Power, for All

by Julie Battilana

  ACCOUNTABILITY IN ORGANIZATIONS: TO WHOM AND FOR WHAT?

  Whenever we entrust someone else with the power to make decisions and take action on our behalf, we run the risk that they will use this power against us. Why? Because the things the decision maker (the agent) prioritizes may run counter to our (the principal’s) priorities. This is what economists call a principal-agent problem, and the relationship between corporate management and shareholders in companies is a prime example: When the owners of a company delegate the management of their business to its CEO and other executives, they give those executives a level of power that triggers the need for oversight and accountability. Is this because every executive is a crook? Not at all. It’s just that, like every power holder, they are vulnerable to being intoxicated by it, and counting exclusively on their self-restraint in the exercise of that power is unwise.

  As far back as 1363, the wool merchants who came together to organize one of the first English trading companies recognized this problem and developed governance structures to keep an eye on power holders. They elected a “mayor” (comparable to a CEO today) who was in charge of governing their affairs. And they counterbalanced this role by inaugurating a twenty-four-member council to govern the company—a feature that would resurface in other organizations, including the Bank of England, which went a step further and barred one-third of its directors from seeking re-election after their one-year term.27

  These councils were the predecessors of modern-day Boards of Directors, which divide power between a company’s top executives and the members of the Board who represent the shareholders’ interests and are responsible for monitoring the company’s activities and overseeing the top executives.28 Boards are recognized as one of the most critical levers of oversight, and yet not all organizations have an active Board. Moreover, despite their longstanding history, Boards’ ability and willingness to exercise oversight varies considerably from one organization to another.

  Experts who study Boards have noted multiple barriers to directors’ adequately monitoring management’s actions. These include the complexity of the issues that companies face, the reluctance of some Board members to go against the wishes of top management, and the difficulty of working effectively as a team when the members get together only a few times a year. Perhaps most important, because Board members often have many other commitments, they may have neither the bandwidth nor the motivation to delve into their operations with a fine-tooth comb.29

  Some of these barriers can be addressed by changing Board recruiting practices. Until quite recently, most director searches were conducted within the inner circle of the corporate elite, resulting in directors connected to one another, and to management, through direct and indirect channels.30 These interlocks were so strong that had a virus infected the Board of Chase Manhattan Bank in January 1999, it could have spread to 97 percent of the largest 600 public firms in the United States by May via their monthly Board meetings!31 Beyond the risk of viral spread, why is this so problematic? Because close ties engender lax oversight, as a series of corporate scandals—of which Enron is the poster child—have highlighted. In response, recruiting practices are changing,32 and directors who sit on multiple Boards have become less desirable, both because they have less time to dedicate to each of the organizations they serve, and because they are less likely to be fully independent.

  Even when directors fulfill their oversight duties, they do so mostly on behalf of shareholders whose capital is invested in the company.33 However, companies have other stakeholders on whom they depend and who are directly affected by corporate activities—including employees, customers, suppliers, and more broadly, the general public—but who mostly have no say in the company’s direction. It is not surprising, then, that in many companies the past decades have been marked by the sole pursuit of shareholder value maximization.

  An unmistakable symptom of this concentration of power in the hands of shareholders and top executives is the widening income gap between top managers and workers. The average ratio of highest to lowest salary in U.S. corporations grew from 20-to-1 in 1965 to 320-to-1 by 2019. Likewise, CEO pay in the United States increased by 1,167 percent between 1978 and 2019, while worker pay grew only 14 percent.34 Beyond increasing inequalities, this power imbalance has had dramatic environmental consequences as some leaders of the fossil fuel industry have intentionally hidden the environmental damage caused by their companies’ activities to pursue profit unbridled, as we discussed in chapter 3.35

  Society has not remained passive: Over the past decades, activists around the world have joined forces to agitate against corporate greed and alert the public to the dangers of capitalism run amok. The environmental battles that have pitted big lobbyists against environmental activists epitomize this tug and pull, and this multigenerational mobilization effort is starting to pay off. Employees have also been pushing for change from within, as we saw in chapter 7, organizing internally to urge executives to stop focusing solely on shareholder value maximization and account for their company’s social and environmental impact, too.

  In the face of this increased pressure, many corporate leaders have expressed their desire to serve other stakeholders in addition to their shareholders.36 In August 2019, the Business Roundtable, whose membership includes the CEOs of most major U.S. corporations, issued a statement rejecting the primacy of shareholders in favor of creating value for their employees and stakeholders, including their customers, and society at large. But when it comes to accountability to these groups, as of a year later, at least, not much had changed. A study revealed that when COVID started spreading in the spring of 2020, companies that signed the Business Roundtable statement fired their employees 20 percent more than those that did not sign the statement.37 They were also less likely to donate to relief efforts, offer customer discounts, or shift production to pandemic-related goods. The takeaway is not surprising: If we leave it to those in power to change, they may change their discourse but rarely their behavior.

  The good news is that new structures and systems that hold companies accountable not only for their financial performance, but also for their social and environmental impact, make real change possible.38 The Sustainability Accounting Standards Board created in 2011 by Jean Rogers, whom you met in chapter 6, is a prime example.39 The metrics that standard setting organizations like SASB have created are not, in themselves, enough to drive change. But complementary forces are coming into play with new legal forms—such as benefit corporations, or B-Corps, in the United States, Community Interest Companies in the United Kingdom, and sociétés à mission in France—paving the way for corporations to embrace the pursuit of a triple (social, environmental, and financial) bottom line and for their Boards to be held accountable for these multiple objectives.40 The infrastructure that surrounds companies—external auditors, financial analysts, and investors—is also beginning to slowly shift its mindset, as the growing number of impact investors, who seek out companies, organizations, and funds with social and environmental objectives alongside a financial return, shows.41

  Even with new accountability systems, though, concentration of power is hard to avoid if only shareholders are represented on Boards. Such excessive power imbalance between those who invest their financial capital (the shareholders) and those who invest their labor and intellect (the workers) is problematic, not only because it is unfair, but also because it leaves the power of shareholders unchecked.42 In a provocative statement, the philosopher Elizabeth Anderson suggests that “bosses are dictators, and workers are their subjects,” as they are not represented in the governance of their workplaces.43 The decision to fire employees in a recession instead of cutting management pay to stay afloat, or to offer paid sick leave in the midst of a pandemic, isn’t up to workers. In most companies, representatives of shareholders on the Board of Directors and top management still make all strategic decisions.

  Fortunately, there is a simple solution: giving more power to employe
es.44

  POWER TO THE WORKERS

  Two toddlers at home and six days a week trudging across the city for hours of house cleaning took a toll on Sandra Lopez. There was no overtime if the work took longer than expected. And when, as they often did, clients spontaneously asked for an extra service, like cleaning the windows or the ceiling fan, renegotiating the price was often uncomfortable and, with Sandra’s limited English, just plain hard.

  These working conditions represent the reality for most domestic workers, today and throughout history. Some sixty-seven million domestic workers worldwide—one out of twenty-five women workers—operate quasi invisibly, many of them as part of the informal economy, in the private confines of people’s homes, caring for their children, cleaning their rooms, and tending to the elderly.45 The work is intimate and mostly unregulated. In the United States, domestic workers, alongside farmworkers, were excluded from New Deal worker-protection laws. As Palak Shah, the social innovations director of the National Domestic Workers Alliance in the United States, told us, “these labor markets have been informal, invisible, and underground for generations. For the longest time, domestic workers were not protected.”46 Hence, for them, questions of employer power and accountability are both crucial and challenging, as the intimate nature of their work can blur the lines between professional and personal relationships. It prompts a broader question, too: What limits, if any, exist on the power of employers over workers?

  For many workers, the response to this question is clear: collective action. In the struggle to achieve worker protections, including the right to unionize, the law has played a key role. Unions, as we saw in chapter 5, have been pivotal in bringing workers together to advocate for legal changes to rebalance power in their relationship with employers.47 Yet unions are often polarizing. Critics argue that they protect unproductive workers, suppress individual voice, make unreasonable demands insensitive to business imperatives, trigger costly lawsuits and arbitrations, and are vulnerable to corruption. While instances of such behavior certainly exist, unions have proven essential to shared prosperity in industrialized societies. Unionized workers have better benefits and wages than non-union workers. Their gains also lead to improvements for non-unionized workers, as their employment terms set the standard. These benefits give workers a larger share of the prosperity created by a company, without decreases in productivity.48 In the mid-twentieth century, when unionization rates were at their highest in the U.S., unions helped redirect profits into wage increases and hence decreased overall inequality. But when unions lose power—as has been the case in the U.S. since the second half of the twentieth century—or when workers face legal barriers to unionizing, the power imbalance is such that workers’ rights are jeopardized49 and economic growth stunted.50

  For some, like domestic workers, collective action is especially challenging, because they don’t share a common workplace. But difficult doesn’t mean impossible, as Ai-jen Poo, the cofounder of the National Domestic Workers Alliance, told us.51 In 2003, she became involved in an organizing campaign in which 250 domestic workers from across New York City came together to launch a movement to gain basic rights for their highly decentralized and isolated workforce. After six years of sleepless nights and busing domestic workers to the state capitol to protest and lobby, the organizers achieved a breakthrough: New York became the first state to sign the domestic workers’ Bill of Rights, which grants them overtime pay, paid time off, protections from harassment, severance pay, and more.52 The law isn’t perfect, and access to justice to fight delinquent employers remains a barrier; but it has contributed to shift the daily balance of power for workers like Sandra, another testament to the importance of collective organizing.

  In today’s gig economy, the absence of legal protections against abusive power is an issue that affects many other workers. Consider ride-share drivers and delivery food workers who, as we write, do not qualify as “employees” in many countries. Even though the companies that engage with these purportedly “self-employed contractors” cannot operate their businesses without them, they have unilateral control over their working conditions. So, the health and financial risks of cycling through busy cities or maintaining their cars fall on the workers, while the benefits (from selling highly priced shares) accrue to the owners.

  Even with better legal protections for workers in the gig and informal economies, however, true power sharing requires that organizations be redesigned. To see how, let’s return to Sandra Lopez. Her working conditions have evolved significantly: She now uses an application called Up & Go that matches her to clients across the city. You might assume that Up & Go, like Uber or DoorDash, holds tremendous power over Sandra because it controls access to her critical resource—her clients. But in this case, the balance of power is the other way around, because Sandra is not only a user of the platform, she is also an owner. In 2018, she came across a flyer in her Brooklyn neighborhood from the Center for Family Life, which was incubating a program for home cleaning cooperatives. Being the boss and the founder of a business sounded great to Sandra, and she launched into the year-long program with gusto, working nights and weekends alongside seventeen other women, most of them, like her, immigrants from Mexico or Central America.

  Cooperatives give workers, through their ownership, a real say in the direction of the organization. In Sandra’s cooperative, the women voted on what services to offer and how much to charge, doubling her income and allowing her to work fewer hours and spend more time with her children. “People tend to assume that the salary is the best advantage. But for me, it’s the flexibility and the gift of time with my family. We work so hard. We tend to forget just how important our quality of life is,” she told us. The cooperative is designed to meet the worker-owner’s needs. For instance, communications or negotiations are supported by the cooperative’s telephone or in-app customer service, which is bilingual and can relay critical information in Spanish. Clients book services through the app, so expectations are clear upon arrival. And the cooperative trains the worker-owners about the New York Bill of Rights. “By coming together, we created a structure that supports all of us. The cooperative protects us and fights for our interests. Alone, I never had the same power.” For comparison, in 2019, as Uber prepared to go public, it cut driver pay to make its shares more attractive.53 Meanwhile, in Sandra’s cooperative, all profits go directly back to Sandra and her cofounders, except for the amounts they choose to reinvest in the organization itself. They control the valuable resources, so they have power.

  As Sandra shared her story with us, it was apparent that this journey had changed her: “Before becoming an owner, I was terribly shy. I couldn’t speak up in front of people, or for myself, really. But as I went through the program and learned so much about my rights and about the cooperative process, I felt my self-assurance gradually blossom. I feel like I know what I’m talking about. I know my work and its value. And that self-confidence has affected my personal life, too.”

  Cooperatives are neither new nor unique to domestic work. For instance, twenty million homes, workplaces, and schools in the U.S. are electrically powered by energy co-ops, aligning prices with the interests of the users.54 These differences in governance structure are far from trivial. They define who controls what in the workplace. Economist and sociologist Juliet Schor makes a compelling case for cooperatives and regulatory reforms to constrain the actions of platforms, so that the value generated by the gig economy can be shared more equitably.55 Once again, it all comes down to power sharing and accountability.

  Workplaces other than cooperatives remain both hierarchical and unaccountable to most of their workers; but not all of them. Germany, the Netherlands, and some Nordic countries have introduced codetermination laws, guaranteeing worker representation on Boards, which provides a space for top management, shareholders, and workers to negotiate and collaborate around the direction of the company.56 Yet even with codetermination, shareholders often have a tie-breaking
vote, meaning that workers cannot outvote shareholders.57 This is why the social scientist Isabelle Ferreras proposes to go further by giving both representatives of the shareholders and the workers real decision-making power.58 This mutual dependence would force them to work together to decide the future of their company. It remains to be seen whether the best way to achieve this kind of joint decision-making is to create two chambers with equal power (one for each group of representatives) or to have representatives of the employees join the existing Board and be given as much decision-making power as the non-employee representatives. What matters ultimately is for the interests of workers to be represented, for all the parties to debate with one another and make more informed strategic decisions, and for the workers to have the power to influence these decisions—especially the ones that directly affect them. Without such a democratization of firms, workers will never have a real say in companies.59

  Moral reasons alone would make such power rebalancing necessary. But, critically, our research reveals that organizations with more democratic decision-making processes are often better equipped to pursue social and environmental goals in addition to financial ones.60 The diversity of perspectives, which comes from allowing shareholders, top executives, and workers to make their voices heard, helps ensure that the firm does not focus only on one set of objectives to the detriment of others.61 So, as we start requiring firms to meet stricter social and environmental standards, we can look to those that have already created spaces for democratic decision-making, such as cooperatives, to show the way. This should come as no surprise: Democracy ensures a more balanced distribution of power, enabling the pursuit of more diverse objectives instead of focusing on the narrower goals of a small group of people.62 This is as true in organizations as it is in society.