Constructive labor-management relations

By Simon Ferry

How would you categorize labor relations in your company? There have been many examples over the years of times when labor relations have broken down, leading to industrial action, or in extreme cases, becoming a factor in company insolvency.

Perhaps for the purpose of this column we can think of companies as being a bit like countries. In this analogy, the top management is the government and employees are the citizens. Now we can ask, what form of government would be closest to the way your company approaches labor relations?

Let’s firstly think about a company which is run like a dictatorship. Direction and orders come from up on high and management expect employees to obey and carry out their roles as instructed. Perhaps in a company context, we can call this a top-down approach to employee relations.

On the plus side this approach may allow a company to react to change more quickly and have a very clear and strong direction. However, history shows that dictatorships very often result in repression and rebellion.

In a company context, a very strong dictatorial approach to labor relations can mean that employees need a way to protect themselves from oppression, hence the need for employee to act together, such as by forming unions.

So what about democracy? If a company approaches labor relations in the form of a democracy, then the top management would be more like elected officials - accountable to employees as politicians are accountable to their voters. Let’s call this an “open-table” approach to labor relations in a company context.

A company which is run in this way would have ways to regularly understand employees’ views and concerns, consulting them on major issues before taking action.A company run this way should reduce the need for protecting employees through union representation. On the other hand, too much consultation may result in employees feeling that the company has a lack of strong leadership and direction.

In the real world, the two extreme approaches to managing labor relations can be thought of as the opposite ends of a spectrum, with many alternatives in between. The way a company approaches labor relations will depend on a range of factors and may be specific to the business needs of the company and employees at any particular given time.

There are also often significant differences depending on company size, industry and ownership structure. For example a small media or high-tech company might involve employees in the decision-making process in a more “open table” approach whereas a very large manufacturing company, might need to employ an approach to labor relations which is towards the “top-down” end of the scale.

Whatever approach is used, it’s important for companies to understand how they communicate with and involve employees and the potential consequences of the way they do so. I suspect that for many companies having an approach somewhere between the two is likely to be beneficial.

Whatever the approach, companies should have a mechanism for understanding employees’ views and concerns before they lead to major issues. Equally, having gathered employee views, a company must address them in some way, otherwise employees will lose confidence and stop providing meaningful feedback.

It’s often said that communication is a two way street. This is no less true when it comes to labor relations than in any other context. For example, many companies conduct employee engagement surveys to understand how satisfied employees are and identify any areas of concern, or highlight what the company is doing well to help keep employees satisfied with their job.

If a company conducts such a survey, but does not communicate results back to employees along with actions to address areas of concerns, then employees are likely to feel that management are ignoring their views and ultimately become even less engaged.

Other factors are also important when considering labor relations. For most developed countries, legislation provides some protection for employees and limits what actions companies can take, or places a particular framework on how a company must approach change. Having suitable recourse for employees to take up issues independently of the company if they feel unfairly treated is also critical. Likewise, if the workforce is mobile and can readily move between employers, then competitive pressures to attract and retain the right employees will also have a large impact on the approach to labor relations. One might argue that in a well developed, free-market, competitive, mobile economy, with suitable regulation as an ultimate form of protection, labor relations can become an individual relationship, between the employer and each employee. However in reality arguably very few, if any, economies have reached this state.

In summary, to quote the former British Prime Minister, Winston Churchill, “It has been said that democracy is the worst form of government except all the others that have been tried”. Equally, there is perhaps no universal perfect way to approach labor relations, but what is clear is that it is vital to have some way to capture employee views and concerns and take action to address them, either through communication or making changes, before they become a major issue.