Does governance confer organisational resilience? Evidence from UK employee owned businesses

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link ABSTRACTCurrent economic crisis has highlighted the importance of an organization's ability to withstand economic shocks. This has rekindled the interest in organization resilience on the one hand, and the relationship between alternative governance forms such as employee owned businesses (EOBs) on the other. We explore this relationship using performance data on 204 publicly traded non-employee owned businesses and 49 EOBs prior to the economic downturn (2004)(2005)(2006)(2007)(2008), and during the economic downturn (2008)(2009)). This data is complemented with a survey of resilience related governance and organizational practices in 41 EOBs and 22 non-EOBs. Our results show that: a) employee ownership form is associated with greater stability in business performance over a business cycle; b) EOBs have longer payback horizon when compared to non-EOBs across a number of activities; c) EOBs top management seek employee input beyond operational aspects by involving them in strategic decision making; d) EOBs achieve tighter coupling between the feedback from operations and the feed forward on strategic direction. These results suggest that employee stock ownership programs alone are not sufficient to develop higher levels of organizational resilience. Managers must combine employee stock ownership with employee involvement in governance if they wish to build up resilience in advance of adverse economic conditions. 2 INTRODUCTIONThe recent economic crisis and the prolonged economic recession that has ensued is focusing increasing attention on 'organizational resilience': the organization's capacity to cope with "unanticipated dangers after they become manifest (Wildavsky, 1988: 147) Our analysis of the performance data show that EOBs are more resilient than non-EOBs.We follow this with analysis of managerial practices that points to differences in employee voice and involvement that may account for higher resilience.The paper is structured as follows. We begin with an overview of the concept of organizational resilience. We then examine current research on the relationship between organizational resilience and stakeholders' governance. We then turn our attention to governance in employee owned businesses, contrasting publicly traded corporations where owners are generally external to the organization, with firms where employees substantially own and exercise control over the organization.We begin by looking at elaborating the role governance plays in ensuring long-term stability of the firm. Next, we highlight employee-ownership governance structure and whyEOBs are a case for more resilient organisations. We then present our research methodology and discuss the findings of our research. Finally, we close with a discussion and implications for the managers and future research directions.

Approaches on Correlation between Board of Directors and Risk Management in Resilient Economies

“…As such, building resilience is strategically advisable, but also costly, thus becoming a process of harmonizing costs compared to prospective risks [8]. In addition, the adaptability of corporations reveals their capacity to amend their undertakings as an answer to variations within the outside setting.…”

“…Also, strategic resilience was depicted as the response of the company to replace and fit the strategies according to shocks from outside environment [7]. By means of resilience are underlined the firm skills to preserve social and intellectual resources, apart from operational integrity, that are vital to the long-run success of organizations [8]. Besides, groups show greater organizational resilience relative to unaffiliated firms due to an efficiency effect which supports the idea that groups have greater incentives to reorganize and are more efficient through market transition, as well as a cumulativeness effect which argues that groups hold higher resources and skills to exploit the new opportunities given by the market expansion [9].…”

Los sistemas de rentas mínimas: protección social, ciudadanía y clientelismo político. Un análisis comparado entre Andalucía y Castilla y León

“…El actual contexto económico ha puesto de manifiesto cómo los sistemas de protección social y las estrategias de dirección de éstos no están preparados para adecuar su respuesta a las nuevas problemáticas sociales, por lo que fracasan en el logro de sus fines. De esta forma, el desarrollo de una estrategia organizacional orientada a fomentar la resiliencia de las personas y la capacidad de las comunidades para superar las dificultades son claves para el éxito de los sistemas de rentas mínimas y del sistema de servicios sociales en general, y debe tratarse de una cualidad deseable y perseguida por quienes ejercen la dirección en las organizaciones (Lampel, Bhalla y Jha, 2014).…”

Corporate governance and strategic human resource management: Four archetypes and proposals for a new approach to corporate sustainability

“…This model has been in existence in modern form since the 1970s in many developed economies, often promoted by governments seeking to align employee (agents) and owner (principals) interests (Hansmann, 1996;Kaarsemaker et al, 2010). Lampel et al (2014) argue that employee-ownership has been garnering greater attention because of its financial resilience to economic shocks such as the global financial crisis. They attribute such resilience to the mode of governance, characterized by employee involvement and being able to take longerterm time horizons following input and funding from employees.…”

“…For example, shareholder corporate governance logic involves maximizing shareholder returns by controlling boards and aligning managerial interests to those of shareholders (Appelbaum and Batt, 2014), whereas the stakeholder logic aims to achieve a more balanced approach to control, representing the interests of diverse stakeholders (Canals, 2010). Hybrid logics fall between these two extremes, balancing control through lessshareholder driven boards and encouraging a broader range of stakeholder participation (Lampel et al, 2014).…”