research that satisfaction with HR-practices is a good predictor of affective
organizational commitment (e.g., Kinnie, Hutchinson, Purcell, Rayton, &
Swart, 2005; Meyer, Stanley, Herscovitch, & Topolnytsky, 2002). Several
studies show that justice perceptions are quite directly correlated with job
satisfaction and organizational commitment (e.g., Colquitt, Conlon,
Wesson, Porter, & Ng, 2001; see also Colquitt, 2001 for different dimensions
of justice and measurements). Moreover, managerial strategies lacking a
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perception of fairness seem to undermine productivity (Kick, Fraser, &
Davis, 2006). Therefore, we can legitimately assume employees’ satisfaction
with and perceived fairness concerning participation can shed significant
light on the quality of participation. Finally, concerning quality, research
found that participation is often seriously in need of improvement. The role
of managers, the quality of participation policies and practices, and job and
workforce characteristics are still insufficiently taken into account or ever
even considered (e.g., Bryson et al., 2006; Cunningham & Hyman, 1999;
Torka, Van Woerkom, & Looise, 2008).
INDIRECT PARTICIPATION AND
ORGANIZATIONAL PERFORMANCE
There are, as stated earlier, good reasons to focus on indirect nonunion
participation, also known as an integrative form of bargaining, like works
councils and joint consultation committees, and not on union involvement (i.e.,
distributive forms of bargaining). In many Western European countries (the
Netherlands, Germany, Austria, Belgium, France, Spain) both types of
bargaining take place in different institutions, while in others (the Scandinavian
countries and the United Kingdom) both forms of bargaining are executed, but
in a separate mode by union representatives at the company level. According
to the EPOCResearch Group, forms of joint consultation exist in about half of
the organizations in the tenWesternEuropean countries that participated in the
research, with higher levels for Germany and the Netherlands and lower levels
for the United Kingdom and Portugal (see also Gill & Krieger, 1999).
Co-determination via worker representatives in supervisory boards and worker
directors can be found in Germany and the Netherlands.
In the Netherlands, only a few large companies bargain directly with
unions. In large measure the unions’ mandate is restricted to negotiations on
the sector-level, the foremost concern being pay and benefits specified in
collective agreements. The works council is the most important institution
for representative participation on the firm level, and mandatory for all
firms with 50 and more employees. The Dutch Law on works councils (Wet
op de ondernemingsraden, WOR) states that works councils have to be
installed ‘‘in the interest of the good functioning of the company in all its
goals’’ (article 2). According to the WOR, Dutch works councils have
different rights.
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First, the right to give advice about a number of economic and organizational
issues, including the transfer of control over the company, lasting cooperation
with other companies, the closing down of the company or parts of it, major
organizational changes, major investments and loans, and – more recently –
the introduction of new technology.
Second, the right to veto employer proposals regarding changes in social
and personnel policies, including working hours, holidays, remuneration,
job evaluation schemes, working conditions, recruitment, promotion, and
training. These rights are only in effect when such arrangements are not
determined by a collective labor agreement.
Third, the right to appeal – in various courts – when the aforementioned
rights of veto or advice are not respected by the managing director.
Fourth, the right to initiate proposals with respect to all matters related to
the company, to which the employer is obliged to respond.
Finally, the right to assemble at least six times a year during work time
(excluding the presence of the managing director), to follow courses outside
the company (five days a year), and to consult external experts.
The rights of Dutch works councils are comparable to those in other
European countries such as Germany, Austria, and Belgium.
The growing interest in involving representative firm-level participation (e.g.,
unions, partnerships, work councils, and other forms of joint consultation) in
performance research has led to research focused on its consequences for
companies. These investigations seem to be inspired by an economical–political
or managerial point of view: in Western Europe, the popular discussion about
the relative competitive position of European economies.
In Germany, the system of firm-level representative, nonunion participation
has been long debated, questioning if the two institutions within
the firm (the ‘‘betriebliche Mitbestimmung’’ in works councils on company
issues and the ‘‘Aufsichtsrat’’ or supervisory board on concern issues)
hamper or stimulate German competitiveness (‘‘Standort Deutschland’’).
In 2006 the so-called Commission Biedenkopf concluded revision of
the system was unwarranted inasmuch as research failed to detect or
establish any relationship with poor company performance. In point of
fact, the opposite seemed to be the case: extensive research indicated the
German mandatory works councils may well improve firm performance
and certain kinds of productivity (Addison et al., 2000, 2003; Frick &
Mo¨ ller, 2003).
Furthermore, research in other countries shows a positive relationship between
(the presence of) representative participation in firms and performance.
Concerning unions on the firm level, research by Addison (2005), Rose and
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Woolley (1992), and Sengupta (2008) highlights the importance of unions for
high-performance work systems and firm performance. Concerning works
councils, Kleiner and Lee’s (1997) research among large South Korean firms
shows effective works councils can be associated with higher levels of employee
satisfaction and productivity.
The debate on the performance effects of works councils has not achieved
as high a level in the Netherlands as in Germany, due in part to the
unavailability of empirical data on this issue. However, recent initiatives
have been undertaken to address this topic in new research (Karel, Heijink,
Van den Tillaart, Boekhorst, & Van Rijsingen, 2010) and a reassessment of
earlier research (Van den Berg, Grift, & Van Witteloostuin, 2009). This
research when combined with the now growing interest in economic effects
of other legal and institutional arrangements (like the legal arrangements
regarding dismissals and extension of collective agreements, the position and
role of the unions) should fuel the debate on the economic effects of works
councils in the Netherlands.
Up to now scholars have not been generally very explicit in defining the
way(s) representative forms of participation like work councils can
influence performance. However, Dutch research on works councils can
be helpful in developing an understanding about if and how representative
participation can contribute to organizational performance. Based on Van
het Kaar and Looise’s (1999) study on the position and functioning of
Dutch works councils, three ‘‘channels’’ – one direct and two indirect – can
be distinguished regarding the influence of works councils on company
performance.
The researchers sent questionnaires to both the managing directors and
works councils of a representative sample (N¼3,500) of all Dutch
organizations with a works council (about 15,000). Four hundred and
seventy five managing directors (response rate: 14%) and 450 works
council representatives (response rate: 12%) participated in the study.
Although the response rate of this study was rather low, it is in line with
that of other large-scale empirical studies (for example, the EPOC
research). Moreover, more recent Dutch research (Karel, et al., 2010)
seems to corroborate the results. Table 1 shows the answers of both
managing directors and works council members to questions about the
perceived effects of works councils on organizational performance. These
questions were not deliberately developed to understand the contribution
of the works council to organizational performance (i.e., developed to
measure some effects of works councils), but offer a welcome opportunity
to understand the channels by which representative forms of participation
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can influence organizational performance (for more information, see also
Wigboldus, Looise, & Nijhof, 2008).
Table 2 shows both managing directors and works council members
acknowledge performance effects of works councils. However, indirect effects
seem to receive stronger recognition than direct effects, particularly in the case
of managing directors. The fact both parties perceive more indirect than direct
effects of works councils on organization performance is in itself not
surprising inasmuch as influencing organizational performance is a major
responsibility of top management and not Dutch works councils. Against this
background, it is likewise unexceptional that management finds it harder to
‘‘admit’’ the contribution of the works council in this respect. However, the
table also shows that despite managers (average) perception, even they still
perceive a direct contribution of the works council to performance aspects like
efficiency, profitability, and innovation.
Table 2 also shows that both indirect channels receive substantial support
from managing directors and works council members. Regarding the first
indirect channel, managing directors acknowledge especially the effects of
works councils on employee attitudes in terms of acceptance of necessary
decisions with employees, while works council members stress the improved
Table 2. Works Council Effects Based on Perceptions of Managing
Directors and Works Council Members (Based on Van het Kaar &
Looise, 1999).
Effects Management
(%)
Works Council Members
(%)
Direct channel
Enhancing efficiency 9 26
Enhancing profitability 4 10
Enhancing innovation 12 24
Indirect channel 1
Improved acceptance among employees 64 43
Improved representation of employees’ interests 55 78
Reduction of power differences 28 27
Indirect channel 2
Improvement of decision making quality 38 52
More careful decision making 65 67
Faster decision making 3 11
Note: The values are the percentages of managing directors and works council members that
have answered the questions.
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representation of employee interest in decision making. Since we can assume
that both effects are interrelated – a good representation of employee
interests in decision making will enhance the acceptance of the decision by
the employees – the underpinning of this channel seems to be quite
convincing. Also, the reduction of power differences – while less strongly
supported – appears to follow from these circumstances. Finally, the second
indirect channel receives ample support: It was beyond doubt that the effect
of works councils on careful decision making is recognized by a large
majority of both groups of respondents.
Before presenting a deeper exploration of the direct and indirect effects of
representative participation on organizational performance (see also
Wigboldus et al., 2008), we first present a simple explanatory model that
aims to illustrate this interaction and these relationships.
The direct channel contributes to organizational performance through
new information and/or new solutions. Due to their legal rights and/or their
contacts with top-management, representative bodies can directly influence
organizational performance, either by communicating their ideas in their
meetings with top management, or advising and/or negotiating on plans and
policies. By passing on new information, representative participation adds
to the decision making process. This information can potentially improve
management decisions and thereby adds to better performance. The specific
position of works councils or committees as elected representation of all
workers enables the council to acquire information that otherwise would not
come to the attention of senior management without delay and distortion.
This so-called asymmetry approach is supported by Freeman and Lazaer
(1995) who argue works councils’ (and other committees) economic effects
can depend on conveying unknown information from the work floor to
management (see also Lahovary, 2000). Because of the information
asymmetry between management and worker representatives, their interactions
can produce new points of view and new solutions for advantageous
management problem-solving. Addison (2005) found this approach sound
in his study of channeling employee’s preferences to be an important works
council function. Although this does not produce new information to
management, it helps management to deal with the different employee
preferences such as work hours or benefits. Dilger (2002) has shown with his
voice approach that the asymmetry effect goes beyond organization and work
procedure improvement ideas. Representative bodies also may express
complaints and problems that are frustrating circumspect employees, helping
reduce unnecessary employee turnover and so-called mental resignation.
As concluded above, the direct effect of representative participation on
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organizational performance seems to be rather limited when compared to that
of indirect effects. To be sure, this does not mean it should be neglected:
representative participation is able to contribute directly to organizational
outcomes.
The first indirect channel contributes to organizational performance
through an enhanced positive organizational climate. Organizational
climate is the overall meaning derived from the aggregation of individual
perceptions of a work environment (James et al., 2008, p. 15), and research
shows that a positive climate affects employee and organizational outcomes
in a favorable way. Climate is a critical mediating construct for exploring
the relationship between HRM and performance. In a strong positive
climate organizational members display significant congruence concerning
organizational values, and routinely act according to these values by
contributing to organizational performance through, for example, accomplishing
cost effectiveness, quality, and innovativeness. (Bowen & Ostroff,
2004; Ostroff, Shin, & Kinicki, 2005).
Heretofore the possible positive impact of representative participation
on the firm’s climate has been largely neglected. However, research generally
shows that participative organizational climates are perceived as more
effective in terms of trust than authoritarian climates (Farris, Senner, &
Butterfield, 1973), and trust influences labor–management relations (Taylor,
1989), enhanced readiness to change (Lawler, 1992), and negotiation
(Bazerman, 1994). Regarding the latter, the assumption of a reversed effect
of trust seems quite appropriate: trust – an important condition and
consequence of a strong climate – may influence the quality of both direct
and indirect participation.
The activities of representative bodies can contribute to an organizational
climate with fewer power differences, less inequality, and more trust in the
organization. After all, at least in the Netherlands, works councils represent
all employees and their rights; they are restricted to general employee goods,
and do not extend to individual employee interests. Therefore, representative
participation occurs by definition on an aggregated level: next to
organizational interests, representatives embody the shared interests of
(groups of) employees. As such, representative bodies operate on a climate
level, and climate stimulates employee commitment and consequently
performance (see also paragraph on direct participation and organizational
performance and DeCotiis & Summers, 1987; Van den Hooff & De Ridder,
2004). Besides that, a positive organizational climate (co-)created by
representative participation might have a direct positive influence on
organizational performance through improved communication. Lahovary
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(2000, p. 6) supports this idea and concludes works councils intensify the
communication flow between management and employees and communication,
itself is critical for organizational performance (Snyder & Morris, 1984).
Given the evidence of this cascading role of a strong organizational climate,
representative participation can and should be viewed and understood as an
explicit attempt to integrate mutual benefits of managers’ and employees–
organizational and employee well-being. What results is enhanced organizational
performance.
The second indirect channel contributes to organizational performance
through the organization system, and management’s attitudes and behavior.
In many of the (larger) Dutch organizations, the works council has
developed into a player in the corporate governance structure that cannot be
ignored (Van het Kaar & Looise, 1999). Its relatively clear view of what
management does and fails to do, and its communication line with the
supervisory board, are crucial. They have made it possible to get
dysfunctioning CEOs dismissed. Representative bodies’ interventions may
correct and prevent opportunistic management behavior and through this
contribute to better organizational performance.
This assumption is amply supported by empirical evidence. Falkum (2003)
points to the fact that performance is not only positively affected by
management supporting employee participation, but also by employees
resistance: for example, when employees or their representatives are opposed
to bad management strategies and decisions. Van den Berg (2004) is even
more specific, arguing indirect participation can restrict or even prevent
management from placing their own pecuniary interests above company
interests. This is possible by using information and consultation rights, as well
as through interaction with the supervisory board. Van den Berg considers
this mechanism an extension – albeit an unorthodox one – of the principalagent
approach; although it is not meant to foster shareholder interests, it
aims to put the general interest of the company above management’s tendency
to act opportunistically. A similar line of thinking is found in Addison (2005)
who quotes Jirjahn’s (2003) study. He found that works councils can
contribute to company performance by curtailing rent seeking management
behavior, especially when they discuss profit sharing schemes for executives.
A manager working at the large German company Bayer very briefly
expressed the opportunism preventing functioning of the works council: ‘‘The
works council requires of us that we manage well.’’ (in Wever, 1994, p. 475).
Finally, with regards to indirect participation, it is useful to stress that the
quality of participation is decisive. The quality essentially determines the
real power these institutes can have on performance, and this power may
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potentially exceed even minimum rights given by (country-specific) regulations.
Representative participation quality depends on both the managers’
attitudes toward such institutions, as well as the expertise and skills of
representative participation agents. Moreover, it can be argued that the
quality of indirect participation increases when management and worker
representatives share interests. This interest alignment approach is supported
by Vroom (1964), who assumes rational workers’ behavior and claims a
workers’ effort is determined by his dual expectancy of the opportunities that
this effort will lead to a certain performance and by the degree to which this
performance will help to reach a certain desired outcome. Applying this idea
to our subject means that representative bodies will only put effort in
contributing to better profits if (a) it is likely to really have an effect on these
profits, and (b) this contribution will lead to a desired outcome. Grimsrud,
Kvinge, and Gunnes (2003, p. 8) support this overall line of reasoning: ‘‘(y)
to be successful, increased involvement by employees in decision making must
be linked to a gain-sharing mechanism, which offers the opportunity for
workers to gain financially from taking on the extra responsibility.’’
Freeman and Lazaer (1995) suggest works councils will only have positive
economic effects in those situations where there is power equilibrium
between management and works council. When works councils have too
much power they will claim more of the total firm profits for the employees
than they have contributed, but when they have insufficient power they will
not be motivated to contribute to better firm results. Pe´rotin and Robinson
(2002) in their study of performance effects of financial participation by
employees underline that organizational performance depends not only on
the working efforts of employees, but also on management decisions and
external factors. They conclude that employee influence on management
decisions is necessary to prevent that these decisions from harming share
value and profit levels, factors that could undermine employees’ efforts to
earn a fair living.
THE INTERRELATEDNESS OF DIRECT
AND INDIRECT PARTICIPATION
AND ORGANIZATIONAL PERFORMANCE
Both direct and indirect participation can be offered by management on a
voluntary basis, but it can also be mandatory for the organization – forced
by laws, collective agreement(s), or union power position. Overall, direct
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forms of participation seem to be more based on voluntary management
decisions, and indirect forms of participation on (legal) regulations. In the
Netherlands, laws on direct participation have not emerged while there is
extensive legislation law on works councils. However, it is interesting to note
that there are other Dutch laws, like the one on working conditions (Arbo
Law) that refer to direct participation of all employees of an organization
concerning this type of issues. Moreover, the Law on works councils is
patently proscriptive, instructing these organizations to stimulate direct
participation in their work. Overall, works councils in the Netherlands are
not very active on this topic: only half of the works councils pay attention to
direct participation (Van het Kaar & Looise, 1999). This is probably due to
the fact that direct participation is already commonplace in the Netherlands
and works councils give priority to other, even more demanding tasks. It may
also be a result of the fact that works councils see direct forms of
participation as a competitor and as a by-pass for management. There is
some empirical evidence of the use of direct participation as a ‘‘unionavoidance
strategy’’ by management (e.g., Kochan, Katz, & McKersie,
1986). However, based on the EPOC research of Fro¨ hlich and Pekruhl
(1996), it is permissible to conclude that ‘‘our data suggest that in countries
with a system of works councils or elected representatives at the establishment
level, employee representatives are generally not by-passed by
management’’ (p. 138).
Surprisingly, the relationships between direct and indirect participation
and their ‘‘combined effect’’ on organizational performance have been
rarely studied. After all, several authors explicitly assume interrelatedness
between both forms of participation. Strauss (1998) stated that institutionalized
indirect participation is inevitable for successful direct participation.
Kleiner and Lee’s (1997) and Poutsma, Ligthart, and Veersma’s (2006)
empirical studies support this generalization. Kleiner and Lee found that
both work councils and unions enhance direct participation in several key
personnel practices, while Poutsma and colleagues’ research reveals
substantial effects of country-specific institutions on direct participation in
European firms.
In the EPOC study some attention has been given to the ‘‘regulation’’ of
direct participation via indirect participation, as well as to the incidence and
effects of both forms of participation. A first conclusion from this study is
that ‘‘the extent of employee information and consultation about the
introduction of direct participation is high.’’ In on average 44% of the
workplaces in the participating ten EU countries, extensive consulting with
employee representative bodies like works councils or joint consultation
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committees has been about the introduction of direct participation in the
work place, and 22% report that they were extensively informed or limited
consulted. Only 34% report no involvement of indirect participation in the
introduction of direct participation. These findings suggest that (according to
a majority) direct participation should not be seen as a purely ‘‘management
instrument’’ aimed at weakening the role of indirect participation, but rather
as an instrument or HR-practice approved by the works council or similar
bodies (see also Gill & Krieger, 1999).
Furthermore, the results also show the (potential) role of indirect
participation in the introduction of HR-practices as discussed above. In the
case of the Netherlands the Law on works councils governs the effect of
the veto-right of works councils on social and personnel matters.However, the
EPOC results do show that in other European countries representative bodies
are also entitled to be informed about or to be consulted over HR-practices
like the introduction of direct participation.
A third fundamental conclusion is that according to managers the extent
of representative bodies involvement affects the actual (assumed) performance
outcomes of direct participation. Table 3 gives an overview of the
effects of direct participation in combination with no involvement (No),
limited consultation (Limited), and extensive consultation (Extensive) with
indirect participation. The table shows that in every case the effects of direct
participation are stronger when representative bodies were consulted on the
Table 3. The Extent of Indirect Participation in the Introduction of
Direct Participation and the Effects of Direct Participation (EPOC,
1997).
Effects No (%) Limited (%) Extensive (%)
Economic effects
Reduction of costs 47 65 61
Reduction of throughput time 61 66 64
Improvement in quality 90 91 96
Increase in total output 13 47 63
Effects on indirect labor costs
Decrease in sickness 15 33 44
Decrease in absenteeism 16 37 48
Effects on direct labor costs
Reduction of number of employees 28 31 34
Reduction in number of managers 23 21 35
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introduction of direct participation. This seems to be true for economic
effects like cost reduction and increase of total output, and with indirect
labor cost effects like decreasing sickness and absenteeism. With the
exception of cost reduction and reduction of throughput time, the effect is
even stronger when the consultation with employee representatives is more
extensive.
With this background of specific results and our earlier presented models
(anchored in an exploration of prior research and theory) about the way(s)
direct and indirect participation can independently influence organizational
performance, we are now able to offer an integrated model on their
combined effects on organizational performance.
Fig. 3 shows the combination of Figs. 1 and 2, highlighting their mutual
connections. This model illustrates that both direct and indirect participation
have their own roles and functions within organizations, and that there
is no foundation for the fear by either of the other taking over (part of) these
roles or functions. In other words, the role and function of representative
participation cannot be taken over by direct participation, or vice versa.
A second critical point is the role of indirect participation with respect to
HRM and direct participation. Indirect participation is not (only) an HRMpractice:
indirect participation can potentially ‘‘co-design’’ HRM policies
and practices. Representative committees anchored in legal regulations (like
Dutch works councils) have a prescribed agenda to discuss and co-decide on
a list of HRM topics such as benefits, job design, and employee health. In
that sense, indirect participation channels influences on HRM policies and
practices such as those related to direct forms of participation. However,
when indirect participation lacks such protection from legal regulations and
Organization
system
goals/strategy
governance
structure
culture
management
behaviour
Representative
participation
(legal) rights
composition
relationship with
constituency
militancy
Organizational
climate
less power
inequality
more trust
enhanced
readiness to
change
Organization
outcomes
productivity
profit
growth
employment
product quality
innovation
Fig. 2. The Relationship between Indirect Participation and Organizational
Performance.
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thereby legal rights, ‘‘real’’ influence and power concerning issues that affect
employees depend even more on representatives’ quality (e.g., skills,
knowledge).
Members of these indirect bodies should be progressively more aware of
these options, and use them to strengthen direct and indirect participation in
their organizations. A third important point is the combination of social
climate and employee outcomes, especially commitment. While social climate
refers to collective experiences, employee consequences such as commitment
and satisfaction refer to the impact of participation on individuals’
perception. However, research shows that collective and individual experiences
are interrelated (Carr, Schmidt, Ford, & DeShon, 2003) and have a
clear-cut positive impact upon performance (Katz, Kochan, &Weber, 1985).
Representative
participation
(legal) rights
composition
relationship with
constituency
militancy
Organizational
climate
less power inequality
more trust
enhanced readiness
to change
Organization
system
goals/strategy
governance
structure
culture
management
behaviour
Employee
outcomes
Attitudes:
commitment
motivation
Behaviour:
absenteeism
turnover
collaboration
flexilbility
Organization
outcomes
productivity
profit
growth
employment
product quality
innovation
HR policies and
practices
function/job
design
HR flow
appraisal and
reward
direct
participation
Fig. 3. An Integrated Model for HRM, Participation, and Organization
Performance.
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CONCLUSION AND DISCUSSION
Our aim was to contribute to the understanding of the way(s) direct and
indirect worker participation – separate and in combination – can
contribute to organizational performance. After all, knowledge about this
blending and especially indirect participations’ potential contribution is still
limited. Our integrated model adds to the development of this stream of
scholarly (and perhaps also practitioner) attention and should be extended
in further empirical research.
The first step of our approach concerned the relationship between direct
participation and organizational performance. Grounded in prior literature
and research, it can be assumed direct participation is an HR-practice, like
other HRM-practices. As a consequence, direct participation similarly
contributes to employee outcomes and organizational performance like
those other HR-practices. However, we argued there are two basic reasons
that direct participation in comparison with other HR-practices holds a
special position: (1) direct participation can directly contribute to company
performance (in terms of suggestions for improvement of products,
processes, organizational features) and (2) direct participation can influence
the development and implementation of other HR-practices. In our opinion
these possible contributions of direct participation deserve more theoretical
and empirical recognition. Given its extensive diffusion in (European)
organizations – and in fact practitioners seem aware of the possible impact
of this form of participation (EPOC, 1997) – there is an urgent need for
further exploration of this part of the model.
In our second step, we portrayed the relationship between indirect forms
of worker participation and organizational performance. Our focus in the
main was on institutionalized forms of representative participation in
Western European countries – those who practice integrative forms of
bargaining like works councils and joint consultation committees. Relying
on Dutch research we argued representative bodies can influence organizational
performance via three channels, one direct and two indirect. The
direct channel relates to representative participations direct contributions to
organizational performance (e.g., suggestion for improving efficiency,
profitability, and innovativeness).
The first indirect channel operates through indirect participations’
potential strength to enhance an organizational climate that influences
employees and organizational outcomes. The activities of representative
bodies can lead to an organizational climate with less power differences and
inequality, and more trust in the organization. Such an organizational
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climate will in its turn lead to better employee outcomes and consequently
organizational effectiveness. Moreover, a positive organizational climate
can directly influence organizational outcomes. The second indirect channel
works through the organization system and management attitudes and
behavior. Representative bodies’ interventions may correct and prevent
opportunistic management behavior and thus this contributes to better
organizational performance. More comparative international research on
this aspect of the model is badly needed.
In our third step, we blended together the ‘‘separate’’ knowledge from
steps 1 and 2 into an integrated model. Additional empirical evidence leads
us to claim that direct and indirect participation are closely interrelated.
After all, research shows that in a majority of cases consultation of
representative bodies precedes the introduction of direct participation.
Thus, these forms of participation should not be seen as ‘‘competitors,’’ but
rather as ‘‘partners.’’ Moreover, the involvement of indirect participation in
the introduction of direct participation seems to add to the effects of direct
participation (especially economic effects like cost reduction and increase of
total output; and indirect labor cost effects like decrease of sickness and
absenteeism). In our integrated model this has been explained by the
positive effect of indirect participation on the introduction and implementation
of direct participation, organizational climate, and employee outcomes;
these stimulate the effects of direct participation on organizational
outcomes. In follow-up studies we will test this model in an international
context.
We recognize but have not discussed here the special role manager’s
expertise and skills play for successful worker participation (e.g., Bryson,
2004; Bryson et al., 2006). The significance of direct supervisors’ attitudes
and behaviors, as well as top managers’ competence to direct these, cannot
be underestimated. Concerning the ideal of fairness, compared to relevant
others, there is no doubt that both participation as an ‘‘outcome’’
(distributive justice) and the process of participation (procedural justice)
itself are vitally important. The inclusion of both of these relevant variables –
the role of the managers’ and direct supervisor a well as justice – is still
relatively rare in research focused on participation in general or the
‘‘isolated’’ participation–performance link. Regarding the latter, a comparable
conclusion is appropriate for the role of the social climate, employee
outcomes (attitudes and behavior), possible routes in the participation–
performance chain, and broader operationalization of performance.
Theoretical and empirical insights support our idea that research on
indirect participation deserves more sustained interest. Future research
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should aim for answers on how to improve not only organizational, but also
employee and societal well-being. Our insights, largely based on the work of
colleagues, can enhance the position or increase the implementation
probability of representative, nonunion participation in contexts of choice
where such arrangements are rather new or upcoming. On the organizational
level, this knowledge can be beneficial for managers in their general
design of HRM, as well as in upgrading their capability of coming to terms
with representative participation. HR managers and consultants may profit
from this knowledge when advising top management, and the agents of
representative participation may ‘‘exploit’’ these ideas to improve their use
of intervention strategies.
NOTE
1. These countries were (in alphabetical order) Denmark, France, Germany,
Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and United Kingdom.
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