The Surprising History of Democratic Management a Century Ago
Many employee-owned companies these days are experimenting with different forms of participative management, such as systematic suggestion procedures, quality circles, and self-managing teams. Most of these initiatives work well, but they’re limited in scope. Participants rarely address issues of business strategy or financial priorities. They don’t negotiate pay or benefits; indeed, allowing such discussions would expose the company to legal challenges under the National Labor Relations (Wagner) Act.
A century ago, before the Wagner Act, hundreds of US companies were also experimenting with employee participation. Many went much farther than today’s companies in involving workers in managerial decisions.
The most common vehicles for participation were known as employee representation plans. These were bodies elected by a company’s entire workforce. They were charged with representing workers’ interests: handling grievances, offering ideas to improve the workplace and boost profits, and even discussing wage rates.
The Dutchess Bleachery (a 600-employee textile mill in New York State), for instance, created what it called the Partnership Plan. An elected Board of Operatives, with a budget and an executive secretary, managed the company’s employee housing and social facilities and oversaw the workplace. A Board of Management, with half of its members elected from the operatives’ group, ran the plant. Both boards had full access to the company’s financials. They discussed and implemented changes in wages and hours. They developed then-rare benefits such as unemployment insurance and a pension scheme, and they created one of the earliest systems of profit sharing.
All such plans aroused the ire of the nation’s fledgling labor movement, which called them “company unions” and lobbied against them. When Senator Wagner steered his bill through Congress in 1935, he made a point of outlawing any company-sponsored organization for representing employee interests. Thus, the plans died out. But it’s worth remembering that most worked well while they were in operation. They showed what might be possible in the workplace if the government supported employee representation rather than opposing it.
Some ESOP companies have created their own forms of employee representation, none of which have raised labor law issues. Carris Reels, an 800-employee 100% employee-owned manufacturer of cable reels, comes closest to the employee representation model. Its corporate steering committee, which includes management and elected employees, makes decisions on governance, policies, benefits, and culture, and advises the board and management.
John Case is a former editor of Inc. magazine, the author of Open-Book Management, and, with Corey Rosen, the coauthor, most recently, of Ownership: Reinventing Companies, Capitalism, and Who Owns What.