Varieties of Capitalism, Corporate Governance and Employees

,

• Publisher: MUP Academic Digital
• Year: 2008
• Print ISBN: 9780522855487
• eBook ISBN: 9780522859850
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

We live in a 'corporate world' in which powerful business corporations shape and influence the activities of nation states, their national economies and their social relations. But what is it that moulds the activities of the corporations themselves? Do some societies have 'styles' of regulation that enable corporations to operate freely in the pursuit of certain interests, where others are more constrained? And, if so, are Australian companies more inclined to pursue the financial interests of shareholders and owners at the expense of employees and creditors? Corporate governance may be guided in the pursuit of particular interests by many influences, including law, politics, capital and labour and other pressure groups. How these competing pressures balance out varies enormously from state to state.
Bringing together the original research by lawyers, political economists and industrial relations scholars, Varieties of Capitalism, Corporate Governance and Employees is a first Australian contribution to these complex issues.

1

Varieties of Capitalism, Corporate Governance and Employment Systems in Australia

Shelley Marshall, Richard Mitchell and Ian Ramsay*

It is often speculated, both in the popular media and in academic literature, that recent changes to Australian industrial relations and corporate governance practices are bringing Australia more into line with the operation and practice of labour and capital markets in the United States and other similarly organised economies. It is assumed that this has flow-on effects for the culture of Australian workplaces and the lifestyles of workers. In particular, it is often said that reforms to labour law are making workplaces more like the United States where employees can be fired at the will of employers (and likewise employees can leave when they wish). It is also argued that the pressure to deliver returns to shareholders is creating a corporate environment, which, like the United States and the United Kingdom, is more shareholder-oriented. Some scholars have focused on the negative consequences of this emphasis on producing shareholder value, which they believe draws investment away from the long-term interests of other stakeholders. It is believed that this focus on shareholder value is creating a workplace culture that is inimical to power-sharing and co-operation between employers and employees; that it produces insecurity for workers and a lack of commitment by employers to training and other investments in human capital. Others, conversely, credit this shift with making Australian businesses more competitive and innovative.

Can it be said that Australia’s industrial relations and corporate governance systems—two institutions which influence the variety of capitalism of a national economy—now belong more clearly in a group with the United States and the United Kingdom rather than with other OECD countries such as Germany, Sweden or Japan? While this is often assumed to be the case, very little work has been conducted which systematically investigates the Australian evidence.

This book, combining the contributions of leading Australian scholars from several disciplines, provides an examination of the Australian evidence from a range of perspectives. It draws together the work of corporate law and labour law scholars, comparative employment relations and human resource management academics and political economists among others. Some of the chapters are concerned with changes to corporate ownership or financing; and tracking any associated shifts in corporate priorities. The contributions of Meredith Jones, Shelley Marshall, Richard Mitchell and Ian Ramsay (Chapter 7) as well as that of Mark Westcott (Chapter 6) consider the impact of corporate ownership and corporate governance on workplace practices and attitudes. Two contributions—those of John Lewer, John Burgess and Peter Waring (Chapter 9) as well as Kirsten Anderson, Shelley Marshall and Ian Ramsay (Chapter 10)—examine the implications for employment practices of the increasing prominence of institutional investors, such as mutual funds and superannuation funds, as owners of Australian companies.

Other contributions examine the issue of where Australia fits on the international spectrum of varieties of capitalism from an employment relations perspective. Labour law scholars Richard Mitchell and Anthony O’Donnell (Chapter 5) map the effects which the Australian government’s labour law changes over the last decade have brought about concerning partnership relations between employers and employees, and compare these labour law changes with recent pro-partnership reforms in the United Kingdom. Meredith Jones and Richard Mitchell (Chapter 4) consider the extent to which Australia’s common law legal traditions are deterministic of the regulation of labour in Australia. John Howe, another labour law scholar, considers the impact of the Victorian government’s Partners at Work program on the style of labour relations in Victorian workplaces (Chapter 11). Meredith Jones and Shelley Marshall (Chapter 8) examine the attitudes of company directors towards partnerships between the company and its employees in order to ascertain whether the attitudes of corporate strategists are consistent with and guided by those who determine labour policy. Industrial relations specialists, Richard Gough and Max Ogden (Chapter 3), examine whether the Australian variety of capitalism acts as an impediment to the co-operative implementation of innovative work systems in Australian workplaces. Comparative employment relations scholars Nick Wailes, Jim Kitay and Russell Lansbury (Chapter 2) are concerned to discover what factors, other than labour law changes, are driving employment changes, and whether these changes are resulting in a convergence with the United States and the United Kingdom, or creating new, idiosyncratic employment systems in Australia.

As well as bringing together scholars from different disciplines, the contributions employ different methodological approaches. The book is structured around these different approaches. Part I sets out various theoretical perspectives, including those of Varieties of Capitalism and Legal Origins. (These approaches are expanded upon later in this introductory chapter.) Part II contains contributions that are primarily empirical in nature, including case study and survey material. Part III includes contributions which investigate the power of countervailing corporate social responsibility forces.

Although the authors approach the question of whether Australia is converging with the United States, the United Kingdom and other liberal market economies from different perspectives, they all, in some way, consider the intersection or impact of corporate governance on employment systems. This is one of the strengths of the analyses presented in this book. While, generally speaking, the fields of corporate law and corporate governance have developed and exist in isolation from the fields of labour law and comparative employment relations, the contributions to this collection consider the interaction of these influences.

Analytical Approach: Varieties of Capitalism and Legal Origins

Most chapters in this book draw on the Varieties of Capitalism (VoC) approach to frame their analyses. The general literature comparing types or ‘varieties’ of capitalist economies has much to say about corporate governance and employment systems.¹ While the VoC debate generally ranges across a broad spectrum of different questions and topics, the issues of corporate governance and labour management, and the relationship between them, appear crucial, if not decisive, in how different systems are characterised and typified.² And while the VoC literature generates investigation into the corporate governance and labour management systems of particular national economic ‘styles’, these inquiries in turn generate investigation of the behaviour of particular economic agents, for example business enterprises, and their managements. Across this broad general area, a wealth of information is being generated internationally on, among other things, national style in corporate governance, whether, and if so how, labour management systems are affected by, or interrelated with, corporate governance style, and whether these characteristics are discernible, and consistent, both at national levels and at enterprise levels within national systems.

Australian scholars are now directing their attention to these matters across a broad range of disciplines, and with an eye to how Australia might be characterised as a national system. However, as Wailes, Kitay and Lansbury point out in their opening contribution to this collection it is necessary for several reasons to be cautious in adopting the VoC characterisations of national systems for analytical purposes. The VoC literature, for example, relies upon a grouping of national capitalist systems into two: the liberal market model and the co-ordinated market model. While both these models present effective and efficient systems for economic production and distribution they do so in different ways. The co-ordinated model tends to feature more co-operation between the parties to production (capital, labour and management). Capital is more long-term in orientation, and labour tends to be more protected. On the other hand, the liberal market model is characterised by greater competition. Capital is more favoured, and the interests of labour tend to be sacrificed in support of shareholders’ interests. This is, as Wailes, Kitay and Lansbury note, an over-simplified, and possibly misleading, set of characterisations, obscuring important complexities both internationally and within country systems. It is mooted, for example, that perhaps there are other broad varieties of capitalist economies, such as an Asian model.³ The authors very usefully set out here some details of a current research project through which they are attempting to overcome some of the weaknesses indicated in the VoC project.

However, if one accepts the general VoC division of capitalist systems into these two broad camps, it does provide the opportunity for interesting analyses drawn from national data. For example, the VoC typology would rank Australia among the liberal market economies alongside the United States, the United Kingdom, Ireland and New Zealand, and accordingly we would expect to find that Australian institutions of corporate governance and labour management would display characteristics which are largely consistent with this ranking. But does the evidence support this contention? The contribution by Jones and Mitchell addresses this question in part by examining the regulation of labour in Australia. The chapter uses the ‘legal origins’ theory, which suggests that the division of economic systems into different types is largely predicted according to its regulatory background. Those countries with common law backgrounds map fairly neatly onto the liberal market–type economy, while those in the civil law tradition correspond with the co-ordinated market type.⁴ According to this framework, the regulation of labour in Australia should appear more like the highly contractualised systems of the United Kingdom and the United States than the more worker-supportive systems of many European countries. While the evidence shows a demonstrable shift in Australian labour market regulation in recent decades towards a more contractualised liberal market model,⁵ as Jones and Mitchell point out it is less easy to characterise the Australian system historically as having conformed with that type. In fact, prima facie there are reasons for supposing that the Australian labour law tradition, with its centralised wage-setting mechanism, was more in keeping in certain respects with the co-ordinated model than the liberal market model. In the final analysis, however, the authors conclude that in essential respects the Australian system of labour regulation has tended to correspond, even historically, more with the liberal market model than otherwise.

While it may be possible to broadly characterise Australia as a liberal market economy, there may nevertheless be high levels of diversity within the liberal market model, variety within national systems, variety between industries, and most likely very often variety within business corporations between sites and operations⁶ and so on. While Australia might be grouped together with the United States and the United Kingdom, it does not mean that its business systems mirror those in other liberal market economies. The studies in this book show that Australia has retained idiosyncratic features. The close studies of business practices in this collection are able to demonstrate rather more clearly than the quantitative data used to support the legal origins/liberal market connection⁷ the great complexity which exists. These studies support the proposition that there is ‘within system’ heterogeneity. And, as Mark Westcott’s detailed industry study demonstrates clearly, the variations in how management co-ordinates its relations with its shareholders and employees, and the potential conflicts of interests between them, are not merely determined by the legal grounding of corporate governance and labour management, but by much else besides, including, importantly, the regulation and state of the product market in which the particular enterprise operates.⁸

Aspects of this heterogeneity are explored also in the contribution by Gough and Ogden. The division of capitalist economies into two fundamental types, one of which appears outwardly more conflictual and less co-operative than the other, does not, as the authors illustrate, imply that there is no scope for collaborative relations between capital and labour in one system and no scope for conflict in the second. Indeed liberal market economies are sometimes characterised by forms of co-operative relations between management and labour (described as ‘partnerships’ in the United Kingdom and ‘mutual gains’ in the United States) and in co-ordinated economies co-operation does not completely eliminate conflict. Rather, in the authors’ view the ‘stereotypes’ created in the VoC debate in fact are populated by a range of partnership styles which run across both the liberal market and co-ordinated market categories. Thus, the nature of partnership relations is in a continuous state of flux, switching between greater and less conflict, and more or less co-operation, over time, under the influence of particular country, industry, regulatory and labour market contexts.

Another important set of questions occurs in relation to the prospect of change in particular types of economic organisation and regulation. Do the varieties of capitalism remain the same, or do they change over time,⁹ and if the second possibility remains open, is there a chance that the different types might converge into one? A third possibility is that there will be ‘within system’ convergence. This is, clearly, a complex issue. It is also a much-debated one.¹⁰ The mixture of ideas associated with the concepts of ‘legal origin’, ‘institutional complementarity’ and ‘path dependency’ in national systems tends to produce an argument that the broad ‘types’ of capitalism are relatively impervious to fundamental change in character.¹¹

Contributions in this collection join with this debate from different perspectives. Some authors have suggested that economic globalisation is (possibly) producing a convergence in capitalist style away from the co...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Preface
• Contributors
• 1. Varieties of Capitalism, Corporate Governance and Employment Systems in Australia
• Part I. Theoretical Approaches
• Part II. Empirical Studies
• Part III. Corporate Social Responsibility and Regulatory Approaches
• Index