Saturday, October 1, 2016

Thank You Wells Fargo...For Reminding Us of the Nature of the Employment Relationship

The biggest business story of the past month has been the Wells Fargo banking scandal. Driven by pressures to sell banking customers additional products, thousands of employees created perhaps two millions new accounts without customer approval. Over 5,000 workers were fired for creating fraudulent accounts, and some who were fired for failing to meet sales goals are suing Wells Fargo for wrongful termination. One lawsuit alleges that “The managers and bankers routinely harassed and pressured [the plaintiff] and she was denied promotions and bonuses because she would not engage in the unethical and fraudulent banking practices for unethical quotas.” 

This unfortunate mess raises many problematic issues, such as ineffective regulators, unrealistic pressures for unending corporate financial and stock returns, predatory corporate culture, leadership failings, and the danger of incentives (from stock incentives at the top, to managerial bonuses in the middle, down to the incentive to simply keep one’s job as a teller at the bottom of the banking organizational chart). And we shouldn't overlook the personal distress experienced by individual employees ("Wells Fargo's insatiable greed made me a monster," StarTribune, Sept 30, 2016). But I want to thank Wells Fargo for reminding us of the nature of the employment relationship.  

The debate over the nature of the employment relationship is as old as modern capitalism itself. Adam Smith’s model of self-interested employees and employers trading as equals in markets guided by the invisible hand continues today as the intellectual foundation of neoliberalism. I have called this the “egoist” employment relationship because of its emphasis on individual self-interest and personal responsibility. In order for this to work effectively for employers and employees, labor markets must be ideally competitive, not destructively competitive. This requires employees to have reasonable alternatives that are accessible without excessive switching costs, both economic (e.g., moving costs) and psychological (e.g., stress over the uncertainties of the nature of a new job, or a bias towards over-valuing what you already possess). In this way, if someone doesn’t like their pay, working conditions, or other elements of their job, they can legitimately quit and get another decent job commensurate with their skills and abilities. Minimal institutional supports like unions or protective labor legislative are not needed because competitive markets protect workers from abuse; indeed, they are bad if they interfere with the ideal discipline of the invisible hand.

The Wells Fargo fiasco seemingly rejects the accuracy of this way of thinking. Workers clearly didn’t feel that they could simply quit and find a comparable job. Instead, over 5,000 succumbed to corporate pressure to meet unrealistic targets, and thereby acted unethically by creating fake accounts to keep their jobs. Competitive labor markets also require potential employees to have good information about the nature of jobs, and one can question whether employees joining Wells Fargo fully understood these pressures. And competitive consumer markets require well-informed consumers, which also doesn’t appear to the case here. For example, many customers with potentially fraudulent accounts couldn’t remember whether they had requested them or not. The neoliberal or egoist model of the employment is an important theoretical baseline, but seemingly too idealistic for the messiness of real-world markets, human behavior, and therefore, employment relationships.

An alternative to the neoliberal or egoist way of thinking is the unitarist model of the employment relationship. Ideally competitive labor markets are not required, but this approach critically rests on a belief that the interests of employers and employees are largely one and the same (unitarist = unity of interests). Or more precisely, a belief that well-designed managerial policies and practices can always be found that align the interests of workers and their employers. For example, offering decent pay and benefits will create engaged, loyal workers who reward the employer with high levels of performance that serve the business and its customers. Minimal institutional supports like unions or protective labor legislative are unnecessary because companies will create win-win human resource management policies. The Wells Fargo fiasco seemingly rejects the accuracy of this way of thinking, too. Performance standards were unrealistic and incentives at various points of the corporate hierarchy were extreme. Ethical workers were fired; customers were harmed. And these problems were not self-corrected or policed internally. Rather, these practices were exposed by the Los Angeles Times which then resulted in a lawsuit against Wells Fargo by the Los Angeles city attorney.

This isn’t to say that high-commitment forms of human resource management (“high road” HRM) are a failed project. Well-designed HRM policies and practices are essential for any organization, and we need more HR leaders with sophisticated ways of thinking (like one gets with a Minnesota Master’s degree in HRIR!). But it is to say that as a society, we cannot rely solely on corporate self-interest and well-intentioned managers.

Which brings me to the pluralist employment relationship model. The pluralist model rejects the neoliberal assumption of ideally competitive labor markets, and again, the Wells Fargo scandal highlights why. Moreover, the pluralist model embraces a plurality of legitimate interest in the employment relationship. Yes, there are some interests that employers and employees have in common, but unlike the unitarist way of thinking, pluralists believe that there are also conflicts of interests. But both employer and employee interests are legitimate so none should be exclusively prioritized over others (akin to a pluralist democracy in the political sphere). HRM practices are important for aligning shared interests, but society should not rely exclusively on corporate self-interest to look out for workers. When times are tough or there are excessively strong pressures for financial returns, some companies favor their own interests at the expense of employees. This seems to me to be a better characterization of what happened at Wells Fargo than the other two models of the employment relationship can provide. And consequently, Wells Fargo employees have turned to the courts for relief. In other situations, they might turn to labor unions or other outside, institutional supports. In whatever form, institutional supports for employees, independent of the vagaries or markets or enlightenment of managers, are needed.

In conclusion, how we think the employment relationship works is critically important for determining the extent to we as a society want to rely solely on markets or managers for setting employment terms and conditions. It’s difficult to truly gauge the actual nature of the employment relationship in practice. But we can look to situations like what’s unfolded at Wells Fargo for clues. Maybe it's just me, but I see another example that supports the accuracy of the pluralist model.

Friday, September 23, 2016

And the University of Minnesota faculty organizing drive drags on, or, bananas aren’t apples, but they are more like apples than like airplanes

When I taught labor relations last winter, the union organizing drive among University of Minnesota faculty was a very timely topic. After having been away for the summer, some of the students from that class asked whether faculty were unionized yet. But the answer brings to life one of the realities of union organizing in the United States—it’s a slow process. SEIU Local 284 filed a petition seeking an election with the State of Minnesota’s Bureau of Mediation Services (BMS) on January 20, 2016. Over 34 weeks later, an election is not yet in sight.

In any union representation election, the election unit needs to be defined. That is, what jobs are included and excluded from what will be the bargaining unit if the union wins. This definition is initially presented by the union when requesting an election, but an employer can object on the basis of there not being a “community of interest” among all of the included workers. A major sticking point in the faculty organizing drive is whether the bargaining unit should only include tenured and tenure-track faculty (the University’s position) or should also include full-time and part-time instructors (“contract faculty”) (the union’s position). In other words, the University asserts that regular faculty and contract faculty do not share a community of interest whereas the union argues that they do. Undoubtedly, regular and contract faculty have things in common (an educational focus, instruction, academic achievement as a position requirement) and not (tenure versus annual contracts, sharply different degrees of research responsibilities). So where to draw the line?

Unfortunately, an already-slow process has been made worse by the curious choice of the Minnesota legislature to enshrine the University of Minnesota bargaining units in state law over 30 years ago. It’s clear that tenured and tenure-track faculty are in what the law defines as Unit 8. But what about contract faculty? The University claimed that they are in the “Academic Professional and Administrative Staff” unit (Unit 11) by law, so there is nothing for BMS to decide. The union claimed that the law is so old that contract faculty are new positions that need to be classified by BMS. Over multiple objections by the University, BMS agreed with the union. So a lengthy hearing was held last spring, and BMS finally issued its ruling earlier this week.

In its ruling, BMS largely sided with the union and placed contract faculty into Unit 8 along with regular faculty (although extension faculty were excluded because they are not located on the Twin Cities campus). So unless the University is successful in an appeal, an election will occur some day and will uniquely include regular and contract faculty in the same unit. But that’s still a ways off because (a) the University will probably appeal, and (b) there still needs to be more hearings over excluding supervisors (which could include me as department chair) and determining whether instructors who teach minimal classes are real employees and therefore included. So again, union organizing can often be a lengthy process.

So what about the BMS ruling? How could they put regular and contract faculty together? If this occurred in the private sector, my guess is that they wouldn't have been placed together because they would have been seen as having distinct communities of interest. But in the private sector (and probably in most states), nothing is pre-specified so the National Labor Relations Board (NLRB) could put them together, or keep them separate. What the University seemingly failed to appreciate in this case is that Minnesota law has already limited the bargaining units. So BMS really wasn't deciding whether faculty and instructors go together, it was really deciding whether instructors go with faculty or go with the “everything else leftover” professional and administrative unit that also includes accountants, cartographers, athletic trainers, and over 300 other job titles. The university kept arguing that instructors aren’t faculty. But BMS ruled that they are even less like accountants and athletic trainers. Or the way I’ve bastardized it, bananas aren’t apples, but they are more like apples than like airplanes.

So whether or not this ruling makes it more or less likely that the faculty will vote to unionize remains to be seen. And if the faculty do unionize, it will undoubtedly be an interesting case study of how to include regular and contract faculty interests in bargaining and representation. In the meantime, the events of this year clearly illustrate how this can be a drawn-out process. And at a broader level, this also illustrates why legislators should be careful not to overly prescribe matters and to instead craft laws in ways that are flexible and adaptable.

Sunday, August 28, 2016

Homogenization: Good for Milk, Bad for Managing Workers

Readers of my blog know that I developed and launched a massive open online course (MOOC) on Preparing to Manage Human Resources. Readers of my blog also know that I think work is quite complex. It shouldn’t be reduced to being just about money, or just about satisfaction, or just about any other single thing. Put these two things together and a major theme of my MOOC is for managers to understand the different possibilities why people work so that they can better determine what drives their own workers. These drivers might not be the same for everyone, and might not be the same as the manager’s own views on work.

Many of the postings by learners in my MOOC reinforce the need for managers to observe rather than assume and to allow for person-to-person differences. In these postings, note how each author is painting workers with a broad brush to homogenize them to all be working for the same reason. And the aspect of work assumed to be universally important is the one that individually important to him or her.

“Money is key driving motivation of employee's performance. It was and stays a primary crucial factor in choosing a job.”

“I think that a large majority of the population works for money. Can we blame them, our society has made it that way.”

“Most people work out of the personal satisfaction and the joy of doing what makes them happy and love doing it day after day. I believe that when you work out of joy and regardless of the remuneration, its bring some sort of inner peace to you, your heart also feel at rest and you are really happy at all times.”

Not all of these postings assert that money is the key driver, but all of them homogenize and universalize the meaning of work and therefore key motivational factors. This is not a good strategy for managers to adopt. Managers must recognize that people are different so work might have different meanings, and might be very different from the manager’s own view(s) of work. Moreover, work is complex so each individual might have multiple feelings about work. For some, work might be about money and satisfaction and accomplishment and contributing to society, as just one example of combinations of diverse factors.

Academic research can help managers understand the possibilities (for example, watch my animation), but it’s a manager’s job to figure out what makes each employee tick. Which unfortunately makes managing people hard work (and thus associated with its own meanings of work!). I will close with a final posting excerpt that reflects one of the key take-aways from my MOOC:

“The job of a manager in the workplace is to get things done through employees. To do this manager should be able to motivate employees. Motivation practice and theory are very difficult and diverse subjects. It's easier said than done. To understand motivation one must understand human nature itself. And there lies the problem. Human nature can be very simple, but also very complex.”