Advantages of Stakeholder Capitalism Model to Employees - Essay Example

Germany and US Stakeholders Introduction Stakeholder capitalism is a robust model that is followed in most corporations based in Europe. German corporations are known to be the oldest follower of this model. Within the framework of this model, labor (employee representatives) and capital (shareholder representatives) have important stakes in the enterprise and their work should be in complete alignment (Petrick, 2011). According to the principle of stakeholder capitalism, value can be created, traded and sustained if the employee representatives and shareholder representatives work in collaboration in order to jointly satisfy each other’s needs. Through this collaboration, they would be able to achieve two-fold objectives. Firstly, the employees and board representatives would be able to safeguard own interests and pursue their objectives. Secondly, when their objectives are achieved, the larger organizational aims is fulfilled as well (Petrick, 2010). Advantages of Stakeholder Capitalism Model to Employees In the stakeholder capitalism model, an employee representative is given a seat on the board of directors. The major responsibility of the employee representative is to communicate to each and every stakeholder about concerns of the employees. The presence of employee representatives within the board also enables the top-level management to establish a robust corporate governance framework for facilitating smooth operation of the organization. By working in collaboration with each other, the employee representative and the management representative can make sure that workflow within the organization is smooth. In addition, they are able to secure achievement of operational efficiency (Fauver&Fuerst, 2006). Achieving operational excellence is one of the most important objectives that organizations aim to attain. Operational efficiency can be facilitated only if the top-level management possesses very good knowledge about the workforce available to the firm. Such knowledge would allow the managers to allocate resources effectively according to the skills and experience of the workforce as well as the operational objective. By allocating resources effectively, managers are able to achieve operational efficiency and therefore maximize value for the shareholders. However, only satisfying the needs of the shareholders do not guarantee a company’s success. The management also has to be concerned about employee needs. They need to identify and understand interests of the employees, as they are perhaps one of the most important stakeholders (Faccio, Lang,& Young, 2001). In order to meet the employee needs, the stakeholder capitalism model is highly relevant. The employee representative plays a crucial role here in communicating the needs and interests of the employees to the management board, thereby enhancing negotiation power of the employee. Implementation of such a framework helps the manager to improve the level of engagement among employees. As a consequence, employees become more dedicated toward the work that they do, which in turn helps organizations to achieve operational efficiency (Gorton &Schmid, 2004). There are sets of advantages that employees gain by having an employee representative on the corporate board. With a board-level representative, employees are able to communicate effectively with the manager. Besides being able to convey their needs, employees can also identify and point out the areas of improvement to the managers. These improvements are necessary in terms of establishing a flexible and friendly working environment, which in turn enables employees to work freely. Employees also reserve the right to convey their disagreement in a calm and composed manner whenever there is any form of discrepancy within the organization. Given the fact that they are aware that one of their representatives sits among the board members, employees are able to resolve any critical issues in an organized manner (La Porta, Lopez-de-Silanes, Shleifer, &Vishny, 2000). By being able to communicate their needs and demands effectively to the managers through the employee representative, employees are able to attain an overall development when those needs and demands are met. Such comprehensive development enhances their level of engagement towards the organization, which increases their commitment toward their work. As a result, the employees can perform more efficiently and attain operational efficiency. Henceforth, employees are rewarded for their hard work when the company benefits from the operational efficiency achieved (Freeman, Martin,&Parmar, 2007). Another advantage of having an employee representative on the corporate board is the unity that grows within employees while dealing or negotiating with the top-level management. The presence of an employee representative within the corporate board is an important signal of the employees economic strength and their ability to force contractual concessions offered by owners of the corporation for which they work. An employee representative also provides employees with the legal right to influence direction of the managers by taking part in the companys internal corporate governance framework. Presence of the employee representative ensures that each and every operation conducted within the company complies strictly with the ethical codes (Eurofound, 1998). The agreements reached between employers and the employee representative, which again instill an element of certainty and security and establish employee benefits and privileges, often benefit employees. Such developments would not have been possible had there been no employee representative within the corporate board (Mackinac Centre, 1999). As a result, all the evidence provides justification for the fact that the stakeholder capitalism model, incorporating an employee representative within the corporate board, enables both top-level management and employees to work in complete harmony. Maintaining work harmony in turn enhances operational efficiency, thereby adding value to the organization. However, corporations in the United States follow a completely different model. Although they are not able to accrue the benefits offered by the stakeholder capitalism model followed in European companies, the communication model in the US companies is adequately robust and allows employees to convey their stakeholder interests to the managers. Employee Communication Framework in the US As mentioned above, the communication framework followed in the U.S. companies is robust. Although they do not have any employee representative within the corporate board, employees in the U.S. companies are able to communicate their needs and stakeholder concerns through effective communicational channels established by human resource managers of the organization. In most of the companies, each and every division has its own manager whose primary responsibility is to serve as a bridge between his/her subordinates and the supervisors. The manager takes up the responsibility to communicate the stakeholder concerns to the top-level management on behalf of employees. In addition, companies also set up a number of surveys for every month, which are conducted with the employees within the organization itself. The employees are asked about their experiences while working with the organization as well as their perceptions regarding the areas of improvement. They are also questioned about any concerns or demands that they have from the organizational management. The management records all feedback provided by the employees and initiates a plan of action with immediate effect. Consideration of the feedback allows employees to feel that their views are given due importance and improves their engagement level in the organization. In addition, the managers arrange for frequent meetings with some of the senior executives in order to identify stakeholder interests of the employees. The senior executives speak for themselves and their subordinates, which helps to establish an effective communication between the management and employees (Community Tool Box, 2013). Conclusion In order to sum up, both the German and U.S. models have their own way of working and are appropriate in the way they are applied, considering that both these models have proven to be successful. However, in view of the researcher, stakeholder capitalism holds a competitive edge over the generic communication model followed in the US. The stakeholder capitalism model offers employees enhanced negotiation power primarily due to the presence of an employee representative on the corporate board. Presence of the employee representative also enables employees to convey their developmental needs, which in turn helps them to gain an overall development. This model not only helps the employees to convey their stakeholder concerns but also ensures operational efficiency for the organization. References Community Tool Box. (2013). Section 8.Identifying and analyzing stakeholders and their interests. Retrieved from http://ctb.ku.edu/en/table-of-contents/participation/encouraging-involvement/identify-stakeholders/main Eurofound. (1998). Board-level employee representation in Europe. Retrieved from http://www.eurofound.europa.eu/eiro/1998/09/study/tn9809201s.htm Faccio, M., Lang, L. H., & Young, L. (2001).Dividends and expropriation. American Economic Review, 54–78. Fauver, L.,&Fuerst, M. E. (2006). Does good corporate governance include employee representation? Evidence from German corporate boards. Journal of Financial Economics, 82(3), 673–710. Freeman, R. E., Martin, K., &Parmar, B. (2007). Stakeholder capitalism. Journal of Business Ethics, 74(4), 303–314. Gorton, G.,&Schmid, F. A. (2004). Capital, labor, and the firm: A study of German codetermination. Journal of the European Economic Association, 2(5), 863–905. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., &Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1), 3–27. Mackinac Centre. (1999). Advantages of union representation. Retrieved from http://www.mackinac.org/2312 Petrick, J. A. (2010). Sustainable stakeholder capitalism and redesigning management education. Journal of Corporate Citizenship, 101–126. Petrick, J. A. (2011). Sustainable stakeholder capitalism: A moral vision of responsible global financial risk management. Journal of business ethics, 99(1), 93–109. 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