When a Cook Governs the State

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A famous quote by Vladimir Lenin sounds like follows, “Every cook has to learn how to govern the state” (Ralhan 1998, p. 807). The efficiency of the employees’ participation in the company’s governance remains an issue for discussion. This work is aimed at describing different approaches in this field and comparing them.

The model of shareholder capitalism is characterized by the smallest involvement of employees into the managerial process. The national economical systems with the shareholder model prevailing are mostly the liberal market economies, with the primacy of labor market (Tylecote & Visintin, 2007). This group includes the USA and the other Anglo-Saxon countries, such as Canada, Australia, and the UK.

The second model called stakeholder capitalism implies that employees become the companies’ major stakeholders and participate in their management (Tylecote and Visintin, 2007). The German practices of Mitbestimmung (a system of codetermination) and Betriebsate (representation of the employees on the supervisory board) are the good examples for this model. In their (2007), Mjoset and Clausen mark that in the German companies with the staff exceeding 2000 employees, positions in the supervisory board are equally distributed between the shareholders and the workers (p. 46). The employees participate in decision making in terms of the company’s investment, their work condition and salary rates.

State-led capitalism is characterized by strong governmental coordination and protection of the employees. France and Korea are the examples of economies where this model dominates (Tylecote and Visintin, 2007).

In order to compare three approaches in terms of their long-term effect, it is necessary to outline whose interests are prevailing in each of them and what they consist of. The shareholder capitalism is oriented to the interest of the shareholders, which is profit, as high as possible. Nevertheless, this model is the most effective in terms of the long-term prospect for several reasons: firstly, if a shareholder invests into a firm, he already orients to long-term cooperation; secondly, shareholders whose shares are able to influence the decision making and the firm’s top executives have knowledge in the managerial matters of balance between short and long-term benefits. Thirdly, the quality of the chief executives’ decisions is observed and controlled by the shareholders.

The other two models have their weaknesses in terms of the long-term performance: the government is interested in a company’s short and long-term success; however, the competence of the government’s representatives is often below the necessary level, or they may represent the interest of some other sides, and the decisions may be inappropriate. At the same time, the stakeholders are focused on short-term benefits, such as salary increase etc.; moreover, they do not see the whole picture in the market. Thus, the company will focus on bringing benefits to the stakeholders instead of decreasing price or investing, which will affect the long-term performance. In the market economy, the first model is able to work within the competitive environment the most effectively.

The last statement begs the question about significance and reasonability of the employees’ participation in governance. In order to find an answer, it is necessary to “calculate” its cost considering such matters as the company’s long-term prospect and the notion of an employee’s benefit itself. This cost seems to be rather high: participation of the employees in governance will have negative impact.

Firstly, the employees’ willingness to participate in making strategic decisions is quite low. In their (2007), Chilosi and Damiani refer to Pistor’s idea that the labor representatives participate actively in governance only when some “extraordinary” situation takes place, or the decision concerns the matters of their employment and work conditions (p. 31). This looks rather understandable: as Perotin and Robinson say, “if employees have no input into decision, they are exposed to moral hazard on the part of managers, who may take decisions that affect pay and or wealth negatively” (2003, p.11). However, the employees do not show strong willingness to participate in every day routine decision making. Thus, their involvement of the employees may have rather slight effect on governance itself.

The second important point is the employees’ competence in the matters of strategic management, which is often extremely low. Chilosi and Damiani refer to the experience of two European airlines which practiced two different strategies: while Alitalia showed its strong concern about the employees’ prosperity and focused on improving working conditions, Ryanair put effort in decreasing the cost of services; as a result, Alitalia found itself among outsiders, and Ryanair conquered the leading position (2007, p.16). It is necessary to remember that the short-term interests of the employees, such as increasing salary et al, may contradict to those long-term, which are defined by the peculiarities of the competitive environment. Thirdly, the labor’s voice itself may be not necessarily homogeneous: the interest of white collars and blue collars may be contradicting to each other. Thus, involving employees can affect governance towards refocusing on the short-term benefits.

The counterargument for the low involvement of the employees in the governance is the inflexibility of such system. Nevertheless, it is important not to confuse the matters of the employees’ participation in governance and the hierarchical integration. The last factor is a good source of the company’s competitive advantages: for example, the Japanese companies “profess” such practices as cross-functional management, company-wide quality control etc. Such approach is beneficial in several dimensions: firstly, it helps to solve the company’s manufacturing problems; secondly, it overcomes the inflexibility mentioned above, providing opportunities for sharing experience and promotion.

Thus, when referring to Lenin’s idea about a governing cook, it is necessary to take into account that every cook is unlikely to know exactly what will be for her own benefit in the long-term period, as well as that the cost of such governance may be rather high.

References

Chilosi A & Damiani M 2007, Stakeholders vs. shareholders in corporate governance, Munich Personal RePEc Archive. Web.

Mjoset L & Clausen TH 2007, Capitalisms compared. Amsterdam [u.a.]: Elsevier.

Perotin V and Robinson A 2003, Employee Participation in Profit and Ownership: A Review of the Issues and Evidence, Efesonline Library. Web.

Ralhan OP 1998, Post-independence India: Indian National Congress. New Delhi : Anmol Publ.

Tylecote A & Visintin F 2007, Corporate governance, finance and the technological advantage of nations. USA; Canada: Routledge.

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When a Cook Governs the State

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