Making It Mutual: Governance and voice

2^nd April 2013

Dr Ruth Yeoman on how mutuals and employee-owned businesses create stability, resilience and legitimacy

Mutual and employee-owned organisations (MEOs) are public and private enterprises, which have the potential to provide social, as well as economic, benefits. As a philosophy, mutualism is a set of ideas and principles governing the relations between individuals; as an organisational practice, mutuality is characterised by distinctive ownership and governance structures which express the values of equality, fairness and mutual respect through democratic decision-making.

At the political level, Kellner describes mutualism as “a doctrine that individual and collective well-being is obtained only by mutual dependence”. [1] At the organisational level, Birchall defines a mutual as a member-owned business that is “owned and controlled by members who are drawn from one (or more) of two types of stakeholder – consumer and producer – and whose benefits go mainly to these members”. [2] Single and multi-stakeholder organisations are a way of structuring organisational life which goes with the natural flow of human relationships, normally characterised by inter-dependence, the desire for belonging and the need to do something worthwhile in co-operation with others. When MEOs succeed in aligning their governance architecture with their culture, values and organisational practices, then they become highly effective vehicles for realising basic human needs for belonging and meaningful work, as well as producing goods and services for their customers and communities.

Governance: Establishing the rules to live by

Mutuals and employee-owned businesses are distinctive responses to the classic political question: where does power lie? Organisational life is characterised by a struggle over whose interests have primacy in the distribution of burdens and benefits generated by the organisation’s activities. This means that all groups of people engaged in a common endeavour must decide how their relationships to one another are to be regulated. The terms of such decisions might range from conciliating differences in order to secure basic organisational stability to ensuring justice and fairness for all those involved in the enterprise, and affected by what it does.

In order to settle questions of stability and justice, people establish ownership and governance architectures which specify how, and by whom, the purpose and means of the organisation are to be determined. Establishing and maintaining governance architectures, however, is no easy task, because institutions are prone to decay, due to their dependence upon supportive background conditions, including the norms, values and beliefs which guide the way people behave towards one another. In other words, stable and just governance requires a sympathetic culture which helps people to understand who is entitled to do what, in pursuit of the organisation’s purposes.

When people perceive there to be a coincidence of governance institutions, values and culture, and entitlements which takes their interests into account, then the organisation is understood to be legitimate, and people are more likely to consent to their interactions with the organisation being conducted by its rules. However, when the rules of the organisation appear to benefit investors or managers to the exclusion of other stakeholders, then the sense of legitimacy which sustains its institutional fabric will be eroded. The employment contract is no protection against the corrosive effects of a degraded governance system or ossified culture and values. People who are fearful of unemployment may passively submit, but they may also manifest resistance in various forms of sabotage, organisational vandalism or simply work to rule, expending no effort beyond that which is demanded by their formal job description.

Sustained and resilient organisational performance depends upon there being a shared sense of legitimacy; that is, upon stakeholders being confident that the rules of the enterprise work in the interest of everyone, and that those who occupy powerful roles can be held to account. In organisations, as well as in politics, this is achieved by enabling everyone to have a say in determining the rules governing their common life.

Voice: Sharing authority over decision-making

So, one way of binding people to the organisation is to give them a say over determining the purposes and rules of the organisation – in other words, to give them a Voice in decision-making. And MEOs hardwire an entitlement to Voice through governance architectures which provide for a plurality of strong, but equally balanced, constituencies of members (whether community, customers or employees) in which no single constituency gains ascendency over another, resulting in oligarchic or autocratic rule. This means that an organisation which takes Voice seriously as a substantive concept will have a distinct culture rooted in the values of equality, fairness and mutual respect, where Voice exceeds simple participation by establishing an entitlement to co-decision which belongs to all those who are members of the organisation.

Hirschman describes Voice as “any attempt at all to change, rather than to escape from, an objectionable state of affairs[…]”. [3] In more conventional terms, Lavelle et al define Voice as “any type of mechanism, structure or practice which provides employees with an opportunity to express an opinion or participate in decision-making within their organisation”. [4] The value of stakeholder Voice can be expressed in both intrinsic and instrumental terms – intrinsically, stakeholder Voice is part of a long tradition of industrial democracy and economic citizenship in which having a share in decision-making is a right owed to all workers; instrumentally, stakeholder Voice makes good business sense because it enables managers to tap into workers’ tacit knowledge, and to conciliate conflict and differences in the direction of organisational harmony.

Conceptually, Voice goes beyond having a say, since having a say does not automatically imply influence. [5] For example, Heller distinguishes between having a share in participation (as taking part in an activity) and having a share in power (as having a degree of influence over an activity). [6] If Voice means to actually experience having a share of power, then Voice is not realised by a purely structural or procedural approach. Simply setting up structures will not guarantee that each individual worker will actually experience voice as influence-sharing, because many voice systems have “deaf ears”. [7] Having a Voice is the social and interactive experience of being listened to by others, and being treated as an equally worthy person with an equally valid point of view – it is not the experience of simply knowing structures are in place.

Wilkinson & Fay suggest that “voice may need to be bundled and embedded. Once implemented, voice can shrivel. There seems to be a life cycle in relation to specific schemes […]”. [8] In particular, a Voice system can be kept alive by ensuring there are multiple channels for Voice to be expressed, including direct individual participation, such as team meetings and strategy days, and indirect collective representation, such as employee representatives on the board and a strong union presence. [9]

When a MEO combines ownership and governance architecture, a multi-channel Voice system, and a philosophy of work grounded in each person’s equal status as co-authorities in decision-making which supports their sense of worthiness to be a co-owner, then it maximises a shared sense of legitimacy. Furthermore, co-ownership, by adding a dimension of ‘democratic consciousness’ distinct from socialisation, sensitises people to their entitlements and obligations; that is, of what is due to a person because of their co-owner status, and of what that person has a duty to contribute because of their acceptance of such entitlements, provided the organisation does its part to enable people to meet their obligations.

Legitimacy, change and stability

As part of their change agenda, many organisations seek to create high performance work systems (HPWS) which elevate levels of employee engagement, but fail to sustain such systems because they do not pay attention to a shared sense of legitimacy, grounded in mutual entitlements and obligations. It is possible for improved organisational outcomes to be achieved at the expense of employees because, although HPWS intensifies work by increasing workers’ responsibility for getting work done, it does so without increasing their autonomy, understood as their control over how to get the work done. For instance, the European Working Conditions Survey (EWCS) 2000-2001 showed that, whilst team workers reported experiences of an increased social learning environment, and more task complexity, they also reported “increased pace of work and having to work to tight deadlines, and indicate that their health is affected by work”. [10] In other words, workers experienced increased levels of responsibility without a corresponding increase in their control capacity – specifically, without an increase in their ability to participate in the decision-making necessary for getting the work done. As a consequence, they suffer from diminished self-efficacy, characterised by: reduced confidence in their capabilities; lowered trust that they will be support by colleagues and the wider organisation if things go wrong; inability to influence the rules governing co-operation and decision-making; and reduced capacity to recruit the involvement of others in their work activities.

Organisations risk de-legitimacy when they implement HPWS in a manner which secures the discretionary effort of workers to the exclusive benefit of managers and shareholders. [11] De-legitimised organisations no longer work in the interests of all their members, and workers may come to feel that their discretionary effort has been expropriated without reference to their welfare, or their interest in fairness. Such a state of affairs damages employee engagement, potentially undermining organisational resilience. Workers experience a lack of fairness as an injustice, and a growing sense of organisational injustice may be one reason why organisational change programmes have limited lifetimes, requiring regular renewal.

However, MEOs may break into this repetitive and costly cycle because co-ownership enables workers to share in making the rules which govern the form and implementation of high performance work bundles, generating higher levels of trust as a result of perceived fairness. Furthermore, since they will be reaping the rewards of their own efforts, workers will have new and motivating reasons for the expenditure of discretionary effort. Consequently, high performance work initiatives in MEOs are potentially more resistant to decline.

Thus, MEOs can sustain a HPWS when co-ownership becomes an institutional mechanism supporting each individual worker or member in developing the Capability for Voice, where Voice means having a share in control over decision-making. By developing the individual Capability for Voice, a MEO bridges the responsibility and control gap, thereby underwriting the just distribution of the benefits and burdens of the HPWS.

In addition, where there is employee ownership, either in a single or a multi-stakeholder mutual, this can help to transform the experience of work. This is because mutual governance combined with democratic practices, both representative and direct, brings to a lived reality the development and exercise of a Capability for Voice as part of the daily activity of working. In the process, increased levels of organisational performance can be rendered stable and sustainable, reducing the costs involved in cyclical renewal of organisational practices. Finally, the quality of the conversation which maintains and reproduces the fabric of organisational life is vastly improved, contributing not only to better decision-making, but also to the well-being of employees, and the communities they serve.

This article was originally published in ResPublica’s Making it Mutual: The ownership revolution that Britain needs, a collection of essays covering all areas of policy – energy, financial services, education, infrastructure, welfare, public services, competition – proposing entrepreneurial and innovative policy proposals for structural reform.