Understanding the Effects of Works Councils on Organizational Performance. A Theoretical Model and Results from Initial Case Studies from the Netherlands**
Wigboldus, Jan Ekke, Looise, Jan Kees, Nijhof, André, Management Revue
In this article, we present a conceptual model to understand the effects of works councils on organizational performance. The model is based on economic and HRM literature on employee participation and organizational performance, as well as on German and Dutch research into the economic and other effects of works councils. The model has been operationalized through a research approach and applied for the first time using in-depth case studies in a large insurance company in the Netherlands. In this paper we present the results of these case studies and the consequences for the model and the research approach.
The findings show that works councils not only affect performance through changing employee attitudes and behavior - in a not dissimilar way to HRM - but also in a direct way by adding asymmetric information to the decision-making process and in an indirect way through influencing management attitudes and behavior. Thus the works council - performance relationship differs substantially from the HRM - performance relationship. The influence of the three potential mechanisms will depend to an extent on the characteristics of the works council and the organizational context. Further research is needed to determine how contextual conditions influence the positive effects of works councils on organizational performance.
Key words: works councils, organizational performance, the Netherlands
The impact of HRM on organizational performance has become a popular field for research over the past few decades (Guest 1997: 263; Delery/Shaw 2001; Boselie/Paauwe 2002). Conceptual models of their relationship can be visualized as an interrelated series of boxes, starting with company strategy and HR strategies and then connecting these through HR practices and employee outcomes with different interpretations of organizational performance: operational, financial, or societal. Employee participation - recognized as a relevant HR practice - has been given little attention in this research and, where present, in most cases the focus is on direct or financial participation (Summers/Hyman 2005; Perotin/Robinson 2002; Kaarsemaker 2006). Representative forms of employee participation are virtually absent. While the performance perspective is an increasingly accepted view of HRM, works councils - an important and sometimes dominant instrument for representative participation in most EU member states (Rogers/Streeck 1995: 11) - are traditionally not associated with economic effects and some even consider it immoral to make a study of the economic effects of works councils.
However, there are good reasons to discuss the economic effects of works councils, including in the Netherlands. First, despite a tradition of over fifty years, some 2530% of enterprises have yet to establish a works council despite an obligation to do so. This level of default has been steady for many years and is hardly falling (Engelen/ Kemper 2006). It would seem that works councils are not seen as potentially making a contribution to organizational performance in those enterprises. Second, works councils have become an institution over the years and, while contributing to stable industrial relations, institutions tend to develop enormous inertia. How vital and relevant are works councils to firm performance? Is management really interested in the contribution of works councils or are they sidelined to dealing only with harmless issues? Perhaps works councils have a positive effect on firm performance without anyone reading it? Third, the economy is globalizing fast and, as part of an open economy, Dutch enterprises are heavily influenced by international business. This also affects industrial relations. Although national legislation and traditions will not be erased overnight, the Dutch system of workers' participation will be put to the test by managements from other cultures such as the US, Great Britain and Japan. We need better arguments to defend the perceived advantages of our industrial relations system than the phrases that have proved adequate within the country. …