Managerial Perceptions of Works Councils’ Effectiveness in the Netherlands

Abstract

Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of works councils on firm performance for the Netherlands. We use a nation-wide Dutch dataset with information on management's perceptions of the works council's impact on their firms' efficiency and innovation. Following Jirjahn and Smith (2006), we find that managerial perceptions crucially depend on the firm's human resource management policies and market strategies. Additionally, we argue that managerial perceptions are related to the works council's role attitude and management's leadership style. For this argument, we find support, too.

Do works councils raise or lower firm productivity?

“…The authors argue that a formal leadership style contributes negatively to managerial opinion of a works council's effectiveness. Proactive councils are not appreciated at all by executives, and managers believe that a works council is only effective when it takes a passive role [12].…”

Works council effectiveness in subsidiaries of MNCs during reorganizations: Case study evidence from the Netherlands

“…Conversely, Van den Berg et al (2011a) show that a formal management style (operationalized as strictly following the rules) leads to a negative impact of works councils on effectiveness. In the context of a reorganization, the legal advice procedure should be followed: management must ask the works council for advice, at a point at which there is still room for the works council to influence the proposed decision.…”

An experimental study into the influence of works council advice on managerial decision-making

“…A counterproductive impact of works councils that is often mentioned in the literature is that they delay the process of decision-making (van den Berg et al, 2008a). Delay does not always have to have a negative effect on economic performance, however.…”

“…By law, Dutch works councils operate in the interest of the organization as a whole, including employees and shareholders. They have several legal rights, such as the right of being informed on relevant matters in the organization (right of information), the right to give advice on organizational matters (right of consultation), and the right of approval on certain issues (right of consent) (van den Berg, Grift, & van Witteloostuijn, 2008a). The current paper mainly focuses on the right of consultation, which is the legal right to give advice to the management team on a wide variety of organizational matters.…”

“…Wever (1994) compares five cases, and reports that, overall, works councils can make effective strategic choices, and hence can be beneficial to management. In a first econometric study in the Netherlands, van den Berg et al (2008a) show that a positive attitude of management toward the works council is associated with higher organizational performance, as perceived by management. Jirjahn and Smith (2006), too, emphasize that a positive cooperative relationship between management team and works council is important for the functioning of the works council, and so for the performance outcome for the organization.…”