Law, Corporate Governance and Partnerships at Work

A Study of Australian Regulatory Style and Business Practice

Richard Mitchell, Anthony O'Donnell, Shelley Marshall, Ian Ramsay

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317107521
• Edition: 1
• Topic: Business
• Subtopic: Business Law
• Index: Business

This book examines how businesses manage their labour systems, and particularly how they manage the complex interaction of factors which give rise to instances of 'partnership' style relations between businesses and their employees. The book draws from the literature concerning 'Varieties of Capitalism' (VoC) and the different institutional and regulatory designs inherent in different types of political economy. The book is informed by a new and extensive set of empirical data from Australia that examines the activities of national and multinational business corporations, their outlooks and relationships with stakeholders, and relates these to new and evolving theoretical frameworks based in political economy and law. The book places the Australian regulatory model within this international debate, and assesses the extent to which the system does or does not fit into the general categorisation created in the VoC literature.

Chapter 1
Corporate Governance, Employment Systems and Workplace Partnerships in Australia

1.1 Introduction

This book examines the relationship between various factors which shape the manner in which Australian business corporations manage their labour or employment systems. We assume this to be an issue of critical importance to the welfare of Australian society and its economy.¹ In particular our project has been concerned with the task of identifying and examining factors which are of paramount importance in the creation and sustainability of what we have labelled ‘Partnerships at Work’: that is, situations in which business organisations are seen to work closely and co-operatively with their employees rather than contrary to their interests.

Following upon earlier similar studies,² our research has focussed upon the interaction of three factors in particular which are seen to influence outcomes in this area: types of corporate governance, types of ownership structure (i.e. financial capital arrangements), and systems of labour engagement and utilisation (employment systems). Importantly, we have oriented our study to locate the interaction or cross influence of these three core factors within the regulatory environment set by laws and legal institutions.

The work is grounded in several overlapping and intersecting debates which have been underway for the past two decades at least. At the general social level, numbers of major corporate collapses and scandals, most recently and spectacularly in the wake of the financial crisis of 2008, have given rise to concern over how corporations are managed and monitored, and how they may be made more accountable in the public interest.³ Associated with these general concerns, or arising because of them, several key issues have found their way into public debate. These include, for example, the appropriate constitution of company boards (particularly the mix of executive and independent directors);⁴ the level of accountability by management to shareholders,⁵ and the apparently highly inflated levels of corporate executive remuneration.⁶ Other issues in debate have included the domination of a shareholder-oriented perspective of corporate performance,⁷ the impact of corporate takeovers and mergers on employees,⁸ and the rights of other stakeholders (such as employees and creditors) to be considered as ‘insiders’ rather than ‘outsiders’ when it comes to corporate decision-making.⁹

In more specialised ways, several strands of academic literature, grounded in different disciplines and fields of learning, have also contributed challenging and diverse perspectives to the study of the relationship of corporate governance and labour management. These include contributions from management studies, institutional and financial economics, business studies, industrial relations and law among others. These various debates are reviewed in the earlier work of Gospel and Pendleton¹⁰ and are not repeated here. Our following, more selective, coverage of the literature is oriented more directly to accommodate the objectives of the present project.

1.2 The Political Economy of Capitalism

Work carried out on the institutional bases of different types of capitalism and different business systems has posited various styles of, and approaches to, economic organisation within states.¹¹ As noted, this literature draws on a diverse range of academic disciplines and scholarship. Jackson and Deeg have identified three key ‘theoretical innovations’ contributed through the comparative capitalisms work.¹²

The first of these is that national economies are ‘characterised by distinct institutional configurations that generate a particular systemic “logic” of economic action’.¹³ These configurations are comprised of associations of institutional variables which constitute each particular system, including such matters as corporate governance, industrial relations, work systems, forms of finance and corporate ownership and so on.¹⁴ The second ‘theoretical innovation’ identified by Jackson and Deeg is that the comparative capitalisms literature ‘suggests a theory of comparative institutional advantage in which different institutional arrangements have distinct strengths and weaknesses for different kinds of economic activity’.¹⁵ The important implication of this is that there may be no single most efficient style of capitalism – different varieties work effectively according to the fit between institutional style and the type of economy pursued. Such a perspective seriously challenges the idea that there might be a global ‘convergence’ upon a best practice model of capitalist economy.¹⁶

The third ‘theoretical innovation’ is that the comparative capitalisms literature is taken ‘to imply a theory of institutional path dependence’.¹⁷ In other words, as Jackson and Deeg explain further, the fact that there are ‘institutional linkages and complementarities’ within national systems makes it difficult to introduce changes which can have the effect of transforming ‘the overall institutional configuration from one type of capitalism to another’.¹⁸

The literature on comparative capitalisms tends to explore the interaction between various institutions within larger production regimes. Our focus here is on the interaction effects of two such institutions: corporate governance and industrial relations (other institutions that figure in the literature include systems of vocational training, welfare arrangements and competition policy). With respect to this particular interaction, the varieties of capitalism literature examines at workplace level the interplay of business strategy, shareholder value and employees’ interests.

For example, one formative work in this area has identified two separate and distinct sets of institutional arrangements, complemented by legal systems and ‘styles’ of regulation, which are identified either as ‘liberal market’ economies or ‘co-ordinated market’ economies.¹⁹

‘Liberal market’ economies (typified in the national systems of the US and the UK for example) are said to be characterised by an ‘outsider’ form of corporate governance and finance, a dispersed shareholder base grounded in extensive and deep equity markets, strong protective rights for investors, an active market for control by shareholders (particularly through takeovers and mergers) and a business strategy focussed upon short-term financial benefits for shareholders. This ‘marketised’ style of corporate governance is, in turn, said to be allied to a complementary style of labour management which supports the interests of capital over workers. It is argued, for example, that under the ‘liberal market’ model, one typically finds a more partial, less protective set of labour institutions and rights. Under such a system there is less employment security, fewer minimum standards of employment for workers, and where such standards exist, they apply to a smaller cohort of workers than in the ‘co-ordinated’ style of economy.

By contrast, ‘co-ordinated market’ economies (typified in the systems of Germany and other European countries) are said to be characterised by quite different corporate ownership and governance arrangements. In these economies, shareholding is much less widely dispersed, share markets are less developed, and financing is facilitated more through banks and other large lenders. The argument here is that these arrangements engender an ‘insider’ form of governance where financiers develop longer term relations with corporate managers and there is much weaker ‘market’ discipline. With a longer term view of the business able to be exercised by management there is also a longer term view able to be taken of relations with workers. Accordingly, the ‘co-ordinated market’ style of economic organisation is marked by better protections for workers, greater employment security, more investment in skills and training, and a higher degree of employee involvement in workplace decision-making.

Other comparative studies identify more than two groupings or ‘families’ of nations.²⁰ To a large extent, these extended groupings open up Hall and Soskice’s catch-all category of ‘co-ordinated market’ economies and differentiate those economies with greater precision.²¹ Less considered in the literature, but potentially important for our inquiry, is the possibility that there are varieties of liberal markets or, at least, significant differences amongst liberal regimes.²²

Our concern to focus specifically on the corporate governance-labour relations nexus was assisted considerably by a 2005 volume by Gospel and Pendleton. Their collection of national studies specifically examined the relationship between capital, management and labour in order to understand more closely how companies in different national systems are controlled and in whose interests they are controlled. In pushing this study of governance beyond the more typical concerns with the composition of corporate boards and executive pay, the authors sought to draw another important variable, labour, more centrally into the discussion.²³ Generally speaking, the authors were interested to discover how finance and corporate governance influenced or shaped the management of labour.²⁴ For these purposes ‘management of labour’ was defined to include three sets of corporate policies: work relations (essentially how work is organised); employment relations (employment rights, recruitment, training and employment security); and industrial relations (voice and representation).

The studies that made up the Gospel and Pendleton collection drew on a broad range of existing typologies of national systems of both corporate governance and labour management. For the purpose of setting up some basic hypotheses regarding the mechanisms that might link corporate governance and labour management, Gospel and Pendleton used a parsimonious two-systems approach, derived from the financial economics literature.²⁵ Utilising their basic concepts concerning the management of labour, they explored the different ways in which corporate governance and labour management were seen to interact in ‘market/ outsider’ financial systems and in ‘relational/insider’ systems. As will already be apparent, this dichotomy between two financial systems overlaps in significant ways with the dichotomy between ‘liberal market’ and ‘co-ordinated market’ economies that characterises the varieties of capitalism approach. Gospel and Pendleton noted several contrasting features, including the way that shareholder and employee interests are balanced, the differing time horizons adopted for corporate development, the alternative types of business strategies adopted, the relative use of market-based measures of performance to secure commitment, and the nature of relations between companies.²⁶

The insights about differing national systems can be appropriately transposed to an analysis of individual companies.²⁷ As noted earlier, and is explained more fully below (see section 1.4), we have substantially based our study on the Gospel and Pendleton approach insofar as we have attempted to look closely at the interaction of corporate governance and labour management at the workplace level, distinguishing between companies which display insider-type governance and those which exhibit a dispersed ‘outsider’ shareholder base. We have, however, attempted to add to that study by taking particular account of the way that law and legal institutions provide important regulatory grounding in the interactive process. In particular we have drawn on an important stream of literature relating to ‘legal origins’ which identifies legal variables as key determinants in the shaping of national styles of economic regulation.

1.3 The Law and National Systems of Regulation

As with the literature on comparative capitalisms generally, the more particularised debate on the r...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures and Tables
• Preface
• 1 Corporate Governance, Employment Systems and Workplace Partnerships in Australia
• 2 Law and Regulatory Style in Australian Corporate Governance and Employment Systems
• 3 Corporate Governance and the Management of Labour: Contemporary Business Practices in Ten Australian Companies
• 4 Attitudes and Outlooks of Australian Company Directors to Stakeholders: The Survey Data
• 5 The Interaction of Corporate Governance and Labour Management in Australian Companies: An Analysis
• 6 Postscript
• Index