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.
This comment has been removed by the author.
ReplyDeleteA proper allegory which help to understand the concept of legitimate competitive market economy as opposed to markets with unequal/unbalanced competition on one hand and on the other the unitarist and pluralist models in HR management. Quite insightful.
ReplyDeleteNice Article Professor!
ReplyDeleteGreat article! When I think you can't top the last article you do every time.
ReplyDeleteThank you for all of your nice comments on many of my blog posts. I'm glad you find them enjoyable and beneficial!
Deletevery nice article
DeleteNice article sir...
ReplyDeleteThank you, as this real life example is a very good summary of the lesson.
ReplyDeleteThis was a great way to connect what I am learning in the Coursera class to the real world.
ReplyDeleteWow...This course is so interesting. The article too.I think the US don't support just cause protection for her employees.. What in a case where a male manager tries to make advances on a lady and she refuses.If she got fired by the manager.so no protection?
ReplyDeleteVery interesting article. I owe coursera
ReplyDeletebe honourable at work and everything you do
ReplyDeleteManaging people is not just about leadership but is also about wise policy design and implementation. Another perfect article where I relate / understand the meaning of your quote, Professor.
ReplyDeleteTotalmente de acuerdo
Deletegreat job
ReplyDeleteThis example indicates that neoliberalism still exist in our society today due to lack of checks and balances on the large corporations and institutions.
ReplyDeleteThis comment has been removed by the author.
ReplyDeletevery helpful example to understand the importance of the good HR strategy and its effects on the employees performance and honesty towards their company and clients.
ReplyDeleteIn Syria,where I live the employees favor lifetime employment as it minimize risks such as dismissal. This model of employment does exists in public sector. This model provides some sort of protection on one hand but those employees productivity is under expectations on the other hand.
ReplyDeleteVery insightful article!
ReplyDeleteGreat article! This really just drives the message home effortlessly
ReplyDeletealways i get great articles those making meaning full
ReplyDeleteI remember this scandal
ReplyDeleteThat's a good One! Thanks for sharing!
ReplyDeleteA good article. Fear of being dismissed caused a catastrophe of doing illegal accounts.
ReplyDeleteInteresting Article.
ReplyDeleteNice
ReplyDeleteThis explained the topic well. A great read!
ReplyDeleteThis gives a clear a understanding of the topic "knowing your legal constraint..Great article Professor
ReplyDeleteNice article
ReplyDeleteInteresting...makes me want to do more research on the outcome of those wrongful termination lawsuits.
ReplyDeleteThank you for sharing, very interesting article
ReplyDeleteNice and very helpful top for us..
ReplyDeleteThanks professor for this article
ReplyDeleteIn whatever form, institutional supports for employees, independent of the vagaries or markets or enlightenment of managers, are needed. Indeed wise implementation of HR policies and strategies are need not solely dependence on high way road HR. Thanks, sir!
ReplyDeletegreat article
ReplyDeleteÓtimo artigo! Esclarece muito bem como podemos melhorar a relação de trabalho.
ReplyDeleteIt is a good example and summary of what i have learnt so far.
ReplyDeleteBig companies trying all avenues to test where they can and cannot guide themselves.
ReplyDeleteVERY NICE ARTICLE
ReplyDeleteGreed and self interest. Great article.
ReplyDeleteVery Interesting Article. Worth Reading
ReplyDeletegreat article.
ReplyDeleteGood one Sir
ReplyDeleteVery interesting. Good Article
ReplyDeleteVery insightful article, professor> I was struggling with this concept. This example really helped me. Thank you.
ReplyDeleteInteresting article,Very helpful
ReplyDeleteThis was really helpful to understand the employment relationship model with such a live example.
ReplyDeletevery helpfull for HR people
ReplyDeleteHOW WOULD YOU EXPLAIN THE SAME IN THE PRESENT DAY SCENARIO WHICH HAS BEEN IMPACTED DUE TO COVID-19 SIR?
ReplyDeleteIn my opinion, COVID-19 has magnified the issues raised here. It has highlighted inequalities and I think this statement is now even more appropriate: "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."
DeleteNice
ReplyDeletegreat
ReplyDeleteAmazed
ReplyDeleteNice
ReplyDeleteBig companies trying all avenues to test where they can and cannot guide themselves.
ReplyDeleteWow! wow!wow! Really mind blowing. You killed it sir. i have a better understanding now of the last lesson. you are a genius. Thank you so much for all the knowledge shared
ReplyDeleteNice and helpful for understanding
ReplyDeleteGreat article sir. Very informative and helpful for us. Thankyou.
ReplyDeleteThis has enlightened me alot ...great article
ReplyDeleteYes, after seeing to fail the other relationship models, pluralist can create a hope as it has a balancing scale for both employee and employer. Very good analysis and explained simply . Thank you, sir.
ReplyDeleteThis is an eye opener for workers at will and the behaviour of managers
ReplyDeleteThis is an interesting insight, beneficial and enjoyable article.
ReplyDeleteWooow! "Labour markets should not be destructively competitive rather it should be ideally competitive". This really educative. Thanks for sharing
ReplyDeleteReally good article
ReplyDeleteThanks for the Wells Fargo fiasco where the employees acted unethically by creating fake accounts to keep their jobs. It is an eye opener.
ReplyDeleteThe Article is very insightful and a thank you so much for all your effort that you take in making each and every article a meaningful one and give us detailed understanding on it.Its an honour to be part of this Course through Coursera and having such a devoted Professor Mr. John. W. Budd as our Mentor.
ReplyDeleteRegards
Rumpa Narayanan
Coursera Student
good article
ReplyDeleteGreat article and every informative!!!
ReplyDeleteThe reality of employment relationship is more crucial to people managers than what is been said in books. I think this article has highlighted alot. Thanks Sir!
ReplyDeleteThanks
ReplyDeletegreat
ReplyDeleteok... what other example supporting the accuracy of the Pluralist model comes to mind?
ReplyDeleteEmployers should always consider the employees in setting up any policy.
ReplyDeleteThank you for the article and how it relates to what I'm learning
ReplyDeleteThis indicates that managers and employees efficiency in organizations mostly depend on employment relationship. Thanks for the write up.
ReplyDeleteThis is a very interesting article great job
ReplyDeleteThis article helps us to know more about HR strategy
ReplyDeletethis article gives hope to the lay man that he is worth the honor and dignity in labour irrespective of what employers think.
ReplyDeletea very standard reality to connect with .
Very interesting
ReplyDeleteThank you very much professor, I really appreciate all your articles and the way you teach us , this example is a good lesson in HR management.
ReplyDeleteThank you for sharing this piece of knowledge.
ReplyDeleteWAO, very educative. thanks for sharing.
ReplyDeleteSharing this has really praticalized the lesson
ReplyDeleteVery good example to show the importance of HR/Managerial Strategy. The Concept of Corporate self-interest was clearly evident.
ReplyDeletereally interesting article.
ReplyDeletethank you for information
ReplyDeleteVery informative
ReplyDeletethanks for deep insightfulness
ReplyDeleteamazing
ReplyDeleteReally appreciate to increase the knowledge.
ReplyDeleteNice approach professor
ReplyDeleteThanks for sharing such a knowledge
ReplyDeleteGood piece of information. Now with the covid pandemic most companies have laid off their staff without proper presentation and illegally.
ReplyDeleteThanks...
ReplyDeleteGreat
ReplyDeleteAbsolutely. And what a way to explain the points. The points are so correct and very well explained..
ReplyDeleteCompletely insightful. Thank you sir.
ReplyDeleteVery insightful article!
ReplyDeleteNice article Prof.
ReplyDeleteI think both the employer and the employees should be regulated to bring fair, justice and equity to the employment relationship
ReplyDeleteinterested article !
ReplyDeleteGreat article
ReplyDeleteWorth reading
ReplyDeleteGreat article
ReplyDeleteGreat article
ReplyDeleteThanks professor John Budd for this article.
ReplyDeleteThankyou for such a lovely article
ReplyDeletethank you
ReplyDeleteThank you Professor for the interesting article and fresh example of unsuccessful managerial experience.
ReplyDeleteI do have another example of the recent situation in Kazakhstan when on the governmental level there was made a decision to oblige every medical nurse who is dealing with kovid vacination to have a daily plan of a certain amount of vacinated people a day. Of course nurses around the counrty could not find enough volunteers and those who would like to be vacinated which let to a catastrophic result. This unrealistic pressure that the government imposed on the medical specialists resulted in the huge corruption precedent. Medical staff started to sell vacine cards, and destroy the ampules with vacine in it. People started to BUY the vacination without being vacinated. Now there are millons of people who were really vacinated and millions of who were "fake" vacinated. Which of course is causing many other problems at the moment.
Thank you for sharing this interesting, but unfortunate, example.
DeleteThank you.
ReplyDeleteThank you
ReplyDeleteProf well done again. I always enjoy your articles. This simply shows that ideally competitive market is unrealistic because whenever times are tough or there are excessively strong pressures for financial returns, some companies favor their own interests at the expense of employees, and give unrealistic targets to the employees. And this always lead to termination of affected employees. This is one reason that labor union is a necessity in labor market.
ReplyDeleteThank you
ReplyDeleteThank you professor
ReplyDeleteThank you professor for this article. I thoroughly enjoy each of your article and learning a lot !!
ReplyDeleteشكراً لك بروفسور
ReplyDeletethis article makes me think in the importance of be part of the organization as someone who has a voice and not just follows the rules, I usually forget that
ReplyDeleteThanks sir
ReplyDeleteVery insightful
A good article and example.
ReplyDeleteInteresting read
ReplyDeleteVery nice article and very important ideas. Thank you
ReplyDeleteUse full
ReplyDeleteThanks so much Prof for this article, it goes a long way to explain the complicated world for managers. in my country however, the labour laws are weighty but can be very laborious to get. The employee must attimes would rather just submit to his fate and move on after being treated unjustly know how cumbersume it is to get the the desired judgement. Because of this, manager on thier part will swing the shot at being unethical.
ReplyDeleteVery impactful... God bless you sir
ReplyDeleteالتوظيف مهم
ReplyDeleteشكرا ويلز
ReplyDeletegood as well perfect .
ReplyDeleteVery interesting. Balance is a good option.
ReplyDeleteUseful article, thanks
ReplyDeleteVery interesting article
ReplyDeleteThanks for sharing very interesting and good experiences at other company.
ReplyDeleteA great article indeed! ... emphasis on the importance of how we perceive the employment relationship and the need for robust institutional supports beyond market forces and managerial intentions.
ReplyDeleteHighly educative and impactful article. Thank for sharing professor
ReplyDeleteHighly educative and article. Thanks for sharing proff
ReplyDeleteThis article just explained the entire topic even better. Thanks Prof Budd. None of your articles has disappointed me so far. I’m always in awe of them.
ReplyDeleteThanks!
DeleteVery Nice
ReplyDelete