Employee Collective Ownership and Organisational Identification

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Employee Collective Ownership and Organizational Identification: The Role of Employee Participation and Socialization

Gunnar M. Økland *

Norwegian School of Economics and Business Administration, Bergen, Norway

Email: [email protected]

Olav A. Kvitastein *

Norwegian School of Economics and Business Administration, Bergen, Norway

Email: [email protected]

Employee Collective Ownership and Organizational Identification: The Role of Employee Participation and Socialization

ABSTRACT

The relationship between firm ownership and organizational identification is studied. Focusing the role of employee participation and socialization, employees in an employee-owned shipyard are compared with employees in a conventionally owned firm. The design is unique in that four years prior to the study, the two shipyards constituted one company which was then split into two almost equally large firms. Hence, factors such as type of industry, age of the organization, historical background, and size are accounted for. The study reveals that employee collective ownership and socialization, in terms of seniority, constitutes competing explanations for organizational identification. Employee collective ownership reduces the relative impact of seniority regardless of the perceived level of participation in company decisions that follows collective ownership.

Keywords: Attitudes, decision making, motivation, values

The purpose of this paper is to investigate the relationship between employee ownership and organizational identification. More specifically, this study highlights the role of employee participation and socialization on this relationship. Under collective ownership the employee owners normally have formal rights to have a vote in vital firm issues and decisions, and the question here is how this type of control may affect organizational identification in organizations under employee collective ownership. This question has not been investigated in previous research.

Both for theory and practice it may prove fruitful to gain more insight into the role of different types of organizational commitment. According to previous research there is now convincing evidence that different types of commitment like identification, involvement and loyalty in parallel with the components affective, continuance and normative commitment do have partially different antecedents and consequences (Meyer & Allen 1997). For example affective commitment, like organizational identification, is found to be positively linked to employees who evaluate different phenomena in the organization positively. Regarding

0 continuance commitment and loyalty there is now a huge amount of empirical evidence that these variables are positively related to costs by leaving the organization (Meyer & Allen 1997).

With this in mind there is a need for more fine grained investigations of different components and types of organizational commitment being part of the rationale behind why organizational identification is the main focus in this investigation.

Previous research has mainly focused on organizational commitment as one domain. In line with the instrumental satisfaction perspective employee ownership is hypothesized to impact organizational commitment by providing greater perceived influence and control through employees in their role as owners (Buckho1993). However, previous research on this research question has been investigated under employee stock ownerships plans. No studies have scrutinized this research issue under collective ownership. The main contribution of this research project is thus to add insight into the employee collective ownership – organizational identification linkage and the role of employee participation and the employees socialization to the firm.

THEORY AND HYPOTHESES

In the following, we shall depart from Buchanan (1974: 533) who suggested that organizational commitment consists of ´identification (internalization of the values and goals of the organization), involvement (psychological immersion in the activities related to one’s work role), and loyalty (feeling of affection for and attachment to the organization). These components are similar to those outlined by Porter, Steers, Mowday and Boulian (1974) and have been applied in numerous studies (Meyer & Allen 1997; Morrow 1993).

The first subcomponent, identification, is descriptive of the employee’s degree of alignment with the company’s core values and objectives (Mowday, Steers & Porter 1979). Identification is an attitude, and in psychological terms this attitude is constituted by an association between an object and the evaluation of that object wherein it is the organization and its values and goals

1 that is being evaluated (Eagly & Chaiken 1993). Employees with high organizational identification are more strongly bonded to the company. Strong identification with the firm may also be viewed as a readiness to promote the goals of the firm.

Employee ownership has been defined in a variety of ways in the literature (Bellas 1972;

Cornforth 1983; Copeman, Moore, & Arrowsmith 1984; Long 1980; Vanek 1975). A broad conceptual definition implies that workers are investors and thus owners of the company in legal as well as financial terms. The degree of ownership can be determined on the basis of two criteria: the percentage of the equity distributed amongst employees and/or the proportion of employees being owners (Long 1980).

Deriving from these two criteria, one fundamental form is collective ownership, which in our context means that a majority of the employees together own more than half the equity of the firm. In such cases, employee collective owners will normally also control the majority of the votes on the board and in the general assembly (annual shareholder meeting). On the other hand, in employee stock ownership plan companies (ESOP) employees´ voting rights may be limited to specific issues and, moreover, employees normally own a minority of the total number of shares in the firm through a trust.

A third type of employee ownership is collective ownership wherein employee shareholding secure the employee owners their democratic control over the company by entitling the shareholder an equal vote in central decisions. Rhodes and Steers (1981) uncovered that employee-owners were more committed to their company. This study also showed that they had a higher perception of having influence on decision making. It is worth noting that perception of having influence is linked to decision outcome while our research effort eclipse the role of participation as a part of the decision process. Furthermore, the above mentioned study by

Rhodes and Steers (1981) did not test the intermediate role of participation.

Tree theoretical perspectives and models are dominating in explaining determinants of organizational identification as part of organizational commitment. The extrinsic satisfaction

2 model claims that employee owners become more committed to the company if the ownership is financially rewarding. According to this model the employee owners regard their ownership in the firm as a financial investment. Organizational commitment is expected to be greater if the employee owners find their investments financially rewarding. Empirical studies are inconclusive. In employee stock ownership plan firms there is some support for this model

(Klein 1987), but on the contrary, Buckho (1993) found no support for the model. French and

Rosenstein (1984) claim that also the number of shares owned by an employee counts.

Employee owners with a larger proportion of shares will feel that they have mutual and common interest in the firm. The bigger owners will have a stronger feeling of mutual interest with others in the firm and a stronger joint faith with the company. For our purpose, note that we have little insight into the empirical validity of this model in collectively owned firms.

According to the intrinsic satisfaction model of employee ownership (Tannenbaum 1983;

Long 1978a; Long 1978b) employee ownership is in itself sufficient to impact on organizational commitment. It is the ownership itself that gives the employee owners an intrinsic perception of reward, and it is this inducement that influence organizational identification positively.

According to this view factors in the employee ownership plan and organizational context is not relevant in explaining organizational identification. Empirical results are inconclusive in that

Long (1978a, 1978b) found support for this model, while no support was traced in a follow-up study (Long 1979).

Hypothesis 1: In the case of collective employee ownership, employee collective owners will identify more strongly to the company than other employees.

The instrumental satisfaction model claims that it is the very existence of ownership as organizational context that elevates employees´ participation in decision making and a feeling of control in the organization which on its side will increase employee owners´ identification to the

3 company. Note that it is not the participation itself that strengthen the linkages between employee owners and the organization but rather their possibility as employee collective owners to take part in and to influence on decisions in the firm. The psychological mechanism seems to be autonomy in that employees as owners believe that it is up to them to shape the organization according to their own interests.

In theory participation is treated along two conceptually distinct dimensions. In numerous studies participation reflects employees influencing a decision (Wagner 1994). On the other hand participation is conceptualized as two or more individuals being involved in the decision- making process. While the first dimension emphasizes that the employee to some extent control the decision outcome, the latter dimension reflects that individuals have a voice in decision arenas. In line with this latter approach, we will here draw on the conceptualization of participation by Glew (1995: 402): ‘A conscious and intended effort by individuals at a higher level in an organization to provide visible extra-role and role-expanding opportunities for individuals and groups at a lower level in the organization to have a greater voice in one or more areas of organizational performance.’

According to this definition subordinates are entitled to take part in decisions under the assumption that employees and the company have a common interest. It is worth noting that it is employees opportunities to participate that is highlighted, and it is thus up to the individual employee to be involved in issues related to organizational performance and decisions outcome.

In line with the instrumental satisfaction model participation is hypothesized to affect organizational identification, and this effect is strengthened within the context of employee collective ownership because of the employee owners feeling entitled to have a voice in vital firm issues. Employee ownership entitles employees legally in their role as owners to be actively involved in formal decisions. In cases where employees own a majority of the shares in the firm collectively, this entitlement shapes the belief among employees that they are the ones to take part in and control formal decisions. A positive belief among employee co-owners demands that

4 they value their right to participate in the sense that they feel a need to act upon formal decisions. Such decisions may encompass vital issues of both strategic and administrative nature.

Hypothesis 2: Employees being more satisfied with their need to participate in formal decisions vital to the firm will identify themselves stronger to the organization and this relationship will be strengthened under collective ownership.

According to Van Maanen and Schein (1979) socialization may impact positively on employees´ attitudes to the organization. Socialization denotes a learning process in which an individual is being exposed to differential environmental cues in a variety of ways during social interaction. In particular, positive reinforcement, in terms of supporting employees´ identity and self-worth, may affect a stronger sense of organizational commitment including organizational identification

(Meyer & Allen 1997). Such experiences may reciprocate the employee to support the identity and values of the organization in terms of internalization.

But one vital question is how such socialization evolves in the case of employee collective ownership as opposed to non collective ownership. According to the intrinsic satisfaction model of employee ownership (Tannenbaum 1983, Long 1978a, Long 1978b) it is the very existence of employee ownership in itself that is sufficient to impact on organizational identification. The ownership itself that gives the employee owners an intrinsic perception of reward, and it is this rewarding experience that influences organizational commitment positively. According to this view the positive effect of traditional socialization on organizational identification should be reduced under the context of employee collective ownership.

Hypothesis 3: Employees´ socialization with the organization will be positively related to their organizational identification, and this positive relationship is weaker under employee collective ownership.

METHODS

Data Collection

To compare employee-owners with non-owners, two shipyards in a Norwegian city were chosen. In the first, the 416 employees owned 90 per cent of the shares collectively through a trust, whereas the remaining 10 per cent were possessed individually by about 75 per cent of the workers. Collective ownership provided the right to vote when decisions are made by the general shareholder assembly equivalent to the proportion of shares owned. The employees in this firm, hereafter called employee owned, were compared with employees in a conventionally owned firm (353 employees). In the latter company no shares were owned collectively, but 70 per cent of the employees owned shares individually, which represented 9 per cent of the total share value. Such individually owned shares allowed voting rights equivalent to the number of shares held. Four years before the study was conducted, the two firms constituted one company that was later split into two separate firms. Both firms continued to repair, redesign, and maintain various types of ships, as well as constructing sections of oil platforms. The introduction of collective ownership took place two years before our data collection. This makes the research design robust, since factors such as the organization’s age, type of industry, and history are controlled. Besides, the size of the two companies is virtually identical.

First, information about the two organizations was collected through interviews with key informants. A preliminary version of the questionnaire was pre-tested on eight randomly sampled employees in the employee-owned firm. These were heterogeneous with respect to age, gender, educational level, seniority in the company, and position. Through individual interviews ambiguities were identified and eliminated. The stability of the measurement was then checked through a test-retest reliability check. Sixteen respondents were included with six weeks in between the two waves. A Mann-Whitney test indicated an acceptable stability for all scales that were included in the final version of the questionnaire. Second, a postal survey was conducted.

6 The response rates obtained in the employee-owned and in the conventionally owned companies were 34 and 43 per cent, respectively. A comparison of the samples in regard to age, gender, educational level, seniority, and level of work position revealed no systematic biases in the data.

Measurements

Organizational identification was measured by four items included in the Organizational

Identification Questionnaire developed by Mowday and associates (1979). Cronbach’s alpha coefficient .77 for the 4-items neighed index of organizational identification indicates that the construct has a fair degree of unidimensionality. All measurements are exhibited in appendix. In previous studies, the 15-item measurement has demonstrated a relatively strong potency in regard to test-retest reliability and internal consistency reliability, as well as acceptable levels of convergent, discriminatory, and predictive validity. Employee collective ownership is limited to those who work in the company with collective ownership.

Participation was measured by mapping five areas in a 5-item neighed index (Cronbach’s alpha coefficient .87) wherein the employees in the collectively owned firm had a greater voice.

Consistent with the definition above of employee participation, role-expanding opportunities was formally secured at a higher hierarchical level in the ownership agreement in that this had been accepted by the general assembly.

In studies of socialization as a determinant of organizational commitment the content of socialization cues is to be appropriate to the career stage, bringing subtlety into the socialization – organizational identification linkage (Meyer & Allen 1997). Due to this phenomenon a content specific measurement may be inadequate to cohorts of employees in some specific career stages. In order to overcome this problem, we selected seniority as a proxy variable. It seems plausible that employee socialization partly increases with the number of cues that the individual is being exposed to, and this number will normally increase across time. Seniority was mapped by the uninterrupted number of years of an employee as an organizational member.

ANALYSES

First, hypothesis 1 suggesting that employee co-owners exhibit significantly higher organizational identification than non co-owners was tested. Bivariate correlations between variables included in the hypotheses are exhibited in Table 1. Bivariate correlation (Pearson’s correlation estimate) between collective ownership and organizational identification shows a significant and positive relationship (r= .15; p < .001; N= 288) while corresponding separate estimates for employee collective owners and non-owners are shown in Table 2 and 3 respectively.

The mean score of organizational identification is 4.81 and 4.50 for the company with collective ownership and traditional ownership respectively. A simple test of difference between the two means gives a t-value of 2.63 with 286 degrees of freedom, thus indicating that the difference 0.31 is significantly different from zero. In terms of effect size, these values converts to a Cohen’s d1 of 0.3109 which, according to Cohen (1988) should be interpreted as slightly above what he consider to be a small effect size. Table 4 below shows, however, that used as a dummy-variable, the difference in organizational identification between collective ownership and traditional ownership is relative unaffected when controlling for seniority and participation (.314 versus .310), thus indicating a stable difference in organizational identification between the two ownership types when controlling for other factors related to organizational identification. Thus, we conclude that we have support for our first hypothesis that in the case of collective employee ownership (co-ownership), employee co-owners will commit themselves more strongly to the company than other employees.

Hypothesis two suggests that collective ownership works as a moderator for the relationship between organizational identification and participation. As shown if Figure 1 in the appendix, col-

1 2 d = (M 1 – M 2)/ σ , where σ = √[∑(X – M) /N], where X is the raw score, M is the mean , N is number of cases

8 lective ownership appears to moderate this relationship in the sense that participation means more to organizational identification in the presence of collective ownership, controlling for seniority.

As shown in statistics for Figure 1 in the appendix, the interaction is, as often with these kinds of analyses (Cohen, 1988), insignificant and the model has moderate statistical power. Hypothesis 2 is thus not supported.

Hypothesis 3 reflects that the positive link between socialization and organizational identification will be weakened under employee collective ownership. In our analysis employees seniority is applied as a dummy variable for socialization.

Table 1 shows a positive and significant linkage between seniority and organizational identification, and this picture is the same in Table 2 and 3 if we inspect separate estimates of correlations for employee collective ownership and non collective ownership, respectively.

A closer look at the effect of seniority in Figure 2 shows that collective ownership significantly moderates the relationship between seniority and organizational identification. Clearly, seniority means substantially more for organizational identification in the company with traditional ownership than in the company with collective ownership, thus indicating that the reasons for organizational identification are partly different in the collectively owned firm. Thus, although participation (figure 1) only partly accounts for the difference in organizational identification between the collective and the traditionally owned firms, the dominant influence of seniority as the major source of identification is reduced. The statistics in Figure 2 (shown in appendix) indicate that the moderating effect of ownership upon organizational identification, controlling for participation, is statistically significant and have acceptable statistical power. Hypothesis 3 is thus supported.

DISCUSSION

This study supports the hypothesis that employees tend to identify themselves stronger to the organization when employees own the firm collectively (hypothesis 1) while the view that

9 collective ownership works as a moderator for the relationship between organizational identification and participation was not supported (hypothesis 2).

The proposition that a positive link between socialization and organizational identification will be weakened under employee collective ownership was supported. In line with Staw (1976) it seems plausible that the employee co-owners change their attitude and values to justify their decision to become employee co-owners. An escalating commitment to a chosen course of action to buy shares may backfire on employee co-owners identifying themselves more to the organization. It is theoretically interesting to note that this may imply that the effect of socialization on organizational identification may be suppressed by this type of retrospective rationality.

Note that in our analysis employees seniority is applied as a dummy variable for socialization. In conservative terms socialization is not investigated in the empirical study. On the other hand we have argued that the degree of socialization reflects organizational influences on an employee over the course of time since both the number and types of cues increase positively with time length. It seems thus likely that employees with more years of tenure in the firm will have absorbed more of the organizational culture than newcomers. With respect to the other measures of organizational identification and participation the estimated Alfa coefficients indicate that these measurements have a high degree of unidimensionality, and in our view they tap the respective theoretical domains.

In this study employee co-owners acquired shares voluntarily in one of the companies two years after the two shipyards constituted one company which was then split. However, the employee co-owners´ motives were not observed at the very time of their ownership takeover constituting a potential threat to the internal validity of our results. But the fact that the co- ownership occurred to years after the split of the two firms, makes selection effects less likely since all employees who worked in this firm at the time of converting to employee ownership agreed to become employee owners. All employees in this investigation had a common history

10 and organizational culture with the same top management as they were all members of the same ship building company until four year prior to this investigation.

Another threat to the internal validity of this study is the fact that some of the employees in both firms owned shares individually. But the fact that only 10 and 9 percent of the shares, in the collective owned firm and the other none collectively owned firm respectively, were held by employees individually makes this treat less plausible. A regression analysis of separate estimates for employee owners and non employee owners holding shares individually shows insignificant results. The same picture of insignificant relationships emerges in an analysis of the linkage between the number of shares held individually by separate estimates for employee co- owners and employee non co-owners.

In our effort to infer causality in this empirical investigation, we should keep in mind that this study is cross sectional. We should thus treat results with caution in that further longitudinal studies is demanded to test such causality.

By studying different types of organizational commitment, like organizational identification in this study, we may develop more refined models of employees´ attitudes toward their organization including separate antecedents and consequences for different types of organizational commitment. Both theory and empirical evidence concerning organizational commitment support this view. In addition to more studies following this fine grained approach, managers and employees may benefit from implementing insight from such models.

11 References

Bellas CJ (1972) Industrial democracy and the worker-owned firm. A study of twenty-one plywood companies in the Pacific Northwest, Preager , New York.

Buchanan II B (1974) Building organizational commitment: The socialization of managers in work organizations, Administrative Science Quarterly, 19:533-546.

Buchko AA (1993) The effects of employee ownership on employee attitudes: An integrated causal model and path analysis, Journal of Management Studies, 30: 633-657.

Cohen J (1988) Statistical power analysis for the behavioral sciences (2nd ed), Lawrence Earlbaum Associates, Hillsdale, NJ.

Cornforth C 1983 Some factors affecting the success and failure of workers’ co-operatives: A review of empirical research in the United Kingdom. Economic and Industrial Democracy, 4: 163-190.

Copeman G, Moore P & Arrowsmith C 1984 Shared ownership. How to use capital incentives to sustain business growth, Gower Publishing Company, Brookfield, Vermont.

Eagly AH & Chaiken S (1993) The psychology of attitudes. Harcourt Brace, Orlando.

French J L & Rosenstein J (1984) Employee ownership, work attitudes, and power relationships. Academy of Management Journal, 27: 861-869.

Glew DJ , O’Leary-Kelly AM, Griffin RW & Van Fleet DD (1995) Participation in Organizations: A Preview of the Issues and Proposed Framework for Future Analysis, Journal of Management , 21: 395-421.

Klein KJ (1987) Employee stock ownership and employee attitudes: A test of three models, Journal of Applied Psychology, 72: 319-332.

Long RJ (1978a) The relative effect of share ownership vs. control on job attitudes in an employee-owned company, Human Relations, 31: 753-763.

Long RJ (1978b) The effects of employee ownership and organizational commitment, employee job attitudes, and organizational performance: A tentative framework and empirical findings, Human Relations, 31: 29-48.

Long RJ (1979) Desires for and patterns of worker participation in decision making after conversion to employee ownership, Academy of Management Journal, 22: 611-617.

Long RJ (1980) Job attitudes and organizational performance under employee ownership, Academy of Management Journal, 23: 726-737.

Meyer JP & Allen NJ (1997) Commitment in the workplace, Sage, Thousand Oaks, CA.

Morrow PC (1993) The theory and measurement of work commitment, JAI Press, London.

12 Mowday RT, Steers RM & Porter, LW (1979) The measurement of organizational commitment, Journal of Vocational Behavior, 14: 224-247.

Porter LW, Steers RM, Mowday RT & Boulian PW (1974) Organizational commitment, job satisfaction and turnover among psychiatric technicians, Journal of Applied Psychology, 59 : 596-609.

Rhodes SR & Steers RM (1981) Conventional vs. worker-owned organizations. Human Relations, 34: 1013-1035.

Staw BM (1976) Knee deep in the big muddy: A study of escalating commitment to a chosen course of action, Organizational Behavior and Human Performance , 16: 27-44

Van Maanen J & Schein EH (1979) Toward a theory of organizational socialization, Research in Organizational Behavior : 209-264.

13 APPENDIX

Measurements

Identification (4 items, Cronbach’s alpha = .77):

• I talk to my friends about this company as a great place to work.

• I find that my values and those of the company are very similar.

• I really care about the fate of this company.

• I’m proud to tell others that I'm working for this company.

Collective Ownership Employee owners were identified by a separate questionnaire to all employees who also were collectively employee-owners in the employee-owned firm.

Participation (5 items, Cronbach’s alpha = .87):

• I find my point of views reflected in the board’s decision.

• I am satisfied with the way the Board of directors is elected.

• I am satisfied with the way the general assembly works.

• I feel represented by the employees´ members of the board.

• The CEO’s decisions reflect my interests

Seniority was measured as the length of the uninterrupted hiring period for an employee in the firm.

Table 1: Means, standard deviations and correlation for the entire sample

Variable Mean St. dev. 1 2 3 4 1 Identification 4.652 0.997 2 Participation 2.789 0.983 .2 .282** 3 Seniority 18.678 12.030 .2 .288** .172** 4 Ownership 0.48 0.500 .1 .154** .161** -.032 * p < .05 ** p < .01 N=288

Table 2: Means, standard deviations and correlations for collective ownership sample

Variable Mean St. dev. 1 2 3 1 Identification 4.811 0.885 2 Participation 2.851 0.961 .345** 3 Seniority 18.269 11.750 .208* .139 * p < .05 *** p < .001 N=138

Table 3: Means, standard deviations and correlations for traditional ownership sample

Variable Mean St. dev. 1 2 3 1 Identification 4.505 1.072 2 Participation 2.7330 1.002 .202* 3 Seniority 19.047 12.304 .360** .228** * p < .05 ** p < .01 *** p < .001 N=150

Table 4: Regression of Identification vs. Ownership, Participation and Seniority Dependent variable : Identification Independent variables Coefficient Std. error t-value Participation 0.220 0.062 3.54 Seniority 0.023 0.005 4.53 Collective/traditional ownership 0.314 0.117 2.68 Constant 3.492 0.191 18.33 R2 adjusted = .16, N=283

15 Figure 1: Collective ownership as a moderator for the relationship between participation and organizational identification (controlling for seniority)

Statistics for figure 1

Dep. Variable: Organizational Identification Indep. variables Coeff. Std. error t-value Participation 0.16 0.088 1.9 Ownership 0.01 0.356 0.0 Interaction Term 0.11 0.122 0.9 Seniority 0.02 0.005 4.6 Constant 3.63 0.248 14.7 R Square Adjusted 0.16 N=254 Effect Size (f Square 0.206 Observed Power 0.609

16 Figure 2: Collective ownership as a moderator for the relationship between seniority and organizational identification (controlling for participation) 2

Statistics for figure 2

Dep. Variable: Organizational Identification Indep. variables Coeff. Std. error t-value Participation 0.03 0.007 4.8 Ownership 0.71 0.224 3.2 Interaction Term -0.02 0.010 -2.1 Seniority 0.22 0.062 3.5 Constant 3.32 0.207 16.0

R Square Adjusted 0.17 N=254 Effect Size (f Square 0.223 Observed Power 0.678