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Out of Touch Executives

Addison Group

Are executives really out of touch? Internal communication failures is the main reason leadership executives lose touch with their employees, according to a survey conducted by AMA Enterprise, a division of American Management Association.

A recent Bloomberg Opinion article  poses the concern that U.S. corporations might be required to institute co-determination governance. This would require large companies to allow employees to elect 40 percent of their directors.

The rationale for this proposal is:

  • U.S. income inequality
  • A belief that workers are well positioned to make corporate decisions that place worker, customer, and community interests equal to those of shareholders.

How Does Co-Determination Affect Corporate Function?

The shift in decision-making that occurs with co-determination potentially results in:

  • More power and fiscal interests for workers, with less for managers.
  • Improved income distribution, though the author notes that there is mixed evidence of this.
  • Improved worker engagement and performance related to pride and shared ownership.
  • Concerns that co-determination will:
    • Reduce productivity
    • Make businesses less nimble during economic challenges
    • Affect corporate ability for rapid growth or new product development

Does this Imply That Executives are ‘Out of Touch’?

The Bloomberg article does not state that executives are out of touch. Rather, it makes subtle suggestions of the need for corporate leaders to learn from other countries’ governance experiences.

Here are two:

Germany’s Example

Germany uses a co-determination system that:

  • Is supplemented by a worker council system that represents labor interests; and
  • Has been shifting toward a shareholder value system because of laws implemented within the last two to three decades.

Japan’s Example

Japan has never had a system of co-determination. Instead it:

  • Has had boards with high management presence and low profit margins because of a passive approach to shareholding; and
  • Is now implementing a new corporate code to focus on shareholder returns by improving external control of management.

Steps to Stay ‘In Touch’

The opinion author suggests that as the U.S. and other nations have gone too much in one direction or the other related to governance, there are prudent steps to take now, regardless of legislation. He suggests creation of a government framework that includes the following points:

  • Representation of workers on boards, funded by tax incentives; and
  • Gradual experimentation and implementation by U.S. companies to evaluate and compare performance.

What do you think? Are you ‘in touch’ and ready to move ahead in the direction of increased worker input on corporate decisions, regardless of governmental influence?

Executives, to learn how you can be more in touch check out: Qualities that Make Great Leaders.