Corporate Governarce and Human Resource Managelemt

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British Journal of Industrial Relations

44:3 September 2006 00071080 pp. 541567

Blackwell Publishing Ltd/London School of Economics 2006. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Blackwell Publishing Ltd.Oxford, UKBJIRBritish Journal of Industrial Relations0007-1080Blackwell Publishing Ltd/London School of Economics 2006September 2006443541567Articles

Corporate Governance and Human Resource ManagementBritish Journal of Industrial Relations

Sue Konzelmann is at Birkbeck, University of London and at the Centre for Business Researchin the University of Cambridge. Neil Conway and Linda Trenberth are at Birkbeck, Universityof London. Frank Wilkinson is at Cambridge University and at Birkbeck, University ofLondon.

Corporate Governance and Human

Resource ManagementSuzanne Konzelmann, Neil Conway,

Linda Trenberth and Frank Wilkinson

Abstract

This paper investigates the effect of different forms of corporate governance on

the structure and nature of stakeholder relationships within organizations and

the consequent impact on human resource management (HRM) policy and

outcomes. The analysis shows that while performance advantages can be derived

from commitment-based HRM systems, a corporate governance regime that

privileges remote stakeholders may operate as a constraint on such systems. The

empirical analysis is based on the UK Workplace Employee Relations Survey

(WERS98).

1. Introduction

What is regarded as best practice in work organization has evolved from

managerial control over the conception and execution of work epitomized by

Taylorism to the involvement of workers in the planning, organizing and

undertaking of production associated with modern human resource manage-

ment (HRM) (Guest 1987; Legge 1995; Walton 1985; Wilkinson 2003).However, in the Anglo-American system, there has been no supporting devel-

opment in corporate governance to this shifting of responsibility for produc-

tion to the shop floor. In quoted companies, the primacy of shareholder

interests in law and in practice has been reinforced by theories of shareholder

value, which give the stock market pride of place in policing business effi-

ciency. In the public sector, fiscal stringency has had an analogous effect by

giving the Treasury unprecedented control over the running of public sector

organizations. The importance of these developments lies in the fact that by


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542 British Journal of Industrial Relations

Blackwell Publishing Ltd/London School of Economics 2006.

designating dominant stakeholders and prioritizing their interests, corporate

governance importantly influences the structure and nature of stakeholder

relationships and the credibility of commitments that stakeholders make to

one another. This, in turn, affects their willingness to fully participate in

productive activities.This paper investigates the interrelationship between corporate governance,

HRM practices and HRM outcomes at the level of the firm. The influence

of corporate governance on the design and implementation of the HRM

practices within an organization derives from the requirements of the domi-

nant stakeholder and the contribution HRM might make to meet these

requirements. Corporate governance also has consequences for the effective

translation of HRM practices into HRM outcomes because by prioritizing

stakeholder interests, it determines the degree of organizational commitment

that stakeholders are willing and able to extend to one another. To examinethese interactions, we conduct a comparative analysis of companies operating

under different forms of corporate governance. These include the following:

public sector organizations, in which the government is the dominant

stakeholder; private sector public limited companies (PLCs), in which share-

holders are the dominant stakeholder; owner-managed companies, in which

the owner-manager is the dominant stakeholder; and other forms of private

sector firms, in which stakeholder control is more diffused.

Section 2 considers the interrelationship between corporate governance

and HRM within corporate productive systems. From this, a framework isdeveloped for analysing this interaction and how alternative forms of corpo-

rate governance influence the credibility of commitments that stakeholders

are able to make to one another. Section 3 explores these relationships and

their effects empirically, using the 1998 Workplace Employee Relations Sur-

vey (WERS98). Section 4 concludes.

2. Corporate governance and HRM

Corporate governance regulates the ownership and control of organizations

(Berle and Means 1932). It sets the legal terms and conditions for the allo-

cation of property rights among stakeholders, structuring their relationships

and influencing their incentives, and hence, willingness to work together. Co-

operation is important because of its role in making effective the diffusion of

responsibility for production, process improvement and innovation. It also

serves to secure the commitment of stakeholders to the objectives of the

organization, and to make available the full benefits of their skills, knowledge

and experience. Ideally, this is a central purpose of HRM and its role inenhancing organizational performance (Baker 1999; Black and Lynch 1997;

Huselid 1995; Ichniowski et al

. 1996; Konzelmann 2003; Pfeffer 1998). The

form corporate governance takes therefore impacts the effectiveness of HRM

practices.


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Corporate Governance and Human Resource Management 543


Corporate Governance, Stakeholder Relations and HRM

Corporate governance legally structures stakeholder relations and prioritizes

the interests that corporate managers are required to serve. In considering the

effects of corporate governance on stakeholder relations and HRM policyand outcomes, it is useful to distinguish between internaland externalstake-

holders, and the extent of their involvement in the organizations productive

activities. Managers and workers directly employed by the organization and

fully engaged in its productive activities, for example, are completely internal,

while agency and other forms of temporary workers, suppliers, customers,

communities, shareholders and the government are to varying degrees exter-

nal stakeholders. While all firms have both internal and external stakeholders,

with differential levels of influence, by assigning dominance to particular

groups, corporate governance has an impact on the organizational commit-ment each might make. Thus, the significance of the distinction between

internal and external stakeholders lies in the level and continuity of the

commitment each needs to make to ensure the success of the organization

and the importance to the stakeholders well-being associated with the recip-

rocation of that commitment by the organization. For example, there is a high

level of mutual dependency between the organization and its directly

employed managers and workers; and the success of the organization depends

very much on the commitment of these internal stakeholders while they, in

turn, rely on the organization for their present and future income and theirjob prospects. By contrast, at the other extreme, shareholders (as stakehold-

ers) have no direct role to play in the productive activities of the organization.

Moreover, their income security is unlikely to be exclusively or even mainly

dependent on any single organization. Therefore, the degree of mutual depen-

dency and commitment required between the organization as a producer and

its shareholders can be expected to be low.

However, this is not the end of the story. The degree of commitment that

organizations are required to make to each stakeholder group is not only

determined by mutual dependence in production. In a highly competitiveproduct market (or in one with highly concentrated buyer power), for exam-

ple, a supplier might be required to prioritize the interests of customers to

the neglect of those of stakeholders it depends upon in production. More

directly related to the purpose of this paper, the form of corporate governance

may require managers to rank the priorities of the organizations stakeholders

in ways that could compromise their commitment to the workforce, and in

so doing, to undermine the interests of the organization as producer.

It follows from this that the further the dominant stakeholder is from direct

and continuous involvement in production, the more difficult it may becomefor internal stakeholders to implement and maintain mutually acceptable

strategies aimed at long-term production effectiveness. In organizations with

a dominant external stakeholder, such as shareholders or the state, the

requirement that management prioritizes such interests may reduce their


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ability to give the necessary weight to the interests of internal stakeholders;

and this will make it more difficult to secure their commitment to organiza-

tional objectives. The demands of the dominant stakeholder could therefore

impact on HRM practices developed and implemented by internal stakehold-

ers, and on the achievement of their objectives. In the public sector, forexample, the objectives of government, the dominant stakeholder, are two-

fold: (a) to meet the electorates demand for high quality services, (b) at levels

of tax they find acceptable. The ability to accomplish the first of these objec-

tives requires the full commitment of internal stakeholders (i.e. public sector

workers), but this might be impeded by the fiscal stringency resulting from

governmental tax policy. In PLCs, the placing of shareholder interests first

may condition management to give priority to dividend pay-outs and short-

term share value appreciation, achieved by concentrating on cost cutting and

labour force downsizing to the neglect of the longer-term interests of thebusiness. By contrast, in organizations for which corporate governance des-

ignates an internal stakeholder as dominant, owner-management for exam-

ple, there are likely to be fewer constraints on the ability of managers and

employees to work together to secure long-term organizational viability to

their mutual advantage. In these firms as well, the tendency towards small

size increases the likelihood that efficient work organization will depend more

on friendly relations between managers and employees and loyalty from

workers (Craig et al

. 1982: 7883).

HRM and Organizational Strategy

Advocates of HRM argue that it has become an increasingly important

component of organizational strategy and that there is a growing recognition

of the increasing returns to greater worker involvement in the planning and

execution of work, as well as to worker self-regulation and a more demo-

cratic style of management (Appelbaum and Batt 1994; Blyton and Turnbull

1992; Guest 1987; Wilkinson 2003). Broadly speaking, the purpose of HRM

is to foster a pre-emptive rather than reactive approach to operationalefficiency, quality control and innovation by shifting responsibility and

accountability for decision making towards the shop floor. The adoption of

HRM therefore testifies to a shift in labour management practice from

coercion to the attempted production of self-regulated individuals (Hollway

1991: 20). However, other researchers operating within a critical paradigm

offer a powerful and wide-ranging critique of HRM (see Legge 1995;

Keenoy 1999; Willmott 1993).

Within the normative paradigm, the idea that an organizations human

resources are of critical importance, and that the skills, knowledge andinvolvement of employees have strategic importance has led to the emergence

of strategic HRM (SHRM) (Dyer and Kochan 1995; Lundy 1994; Schuler

et al

. 1993; Truss and Grattan 1994). This strategic orientation has important

implications for the interrelationship between HRM and governance. An

important focus of SHRM is the notion of flexibility and fit. Flexibility


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reflects an organizations capability of recognizing and adapting to changes

in environmental pressures, opportunities and constraints (Snell et al. 1996).

The concept of fit rests on the idea that particular types of business strategy

are best supported by specific bundles of HRM practices and policies gen-

erating desired employee attitudes and behaviour (Capelli and Singh 1992).Fit has both horizontal and vertical dimensions. Horizontal fit requires

consistency within bundles of HRM practices (Baird and Meshoulam 1988),

and vertical fit involves aligning HRM practices with the firms strategic

business approach (Schuler and Jackson 1987). The expectation of a direct

link between an organizations strategic business approach and corporate

governance opens up the possibility of a link between strategic HRM and the

form taken by corporate governance.

In discussing types of HRM practices, it is useful to distinguish between

what have been described as hard and soft dimensions, both of which maybe important in integrating HRM into business strategy but which differ in

the contribution that employees are expected to make to the achievement of

business objectives (Storey 2002). The focus ofhard HRMis on maximizing

the economic return from labour resources. Its key objectives include contin-

uous improvement in quality and performance, just-in-time inventory systems

and statistical process control designed to iron out variation in quality, create

consistency in meeting standards, locate inventory savings and eliminate

waste. From the hard HRM perspective, labour is primarily a factor of

production, the effective management of which requires emphasis on thequantitative, calculative and business strategic aspects of managing the head-

count resource in as rational a way as for any other economic factor

(Storey 1987: 6). By contrast, soft HRM

views workers as valued assets and

a source of competitive advantage through their commitment, adaptability

and high quality of skills performance (Legge 1995: 66). With a greater

emphasis on human relations, the objective of soft HRM is to release the

untapped reserves of human resourcefulness by increasing employee com-

mitment, participation and involvement (Blyton and Turnbull 1992: 4).

Employees are viewed as active inputs into the productive process, capable ofdevelopment, involvement and informed choice. Communication, motiva-

tion, leadership and a shared or mutual vision of the organization and its

objectives are therefore encouraged in order to develop and strengthen com-

mitment (Beer and Spector 1985).

It is important to note that hard and soft models of HRM are not neces-

sarily mutually exclusive; rather, they form parts of a whole HRM strategy

that may be more heavily influenced by aspects of one or the other. Yet

regardless of the relative emphasis on hard and soft approaches, models of

HRM assign central importance to commitment

to the objectives of theorganization (Guest 1987; Legge 1995; Walton 1985), where commitment

implies identification with the goals and values of the organization, a desire

to belong to the organization and a willingness to display effort on behalf

of the organization (Mowday et al

. 1982). Organizational commitment is

important because it is seen to motivate workers to work harder and go


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beyond contract; to self-monitor and control, eliminating the need for super-

visory and inspection personnel; to persist with the organization, thereby

increasing the returns to investments in selection, training and development;

and to avoid collective activities that might lower the quality and quantity of

individual contributions to the organization (Guest 1987). Nevertheless,there are clear distinctions to be made between hard and soft HRM in

managementworker relations. Hard HRM has a broader engineering base,

a clear affinity with Taylors vision of scientific management and thus requires

more explicit top-down management. By contrast, soft HRM has firmer roots

in human relations, requires greater involvement of workers, emphasizes vol-

untarism and democratic forms of government and depends therefore more

on mutual trust than managerial authority for its successful implementation

(see Appelbaum and Batt 1994, especially pp. 12345). However, critics argue

that soft HRM is a subtler version of hard HRM that essentially shares itsaim of increasing management control and efficiency. They argue, further,

that soft HRM is potentially more insidious than hard HRM because it tries

to achieve control through colonizing employees consciousness (Legge 1995;

Willmott 1993).

Notwithstanding these differences, the strategic objective of HRM is seen

to be the need to create a satisfying work environment while at the same time

rewarding the development of skills and creativity, thereby gaining competi-

tive advantage (Handel and Gittleman 2004). In this respect, Appelbaum and

Batt (1994) stressed the importance of

four features of a firms human resources practices and industrial relations system

[which] affect how participatory arrangements influence performance: whether the

gains from improvements are shared with the workers, whether the workers have

employment security, whether the firm has adopted measures to build group cohe-

siveness, and whether there are guaranteed individual rights for workers. (144)

The insistence here is that the benefits from HRM need to accrue to both the

organization and the individuals working for it. There is evidence, however,

that these conditions are not generally met and that although high perfor-mance work systems may benefit the organization and its shareholders, these

gains are not necessarily extended to employees. In fact, many studies show

that these work systems disadvantage employees because performance gains

from new management practices [give] rise instead [to] work intensification,

offloading of task controls, and increased job strain (Ramsay et al

. 2000: 501;

see also Burchell et al

. 1999). In this, corporate governance may be a key

contributing factor.

Corporate Governance and HRM

Insight into the interrelationship between systems of governance and work

organization can be found in the works of Gospel and Pendleton (2003, 2005)

and Jacoby (2005). Gospel and Pendleton (2003), for example, argue that

governance and related incentive structures in the Anglo-American


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shareholder-based model encourage managers to readily downsize their

workforces and to avoid investments, such as training, that have uncertain

returns. They also found that while institutional investors tend to prioritize

short-term profits, shareholder value and liquidity, family owners are more

likely to consider long-term organizational viability, control and private ben-efits to be the more important objectives. Organizations key equity holders

thus play an important role in shaping HR practices because of the pressure

that different classes of investors are able to exert on management and the

influence that this will have on the work systems they adopt.

Studies of workplace organization in the secondary sector, generally com-

posed of small firms the vast majority of which are owner-managed (Cosh

and Hughes 2003) find that friendly relations between managers and

employees and a reliance on employee co-operation and loyalty are a means

by which efficient work organization is achieved (Craig et al. 1982, 1984).Craig et al. (1982, 1984), for example, found that few small firms had special-

ized, full-time supervisory staff and that management usually organized the

work process, while also being responsible for marketing, delivery of goods

and other functions, which took them away from the workplace. A foreman

or a senior worker was often left in charge; but a production worker doubling

as foreman was not well-placed to exercise continual direct supervision over

the labour force. Thus, the evidence showed that among these firms, output

and quality depended upon individual efficiency, requiring workers to accept

relatively high degrees of responsibility; it also showed that close supervisionwas rare. In general, small firms tended to rely upon a mixture of paternal-

istic employment systems and a strong orientation to work on the part of

the employees, often supported by the ready dismissal of misfits (Craig et al

.

1982: 7883; 1984).

National systems of finance and corporate governance have also been

shown to influence labour management because of the differences in the level

of importance that they assign to worker interests, time frames, strategy

types, financial measures of performance, the use of market-based instru-

ments to secure commitment and the extent of employer co-ordination (Gos-pel and Pendleton 2003; Jacoby 2005). In liberal market systems epitomized

by the USA and UK, for example, managers are required to pursue share-

holder interests above those of labour, which often requires them to break

the psychological contract with labour in the interest of short-term share-

holder value (Burchell et al

. 1999). Hall and Soskice (2001: 16), too, suggest

that intensified pressure from investors has shifted the balance against labour

in managerial decision making because of weaker statutory protection for

labour.

Nevertheless, the extent to which shareholders pursue short-term financialinterests to the detriment of long-term organizational interests varies even

within the liberal market-based systems. For example, some large listed firms

in the UK (such as pharmaceutical companies) have stable and active rela-

tionships with investors and at the same time are committed to employment

security, career opportunities and human capital development. Thus, the


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extent and ways by which managerial discretion is exercised is influenced by

characteristics of shareholders, managers and the sectors in which they oper-

ate (Gospel and Pendleton 2003; Deakin et al. 2002).

Table 1 outlines the characteristics of the four types of corporate gover-

nance, which form the basis for our analysis of the WERS98 data set. Inpublic sector organizations, the government is the dominant stakeholder,

dependent on taxes for funding; and the interests of customers or taxpayers

are prioritized in regulations requiring the delivery of high quality products

and services at as low a fiscal cost as possible. Public sector service provision

is labour intensive and employees are at the front line of service delivery.

Consequently, HRM and the close working together of managers, employees,

suppliers and customers are the key to delivering the potentially competing

objectives of high quality and low cost. We would therefore expect to see high

levels of work pressure and extensive use of HRM, both in its hard and softforms, in public sector organizations.

In PLCs, the shareholder is the dominant stakeholder, whose continued

loyalty to the firm is dependent on the delivery of shareholder value, usually

in the short term. Shareholders commitment tends to be more to the income

generated by the shares they hold rather than to the organization, so that

their interests are detached from those of employees. This forms the basis for

potentially conflictual stakeholder relations because of the priority managers

are legally required to afford shareholder risks, undermining their commit-

ment to employees a dilemma epitomized by the popularity of a reductionin workforce headcount to the stock market. In this context, human resources

are likely to be viewed as a cost to be minimized or the source of more

effective exploitation. We would therefore expect HRM to be biased towards

hard practices and to target the delivery of short-term financial returns.

TABLE 1Corporate Governance and Human Resources

Type oforganization

Dominantstakeholder

Primary organizationalobjective

Dominant view ofhuman resources

Public sectororganization

Government(external)

High quality/low priceproducts for customersproduced at low cost forcustomers/taxpayers

Central to accomplishment ofpotentially competing quality,price and cost objectives

Privatesector: PLC

Shareholder(external)

Shareholder value (emphasison short-term)

Cost to be minimizedResource to be exploited

Privatesector: other

Depends oncorporateform(internal)

Long-term economicperformance and institutionalviability (profitability andsustainability)

Central to accomplishment oflong-term performanceobjectives and institutionalviability

Owner-managedfirm

Owner-manager(internal)

Long-term economicperformance and institutionalviability (profitability andsustainability)

Central to accomplishment oflong-term performanceobjectives and institutionalviability


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In owner-managed firms, owner-managers are the dominant stakeholders

and their interests are prioritized. The predominance of insider stakeholder

interests is also likely to be a feature of other forms of private sector organi-

zation, including private limited companies, partnerships, trusts and charities,

co-operatives, mutuals and friendly societies, and other non-PLC privatesector organizations. Consequently, in owner-managed and private sector

other organizations identified in WERS98, we would expect a greater

prioritization of internal stakeholder interests leading to longer-term organi-

zational objectives. It is also likely that relations among internal stakeholders

will be closer and more amicable, with greater informality in HRM practices,

particularly given the relatively small size of these types of organization.

Nevertheless, long-term economic organizational performance is expected to

depend on HRM, made more effective by the absence of a dominant external

stakeholder.1

Operationalizing the Analysis of Corporate Governance and HRM

Many attempts have been made to identify HRM best practices, high

commitment work practices or high performance work systems (Becker and

Gerhart 1996; Wall and Wood 2005). And although there is a substantial

body of research that identifies a positive link between HRM and organiza-

tional performance (see, for example, Appelbaum et al. 2000; Huselid 1995;

Ichniowski et al. 1996; Jayaram et al. 1999; Koch and McGrath 1996; Van-denberg et al. 1999), there is little understanding of the mechanisms through

which HRM practices influence effectiveness (Delery 1998: 289). While

efforts have been made to identify these mechanisms, most have been based

on the common sense notion that improving the way people work and are

managed leads to improved performance (Truss 2001).

The difficulty, however, is that organizational performance is much more

complex and depends upon a wide range of external factors, including cor-

porate governance, that are not directly influenced by HRM. While HRM

might have an influence on organizational performance within a given envi-ronment

, it is only one of an array of variables impacting performance; and

HRM, itself, is likely to be influenced by these other variables. Corporate

governance, for example, prioritizes the objectives managers are required to

pursue with consequent impacts on HRM. However, managers are also

required to take account of other external constraints such as changes in

demand, the nature and degree of competition and technologies; and each of

these affects performance but all are outside the direct influence of HRM.

While HRM may accommodate itself to these constraints, influencing perfor-

mance through its impact on productivity, production costs and quality,innovation and the ability to respond to changes in environmental conditions

and requirements, the impact of HRM tends to be indirect, complicated and

highly context dependent. In a fiercely competitive environment, for example,

HRM may be a determining factor in the organizations ability to stay in

business; so its effect may not show up in high profits or rapid growth. Under


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more benign competitive conditions, however, effective HRM might reveal

itself in super-normal rates of profits and firm expansion.

In essence, two stages of performance can be identified: (a) the ability of

the HRM system to deliver the HRM outcomes it is designed to achieve and

(b) the ability of the organization to successfully accommodate itself to therequirements of the external environment in which it operates. The focus of

the present study is on the first stage of performance, as constrained by

corporate governance.

Various authors suggest that the strategic HRM model contains strong

economic and calculative considerations together with a more humanistic

orientation designed to promote mutual goals, mutual influence, respect,

rewards and responsibility (Gooderham et al. 1999). However, different forms

of corporate governance and strategy are likely to be associated with different

emphases in HR practices (Gospel and Pendleton 2003). In the present study,the choices of HRM practices and outcomes to be included in the analysis

were somewhat constrained by the data set and the information contained in

the WERS98 survey. Nevertheless, from the items available, we decided to

include those HRM practices reflecting both collaborative or soft HRM

and calculative or hard HRM that have been shown to contribute to

organizational performance and may be related to corporate governance.

These include information sharing and consultation (Delery and Doty 1996;

Huselid 1995; Pfeffer 1998), incentive systems (Arthur 1994; Huselid

1995; MacDuffie 1995; Pfeffer 1998), training (Arthur 1994; Huselid 1995;MacDuffie 1995; Pfeffer 1998), organization of work including job design and

working in teams (Arthur 1994; MacDuffie 1995; Pfeffer 1998). Items relating

to managerial commitment to HRM are also included because it is hypoth-

esized that the level of managerial commitment is influenced by form of

corporate governance and therefore the extent to which they prioritize the

interests of their employees.

The effectiveness of HRM practices in achieving the HRM outcomes,

which they are designed to deliver, is an important intermediary link between

HRM practices and organizational performance. Examining this, Guest(1997) proposed that high performance at the individual level which osten-

sibly leads to improved performance at the organizational level depends

upon high motivation, possession of the necessary skills and abilities, and an

appropriate role and understanding of that role. Following this logic, the

HRM outcome variables included in our study include, from the managers

perspective, (a) employee commitment to organizational values and (b) the

quality of labour-management relations; and from the employees perspective,

(a) work pressure, (b) job satisfaction, (c) organizational commitment and (d)

the quality of labour-management relations. We would expect that betterHRM outcomes, such as lower levels of work pressure, higher levels of job

satisfaction and organizational commitment, and a high quality of labour-

management relations, will contribute to better individual and, hence,

organizational performance. We also argue that these HRM outcomes can be

related to the form taken by corporate governance. Because managerial


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co-ordination and control mechanisms are likely to vary with workforce

numbers, irrespective of the form of governance, we control for organization

size (indicated by total number of employees in the UK) in the statistical

analysis below.

The model in Figure 1 provides a guide to the empirical analysis of theinterrelationship between corporate governance, HRM practices and HRM

outcomes within organizations. In our analysis, these relationships are

examined at the level of the establishment, with the terminology firm,

organization and enterprise being used interchangeably with reference to

establishments in each of the corporate governance sectors in the study.

As discussed previously, WERS98 provides information on HRM practices

including consultation, training, incentive systems, work organization and

FIGURE 1Corporate Governance and HRM System Approaches and Outcomes.

Corporate Governance

HRM Practices

Managerial

commitment to

HRM

Consultation Training

Organization

of workIncentive systems

Training of management and

employees

Technical aspects of work

Social aspects of work

Information flows

Production processes

Social processes

Information flows

Employment

Future plans

Job control, multi-skilling

teamworking

Degree of autonomy in:

Production organization

Social organization

HRM Outcomes

Payment systems

Employment security

Organizational Objectives and Strategies


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managerial commitment to HRM. These are represented in the analysis by

composite variables constructed from variables taken from the WERS98 data

set (see Appendix, Table A). Consultation, for example, is composed of con-

sultation (both horizontal and vertical) regarding production and social pro-

cesses, information flows within the organization on employment issues,future plans and the implications of proposed changes. Training encompasses

training for management and employees in the technical and social aspects

of work as well as information flows within the organization. Incentive sys-

tems encompass practices relating to compensation and employment security.

The organization of work concerns employee autonomy, discretion and con-

trol over their work, job flexibility and teamworking. Managerial commit-

ment to HRM is represented by such variables as the training of managers

in people management skills, appointment of an employee relations represen-

tative to the Board of Directors, and existence of a strategic plan coveringemployee development. HRM outcomes include employee commitment to

the organization, quality of the relationship between management and

employees, employee attitudes about work pressure and job satisfaction. In

the following section, these relationships are examined more closely using the

data contained in the WERS98 survey.

3. Data analysis

The WERS98 survey is based on a sample of more than 3,000 workplaces

in Britain. It involved interviews with managers having responsibility for

employee relations issues, interviews with worker representatives, and surveys

completed by more than 30,000 employees. As a whole, the survey represents

approximately 75 per cent of all employees in the UK. For purposes of the

analysis here, public sector, PLC, owner-managed companies and other types

of private sector firms are compared, together representing 2,189 workplaces

(682 in the public sector, 829 PLCs, 208 owner-managed firms and 470 other

private sector firms). Of these, the majority (81 per cent) were in the non-production sector, with a higher concentration of small firms located in the

owner-managed and private sector other categories.

Appendix Table A presents in detail the variables used in the empirical

analysis below, showing how composite variables were constructed from man-

agement and employee responses to WERS98 questions, how these were

coded for purposes of creating the composite variables and how the items

were aggregated. Significance levels are based on a one-way analysis of vari-

ance comparing the corporate governance forms for each of the HRM prac-

tice and HRM outcome variables. The statistical analysis and all laterregression analyses are conducted at the level of the workplace (N =

2,189 for

analyses drawing solely on manager responses; N =

1,720 when drawing

on manager responses and employee responses). Employee responses are

aggregated to the level of the workplace by taking the arithmetic mean

from employees surveyed at that workplace. On average, 16 employees were


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surveyed from each workplace. Appendix Table B presents the correlations

between the study variables.

To investigate more closely the separate effects of organizational size and

corporate governance form on HRM practices and HRM outcomes, we

conducted two sets of regression analysis. In the first model, organization sizeand corporate governance form are used to predict HRM practices and

outcomes. In the second model, HRM practices are added to organization

size and corporate governance form to predict HRM outcomes. In each

regression, organization size is introduced in step 1 as a control variable and

the corporate governance forms are entered in step 2. In the second regression

model, HRM practices are entered in step 3. The results are summarized in

Tables 24. The four category variables of corporate governance (Public sec-

tor, PLC, Owner-managed and Private sector other) were converted into

dummy variables, and the omitted dummy variable was Private sector other companies. Therefore, in the regression analyses, the effects of other

corporate governance types are relative to Private sector other.

Size, Corporate Governance, and HRM Practices and Outcomes

Based on the responses of managers and employees, organization size is

significantly and positively related to many of the HRM practices; but it is

significantly and inversely related to employees influence over work, and, to

a lesser extent, to their perception of the quality of consultation and personalpolicy (see Table 2).

With respect to HRM outcomes, from the managers perspective, size is

significant and inversely related to employee commitment to the values of the

organization (see Table 3); from the viewpoint of employees, size is significant

and inversely related to job satisfaction, employee commitment to the orga-

nizations values and the quality of employeemanagement relations.

Considering the impact of corporate governance form on HRM practices

(see Table 2), based on managers responses, the strongest model is that for

managerial commitment to HRM

, where organization size and corporategovernance together explain 22 per cent of the variation in commitment. In

this, being a PLC is positively related to managerial commitment (beta =

0.16)

while being in the public sector (beta =

0.15) or owner-managed (beta =

0.10) are negatively related. In other words, and recalling that these types of

corporate governance are relative to the omitted dummy variable of private

sector other, PLCs are more likely to exhibit evidence of managerial com-

mitment to HRM than other private sector, public sector and owner-managed

firms; and public sector and owner-managed firms exhibit significantly lower

managerial commitment to HRM than other private sector firms. The secondlargest R2 is for consultation, where 12 per cent of the variation in consultation

can be explained by size and corporate governance form. In this model, being

in the public sector is positively related to consultation (beta = 0.14) while

being owner-managed is negatively related (beta =

0.14). This suggests

that public sector firms have well-developed consultation systems while


14/27



owner-managed enterprises tend not to, regardless of size; it also indicates

that while PLCs and other private sector firms (the omitted dummy variable)

have less developed consultation systems than public sector organizations,

they have more developed systems than do owner-managed enterprises. The

third strongest model is that predicting incentive systems

, where 11 per cent

of the variation in incentive systems can be explained by size and corporate

governance form. In this, being a PLC is positively related to the existence of

a system of individual incentives (beta =

0.09) while being in the public sector

is negatively related (beta =

0.17). PLCs are more likely to exhibit evidenceof incentive systems than other private sector (the omitted dummy variable)

and public sector firms; and public sector firms have significantly fewer

individual incentive systems compared with other private sector firms. The

incentive systems of owner-managed firms do not differ significantly from

TABLE 2Corporate Governance and Organization Size as Predictors of HRM Practices:

Management and Employee Questionnaires

HRM practices Management questionnaire

Consultation Incentives Managerialcommitment

to HRM

Training Teamwork;worker flexibility,

discretion and control

Standardized beta coefficientsOrganization size 0.20*** 0.26*** 0.32*** 0.09*** 0.03Corporate governance formPLC 0.00 0.09*** 0.16*** 0.06* 0.02Public sector 0.14*** 0.17*** 0.15*** 0.15*** 0.14***Owner-managed 0.14*** 0.01 0.10*** 0.07** 0.06*

Adjusted R2 0.12*** 0.11*** 0.22*** 0.05*** 0.03***

Employee questionnaire

Consultationover job

prospects,trainingand pay

Employee viewssought onworkplace

future, staffing,work practicesand terms and

conditions

Quality ofconsultation andpersonnel policy

Training Influenceoverwork

Standardized beta coefficients

Organization size 0.13*** 0.01

0.05* 0.14***

0.19***Corporate governance formPLC 0.10*** 0.01 0.03 0.09** 0.00Public sector 0.10*** 0.11*** 0.08* 0.23*** 0.01Owner-managed 0.12*** 0.00 0.04 0.14*** 0.00

Adjusted R2 0.08*** 0.01*** 0.01*** 0.13*** 0.03***

Note: The remaining category of corporate governance Private sector other is the omitteddummy variable.*** p< 0.001; ** p< 0.01; * p< 0.05.


15/27



TABLE 3Corporate Governance and Organization Size as Predictors of HRM Outcomes:

Management and Employee Questionnaires

HRM outcomes Management questionnaire

Employee commitmentto organizations values

Quality of employee-management relations

Standardized beta coefficientsOrganization size 0.11*** 0.05Corporate governance formPLC 0.02 0.01Public sector 0.03 0.04Owner-managed 0.04 0.05*

Adjusted R2 0.01*** 0.01***

Employee questionnaire

Workpressure

Jobsatisfaction

Organizationalcommitment

Quality of employee-management relations

Standardized beta coefficientsOrganization size 0.01 0.17*** 0.18*** 0.11***Corporate governance formPLC 0.01 0.04 0.01 0.03Public sector 0.25*** 0.02 0.10*** 0.01Owner-managed 0.08** 0.02 0.04 0.01

Adjusted R2 0.07*** 0.03*** 0.03*** 0.01***

The remaining category of corporate governance Private sector other is the omitted dummyvariable.*** p< 0.001; ** p< 0.01; * p< 0.05.

other private sector firms. The other models explain less than 5 per cent of

the variation in the dependent variable, so they are not elaborated here.

From the employees perspective, the lower explanatory power of the

regression models in terms of the adjusted R2

suggests that size and corporategovernance form are less important predictors of HRM practices and out-

comes than they are when the managers perspective is considered. We there-

fore restrict our discussion here to cases where the independent variables

explain more than 5 per cent of the variation in the dependent variable. As

evident in Table 2, from the employees perspective, organization size and

corporate governance explain 13 per cent of the variation in training, where

the public sector exhibits higher levels of training (beta = 0.23) when com-

pared with the other forms of corporate governance, and owner-managed

enterprises exhibit lower levels of training (beta =0.14). Organization sizeand corporate governance explain 8 per cent of the variation in consultation

over job prospects, training and pay, where the public sector and owner-

managed enterprises have lower levels of consultation in these areas than

other private sector firms (beta =0.10 and 0.012, respectively), while PLCs

have significantly higher levels than other private sector firms (beta = 0.10).


16/27



Turning to the relationships between corporate governance and HRM

outcomes in Table 3, from a management perspective, corporate governance

has negligible associations with employee commitment to the organizations

values or the quality of employeemanagement relations. From the employ-

ees perspective, however, the results are more significant in that corporategovernance and organizational size together explain 7 per cent of the variance

in work pressure, with public sector employees reporting the highest levels of

work pressure (beta = 0.25) and owner-managed firms reporting the lowest

(beta =0.08). The form taken by corporate governance explains only a small

amount of the variance (less than 5 per cent) in the remaining HRM out-

comes of job satisfaction, organizational commitment and the perceived state

of employment relations. The only significant finding here is that public sector

employees report significantly higher levels of commitment to the organiza-

tions values (beta = 0.10) than employees working in other firms.

HRM Practices: A Predictor of HRM Outcomes

To investigate the degree to which HRM outcomes can be explained by HRM

practices, we turn to the second set of regressions, where organization size

was entered in step 1, corporate governance form in step 2 and HRM prac-

tices in step 3. The results from the managers perspective and those from the

employees perspective are summarized in Table 4. Of these models, the stron-

gest are those from the employees perspective, with those based on managersresponses accounting for less than 15 per cent of the variation in HRM

outcomes.

Considering HRM outcomes from the managers perspective first, manag-

ers report higher levels of employee commitment and a better quality of

employment relations in firms where employees rate highly the quality of

consultation and personnel policy (beta = 0.23 and 0.33, respectively) and

where managers report high levels of consultation (beta = 0.13 and 0.09,

respectively), teamwork, worker flexibility, discretion and control (beta = 0.11

and 0.09, respectively). The remaining significant finding is that the qualityof employment relations is negatively related to consultation over job pros-

pects, training and pay (beta =0.13).

Considering HRM outcomes from the employees perspective, the

regressions predicting the quality of employeemanagement relations, job

satisfaction and organizational commitment were all very strong. In these,

respectively, 73, 58 and 45 per cent of the variation in the HRM outcomes

under consideration can be explained by including the independent variables

of size, corporate governance form and HRM practices in the model. In each,

by far the strongest of the independent variables is the quality of consultationand personnel policy (beta = 0.84 for the quality of employeemanagement

relations, beta = 0.62 for job satisfaction, beta = 0.57 for employee commit-

ment to organizations values), followed by the level of influence employees

feel they have over their jobs (beta = 0.09 for the quality of employee

management relations, beta = 0.30 for job satisfaction, beta = 0.19 for


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TABLE4

HRMPracticesasaPredictorofHRMOutcomes:Manag

ementandEmployeePerspectiv

esonHRMOutcomes

HRMoutcomes

Dependentvariablesfrom

managementsperspective

Dependentvariablesfrom

employeesperspectives

Employee

commitmentto

organizations

values

Qualityof

employee-

management

relations

Work

pressure

Job

satisfaction

Employee

commitmentto

organizations

values

Qualityof

employee-

management

relations

Standardizedbetacoefficients

Organizationsize

0.14***

0.06*

0.05

0

.05**

0.12**

0.03

Corporategovernan

ceform

Publicsector

0.00

0.09**

0.24***

0

.06*

0.03

0.07**

PLC

0.01

0.00

0.01

0

.00

0.01

0.00

Owner-managed

0.00

0.07**

0.05

0

.01

0.02

0.03

Managementresponses

Consultation

0.13***

0.09***

0.06*

0

.01

0.04*

0.04**

Incentivesystems

0.06*

0.01

0.01

0

.01

0.02

0.01

ManagerialcommitmenttoHRM

0.05

0.04

0.01

0

.05**

0.03

0.04**

Training

0.03

0.05

0.03

0

.01

0.04*

0.01

Teamwork,worker

flexibility,discretionandcontro

l

0.11***

0.09***

0.08***

0

.00

0.03

0.00

Employeeresponses

Consultationoverjobprospects,trainingandpay

0.06*

0.13***

0.13***

0

.08***

0.02

0.01

Employeeviewssoughtonworkplacefuture,

staffing,workpractices,termsandconditions

0.02

0.05

0.04

0

.01

0.03

0.04**

Qualityofconsultationandpersonnelpolicy

0.23***

0.33***

0.11***

0

.62***

0.57***

0.84***

Training

0.05

0.01

0.05

0

.02

0.05*

0.02

Influenceoverwork

0.00

0.06**

0.04

0

.30***

0.19***

0.09***

AdjustedR2

0.13***

0.14***

0.12***

0

.58***

0.45***

0.73***

Note:Theremainingcategoryofcorporategovern

ancePrivatesectorotheristheomitteddummyvariable.

***p

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Corporate Governarce and Human Resource Managelemt