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"Employee Representation and Corporate Governance: A Missing Link," Univ. of Pa. J. Lab. & Empl. Law, 2001

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... This article's first claim, and the subject of the next section, is that shareholder primacy is an incorrect economic and legal theory of the corporation and should be replaced by a theory of innovative enterprises complemented by policy reforms to institute stakeholder corporate governance (Lazonick and Shin 2020;O'Sullivan 2000;Parkinson, Gamble, and Kelly 2001). This article joins a long literature arguing that workers 2 are a key stakeholder of any innovative corporation, and they have both more to gain and more to lose from the decisions of any corporation than do shareholders (Bodie 2016;Greenfield 2006;Jacoby, 2001;Lazonick and Shin 2020;O'Sullivan 2000). As workers are a key corporate claimant, they should share governing power within American corporations through meaningful representation on corporate boards of directors. ...
... Even at this stage, however, Berle and Means' classic text The Modern Corporation noted that public policy could assert that corporate governance should serve the public interest, ensuring the "balancing [of] a variety of claims by various groups in the community and assigning to each a portion of the income stream on the basis of public policy rather than private cupidity" (Berle andMeans [1932] 1991, 356). By the mid-twentieth century, a "managerialist" corporate governance practice dominated, in which corporate managers understood themselves to have four key stakeholders: customers, employees, stockholders, and the general public (Davis 2008;Jacoby 2001). ...
... Freeman and Lazear (1995) find that increased worker voice improves the transfer of information from board to worker, reducing monitoring costs, motivating workers, and aligning the interests of shareholders and employees. Participation may further encourage employees to take a longer-term view of the firm and increase firm-specific investment (Jacoby 2001). Other scholars have viewed increased worker power in a different light. ...
... In principle this can come about in one of two ways: either because the firm operates in an environment where social norms and business practice make this the responsibility of management, or because direct incentives are in place which make it in the management's interest to adhere to such a criterion. As was shown by the survey quoted in the Introduction and as is corroborated by other studies(Jacoby (2001), Faurer-Fuerst (2006), it is in Japan and Germany that the responsibility of the management is most clearly perceived to be in the spirit of a stakeholder criterion, social norms playing an important role in shaping the management philosophy. 20In addition in Germany the legal system reinforces the stakeholder orientation through the system of Codetermination by which half a corporation's Board members are representatives of the employees, and the other half includes representatives of the businesses which have close ties to the firm. ...
... "Social norms" is a generic term referring to the implicit code of behavior and the explicit institutions (legal obligations, reward systems, . . . ) which induce the firms' management to take into account the interests of all stakeholders in countries like Germany and Japan. An interesting discussion of corporate management's view of its obligations in these countries, the reasons-in particular historical reasons-for which these views have been formed and endure, as well as the half formal/half informal way in which employees are involved in business decisions, can be found inJacoby (2001). In all countries labor unions represent the interests of the employees. ...
... In principle this can come about in one of two ways: either because the firm operates in an environment where social norms and business practice make this the responsibility of management, or because direct incentives are in place which make it in the management's interest to adhere to such a criterion. As was shown by the survey quoted in the Introduction and as is corroborated by other studies(Jacoby (2001), Faurer-Fuerst (2006), it is in Japan and Germany that the responsibility of the management is most clearly perceived to be in the spirit of a stakeholder criterion, social norms playing an important role in shaping the management philosophy. 20In addition in Germany the legal system reinforces the stakeholder orientation through the system of Codetermination by which half a corporation's Board members are representatives of the employees, and the other half includes representatives of the businesses which have close ties to the firm. ...
... "Social norms" is a generic term referring to the implicit code of behavior and the explicit institutions (legal obligations, reward systems, . . . ) which induce the firms' management to take into account the interests of all stakeholders in countries like Germany and Japan. An interesting discussion of corporate management's view of its obligations in these countries, the reasons-in particular historical reasons-for which these views have been formed and endure, as well as the half formal/half informal way in which employees are involved in business decisions, can be found inJacoby (2001). In all countries labor unions represent the interests of the employees. ...
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There is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than just their shareholders (the stakeholder view). This paper presents a framework where this idea can be justified. The point of departure is the observation that a large firm typically faces endogenous risks that may have a significant impact on the workers it employs and the consumers it serves. These risks generate externalities on these stakeholders which are not internalized by shareholders. As a result, in the competitive equilibrium, there is under-investment in the prevention of these risks. We suggest that this under-investment problem can be alleviated if firms are instructed to maximize the total welfare of their stakeholders rather than shareholder value alone (stakeholder equilibrium). The stakeholder equilibrium can be implemented by introducing new property rights (employee rights and consumer rights) and instructing managers to maximize the total value of the firm (the value of these rights plus shareholder value). If there is only one firm, the stakeholder equilibrium is Pareto optimal. However, this is not true with more than one firm and/or heterogeneous agents, which illustrates some of the limits of the stakeholder model.
... In principle this can come about in one of two ways: either because the firm operates in an environment where social norms and business practice make this the responsibility of management, or because direct incentives are in place which make it in the management's interest to adhere to such a criterion. As was shown by the survey quoted in the Introduction and as is corroborated by other studies(Jacoby (2001), Faurer-Fuerst (2006), it is in Japan and Germany that the responsibility of the management is most clearly perceived to be in the spirit of a stakeholder criterion, social norms playing an important role in shaping the management philosophy. 20In addition in Germany the legal system reinforces the stakeholder orientation through the system of Codetermination by which half a corporation's Board members are representatives of the employees, and the other half includes representatives of the businesses which have close ties to the firm. ...
... "Social norms" is a generic term referring to the implicit code of behavior and the explicit institutions (legal obligations, reward systems, . . . ) which induce the firms' management to take into account the interests of all stakeholders in countries like Germany and Japan. An interesting discussion of corporate management's view of its obligations in these countries, the reasons-in particular historical reasons-for which these views have been formed and endure, as well as the half formal/half informal way in which employees are involved in business decisions, can be found inJacoby (2001). In all countries labor unions represent the interests of the employees. ...
... Poor employee relations can have a detrimental effect on productivity, morale, loyalty, innovation, and creativity and create conflicts of interest and make hiring and retaining employees more difficult (Metcalf, 1995). As a result, it is critical to engage and empower employees in corporate governance systems, increasing their efficiency and providing additional benefits (Jacoby, 2001). Employees, according to numerous academics, are critical in executing corporate governance (Botha, 2011). ...
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In this study, the primary objective is to investigate employees' perceptions toward the corporate governance practices of Sri Lankan publicly traded companies. The objectives are based on the research problem and emerge through various aspects of corporate governance; components, performance implications, significant issues related to Directors, major issues affected for the company's well-being, and the current status in Sri Lankan Corporate Governance. The quantitative research approach is adopted, and primary data is gathered using a questionnaire survey with a sample of 100 respondents. The questionnaire is addressed to employees in the companies listed in the Colombo Stock Exchange, where the sample was constructed out of the top 50 companies of the highest market capitalization. The analysis is done through a validity using factor analysis and reliability test followed by an analysis of variance (ANOVA) test and chi-square analysis. The results show that employees' perceptions of corporate governance factors differ concerning the changes in the demographical factors. The results generated through this study can be beneficial for employees, managers, practitioners, and students in developing a better understanding of employee perceptions and the concept of corporate governance. Furthermore, this research constructs a scale for measuring employee perceptions of corporate governance, which has significant theoretical and practical implications.
... In the global practice, the Anglo-Saxon and European models are gaining more popularity because of its diversities in roots state to state, nature and legal framework, the political ground, societal rules or culture and the economic formation (Jacoby, 2000). Furthermore, the Islamic model of corporate governance is becoming popular in the perspective of Islamic banking in the Muslim and also the non-Muslim countries. ...
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The paper illustrates the models of corporate governance in the aspects of its definition, nature of management and objectives along with its roles, regulation and power of various stakeholders in ensuring the accountability and the protection of the rights of various stakeholders from conventional and Islamic perspectives. These models are different in their characteristics, nature, culture, costume, epistemology, and country‟s rules and regulation. However, the conventional models highlight the roles of shareholders, stakeholders, depositors, institutions, investors, and communities from the perspective of the nation‟s demand and cultures. In contrast, the Islamic model of corporate governance consists of some roles and responsibilities such as the responsibilities to suppliers, customers, investment account holders, shareholders, management, the board of directors, competitors, Shariah supervisory boards, societies, and the employees from its spiritual and social commitments. Through the critical analysis of these models of corporate governance is deemed to help the empirical research on corporate governance model and develop a certain model of Islamic corporate governance. However, the paper may help to give a simple understanding of the corporate governance models in both the conventional and Islamic perspectives of financial institutions.
... For employee share-holdings to have such positive effects, both the mechanisms of voice, i.e. the representation at the strategic as well as work place levels, and the incentive mechanisms, i.e. the distribution of benefits, should be in place. Thus, schemes of employee share ownership can reinforce employee participation only if accompanied by corporate governance reforms (Jacoby, 2001). ...
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This paper serves as an introduction to the special issue on comparative corporate governance as well as providing a critical review of the literature on globalisation, comparative economic organisation and corporate governance systems. Despite the widespread rhetoric of global convergence and market-led institutional reform, we argue that national specificity and societal variance of institutional arrangements are still conspicuously resilient in reality and pertinent to issues of regulation, policy and business strategy. Our discussion focuses on the limitations of agency theory and its primary objective, shareholder value maximisation, on the one hand, and the determinants and consequences of institutional diversity across societies on the other. In particular, we suggest that the integration of the literature on employee participation and innovation systems into comparative institutional analysis will serve as a promising alternative to shareholder-centred theories and policy prescriptions while complementing the arguments based on legal and political origins of national systems. While the contributions to the special issue broadly share the basic tenets of our argument, they also address, in commendable rigour and depth, other issues, such as: trust and social relationships; societal and moral foundations of economic behaviour; institutional transferablity; and corporate control and power relations in society.
... In the US, 32 states have constituency statutes in which company directors are explicitly allowed to consider interests beyond those of the shareholders (Adams and Matheson, 2000). In Europe, co-determination policies institutionalize stakeholder theory by requiring employee representation on corporate boards of directors while social norms in Japan also foster a concern for stakeholder value (Jacoby, 2001;. ...
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Values, ideologies, and frames of reference in industrial relations Industrial relations-or what some might now call employment relations, and what others might call human resources and industrial relations-is a multidisciplinary field studying all aspects of work and the employment relationship (Ackers and Wilkinson, 2003; Budd, 2004; Kaufman, 2004). A multidisciplinary approach means that competing values and assumptions underlie the analyses, policies, and practices of employment relations scholars, practitioners, and policymakers. Unfortunately, these underlying beliefs are often implicit rather than explicit, or, with the long-standing focus on how industrial relations (IR) processes work, sometimes ignored altogether. But understanding the industrial relationship, corporate human resource management practices, labor union strategies, and work-related public policies and laws requires understanding how values and assumptions form the ideologies and frames of reference used by scholars, practitioners, and policymakers. According to Kochan and Katz, ‘The primary thread running through industrial relations research and policy prescriptions is ...
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