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Will Volkswagen Bring Mitbestimmung to Chattanooga?

Worker participation in management decisions has long been controversial, but the benefits far outweigh the risks.

(originally published by Booz & Company)

There’s a battle brewing between the United Auto Workers (UAW) and managers of a state-of-the-art Volkswagen (VW) assembly plant recently opened in Chattanooga, Tenn. Although this set-to qualifies as news, it is actually the most recent skirmish in a labor struggle that’s been going on for the last 40 years. As with most such matters, this one is complicated—and each side is as right as it is wrong.

Here’s the short of it. The Detroit-based UAW is looking to gain a toehold in the foreign-owned auto plants located in the non-unionized American South. But Tennessee is a so-called right-to-work state, which means it is nearly impossible for unions to organize employees there. And although southern laws tend to be hostile to trade unionism, VW has a long history of good labor relations and cooperation with unions in Germany. So the company proposed a compromise: the establishment of a German-style “works council,” an elected employee “board” that has the right to participate with plant management in all decisions affecting working conditions.

American scholars have studied this system of worker–management cooperation, known as mitbestimmung, since the early 1970s and, in general, conclude it’s a good thing for workers, management, and a nation’s economy. The system has been credited with contributing to Germany’s high productivity, product quality, economically supportable wages, and impressive record of exporting manufactured goods (and subsequent low unemployment rates).

The trouble is, American unions don’t like it. Their leaders argue such councils amount to no more than toothless “company-dominated unions”—which, they point out, are illegal under U.S. labor law. Objective scholars admit it’s possible for works councils to be captured by management, yet the record in the U.S. shows that similar (and legal) forms of worker participation give employees a more direct voice in management than does union representation. U.S. companies with high levels of worker participation in decision making have a better history of providing steady employment in the long term than do unionized ones.

Experience in the auto industry demonstrates that unions are much better at bargaining for “more” for their members than they are at promoting changes to work rules that allow for the productivity increases needed to pay for higher salaries and benefits. In the 1970s, the UAW turned its back on several opportunities to adopt various forms of direct worker participation at the Detroit Three. The result: four decades of rising labor costs, reduced sales of domestic cars, and a constantly shrinking workforce. In contrast, Harley-Davidson (unionized, but not by the UAW) welcomed a high degree of employee involvement in the late 1980s, and the result was increased productivity, better product quality, greater job security, and a growing domestic workforce.

We can also find examples in other industries. In the 1990s, United Airlines appeared to have solved its chronic labor problems when its employees agreed to swap pay for company stock and seats on the board. United pilots and mechanics were briefly as fired up to improve productivity and customer care as Southwest Airlines employees famously are, but that degree of labor–management cooperation was never achieved, because of a couple of missteps by United executives. First, they appointed union representatives as directors, thus creating an adversarial relationship in the boardroom. Second, executives insisted on continuing to exercise the managerial prerogatives they had when the company was investor-owned, thus failing to engage their employees as partners. 

The problem with giving employees a voice, as executives too often see it, is that the necessity of getting workers on board with changes in practices and policies is not only time consuming but, worse, it also erodes their managerial prerogatives. Hence, although employee participation is in the long-term interests of both unions and management, each group frowns on it because they see it as a threat to their respective power. And now, in Tennessee, opposition to mitbestimmung is buttressed by conservative politicians who, are virulently anti-union and interpret giving workers any management role as the equivalent of socialism.

The lesson here is that it’s good for everyone when employees have a real voice in the management of companies where they work.

It’s good for everyone when employees have a real voice in the management of companies where they work.

True worker involvement leads to employees thinking like owners of “their” companies—an attitude more likely to lead to a spirit of cooperation than can be achieved through either adversarial union representation or the traditional exercise of unchecked executive power. Mitbestimmung is far from perfect, but VW has proposed a sensible compromise that clearly beats the alternatives.

James O'Toole

James O’Toole is director of the Neely Center for Ethical Leadership at the University of Southern California’s Marshall School of Business.

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