Monday, September 22, 2014

Regulating Work: The Importance of the Geography of the Value Chain

Last week I was lucky to spend two days in beautiful Tuscany at an excellent ESRC-sponsored seminar on employment regulation hosted by faculty from Newcastle (England), Strathclyde (Scotland), and Monash (Australia) universities. As the stimulating presentations unfolded, a pattern emerged: in cases where the geography of employment regulation matched the geography of the value chain, regulation was effective; otherwise it was not.

As Nigel Haworth described, in the New Zealand fishing industry, the state is a robust actor in regulating working conditions on fishing vessels because particularly valuable species of fish are only found in New Zealand waters. So demand for those fish can only be filled by work that takes place there. In contrast, New Zealand recently weakened labor laws for workers in the movie industry because Warner Bros could have filmed “The Hobbit” somewhere else. Regional approaches to governing Italian workplaces match the vibrant pockets of Italian industrial districts (Luigi Burroni), whereas unions in Sierra Leone struggle to represent the large numbers of informal sector workers (John Stirling). And local and national attempts to create safer garment workplaces in Bangladesh and elsewhere have failed because of the ease of shifting production to new locations. So in this case, international standards are needed (Janice Bellace). 
Of course I’m not the first to think of these linkages.  In 1909, John R. Commons, the father of American industrial relations, published a once-famous article, “American Shoemakers, 1648-1895: A Sketch of Industrial Evolution.” Commons illustrated how workers’ efforts to improve their working conditions matched the evolution of the shoemaking production process and the nature of the “competitive menace.” When shoemakers were skilled craftsmen largely working as individuals, they formed guilds to prevent unskilled, substandard shoemakers from undermining their standards. When shoemaking became more of a job, workers formed unions, first on a local basis. And as the competitive menace expanded with the extension of the production and distributions systems, local unions joined to become national in scope, and they lobbied for protections in international markets.

Putting all of this together, we can think of the geography of the value chain as ranging from atomistic to global:

And then we must note that effective regulation typically occurs when the geography of the value chain is in the middle range (local and national systems)--this is the “sweet spot” of effective regulation and governance. For value chains that are more atomistic or more global, it is often difficult to establish and enforce labor standards and to give workers effective voice. 

If this analysis is right, it should be particularly alarming because trends in work point toward both ends of the geography of the value chain as increasingly important, not the middle. The effects of globalization on manufacturing over the past few decades is a well-known story, but services, too, are increasingly becoming globalizedfor example, through outsourcing to lower cost areas, such as has happened with legal research and Catholic prayer fulfillment. At the opposite end of the spectrum, in addition to the millions in developing countries who work in informal sectors, there are many atomistic areas on the rise in developed countries, such as the self-employed, independent contractors, and household-based workers such as home health aides.

These are not new issues (see Commons), and they are not easy issues. But they are issues of critical importance. The geography of the value chain is dynamic in today’s organizations and economies. The regulation of work cannot continue to only hit the sweet spot of subnational and national value chains. We need to continue to figure out how to design strategies for governing work—whether privately crafted through unions and other institutions, or publicly crafted through government regulation—that match the dynamism of the geography of the value chain across its full spectrum. Only then will work really work for all. 

Saturday, August 30, 2014

Real Leaders Shouldn't Need $63 Million in Tax Help From Their Company

One of the hottest topics in business schools and in business is leadership. Business schools are expected to provide a range of leadership development opportunities, and their graduates—after interviews that  invariably emphasize leadership potential or accomplishments—then enter corporate leadership development programs. Companies spend large sums on leadership training, and numerous consultants and organizations provide services for furthering developing corporate leaders.

It’s probably safe to say that these efforts are not aimed at creating command-and-control,  transactional leaders. Rather, something deeper is being sought, such as the widely-popular concept of transformational leadership that occurs when “one or more persons engage with each other in such a way that leaders and followers raise one another to higher levels of motivation and morality” (James MacGregor Burns, Leadership, Harper & Row, 1978). Or consider this description of purposeful leadership:

It is about having clear values and demonstrating a commitment to living those values. It is about modeling positive attitudes and behaviors that others wish to emulate. It is about building a sense of community where people feel that their work is important, that they are important, and, as a result, they are inspired to perform at the highest levels. (Training Magazine, October 16, 2013)

Medtronic, a leading medical devices company, says of its executives and leaders:

We are proud of our reputation for attracting and developing some of the brightest leaders in the medical technology industry. Strong leadership is vital to achieving our goals and fulfilling our Mission to alleviate pain, restore health, and extend life.

Our executive leadership team members serve as role models. Not only do they provide strategic oversight and motivation, they also contribute to the collective good of the company and the industry – by serving on Inclusion Councils, leading volunteer efforts in our communities, and collaborating with industry peers to improve healthcare policies.

Medtronic further describes its mission as follows:

Written in 1960, our mission dictates that our first and foremost priority is to contribute to human welfare. Over a half-century later, the Mission continues to serve as an ethical framework and an inspirational goal for our employees around the world. It guides our day-to-day work and reminds us that our efforts are transforming the lives of millions of people each year.

Sounds great. But actions speak louder than words. Medtronic has found itself in hot water over its recent decision to move its corporate headquarters from Minneapolis to Ireland to avoid billions in taxes on money it holds overseas. This move has upset long-term shareholders who will now have to pay immediate capital gains taxes. And then this week, Medtronic disclosed that  it will pay its top executives (pronounced “leaders”) $63 million to compensate them for special excise taxes they face.

A Medtronic spokesperson told the StarTribune, “The company believes these individuals should not be discouraged from taking action that they believe is in the best interest of Medtronic and its shareholders.” By making these payments, Medtronic’s top leaders will be able to “focus on what is in the best interests of the company, and not on their personal finances.”

But wait a minute. Read that again while thinking of the corporate emphasis on leadership (sometimes even ethical leadership). This hardly paints a picture of transformational, purposeful, role-model leaders, and even less so of ethical leaders. Worried about their personal finances? The CEO made over $8 million last year. Are these “brightest leaders” so easily led astray by their own paydays? Shouldn't transformational leaders be able to rise above their narrow self-interest? With or without an ethical duty to do so?

Or has the culture of executive pay become so obscene that it fuels its own fire? Indeed, research in behavioral economics has shown that financial incentives can crowd out intrinsic motivators. So maybe it’s true that personal finances trump deeper leadership qualities when executive pay is so high. But adding more fuel to the fire doesn’t seem like the answer. If companies truly believe their own rhetoric about leadership, it’s time to reign in executive compensation, open up corporate governance, share the wealth more fairly, and demand that corporate executives truly be leaders.

Happy Labor Day.

A column appeared in yesterday's StarTribune with the headline "Medtronic had no choice but to cover the excise tax." I disagree. If someone wants to argue that the payments are justfied because they serve some purpose, then that's fine. But Medtronic certainly has a choice. Now why does the column think that these payments are a good choice? An alternative way to avoid this extra tax is to allow the executives to exercise their options early. But according to Medtronic, this would “undercut Medtronic’s compensation philosophy of ensuring that executive officers hold long-term, performance based compensation." And the columnist then writes, "the next problem would have come the morning after closing, when the CEO and nine other executives came to work without any stock options." This brings me right back to the point of my initial post: Should we call someone a leader if they require millions in stock incentives to look beyond their own self-interest? Shouldn't a true leader be able to lead even in the absence of such strong (some might say, obscene) incentives? And what kind of culture have we created such that these incentives are not only acceptable, but are seen as essential?

Tuesday, July 15, 2014

The Goals of Conflict Management: Have We Lost the Forest for the Trees?

Earlier this month I attended the International Associationfor Conflict Management (IACM) annual conference outside of Leiden in the Netherlands (Hup Holland Hup!). The diversity of presentations was stimulating, including topics ranging from the very micro (e.g., individual interactions) to the very macro (e.g., international diplomacy and peacebuilding), with mid-range team, organizational, and industrial relations conflict topics, too. There was much to be learned about managing conflict, but I kept coming back to one concern—have we lost the forest for the trees? Specifically, have we lost sight of the fundamental goals of conflict management?

The goals of conflict management don’t get a lot of explicit attention, but when pushed I think many would say that a conflict management system should prevent conflict and settle disputes quickly. Sounds good at first, but this is hardly adequate. As a manager I could devise a system whereby anyone who comes to me with a conflict is fired. That would likely prevent conflict and settle disputes quickly. But it hardly seems like a desirable approach to conflict management. So we need to think more carefully about metrics and goals for conflict management systems.

In the Oxford Handbook of Conflict Management in Organizations, that should be in print very soon, Alex Colvin and I have authored the lead chapter titled “The Goals and Assumptions of Conflict Management in Organizations.” We use the trilogy of efficiency, equity, and voice as a framework for considering the goals of conflict management. Our focus is conflict management in organizations, which I will follow below, but I think this could be applied more widely.

Firstly, efficiency. The effective management of conflict is important so that conflict minimizes disruptions to the productive efficiency of an organization. Whether overt or quietly festering, clashes between supervisors and subordinates, co-workers, union leaders and managers, or other organizational actors can be disruptive and undermine individual and organizational performance. A conflict management system should be able resolve these conflicts so that they are removed as barriers to performance. Another aspect of efficiency as a goal of conflict management is that it is desirable to resolve conflicts in an efficient way. Specifically, an efficient conflict resolution system conserves scarce resources, especially time and money. But efficiency by itself is not enough.

So secondly, equity. Equitable conflict management systems reflect concerns with justice, fairness, and due process such that outcomes are linked to objective pieces of evidence and which include safeguards that prevent arbitrary or capricious decision-making. Moreover, an equitable conflict management system treats all participants with respect, sensitivity, and privacy while also generating appropriate and effective remedies when rights are violated. The equity dimension can also include the extent to which a conflict management system has widespread coverage independent of resources or expertise.

Thirdly, voice. This captures our assertion that conflict management systems should be participatory. A system that is unilaterally designed and administered by managers lacks voice. In contrast, a system shaped by the input of employees as well as employers scores higher on the voice dimension. Similarly, participation in the actual conflict management system is an important element of voice.

So it’s important that academics and practitioners continue to find better ways to resolving conflicts. But we shouldn’t lose sight of what “better” means. It’s more than just understanding interpersonal dynamics that prevent conflicts. It's more than finding ways to quickly resolve disputes. We think a better system is one that fulfills efficiency, equity, and voice. Others might prefer other goals and metrics—probably rooted in alternative frames of reference (another part of our chapter, and perhaps the subject of a future blog posting). Regardless of one’s specific goals, it’s important to carefully think about them, and articulate them explicitly. Otherwise, we’re likely to lose sight of what we are actually trying to achieve.