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  Trends and Challenges for Work in the 21st Century
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Rebuilding the Social Contract at Work:
Lessons from Leading Cases

Thomas A. Kochan
Institute for Work and Employment Research
Sloan School of Management, MIT

Task Force Working Paper #WP09

May 1, 1999

Draft in Circulation

Foreword

The world of work is changing, but the traditional structures governing the labor market, in place since the New Deal, no longer serve the needs of workers and their families or of corporations seeking to compete in a global economy.

The mandate of the Task Force on Reconstructing America’s Labor Market Institutions is to provide a body of evidence that helps policymakers and practitioners structure a national discussion on how to update the nation’s labor market institutions—resolving the mismatch between a fundamentally new economy and a set of inappropriate intermediaries, laws, and corporate practices.

The efforts of Task Force members are divided among three working groups, each charged with examining a particular aspect of this labor market mismatch: the Working Group on the Social Contract and the American Corporation, the Working Group on Low-Income Labor Markets, and the Working Group on America’s Next Generation Labor Market Institutions.

The Task Force’s Working Group on the Social Contract and the American Corporation met in November of 1998 to discuss case studies of leading firms that have established innovative or enduring structures and processes for joining shareholder and employee concerns. Their discussion informed this paper, written by Thomas Kochan of MIT’s Sloan School of Management, by indicating cross-cutting themes and lessons that emerged from Kochan’s case studies.

Abstract

Traditional governance systems and employment practices in the United States provide limited opportunities to join directly employee concerns with issues affecting the competitiveness of the enterprise. Instead—by law, custom, or organizational design—strategic decisions and information are made and held by senior line managers and executives, while the impacts of those decisions are addressed after the fact by human resource professionals or by unions in the collective bargaining process.

This paper explores the potential for and limits of what individual firms and their employees can do to adjust to changes in the economic environment that threaten the social contracts governing employment relations—the mutual expectations and obligations that workers, employers, and their communities and societies have for work and employment relationships. Through brief case studies of leading firms, the author describes several of the innovative or enduring structures and processes for joining shareholder and employee concerns that are evolving or have been established. The cases span a spectrum of approaches, reflecting strategies in five large firms: Eastman Kodak, Lucent Technologies, Xerox, Saturn, and United Airlines. The paper also provides a description of the nature of the social contract with employees for two competitors—Cisco Systems, for Lucent, and Southwest Airlines, for United. Finally, it contains an account of the cross-cutting themes that emerged from the cases, as discussed by members of the Working Group on the Social Contract and the American Corporation at a meeting in November of 1998.

Introduction

T his discussion paper builds on the dialogue occurring in the Working Group on the Social Contract and the American Corporation of the Task Force on Reconstructing America’s Labor Market Institutions, at the Institute for Work and Employment Research, MIT Sloan School of Management. The purpose of this Working Group is to discuss the potential for and the limits of what individual firms and their employees can do to adjust to changes in their environments that have led to a breakdown in the social contract governing employment relations. As the term “social contract” implies, we are considering the mutual expectations and obligations that workers, employers, and their communities and societies have for work and employment relationships.

The Working Group’s first step in exploring this issue was to use the questions its members raised at the first two meetings to generate a framework for conducting a series of brief case studies of leading firms that have established different structures and processes for joining employee and shareholder concerns. The group subsequently used these cases to support further discussion, identifying lessons learned from these experiences and assessing options for the future.

These cases are not representative of the universe of employment relationships. Rather, they are examples of how leading organizations are attempting to structure positive employment relationships and—where unions represent a company’s employees—innovative union-management relationships that are consistent with today’s economic environment. They are large corporations that either have traditionally been or recently evolved from organizations in which the “old social contract” was the norm. Thus, they are prototypical examples of firms that have attempted to adapt their social contract with employees in ways that work in the current environment. As such, these firms provide examples of the possibilities and pitfalls of efforts to accomplish such strategies within individual employment relationships.

Key Questions and Analytic Framework

The Working Group decided early on that there was a need to examine how critical developments affecting both shareholder and employee interests are being addressed in corporations today. The group noted that traditional U.S. governance systems and employment practices provide limited opportunities for directly joining employee concerns and the issues affecting the competitiveness of an enterprise. Instead—by law, custom, or organizational design—strategic decisions and information are made and held by senior line managers and executives, while the impacts of those decisions are addressed after the fact by human resource professionals or by unions in the collective bargaining process.

The Working Group agreed that the case studies should focus on two questions:

  1. Are the structures, processes, and leadership efforts in these cases effective in addressing the critical challenges facing shareholders and employees today?
  2. Are the approaches likely to be successful in achieving a viable, new social contract at work?

The cases include a spectrum of different approaches that have been used to link employee and shareholder interests more effectively. Eastman Kodak represents a firm with a longstanding reputation for assuming social responsibility for its employees (and their communities) that is now redefining its social contract in order to complete in a world in which it can no longer guarantee employment security. Lucent Technologies is a relatively new firm that is attempting to shed its AT&T legacy of bureaucratic paternalism; however, it also inherited both a strong set of leadership values regarding responsibility toward its employees and a relationship with two unions that includes a consultative structure designed to address issues of common concern. Xerox has maintained a longstanding labor-management partnership grounded in a workplace-level employee involvement and teamwork process. Saturn goes a step further in institutionalizing its labor-management partnership by having union representatives share management responsibilities throughout all of the enterprise’s levels. Finally, United Airlines provides a case in which the majority of stock is owned by employees and in which employees and their unions are represented in the governance process through membership on the company’s board of directors.

Supplementing these cases are two short vignettes describing the nature of the social contract with key competitors of two of these organizations—specifically, Cisco Systems in the case of Lucent, and Southwest Airlines in the case of United. After presenting each of the case studies and vignettes, several cross-cutting themes that emerged from the Working Group discussion are discussed. These themes indicate the strengths and weaknesses of the current institutional arrangements found in these companies, as well as the inherent limitations of individual firm-employee arrangements.

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