The summer of 2018 was a trying one for Google, Tesla, and other members of a celebrated Silicon Valley cohort that was supposed to have re-written all the rules. These companies continue to amaze with what they do well. But their attempts to revolutionize corporate culture—to create what could be called a utopian workplace—have run into certain basic truths they were never going to escape. Like the industrial corporations that preceded them, these newer companies are confronting challenges not just from the marketplace but from within. In order to meet those challenges, they must dig deeper than their predecessors did and move to structurally empower their most valuable resource: their employees. In doing so they should embrace a movement toward a democracy of work.
In mid-August Google was witness to a remarkable show of courage from hundreds of its employees who signed a letter demanding transparency from their CEO Sundar Pichai. They were responding to plans to re-enter the China market under terms dictated by the Communist government. Agreeing to those terms would open up the possibility of Google employees working on projects that would help China withhold information, such as levels of air pollution, from its citizens. The letter to Pichai was a shot across the bow. It stated, “We urgently need more transparency, a seat at the table and a commitment to clear and open processes: Google employees need to know what we are building.”
Google management must eventually respond to this demand for a “seat at the table.” But without a developed structure to independently represent them, how can Google’s employees realize their own demands? How, under existing arrangements, can they avoid having the seat they desire “picked” by management? If employees proceed to select or elect their own representatives, what compels Google management to recognize them? And if Google employees continue to speak up or attempt to self-organize, what guarantees that they will not be marginalized or fired?
Meanwhile, the electric car maker Tesla has been in upheaval. CEO Elon Musk late last week reversed his tweeted plan to take Tesla private, a move that came after Muskto The New York Times that he has endured an “excruciating” year and predicted that, “from a personal pain standpoint, the worst is yet to come.” Musk’s own sense of foreboding may stem from short sellers and the SEC’s investigation of his aborted privatization plan. But there are additional dramas underway at Tesla that are not as well reported that bring us closer to the broader topic of employee clout in the modern corporation.
In addition to managing external threats, Musk is contending with an internal union drive by the United Auto Workers (UAW) at his Fremont, California, factory. Predictably, the Tesla brain trust opposes unionization. Musk and his supporters are doing their best to promote a “post-modern/post-union” view of Tesla as an entirely different sort of workplace where workers will be disposed to set aside the traditional Norma Rae vision of fighting the bosses, in favor of their lucky chance to play a part in bringing about a post-carbon vehicular universe. Some of the additional tools Tesla is using to achieve its new-age employment vision are familiar: a sprinkling of stock options, team-oriented production structures, a campus-like work environment. Other offerings that are planned include, in the jaunty words of a February 2017 memo from Musk to all employees, “free frozen yogurt stands and a Tesla electric pod car roller coaster ... that will allow fast and fun travel through our Fremont campus.”
Taken together, these developments at Google and Tesla signal a new reckoning by employees—white collar and blue collar—with the limitations of the modern utopian workplace. They describe pent-up forces, now apparently loosened, that will not be tamed by vague managerial assurances, or yogurt stands. Facebook, Amazon, and Apple may not be far behind.
The problems highlighted are structural and longstanding. They point to a fundamental flaw with a particular and peculiar institution, the employment relationship, which is so ubiquitous that it appears natural. A fundamental fact haunts that relationship across all kinds of workplaces, modern and traditional. Employees without substantial ownership and governance rights, employees who are not members of democratic corporations, have no standing. They are merely rented humans. They are visitors on someone else’s planet.
Union representation can mitigate these problems. It can circumscribe the terms of that rental arrangement, but it cannot cure it. It is not likely that stability or real progress will be found at these workplaces without something more comprehensive—without a genuine workplace democracy that turns employees into part-owners of the companies where they work.
The characterization of the modern workplace as a human rental arrangement is not just rhetorical. In a textbook named Economics that dominated the field of undergraduate instruction in the mid-to-late 20th century, Nobel Prize–winning economist Paul Samuelson of MIT calmly introduced the notion of employment as a rental relationship to modern eyes and ears: “Since slavery was abolished,” Samuelson wrote, “human earning power is forbidden by law to be capitalized. A man is not even free to sell himself: he must rent himself at a wage.”
The implications of the human rental arrangement for power dynamics at the workplace are clear enough. The employment relationship we live under confers no formal power and no affirmative voice to employees—except for the ability to quit. It is time to consider alternatives.
Skeptics might ask: Why insist upon new platforms to mediate the conversation between employers and employees, between leaders and led? Why not rely upon good old-fashioned union representation for these companies? Isn’t that sufficient workplace democracy?
To begin with, collective bargaining rules were adopted in the 1930s for an industrial workforce, and these rules make little sense in the current environment. Engineers and other management personnel were very likely signers of the recent Google petition, along with others lower in the corporate hierarchy. Traditional oppositional unionism that draws lines based upon organizational roles blunts the ability for healthy internal debate based upon the merits of a point of view. Employee perspectives are not necessarily dictated by their functional roles.
Furthermore, many employees who want a voice, and who want to debate about what is going on at their company, do not necessarily wish to demonize their bosses or their company. They reject the idea of working in an environment of perpetual organizational cynicism where the “other side” is always presumed wrong or less than honorable. The legal requirement placed upon unions to strictly follow the interests of a narrow bargaining unit is particularly corrosive to the cause of providing a collective voice at work.
So what alternatives exist? The answer ultimately lies in the law, and in structures for voice that allow for differences of opinion to be shared without fear or favor.
Senator Elizabeth Warren has recently stepped up to the plate by introducing The Accountable Capitalism Act. This bill would require companies with over $1 billion in annual revenue to re-incorporate under a new federal law that would essentially mimic the German co-determination model, requiring that no fewer than 40 percent of company directors be elected by employees. Such a structure could provide significant opportunities for free speech and power sharing for employees like those at Google. Employees would rely upon their representatives on a future Google Board of Directors to monitor moves such as the apparent China contract, and nip them in the bud if necessary. Hardly anyone expects Warren’s European-tinged legislation to pass with a Republican in the White House. However, even opponents to the bill should agree that it performs an important service by helping start a larger conversation.
Another approach would be the creation of legal trusts at the individual enterprise level that would give employees a collective seat at the ownership table. One of the largest employers in the U.K., the John Lewis Partnership and its Waitrose division, employs roughly 95,000 people and is entirely owned by such a trust. A number of British engineering and consulting firms, such as Arup Group, also operate under trust ownership. In the United States, 7,000 companies are owned in full or in part by Employee Stock Ownership Trusts, better known as Employee Stock Ownership Plans or ESOPs. Though mostly privately held, these include some large companies.
Large publicly-traded employers like Google or Tesla could grant employees significant shareholding stakes through these trusts, with or without federal tax assistance. In order for this to happen, however, leading shareholders, and especially company founders, will have to be persuaded, either from within or without, on both practical and moral grounds that employees at these companies need a permanent and independent voice, i.e. a “seat at the table,” and that these structures are the best route to achieving that end. Such trusts should hold a permanent percentage of stock that puts them in the ranks of major shareholders. Founders could signal their seriousness by committing to a right of first refusal on the future sale of their personal stock to these trusts.
Employee stock ownership is not a new idea in modern corporate settings. Where it is used, however, holdings are often extremely modest and employee voice is usually not encouraged or even contemplated. Commonly used stock option plans are presented and perceived by employees as mere compensation, not a tool for collective voice or power sharing. The primary purpose of these trusts, however, is to proactively include employees in the affairs of companies as organizational citizens. They will ultimately also lead to significant wealth-sharing between employers and employees who hold stock in those trusts.
Two additional ideas fit into this conversation. First, it is clear that the financial value of the shareholdings of founders of these utopian corporations, many of which are based in Silicon Valley (though an older East Coast utopian called Michael Bloomberg also comes to mind), far outstrips what they, their personal foundations, or their lineal descendants could practically need. These trusts will not beggar their families or their favorite charitable pursuits. Gifts of stock to favorite charities can, in fact, be monetized by encouraging those charities to sell stock back to these trusts.
Second, there is the matter of passing the organizational torch. Company founders can continue feudal-like traditions and pass on the ownership and governance of their companies to a select few, or they can set in place institutional structures that would allow the cultivation of a genuinely democratic workplace culture that breaks free from the human rental relationship that stains so much of the modern economy.
Here, a much-neglected philanthropic fact also needs to be surfaced. The most significant charitable gift that wealthy business founders can realize lies hidden in plain sight: in the community of largely disenfranchised workers and managers whose original efforts helped to create the founder’s fortune. The disenfranchisement of wage and salaried employees can be reversed by installing permanent employee stakeholder trusts.
Employee trusts should only be one arrow in the quiver of those fighting for a more democratic and responsive economy. No matter the quality of a corporation’s internal democracy, large companies must not be exempt from external restrictions on their size, their market power, and their effects on privacy and the environment, among other things. Employee stakeholders should not be relied upon as the conscience for society at large, though it would not be a surprise to find employee representatives leading discussions in a more progressive direction within corporate boardrooms. Virtuous employees to the side, there will always be abiding roles for regulators and the state.
Today’s utopian entrepreneurs are considered to be bold. None of them, however, is as bold as Owen D. Young. On July 4, 1927, Young, at that time the CEO of the General Electric Corporation, addressed a crowd of over 1,000 at an outdoor dedication ceremony for the newly constructed Baker Library of the Harvard Business School. What the audience heard that afternoon was not the usual self-congratulatory bromides that people of means come to expect from one another. Instead Young surveyed how the industrial age, then just barely 100 years old, had created a tension that had not been entirely resolved. It is hard to imagine any Fortune 500 CEO being anywhere near as insightful or candid as follows:
Into these [larger scale businesses] we have brought together larger amounts of capital and larger numbers of workers than existed in cities once thought great. We have been put to it, however, to discover the true principles which should govern their relations. From one point of view, they were partners in a common enterprise. From another they were enemies fighting for the spoils of their common achievement. ... I hope the day may come when these great business organizations will truly belong to the men who are giving their lives and their efforts to them, I care not in what capacity. ... Then we shall dispose once and for all, of the charge that in industry organizations are autocratic and not democratic. Then we shall have no hired men.
If today’s entrepreneurial giants wish to leave a mark on the future of capitalism, they could do worse than to heed the words of Owen D. Young. They might consider taking up Young’s challenge to lead a movement that would transform the world of work from the fatally flawed employer-employee relationship we know, to a future where there are “no hired men” or women because those same men and women jointly own the enterprises where they work.