The Case for the Company Union

LaborHistory, Vol. 41, No. 3, 2000

TheCase for the CompanyUnion

BRUCEE.KAUFMAN

There isa small numberof terms in thelexicon oflabor history that are indelibly marked with opprobrium: among them are ªblacklist,ºª openshop,º and ª yellow dog contract.ºAlso most certainly includedis ª company union,ºa term redeemedby few if any virtues in theeyes of most scholars. In recentyears, however, a modestamount ofrevisionist thinking hassurfaced about the company unionexperience in the pre-Wagner Actperiod. This scholarship acknowledgesthe many shortcomingsand ambiguous legacy ofthe company unionmovement, but nevertheless ® ndspositive featuresas well, particularly among theleading corporate practitioners ofemployee representationin the1920s. Historian Daniel Nelsontells us(389) that ªcompany unionslike FCA,the Leeds & Northrup Cooperative Association,and the Goodyear Industrial Assemblywere formidable organizations that servedthe interests of employ- ersand employees.º And economist David Fairris concludes,ª theestablishment of company unionsin the1920s marked ade®nite improvement for theworker aswell as the ® rm.º 1 This stirring ofrevisionism notwithstanding,the conventional wisdom among scholars whowrite onlabor history andindustrial relations is that company unionswere by andlarge sham organizations erectedostensibly to promote industrial democracybut whosereal missionwas to keep out unions and strengthen management ’s control. Illustrative ofthis view islabor historian HowardGitelman ’sstatementsthat ªwith perfecthindsight, wecansee that they [company unions]were a misadventure,the false stepof an earlier generation,º[and] ªalower risk escaperoute from unionization ¼ [that] perpetuatedmanagement ’sunilateral controlof industrial relations.º 2 Contrary toassertions such as Gitelman ’s,Ibelieve that after acareful weighing and sifting oftheevidence from both historical andcontemporary sourcescompany unions were,on net,a positive developmentin employee relations in thepre-Wagner Actyears andbene® ted not only employer interestsbut also theinterests of workers and the broader society.I conclude,therefore, that apolicy mistake wasmade in 1935 when language wasinserted in theNational Labor RelationsAct (ª NLRAº or ªWagnerºAct) that effectively bannedcompany unions.

1Daniel Nelson, ªEmployee Representationin HistoricalPerspective,º in BruceKaufman and Morris Kleiner,eds., Employee Representation: Alternatives andFuture Directions (Madison: IRRA, 1993),371± 390; David Fairris, ªFrom Exitto Voicein Shop¯oor Governance: The Case of Company Unions,º Business History Review ,15(1995), 493±529. 2HowardGitelman, Legacy ofthe Ludlow Massacre (Philadelphia: Universityof Pennsylvania Press, 1988),xii, 336.

ISSN0023-656X print/ISSN1469-9702 online/00/030321±29 Ó 2000Taylor &Francis Ltd on behalf of The Tamiment Institute 322 B.E.Kaufman

TheConventional Wisdom Employee representationhad arelatively shortand turbulent history in theUnited States.Although several examples ofnonunion employee representationplans (NERPs)can be found in earlier years,it wasin 1915 with theestablishment of the Rockefellerplan at theColorado Fuel andIron Company that employee representation got itsstart asa ªmovement.º 3 Over thenext 20 years employee representation gradually grew,eventually enrolling twomillion or more employees.The movement came toan abrupt halt with thepassage ofthe Wagner Actin 1935 with its Section 8(a)(2) prohibition against employer-dominated labor organizations. 4 Labor historians donot, of course, speak with onevoice onthe company union experience.But if onereads the most often cited works of contemporary labor historians, somegeneralizations cannonetheless be made. What Iwoulddescribe as the ªconventionalwisdomº on company unionsentails fourpropositions. They are: · The mostimportant motives leading companiesto create and maintain NERPsin thepre-Wagner Actyears wereunion avoidance andstrengthened control over labor. Other statedmotives ofa more constructivenature, such as promoting cooperationand mutual understandingand fostering increasedproductivity through employee participation, weredistinctly secondaryand seldom imple- mentedin asubstantively meaningful way. · NERPswere largely ªshamºorganizations. They wereclothed by their manage- mentsponsors in therhetoric ofindustrial democracy,collective bargaining, and participative management butwere in factunilaterally established,structured, and operatedby management. NERPsbestowed few new, meaningful rights toworkers andgave them little real powerin theemployment relationship. · NERPswere ineffective in promoting andprotecting employee interests,particularly in thearea ofwinning improved wages,hours, and other termsand conditions ofemployment. Onthe other hand,they frequentlyproved avaluable deviceto employers in their effortsto win wage reductions,lay-offs, and increased effort. · NERPswere a signi® cantbarrier tothe growth andexpansion of trade unionism. Employers successfullyused them toforestall unionorganization, partly as instrumentsof ª unionsuppressionº and partly asa vehicle for ªunionsubsti- tution.º 5

3Daniel Nelson, ªTheCompany UnionMovement, 1900±1937: A Reexamination,º Business History Review,8(1982), 335±357; Raymond Hoglerand GuillermoGrenier, Employee Participation andLabor Lawin the American Workplace (Westport, CT: Quorem, 1992);Bruce E. Kaufman, ªAccomplishments and Shortcomings ofNonunion Employee Representationin the Pre-WagnerAct Years: A Reassessment,º in BruceE. Kaufman and Daphne G.Taras, eds., Nonunion Employee Representation: History, Contemporary Practice, andPolicy (Armonk: M.E. Sharpe, 2000),21± 60. 4Section8(a) (2) ofthe NLRA declaresit to be an unfairlabor practicefor an employer, ªto dominate orinterfere with the formation oradministration ofany labor organizationor contribute ® nancial orother support to it¼ .ºSection 2(5) ofthe Actde® nes a labor organizationquite broadly as ªany organization ofany kind, orany agencyor employee representation committee or plan in which employeesparticipate and which existsfor the purpose, in whole orin part, ofdealing with employersconcerning grievances, labor disputes, wages,rates of pay, hours ofemployment, orconditions ofwork.º 5Unionsuppression involves unethical and/orillegal tactics and negativeemotions offear and intimidation to preventunionization; union substitution is apositive approach that endeavorsto prevent unionization by removingthe sourcesof dissatisfaction, such as low wagesand unfairtreatment, that drive workersto seekoutside representation. This distinction is made in Thomas Kochan and HarryKatz, Collective Bargaining andIndustrial Relations ,2nded. (Homewood, IL:Irwin,1988), 190± 194. TheCase forthe Company Union 323

Illustrative ofthe overall negative assessmentof employee representation,are the following quotationsfrom well-regarded scholars: 6 The long term signi® canceof the company-union movement lay notin what wasachieved in thetwentiesÐ actually little wasgainedÐ butin thedoor it openedto education in industrial democracy.[Irving Bernstein] [Labor law] sweptout alternative formsof workplace representation[NERPs] becauseno compelling casewas made for them ¼In its heyday beforethe Wagner Act,the works council was never conceived to be of any serious relevance tobetter plant operations.[David Brody] Yeteven had theNew Deal notwrecked it, evenhad theAFL chargesÐ that independentmeetings of labor representativeswere banned; that companies in¯uencedelections, prohibited expert assistance,and intimidated representatives;that therepresentatives lacked the power to bargain asequals; and that committeesdiverted attention from major questionsto minor onesÐeven had all thesecharges beenfalse, and had thecommittees not been used to support wage cuts,even then, it is unlikely that thebusinessmen could have achieved their goals with their representationorganizations andwon the worker totheir side.Because the organizations weretheirs, not his. [Stuart Brandes] [E]mployee representationremained aninadequate method for collective bargaining. Managementscontinued to set the rules of the game andrefused tolet liberalization go very far. Arbitration clausesexisted but were almost neverinvoked. Wages werediscussed but only after thecompany had already announcedwhat it wasgoing todo. Because workers still fearedreprisal from supervisors,grievances tendedto be limited toissues like safetyand other physical working conditions.[Sanford Jacoby] ¼employee representationwas little more than afacade.Employers only wantedthe illusion ofdemocratic decisionmaking. By themid-1920s, workers knewit washardly worthbringing grievances totheir representatives.[Liza- beth Cohen] Eachof the four propositions cited above, aswell asthe negative conclusions containedin thequotations just given, have anelement of truthÐ sometimesa substan- tial elementÐdepending on the precise time period andcompany considered.And, further,one must recognize that shortquotations such as these cannot always dojustice tothe quali® cationsand nuance woven into thelarger worksfrom whichthey are drawn.Given these caveats, I nonethelessclaim thestandard historiography ofcompany unionsprovides askewed,one-sided interpretation ofemployee representation that undulyaccents its shortcomingsand slights its accomplishments.In order to balance therecord, I reexamine thehistory ofemployee representationand identify ®ve areas that require reinterpretation orelaboration. It is toeachof theseI nowproceed.

6IrvingBernstein, The Lean Years (Boston: Houghton Mif¯in, 1960),173; David Brody, ªSection8(a) (2)and the Originsof the WagnerAct,º in Ronald Seeber,Sheldon Friedman, and Joseph Uehlein,eds., Restoring the Promiseof American LaborLaw (Ithaca: ILRPress,1994), 43,44; Stuart Brandes, American WelfareCapitalism, 1880± 1940 (Chicago: Universityof Chicago Press,1995), 134; Sanford Jacoby, Employing Bureaucracy: Managers,Unions, andthe Transformation ofWork in American Industry, 1900±1945 (NewYork: Columbia UniversityPress, 1985), 228; Lizabeth Cohen, Making aNew Deal: Industrial Workersin Chicago,1919± 1939 (NewYork: Columbia UniversityPress, 1990), 190. 324 B.E.Kaufman

WelfareCapitalism: Union Avoidance or MutualGain? Mosthistorical accountsof employee representationrecognize that itsdevelopment post-WorldWar Iwaspart ofWelfare Capitalism. The standardinterpretation is that Welfare Capitalism wason thewhole a substantially ¯awedproject owing tothe small numberof employees covered, its overriding purposeof union avoidance, the mainte- nanceof a monopoly ofpower in thehands of employers, andits ethosof paternalism. 7 The historical verdict onemployee representationchanges substantially, however,if Welfare Capitalism is viewedfrom adifferentperspective, as the beginning stepin the evolutionary developmentof what istoday called theª high-involvementºor ªhigh- performanceºmodel of human resourcepractices. In this model theemployee representationplans ofthe 1920s werea key componentof this modelput in place for the purposeof promoting greater two-waycommunication, employee participation, and organizational justice. 8 The starting place for this alternative view is theemergence of the® eldof personnel/ human resourcemanagement (HRM)in themid-1910sÐ the eventantecedent to the emergence of the Welfare Capitalism model in the1920s.

TheEmployers ’ Solutionto Labor Problems Oneof the ® rstsystematic reviews of the origins anddevelopment of the ® eldof personnelmanagement isa bulletin publishedin January, 1920 by theFederal Board for Vocational Educationunder the title EmploymentManagement: Its Rise and Scope , whichopens with this statement: Agreat deal ofthought is nowbeing given by American businessmen to the subjectof employment management. Atone time thelabor problem seemed tobe solely amatter ofthe policies oforganized labor andthe methods of industrial warfare. It nowshows itself tobe chie¯ y aquestionof the intelligent handling ofthe human relations whichresult from thenormal courseof businessday by day.It has todo with astudyof the requirements of each occupation,the careful selectionof men for their work,their adequatetrain- ing, the® xing ofjust wages, the maintenance of proper working conditions, andthe protection of men against unduefatigue, accidents,disease, and the demoralizing in¯uences of anarrow andinadequate life, andthe opening ofa channelthrough which employeesmay reach theear ofthe management for theexpression of any dissatisfactionwith its labor policies. 9

7Also, morepositive accountsof employee representation are reached by Brody in ªTheRise and Decline ofWelfare Capitalism,º in John Braeman et al., eds., Change andContinuity in 20thCentury America:the 1920s (Columbus: Ohio State UniversityPress, 1968), 147± 178, and Jacoby in ªReckoningWith Company Unions: the Caseof Thompson Products,1934± 1964,º Industrial andLabor Relations Review , 43(1989), 19±40. Also seeHoward Gitelman, ªWelfareCapitalism Reconsidered,º LaborHistory , 32 (1992), 5±31. Samford Jacoby in ModernManors: Welfare Capitalism Since the New Deal (Princeton: PrincetonUniversity Press, 1997) reaches more positive conclusionsbut nonethe lessportrays Welfare Capitalism as primarily an employerdefense against ª laborism and statismº(4). 8Thehigh-performance workplace model is describedin Commission on the Futureof Worker± ManagementRelations, Fact Finding Report (Washington, DC: GovernmentPrinting Of® ce, 1994), Chapt. 2;David Naidlerand MarcGerstein, ª DesigningHigh-Performance Work Systems: Organization, People, Work, Technology,and Information,ºin David Naidler, MarcGerstein, and Robert Shaw, eds., Organizational Architecture (San Francisco:Jossey-Bass, 1992),110± 132; Bruce E. Kaufman, ªThe Growthand Development ofa Nonunion Sectorin the Southern PaperIndustry,º in Robert Zieger,ed., Southern Laborin Transition, 1940±1995 (Knoxville:University of Tennessee Press), 295± 329. 9Theterms ª employment management,ºª labor management,ºand ªindustrial relationsmanagementº werealso frequentlyused terms in the 1910s±1920s. In recent years personnel management ismore often calledhuman resourcemanagement. TheCase forthe Company Union 325

Several pointsabout this statementare relevant. First, it highlights theconcept of ª the labor problem,ºthe anchoring idea aroundwhich all discussionsof labor andemploy- mentissues revolved in theyears uptothe Great Depression. As initially conceived,the labor problem wasa unitary constructand connoted the generalized struggle between labor andcapital, andthe con¯ ict arising therefrom,over controlof thetwin processes ofwealth creation anddistribution. After the turn of the century, the concept broad- enedinto a plural form ofªlabor problemsºin therecognition that labor problems take many distinctforms, such as high employee turnover,low work effort, poverty-level pay, strikes,and unsafe working conditions,and that theseproblems adversely affect both employers andemployees. 10 The nextpoint concernsthe progression ofacademic andpractitioner thinking onthe possiblemeans to ameliorate or solvelabor problems. By thelate 1920s, it waswidely agreed that therewere three conceptually distinct solutions to labor problems: ®rst,the workers’ solutionÐtrade unionismand collective bargaining; second,the employers’ solutionÐpersonnelmanagement andassociated practices; and third, the community’s solutionÐprotective labor legislation andsocial insurance. 11 Asindicated in theabove- citedstatement, the ® rst ofthese proposed solutions to be extensively focusedon was the workers’ solutionof trade unionismand collective bargaining. This line ofresearch wasbegun in earnestin the1880s with thepublication ofRichard T.Ely ’s The Labor Movementin America andwas carried onby alarge numberof scholars after theturn ofthe century, the most in ¯uential ofthese writers being JohnR. Commonsand colleaguesof the ª WisconsinSchool.º 12 Next in order ofdevelopment was the community ’ssolutionof protective labor legislation andsocial insurance.This secondsolution to labor problems wasagain pioneeredby Ely andCommons, as illustrated by their role asfounders and of® cers of aresearchand lobbying group createdin 1906 called theAmerican Associationfor Labor Legislation (AALL). 13 The AALLwas widely recognizedfor thenext three decadesas the most in ¯uential voice in America for protective labor legislation, suchas lawsfor minimum wages,maximum hours,child labor, andindustrial safety,and for social insuranceprograms, suchas workers ’ compensation,unemployment insurance, national health insurance,and old age insurance(social security).Commons ’ leading role in this movementis also illustrated by his nationally recognizedtext onlabor law, co-authoredwith fellowWisconsonite John B. Andrews, Principles ofLaborLegislation .14 The third solutionto labor problemsÐ theemployers ’ solutionof personnel manage- mentÐwas the last tobe developed, and did not begin totake form until theearly± mid-1910s. Oneof the principal precursorsof personnel managementÐ scienti®c managementÐ had muchearlier roots,however, in thewritings ofFrederick Taylor. It is instructiveto note that Taylor ’s®rstpublished paper onscienti® c management was

10William Leiserson,ª Contributions ofPersonnel Management to Improved Labor Relations,ºin WertheimLectures on Industrial Relations (Cambridge, MA: HarvardUniversity Press, 1929); Bruce E. Kaufman, Origins andEvolution ofthe Fieldof Industrial Relations in the United States (Ithaca: ILRPress, 1993). 11GordonWatkins, An Introduction to the Study ofLabor Problems (NewYork: Thomas Crowell,1922); J.A. Estey, The LaborProblem (NewYork: McGraw-Hill,1928). 12Richard Ely, The LaborMovement in America (NewYork: Thomas Crowell,1886). 13David Moss, Socializing Security: Progressive-EraEconomists andthe Origins ofAmerican Social Policy , (Cambridge, MA: HarvardUniversity Press, 1996); Bruce Kaufman, ªLabor Marketsand Employment Regulation: TheView of the `Old’ Institutionalists,ºin BruceE. Kaufman, Government Regulation ofthe Employment Relationship (Madison, WI:IndustrialRelations ResearchAssociation, 1997),11± 55. 14John R.Commons and John Andrews, Principles ofLabor Legislation (NewYork: Harper,1916). 326 B.E.Kaufman

entitled(emphasis added),ª APieceRate System,Being aPartial Solutionto the Labor Problem.ºAs is well known,Taylor soughtto solve the labor problem by promoting cooperationbetween labor andcapital anda win-winoutcome of greater ef®ciency and higher pro® tsand wages by discovering andimplementing through scienti®c research theª onebest wayº to industrial management andorganization design. 15 The verdict ofacademic andpractitioner writers after themid-1910s wasthat Taylor’ssystemhad neglectedthe role ofthe ª human factorºin thepractice of management. 16 Asa result,a newapproach topeople management emergedin the mid-1910s underthe rubric ofª personnelmanagement,º which became one of the cornerstonesof the new employment modelput in place by progressive nonunion employers in the1920s. And,interestingly, justas Commons and colleagues at Wisconsinplayed aleading role in thedevelopment of research and practice onthe other twosolutions to labor problems, sotoo did they play aleading role in thedevelopment of the employers ’ solution,as ultimately expressedin theª high- performanceºpersonnel /HRMmodelof Welfare Capitalism. 17

TheWelfare Capitalism HRM Model Writing in 1919, management consultantand practitioner DudleyKennedy observed: Only afewyears ago, someof the more progressive large concernsbegan to considerthe labor questionas a problem. They began tosense the fact that they had beenlargely busiedwith themechanical and® nancial sidesof the business,allowing thehuman sideto drift whereit would.This drifting policy wasnot conscious, but rather oneof uninformed indifference and a lack of appreciation ofthegrowing complexity oftherelations breeding ¼industrial unrestand general distrust¼ Ihave myself beenalmost dumbfoundedto ® nd howfew large employers ofworkers have any de®nite constructive labor policy ¼ninety-ninetimes outof ahundred,¼ he[the employer] will admit that he has only anegative policy or apolicy ofexpediency. 18 Why wouldemployers take sucha lackadaisical approach tolabor management? Kennedyattributes it toª uninformedindifferenceº ; labor economistSumner Slichter, astudentof Commons and highly respectedobserver oflabor matters,provides a differentexplanation: employer neglectof labor wasa largely rational, strategic human resourcemanagement policy takenin light ofprevailing economicconditions, legal constraints,social morays, andproduction methods. According to Slichter, ªTo the abundanceof cheap immigrant labor are primarily attributable thetwo outstanding featuresof American labor policy beforethe war [World War I(WWI)]Ð thetendency toadapt jobsto men rather than mento jobs, and the policy ofobtaining outputby driving theworkers rather than developing their goodwill andcooperation.º He goes

15Daniel Nelson, FrederickW. Taylorand the Rise ofScienti® cManagement (Madison, WI: Universityof WisconsinPress, 1980). 16Robert Valentine,ª TheProgressive Relationship BetweenEf® ciency and Consent,º Bulletin ofthe TaylorSociety (Nov. 1915),3± 7; John R.Commons, Industrial Goodwill (NewYork: McGraw-Hill,1919). 17BruceKaufman, ªJohn R. Commons: HisContributions to the Founding and EarlyDevelopment of the Field ofPersonnel/ HRM,º Proceedings ofthe Fiftieth Annual Winter Meeting ,IndustrialRelations ResearchAssociation (Madison, WI: IRRA, 1997),328± 341. 18Dudley Kennedy,ª Employment Managementand IndustrialRelations,º Industrial Management , No. 5(1919), 354±355. TheCase forthe Company Union 327 onto say, ª With labor policies socrude and simple, industrial relations werenot believed torequire theattention of highly paid experts.The handling ofmen was largely left tothe department foremen, who were free to hire, `® re,’ andpromote asthey saw® t,who set piece rates, and who often possessed considerable discretion in ®xing hourly rates ofpay.º 19 Whether employers ’ ªcrudeand simpleº labor practicesprior toWWI werethe productof indifference or strategy is ofsecondary importance for this discussion.What is important is that both Kennedyand Slichter are in agreement that employers investedlittle attentionand resources in labor management, re¯ectedin alargely informal, unscienti®c, and often haphazard andcapricious setof personnel practices. Asis well known,the World War Iyears usheredin afundamental,almost revol- utionary change in leading-edge management thinking andpractice with respectto labor. Andas is oftenthe case with paradigm shifts,this fundamentalchange wasthe productof both eventsand new ideas. In particular, theproduction demands of the war createda labor shortage in 1917± 1918. The labor that had beenso cheap andabundant wasnow scarce and dear. The drive systemof motivation that had effectively coaxed workeffort out of a workforcefearful for their jobsnow resulted in awaveof strikes, loa® ngonthe job, and sky-high rates oflabor turnover. 20 Dealing with theseproblems along with anemergent social movementduring thewar among all major classesof Americans for greater ªindustrial democracyºled most employers tofundamentally rethink their labor policy. Employers wereimmediately ledto consider alternative modelsof personnel/ HRM, butat thestart ofthe war only twoalternatives existed.One was the traditional system oflabor management that wasnow ineffective and socially suspect,while theother was someform ofTaylor ’sscienti®c management with itsemphasis onan engineering approach todiscovering theª onebest wayº to managing employees.The employers ’ intellectual cupboardwas thus noticeably bare ofnewideas with thepotential tosolve their many labor problems. Intothese lacunae stepped a numberof progressive thinkers onmanagement practice,including nonacademicsuch as Robert Valentine, LouisBrandeis, Daniel and MeyerBloom® eld,Ordway Tead,and Mary Parker Follett, andseveral academics, suchas Joseph Willits andPaul Douglas. The personwho commanded the most credibility andnational name recognition,however, was John R. Commons.From 1913 to1915 Commonsserved as one of the seven members ofthe Commission on Industrial Relations,a presidential-appointed body charged with investigating the causesof industrial unrest.From this experienceCommons developed an interest in themanagement oflabor. The ®rstproduct of major importance washis book Industrial Goodwill (1919),21 followedby asecondbook, Industrial Government (1921)22 anda seriesof articles onsubjects such as pro® t-sharing, training, and unemploymentinsurance. The outcomewas that by theearly 1920s Commonswas widely regarded bymany asthe leading academic expert onthe new ® eldof personnel/

19Sumner Slichter, ªTheCurrent Labor Policiesof American Industries,º Quarterly Journal ofEconomics (May 1929),393± 435. 20See Jacoby, Employing Bureaucracy . 21John R.Commons, Industrial Goodwill (NewYork: McGraw-Hill,1919). 22Industrial Government (NewYork: MacMillan,1921). 328 B.E.Kaufman

human resourcemanagement. 23 Evidenceof this factis that noacademic person wasquoted and cited more oftenin thepersonnel literature of1915± 1925 than Commons.24 In his book Industrial Goodwill ,laudedin the Bulletinof theTaylor Society asin ªaclass ofits ownºwith respectto insight onthe management ofindustrial relations, Commons developsfour themes that form notonly thefoundation of the Welfare Capitalism modelbut also today ’smodelof human resourcemanagement. 25 Thesethemes are: the role ofemployees as organizational assetsor ªhuman resources,ºalternative strategic approaches tolabor management, theessential role ofemployment securityto successful operation ofa ªcooperativeºor ªhigh-performanceºstrategy, andthe equally essentialrole ofproviding an organizational channelfor employee voice andparticipation in theoperation ofthe enterprise. Further, Commonsdescribes in Industrial Goodwill ®ve alternative modelsor paradigms ofemployment management. The ®rst twoÐthe ª commodityºmodel andª machineºmodelÐ correspond to the traditional andscienti® c management approaches previously discussed;the latter threeÐthe ªpublic utility,ºª goodwill,ºand ª citizenshipºmodelsÐ represent new strategic concep- tualizations ofpersonnel/ HRM.The public utility modelviews workers as human resourcesÐa term usedby CommonsÐto be conserved through government regulation ofemployment conditions;the goodwill model emphasizesthe importance ofeliciting employee cooperation andwork effort through policies offair treatment andmutual gain; andthe citizenship modelviews the ® rm asa form ofindustrial government where workersare given avoice in thedetermination ofthe terms and conditions of employ- mentand protection from arbitrary andcapricious treatment. Employers ofthat era didnot, of course,read Commons ’ Industrial Goodwill and then go back tothe factory andcreate a newWelfare Capitalism labor policy. Buthis ideasÐand those of other progressive thinkerson the practice ofmanagementÐ did discernibly seepinto the management practitioner literature andhelped frame the debateand discussion on personnel/ HRMpractice over thedecade of the 1920s, and assuch provided an intellectual andideological rationale for anewpersonnel/ HRM paradigm. Butideas are only oneblade ofthe metaphorical scissorsthat determinesthe directionof management policy andpractice, theother is thepressures and incentives ofreal worldevents. Reminiscentof today ’smanagement andindustrial relations literature, writers in the 1920s startedout justifying theneed for anewapproach tomanaging labor by noting theintensi® ed pressures of competition in themarketplace, theconcomitant need for greater ef®ciency and innovation, and the essential role therein ofincreased cooperation andteam workbetween management andlabor. 26 Facedwith increasedcompetitive pressurein productmarkets, oneoption for employers wasto go back topre-war labor practicesthrough intensi®ed drive methods,production speed-ups, and a minimalist

23Kaufman, ªJohn R.Commons: HisContributions to the Founding and EarlyDevelopment ofthe Field ofPersonnel/ HRM.º 24Ina massive 365-pagebibliography ofthe literatureof personnel management published in 1925[W. Rossi and D.Rossi, Personnel Administration: ABibliography (Baltimore: Williams and Wilkins, 1925)], Commons’ workreceives more citations than any otherwriter and twiceas many as the second-mostcited person(Ordway Tead). 25Thesethemes are elaborated upon in BruceE. Kaufman, ªTheTheory and Practiceof Strategic HRM and Participative Management:Antecedents in EarlyIndustrial Relations,º Human Resource Management Review (forthcoming). 26Seefor example W. Donald and E.Donald, ªTrendsin PersonnelManagement,º HarvardBusiness Review,No. 2(1929), 143±155. TheCase forthe Company Union 329 approach topay, bene®ts, and working conditions.Particularly after thedepression of 1920± 21 endedthe labor shortage spawnedby thewar andthe threat ofmilitant unionism,many employers didin factrevert back tosome variation ofthe pre-war model.27 Oneof the® rstactions taken by these® rms wasto abolish their newlyformed personneldepartments and lay offthe personnel manager andstaff. For these® rms, then,their suddenconversion to progressive HRMduring thewar wasmuch more of astop-gap tactic than anewlong-term strategy. Butother companiesstuck with thenew paradigm andstrengthened and re® nedit over thedecade. Slichter explains their rationale asfollows: Possibly themost important determinantof post-war labor policies,at least during thelast fouror ®ve years,has been the growing realization by managers ofthe close relationship betweenindustrial morale andef® ciency. When the severedrop in pricesand in salesduring 1920 and1921 causesmanagers to searchmeticulously for methodsof cutting costsand of increasing sales,many wayswere found in which theworkers could help if theywanted .28 Asigni® cantelement of the employer community thussought to gain competitive advantage through along-runpolicy that soughtto increase productivity andquality andreduce turnover andstrike costsby emphasizing acombination ofCommons ’ four non-commodityemployment management modelsÐapplication ofscienti® c principles toorganizational designand personnel practices, treating employeesas valuable organizational assets,winning labor ’sgoodwill, andgiving workersrights ofdueprocess and anopportunity toexercise a voice in thegovernance of the ® rm. Thesetheoretical preceptswere operationalized in thefollowing manner: 29 · Introductionof scienti® c principles intopersonnel /HRMmanagement, suchas employee selectiontests, job evaluation methods,and creation ofaspecialized staff functionto plan andoperate personnelprograms. · Introductionof human relations practices,including supervisor training in inter- personal relations, adoptionof non-punitive methods of discipline, and employee recognition awards. · Extensiveemployee welfare or ªserviceºbene® ts, such as health insurance,old age pensions,job security, and promotion from within. · Creationof an organizational body,such as a workscouncil, shop committee, or employee representationplan, topromote employee voice andparticipation, improved communicationbetween management andlabor, anda more equitable resolutionof disputes. This newHRM modelwas clearly seenat thetime asan innovative andnoteworthy developmentin management practice: Slichter stated,for example, ªModernpersonnel methodsare oneof the most ambitious social experiments ofthe age,º 30 and William Leisersonconcluded his review ofemployer labor policy in the1920s with the observation that, ª¼whenthe contributions of Personnel Management are recapitu- lated in somesuch fashion as we have attempted,the result is bound to be an impressive sum.º 31 27Jacoby, Employing Bureaucracy . 28Slichter, ªTheCurrent Labor Policiesof American Industries,º 401. 29Milton Derber, The American Ideaof Industrial Democracy, 1865±1965 (Urbana: Universityof Illinois Press,1970); Kaufman, TheOrigins and Evolution ofthe Field ofIndustrial Relations in the UnitedStates. 30Slichter, ªTheCurrent Labor Policiesof American Industries,º 432. 31Leiserson,ª Contributions ofPersonnel Management to Improved Labor Relations,º164. 330 B.E.Kaufman

But wasn’tWelfare Capitalism essentially afacadewhich disguised and protected the employer’sunilateral powerover labor? Not so,says Slichter, whoobserved instead ª the newpolicies have materially strengthenedthe bargaining positionof labor,º the reason being ªbecausethey have madethe ef® ciency of labor dependmore than ever beforeupon thewillingness of men to do their best.º 32 Leisersonechoes this conclusion,when he observesof NERPs in the1920s: ªThe powerof the workers and their representativesin controlling work,pay, anddiscipline keepsincreasing thelonger therepresentation plans operate;and when some employers, frightened by all this inevitable trend,have tried to abolish theplans, strikes have occurredto prevent such action.º 33 What about thecharge that Welfare Capitalism waslargely motivated by thedesire toavoid unions,rather than todevelop and sustain employee goodwill through what is today called aªmutual gainsºstrategy? Idonot think any disinterestedperson at the time deniedthat onemotive behindthe development and spread of the Welfare Capitalism modelwas the desire to avoid trade unionsand strikes. And, further, the catalytic impetusat anumberof companies was less a strategic considerationof winninglabor ’sgoodwill than it wasa short-run,reactive effortto remain nonunionor rid thecompany oftheunions already there.Recognizing this reality, however,it isalso truethat, oncethe union threat recededafter thedepression of 1920± 21, employersÐ anda growing numberÐmaintained andstrengthened the new Welfare Capitalism paradigm for strategic reasonsthat increasingly had lessto dowith unionavoidance per se than it didwith fostering goodwill, loyalty andproductive ef® ciency. 34 Twopieces of evidencemay becited. The ®rstis Slichter ’sobservation (emphasis in original): ª In short,every aspect of the post-warlabor situation might be expected to cause employers to abandon their newly acquired interestin labor ’sgoodwill and torevert to pre-war labor policies .Andyet, this has not happened.On thecontrary, theefforts to gain labor ’sgoodwill have steadily grown.º Hegoeson tosay that ªdreadof labor troublesºremained anever-present concern, but ªpossibly themost important determinantof post-warlabor policies,at least during the last fouror ®ve years,has beenthe growing realization by managers ofthe close relationship betweenindustrial morale andef® ciency.º 35 Asecondpiece of evidence concerns the ª high wageºpolicy developedby Welfare Capitalist employers during the1920s andmaintained for several years during the Depression.The traditional ªcommodityºapproach tolabor wasto ª drive ahard bargainºand pay aslow a wage asthe market permitted.In the1920s, however,a new theory gained credencethat it wasactually in theemployer ’sinterestto pay high (above

32Slichter, ªTheCurrent Labor Policiesof American Industries,º 421; Leiserson, ª Contribution of PersonnelManagement to Improved Labor Relationships,º155. 33Ina similar vein, ErnestBurton concludes(254, emphasis in original), ªfewfacts about employee representationare more signi® cant than those which indicatehow it has contributedto the development ofpower for employees and management jointly. Powerin the senseof capacity foraccomplishment developed through common undertakings isa most notable achievementof employee representation.º See ªContributions ofEmployee Representationto ManagerialObjectives,º in HenryMetcalf, ed., Business Management asaProfession (Easton: HivePublishing, 1927),249± 273. 34MaryParker Follett statesin this regard(178), ªIthink, therefore,we may say that, though the employeerepresentation movement beganpartly as aconcession,partly to make things gomoresmoothly, partly to countertrade unions, today it isconsidered by many men as an asset, as an essentialpart ofsound organization.ºSee ª TheIn¯ uence of Employee Representationin aRemolding ofthe AcceptedType of BusinessManager,º in L.Urwickand H.Metcalf,eds., Dynamic Administration: The Collected Papersof MaryParker Follett (NewYork: Harperand Brothers, 1940),167± 182. 35Slichter, ªTheCurrent Labor Policiesof American Industries,º 396± 397, 401. TheCase forthe Company Union 331 market) wages,since this augmentedthe purchasing powerof employees who, in turn, thenhave the® nancial wherewithal topurchase the products of industry. Had union avoidance beenthe primary motivation behindpaying high wages,one would reason- ably expectthat with thedecline in theunion threat over thedecade that employers wouldhave seizedthe opportunity tocut wages, particularly sinceprices were falling anda surplusof labor wasavailable. Butthe large Welfare Capitalist employers didnot, andindeed desperately sought to maintain wagesduring the® rstyears ofthe De- pressioneven when sales and production had plummeted(in 1931 thesteel industry wasoperating at 15% ofcapacity). Only in thefall of1931 didthese companies ® nally succumbto the pressure of de¯ ation andcut wages. The millions ofdollars spentby Welfare Capitalist employers onprotecting wage rates,as well asavoiding layoffs through worksharing, is tangible evidenceof the strategic investmentthey werewilling tomake in employee goodwill. 36 That this investmentlater turnedsour is lessan indication that Welfare Capitalism or its implementation wasinherently defectivethan it isa testamentto the power of JohnR. Commons ’ insight adecadeearlier that unemploymentand job insecurity are thegreatest menacesto a cooperative, mutual gains strategy. 37 Unfortunately,it took themost calamitous depressionin thenation ’shistory toprove him right.

EmployeeRepresentation in theWelfare Capitalist Model Employee representationwas seen by both advocatesand critics asonly onepart, albeit themost far-reaching andconsequential, of theWelfare Capitalist modelof personnel / HRM.Likemodern-day proponents of strategic human resourcemanagement, the progressive management theoristsof the 1920s didnot see employee involvement asa stand-aloneactivity. 38 Rather, it wasenvisioned as one part ofa coordinated,synergistic strategy totransform anadversarial employer± employee relationship intoa cooperative, mutual gain relationship. For this reason,John LeitchÐ an early evangelist for employee representationÐcounseled that arepresentationplan shouldalso beaccompanied by a pro® t-sharing plan. 39 Likewise,a numberof ® rms that installed employee representationplans also establisheda personneldepartment and instituted supervisor training. 40 The central purposeof employee representation,and all theother accoutrementsof Welfare Capitalism, wasuniversally agreed tobe the engenderment of cooperation and a unity ofinterests in theworkplace. 41 W.T.Holliday, Presidentof the Standard Oil Company ofOhio, states,for example: ªIt [employee representation]originated asa

36HenryWilliams, ªHighWages and Prosperity,º Industrial Management ,No. 6(1927), 325±327; Kaufman, ªWhy the WagnerAct?: Reestablishing Contact with its OriginalPurposeº in David Lewin et al., eds., Advances inIndustrial andLabor Relations ,Vol. 7(Greenwich,CT: JAI Press,1996), 15± 68; Brody, ªTheRise and Declineof Welfare Capitalism.º 37Commons, Industrial Government , 263± 272. 38SeeMary ParkerFollett, ªThePsychology ofConsent and Participation,ºreprinted in H.Metcalfand L.Urwick,210± 229, and P.Wrightand G.McMahan, ªTheoreticalPerspectives for Strategic Human ResourceManagement,º Journal ofManagement ,35(1992), 295±320. 39John Leitch, Manto Man:The Story ofIndustrial Democracy (NewYork: Forbes, 1919). 40See Jacoby, Employing Bureaucracy ,and Edmund Grayand C.Ray Gullett,ª Employee Representation at Standard Oil Company ofNew Jersey: A CaseStudy,º Occasional Paper 11 (Baton Rouge:College ofBusiness Administration, 1973). 41SeeNational IndustrialConference Board, Experience with WorksCouncils in the United States , Research Report Number 22(New York: National IndustrialConference Board, 1922);Clarence Hicks, My Life in Industrial Relations (NewYork: Harper,1941). 332 B.E.Kaufman

part ofthe development of modern management, for therealization that mutual understandingand cooperation between management andthe men were necessary for soundand ef® cient operation: that therecould not be a proper andeffective organiza- tionunless its menfelt that they werebeing fairly andjustly treated and had proper opportunity for their complaints andadvice tobe heard.º 42 Similar sentimentsare voicedby E.K.Hall (1928), Vice Presidentof Personnel at AT&T. 43 Hestates that employee representationoriginated from ªthetheory that it ought tobe possible to uniteevery elementin theindustry and tie it uptight for coordinated,effective action.º For him employee representationpromotes a unity ofinterest, con® dence between management andworkers, provision ofan outlet for orderly andequitable resolutionof disputesand grievances, andreplacement ofthe military-type hierarchial ªcommand andcontrolº model of the business organization with anewtype that emphasizes delegation ofresponsibility andshared decision-making. Critics ofemployee representationheavily discountmanagement rhetoric onthe subject,however, as hopelessly tainted by self-interestand wishful thinking. But,again, one® ndsconsiderable con® rmation for themanagement positionin thewritings of Commonsand colleagues. Commons states 44 in Industrial Goodwill ,for example, that: ªThere isno conclusive reason why constitutionaldemocracy may notstart with the employer aswith theemployees. It dependson his goodfaith andgood willº . Echoing theposition of Hall, Commonsstates in Industrial Government that democracyin industrydoes not meanemployee participation in theexecutive function of manage- mentor asigni® cantsharing in therewards and risks (pro® tsand bankruptcy) of business.Indeed, Commons is adamant that management musthave ®nal authority to runthe business for noorganization canbe run by consensusnor is thehistorical record encouraging that employeesas a classpossess either theskills or perspectiveto manage industry.But authority, hesays, must be accountable and subject to the rules of law, whichof course harks back tohis ªcitizenshipºmodel oflabor management. Thus, while management mustmaintain controlover theª executiveºfunction of industrial government,Commons advocates employee participation in theª legislativeºand ªjudicialºfunctions. Whatever theform ofworker organization, its functionis to allow employeesto participateÐ notnecessarily through aformal processof voting, but through discussion,problem-solving, andinvolvement in themaking andimplementing ofall therules and activities that directly affectstheir worklives, beit the determination ofwage levels,the scheduling of vacation days,or theplanning ofthe company picnic. Seenin this light, employee representationwas much more than adressed-upunion avoidance device.Instead, employee representationwas a central componentof a new personnel/HRMmodelthat soughtto enhance organizational performance andgener- ate awin-winoutcome for both employers andemployees. This modeltoday goes underthe rubric ofa ªhigh-involvementºor ªhigh-performanceºworkplace, but in the 1920s wasmost often referred to as a ªgoodwillºmodel of employer± employee relationsÐ following onthe in ¯uential writings ofJohn R. Commons.The theory of employee representationthus rests on ahighly credible foundation,both thenand now. Of course,theory is onething, andaccomplishment another.It is tothe latter Inow turnattention.

42W.T. Holliday, ªEmployee Representation,º Personnel,10(May 1934),99± 104. 43E.K.Hall, ªWhat is Employee Representation?,º Personnel,4(Feb. 1928),77, 79± 83. 44Commons, Industrial Goodwill , 113. TheCase forthe Company Union 333

Accomplishmentsof Employee Representation The secondarea ofthe historical recordthat requiresreexamination isthe accomplishmentsof employee representation.The conventionalwisdom among labor historians is that employee representationwas largely aunionavoidance devicethat contributed little tothe advancement of workplace productivity or improved termsand conditions ofemployment for workers.The assessmentone reaches on the accomplishments and shortcomingsof employee representationdepends critically onthe time period exam- ined,a point madepreviously by Daniel Nelson.He distinguishesthree different phases ofthecompany unionmovement: World War Iandimmediate aftermath; theWelfare Capitalism period ofthe 1920s; andthe 1933± 35 period ofthe New Deal. During the® rstphase, the large majority ofNERPs were imposed upon employers by edictof the National War Labor Board andthe Shipbuilding Labor Adjustment Board, while in thelatter phasethe majority ofNERPs were established as a hasty responseto Section 7(a) ofthe National Industrial Recovery Act(NIRA). Sincein both casesthe decision of employers toestablish andoperate an NERPwasmade under government compulsionor clear-cutthreat ofunionization, it is notsurprising that mostof them rather quickly atrophied andaccomplished little ofsocial value. Andthis resultwas not surprising toanyone at thetime, for management clearly statedfrom the very beginning that employee representation,to be successful, has tobe a freely chosen decisionby the® rm andentered into with theright spiritÐ i.e.a genuinedesire to cooperatewith labor andseek its goodwill. 45 Theseconditions were not well satis®ed during either the® rst or third phaseof the employee representationmovement. If employee representationis to be judged on its ownterms, the best period for doing sois the decade of the 1920s. Equally important, the1920s wasa relatively stable period andthus better typi® esthe type ofeconomic and political environmentthat employee representationwill normally operate within,at least whenviewed over the long term. Andwhat wasthe record of employee representationin the1920s? There existsa welterof con¯ icting perspectivesand testimonies on the subject. On one hand, for example, employee representationis, to quote a memorable phrase from the1919 AFL convention,ª adelusionand a snare,ºa view reinforcedby scathingly critical case studiesof company unionsreported in trade unionpublicationsÐ e.g. Labor AgeÐ and in booksby unionsupporters, such as Robert Dunn. 46 Butthen there is theopposite endof the spectrum, where one can read in management publications aboutthe miracles workedby employee representation.One author relates,for example, that ªa real spirit ofpartnership seemsto prevail among theworkers. `Herego thepro® ts, ’ sang outone of thetruckers as the big casesof ®nishedcloth werebeing slid downonto the waiting scow,for overnight shipment.º 47 Acredible verdict ontheaccomplishments and shortcomings of employee representation in the1920s requiresmore knowledgeableand disinterested observers. Arguably theperson most quali® edto serve this role isWilliam Leiserson,student of John R.

45National IndustrialConference Board, Experience with WorksCouncils in the United States . 46Robert Dunn, American CompanyUnions (Chicago: TradeUnion Educational League,1927). The articlesin the labor press,such as Labor Age,tendto be polemical. Slichterin aletterto Leisersonin 1925 (Leisersonpapers, Box36) says ofAFL presidentWilliam Green,ª Greenapparently knows verylittle about thesethings [company unions].ºHe goes on to say ofLeiserson, ª Ithought you had made more penetratingobservations than anyone else.º 47AlfredMyers, ª ASuccessfulEmployee Partnership Plan,º Industrial Management ,Nov. 1922,295. 334 B.E.Kaufman

Commons,professor of economics at AntiochCollege, the nation ’sbest-knownlabor arbitrator andmediator in thepre-Depression years, and frequent consultant to leading of®cials in thetrade unionmovement and businessexecutives in industry.Indeed, if either management orlabor had reasonto disqualify Leisersonas judge in this matter ongrounds of partisanship, it wouldhave beenmanagement for Leisersonwas open andfrank in his sympathy for thecause of trade unionism. WhenLeiserson ® rstsurveyed the potentiality ofNERPs in thelate 1910s, he evincedconsiderable skepticism and doubt. 48 Adecadelater, however,his assessment wasfar more positive andoptimistic. Primary evidenceof Leiserson ’sviewson employee representationcomes from private correspondencecontained in theLeiserson papers. In aletter toliberal Taylorist Morris Cookein late 1928, Leisersonmakes clear his sympathies onthe question of trade unionsversus company unions. 49 Hestates,ª Ido notthink that anyonewho investigates thefacts as they actually are canhave theleast doubtthat trade unionismin this countryis at astandstill,if notactually declining ¼º Hethen goes on to say, ª Icertainly will agree with youor with anyoneelse that this ought notto be. I shouldlike tosee something elsehappen; but what wethink ought tobeand what actually is,are twovery differentthings¼ .ºAs scientists we mustclearly point outwhat actually is happening.ºAnd then, for thenext two pages ofhis letter to Cooke,Leiserson goes into some detail: ªemployers have discovereda methodof making theopen shop policy still more effectivethan it has been,by adding toit the deviceof employee representation.ºRather than relying solely onª dictation and economicpowerº the employers ªhave concededa measureof self-government and consultationwith their employees,in order toget more ef®ciency and more cooperation.ºNot only didthese employers liberalize theautocratic natureof the employment relationship, they ªfoundit necessaryat times togive theworkers more moneythan they wouldhave given undera straight openshop policy.º Employers ’ interestswere seento be served by employee representation:ª they [employers] have foundthat this [employee representationand higher wages] paid notonly in reducedcosts but actually in winningmore goodwill andcooperation from their employees.º In aletter tofellow academic LeonMarshall ofJohns Hopkins University, Leiserson says,ª many peoplethink that company unionsare merely asubterfugeand little is to beexpectedof them. My experiencehad shownthis tobe a mistaken view.º 50 And in aletter toRobert Bruere,associate editor of The Survey,Leisersonsays, ª Ihave studied anumberof the plans andhave tried tocompare them andcompare their decisions with thedecisions that are madeunder collective bargaining agreements,and I have beenrather surprisedto ® nda general tendencyto decide and settle cases under Company Unionismaccording topractically thesame principles that are followed undertrade unionagreements.º He goeson to opine: ª Perhaps industrial government andindustrial democracy will beestablished in American industryfrom thetop down by theindustrial monarchsinstead of by revolt from below.Weren ’t many of our political democracieshanded down from above?º 51 Theseare general comments,but Leiserson also goesinto more detail onthebene® ts employeesof that period weregetting from NERPs.Returning tothe Cooke letter, for example, Leisersonnotes that whenemployees ª ®ndthey are getting more money

48William Leiserson,ª Organizingthe Workforce,º Industrial Management ,(June 1919),503b± 503e. 49LeisersonPapers, Box9, datedNov. 13,1928. 50LeisersonPapers, Box26, dated Jan. 30,1929. 51LeisersonPapers, Box6, datedMay 18,1926. TheCase forthe Company Union 335 underthe representation plan, ¼theappeal ofthe union organizer that theunion will get more moneyfor them naturally losesmuch of its effectiveness.ºHe goes on to explain: ªButthis ofcourse is notthe only reasonwhy many workersprefer company unionismto trade unionism.A more important reasonthan wagesis the archaic structureof theAmerican trade unions,ºand ª On top ofall this,I have tried topoint outin my speechesand writing that thedevelopment of personnel and industrial relations departmentsin industrial plants has given theemployers asetof people to handletheir labor who,whatever may besaid of their weaknesses,are onthe whole superior in leadership andmanagement ability tomost of the labor leadersof the country.ºNot mentionedin theCooke letter, but discussed in his article in Personnel, is also this fact:ª Lookat thereports ofgrievances adjustedunder employee representation plans;in mostof them, especially at thebeginning, you® ndtwo-thirds or seventy per centof the cases are settledin favor ofthe employees.º Perhaps thebest summary statementof Leiserson ’sjudgementon the accomplish- mentsand shortcomings of employee representationis containedin his Personnel article. Henotes ® rst that theexperience with employee representationwas quite varied and, ªIn asense,then, almost anything that may besaid about employee representationwill betrue.ºBut, given this caveat, hegoeson to state:ª Ithink, if youtake it asa whole, theunskilled and semi-skilled working people ofthis country,in thelast six years,have obtainedmore ofthe things ¼outof employee representationplans than they have out oftheorganized labor movement¼ thereason the employee representationmovement has grown is becausethe trade unionshave notsucceeded in doing their jobs¼ There iseven evidence that theseworkers sometimes deliberately prefer company unionsto theregular trade unions.º The conclusionI reach from Leiserson ’swritings onemployee representationis that theexperience with NERPsduring the1920s wasindeed mixed butthat onnet they werea positive, constructivedevelopment that bene®ted both theemployers who adoptedthem andthe employees who worked in thosecompanies. And Leiserson was notthe only academic tohold this opinion.In his review ofemployers ’ labor policies writtenin 1929, Slichter spokefavorably ofemployee representationand, in earlier correspondenceto Leiserson, had notedthat its successwas because, ª nowherein the world,as in this country,are employers making suchan intelligent anddetermined effortto keep labor satis®ed.º 52 Anothertestament by anacademic tothe positive contributionsof employee representationis provided by C.CanbyBalderston, dean of the Wharton Schoolat the University ofPennsylvania. In abookpublished in 1935, Balderstonpresents case studiesof the 25 companiesin theU.S. whichhe selected, based on extensive interviewsand on-site visits, as exemplars ofpositive employer± employee relations. Of the20 nonunioncompanies, 14 had someform ofemployee representationplan. The company selectedas having theª soundestworker± management relationsºwas Leeds & Northrup. In explaining selectionof Leeds & Northrup, Balderstonstates (emphasis added):ª It isnatural toexpect that aprogram honoredin this signal fashionwould have theusual arrangements that oneexpects to ® ndin a®rm with advancedpersonnel policies,that is employeerepresentation ,retirement,annuities, group insurance,and systematicguidance of wage rates andpromotions.º 53 Asan example ofthe contribu-

52Slichter, ªCurrentLabor Policiesof American Industryº ; LeisersonPapers, Box36, dated Jan. 19, 1925. 53C.Canby Balderston, Executive Guidance ofIndustrial Relations (Philadelphia: Universityof Pennsylvania Press,1935), 141. 336 B.E.Kaufman

tionsmade by theemployee representationcouncil, Balderston relates that in 1926 the employee delegatesrequested that asystemof old age pensionsbe considered. He describesthe outcome this way:ª Ajointcommittee, ¼ workedon it assiduouslyfor many months,® nally reporting aplan ofold age retirement allowanceswhich was approved andput into operation in 1927.º 54 Numerouspractitioners also wroteon the performance ofemployee representation plans.Not all werecommendatory. The mostcritical wasby W.JettLauck, a liberal labor economistand consultant to the United Mine Workers Union,who concludes that only ahalf-dozenplans met his ªstandardsfor industrial democracy.º 55 Modestly more positive, butstill with signi® cantnegative overtones,was the in-depth case study ofthe operation ofthe Rockefeller Plan at theColorado Fuel andIron Company by BenSelekman andMary Van Kleekof the Russell Sage Foundation. 56 They foundthat theemployee representationplan had madea noticeable contributionto improved living conditionsand the settlement of grievances, butwas nonetheless viewed with apathy andsuspicion by mostof theminers, particularly dueto its lack ofpower on the wage issue. Morepositive assessmentsare reachedby Carroll French andErnest Burton. French, for example, concludesthat ªthemeetings of the joint committees have beenremark- ably successful¼ theburden of the evidence and testimony as to the results of the shop committee agree that it has made for abetterrelations betweenmanagement and men.º 57 In his study,which included on-site visits andreview ofcouncil minutes, Burtonconcludes regarding mostof the trade unioncriticisms ofemployee representation (e.g.management manipulation ofelections, denial ofemployee rights offree speech,intimidation ofemployee representatives)that: ªWehave foundlittle evidence tosubstantiate ¼ thesecharges.º He further concludesthat employee representation, onnet,leads to, ª greater output,increased ef® ciency, and improved morale,ºbut that its mostsigni® cantimpact isto bring about anupgrading in thequality andpractice of management. 58 Among themost favorableÐ andcredibleÐ reports comesfrom Robert Bruere,as- sociateeditor of The Survey,amember ofthe Taylor Society,and card-carrying trade unionist.Although only rarely citedin thehistoriography ofemployee representation, his in-depthcase studies of employee representationat GeneralElectric, Leeds & Northrup, andSperry Gyroscopeprovide revealing glimpses ofboth thestrengths and

54TheWagner Act forced Leeds & Northrup, and the otherprogressive companies citedin Balderston ’s study, to disband theiremployee representation committees. TheAct continues to have the same effect in the 1990s.Two companiesÐ Polaroid and the Donnelly CompanyÐ werenamed in a1984book [Robert Levering,Milton Moskowitz, and MichaelKatz, The 100Best Companiesto Workfor in America (1984)] as oneof ª the 100best companies toworkfor in AmericaºÐ in part becauseeach had aformal system ofnonunion employeerepresentation that promoted employeeparticipation, improved two-way communication, and mutual problem-solving. TheNLRB nonethelesschallenged both plans as violations ofSection 8(a) (2) and the companies wereforced to dismantle them. 55W.JettLauck, Political andIndustrial Democracy (NewYork: Funk and Wagnalls, 1926). 56BenSelekman and MaryVanKleek, Employees’ Representation in CoalMining (NewYork: RussellSage Foundation, 1924). 57CarrollFrench, The ShopCommittee in the United States (Baltimore: Johns Hopkins UniversityPress, 1923),75± 76. 58ErnestBurton, Employee Representation (Baltimore: Williams &Wilkins, 1926),239, 262. TheCase forthe Company Union 337 weaknessesof NERPs. 59 That theformer outweighedthe latter is indicatedin his summary statementof the plan at GeneralElectric ’sWestLynn, MA plant:

By contrastwith theAmalgamated Clothing Workers ofAmerica [citedby Bruere asthe trade uniondoing themost to promote labor± management cooperation andincreased ef® ciency in production],the organization ofthe GeneralElectric employeesunder the Plan ofRepresentation in WestLynnÐ withoutdues, without a treasury, withoutits owntechnical staff,without the essentialsof free initiative exceptin matters ofrecreation andgrievancesÐ makesthe impression ofa bottle-fedand company cradledorganization. And yet,as I have said,the scope of theactivities whichhave beendeveloped under thePlan isso muchwider than thescope of the activities ordinarily developed undertrade unioncollective agreementsthat it is worthmuch not only tothe employeesat WestLynn but to the labor movementin general that this particular infant shouldbe bottle-fed. The GeneralElectric is maintaining at WestLynn a ªservicetest stationº which may make asgreat acontributionto thetechnique of industrial relations asits physical researchlaboratories have made andare making tothe technique and development of the electrical industry.

Oneother sourceof evidence on the contributions of company unionsis available that deservesattentionÐ the opinion ofworkers. When given achanceto vote by the pre-Wagner ActNational Labor Board (NLB)and National Labor Relations Board (NLRB)in 1933± 35, onein threeemployees chose to keep the company unionform of representation. 60 Theseelection results, it shouldbe noted, represent a very skewed sample biasedagainst employee representationsince the intervention of theboards was typically predicatedon the existence of a seriousdispute over theissue of union recognition.In thesix years after passage ofthe NLRA (1935± 1941), company plans andnewly formed independent labor unions(ILUs) had avictory rate ofapproximately 50% in NLRBsupervisedelections. 61 At companieswith particularly successfulem- ployee representationprograms, suchas DuPont and Standard Oil ofNewJersey, AFL andCIO af® liated unionswere unable to gain more than atoeholdamong the employeesdespite intensive organizing effortsand several roundsof NLRB-ordered representationelections. 62

59Robert Bruere,ª WestLynn,º The Survey (April 1, 1926),27. See also ª32,000R.P.M.,º The Survey (Jan. 1,1927);ª AQuakerEmployer Builds aCompany Union,º The Survey (Sept. 1,1928). 60Leo Wolman, Ebband Flow ofTrade Unionism (NewYork: National Bureauof Economic Research, 1936). 61Sanford Jacoby, ªARoad Not Taken: IndependentLocal Unions in the UnitedStates Since1935,º in BruceE. Kaufman and Daphne G.Taras, eds., Nonunion Employee Representation: History, Contemporary Practice, andPolicy (Armonk, NY: M.E. Sharpe, 2000),76± 95. 62As of1947, only 3%of employees at Standard Oil ofNew Jersey opted fortrade union representation. SeeStuart Chase, AGeneration ofPeace: Thirty Years ofLabor Relations at StandardOil Company(NJ) (NewYork: Standard Oil ofNew Jersey, 1947). Jacoby, in ªCurrentProspects for Employee Representationin the U.S.: Old Winein NewBottles?º Journal ofLabor Research (Summer 1995), 387±398, states that in 194685% of DuPont ’sproduction workerswere represented by company unions-turnedinto-independent local unions. 338 B.E.Kaufman

Shortcomingsof Organized Labor Athird area in thehistoriography ofemployee representationthat requiresreinterpreta- tion iswith respectto the shortcomings of the organized labor movementin the 1920s± 1930s. Labor historians are proneto dwell at length onthe shortcomings ofcompany unionsbut only in rare casesgive similar emphasis tothe shortcomings of organized labor. 63 If onejudges company unionsrelative toan idealized modelof industrial democracy orthepractices ofonly themost progressive trade unionsof the 1920s, they inevitably fare poorly andinvite criticism. Butif thecomparison is made betweencompany unionsand many ofthe AFL-af® liated trade unionsof that era, the evaluation ofthe former risesconsiderably. It is well knownthat during the1920s theorganized labor movementlost hundreds ofthousandsof members while workerscovered by nonunionemployee representation plans grew by asimilar amount.Critics ofcompany unionsargue that employer union avoidance policies played asigni® cantrole in thedecline of organized labor. Indicative is thestatement of Senator Wagner that ªthegreatest obstacleto collective bargaining are employer-dominated unions.º 64 Analternative view,however, is that in normal times themajority ofAmerican workershad only alukewarm interestin American trade unions,due in part tothe shortcomings of theunions themselves. This is certainly the positionof both Slichter andLeiserson. Accordingto Slichter, it is incorrectto blame Welfare Capitalism in general, and company unionsin particular, for thestagnation oforganized labor in the1920s. He statesin aletter writtento Leiserson in 1925, for example, ªIdonot regard the company unionas a very satisfactory explanation for thecontinuous decrease in the membership ofthe A.F. of L. during thelast threeyears.º 65 Then,writing fouryears later, hemakes the same point (emphasis in original) ªButhave notthe new personnel policies at least preventedthe spread of unionism and thus are they not indirectly responsiblefor thefall in unionmembership?º And he then answers ª theeffectiveness ofthe new labor policies in checkingthe spread of unionism has notbeen tested, becausein fewcases has adeterminedeffort been made to organize plants in which the newpolicies are found.º 66 Leisersonalso tookthe position that company unionshad little todo with thedecline oforganized labor in the1920s. Hestatesin his previously citedletter toMorris Cooke: Mostof theworkers in employee representationplans wouldhave noplace in aregular labor organization, andif aplace weremade for them,as sometimes happens,they wouldrun into a lot ofjurisdictional disputes¼ thefact is that right nowmany ofthe semi-skilled, unskilled and clerical workersin industry have reasonto feel that they are doing betterwith thecompanies ’ organiza- tionsthan they coulddo with thenational labor organizations ¼wemustnot

63Themost notable exceptionto this statementis the voluminous commentary in the literatureon the problems posed by the craftstructure of most AFL unions. Some labor historians, such as Bernsteinin The Lean Years ,also detailproblems ofmediocre leadership, corruption, and internalautocracy in unions, but such accountsare in the distinctminority. 64Legislative History ofthe National LaborRelations Act , vol. 1, 15. 65LeisersonPapers, Box36, dated Jan. 19,1925. 66Slichter, ªCurrentLabor Policiesof American Industry,º 427. Daniel Nelsonalso concludesthat company unions and tradeunions werelargely noncompeting groupsin termsof industry and type of employer in the 1920s.Seehis ªTheAFL and the Challengeof Company Unionism, 1915±1937,º in Bruce E.Kaufman and Daphne G.Taras, eds., Nonunion Employee Representation: History, ContemporaryPractice, and Policy (Armonk, NY: M.E. Sharpe, 2000),61± 75. TheCase forthe Company Union 339

forget ourhistory. Mostof the working peoplein thebasic industriesare immigrants andchildren ofimmigrants, orelsegreen hands from thecountry, andthere is anincreasing numberof women. The history ofthe handling of thesemasses of workers by thetrade unionsof this countryis notsomething toimpress ontheir mindsthe fact that thetrade unionsare particularly desirousof promoting their interests¼ working peopletold me that they prefer company unionsto the regular trade unionsand I have tried topoint outin my speechesand writings that thedevelopment of personnel and industrial relations departmentsin industrial plants has given theemployers a setof people tohandle their labor who,whatever may besaid of their weaknesses,are onthe whole superior in leadership andmanagement ability tomost of the labor leadersof the country. Finally, Leisersonends with this observation that remains aspertinent today aswhen hemadeit in 1928: ªTheseare thefacts, as I seethem. If they are true,it doesnot do muchgood to point outthat ongeneral abstract principles, trade unionismis better for theworkman, or evenfor industryas a whole,than company unionism.What isneeded is toshow the trade unionsthat this presentsthem with anewsituation requiring the adoptionof entirely newtactics, policies, and new forms of organization, if they are to meetthe new strategy ofemployers.º Leiserson’smentor,John R. Commons,had enunciatedone alternative strategy for organized labor at thebeginning ofthe 1920s, butthe trade unionsÐwith certain exceptions,such as the Amalgamated Clothing WorkersÐ declinedto follow it. In his view,progress in industrial relations isachieved by aselectiveuse of all threeof the previously mentionedsolutions to labor problems. The employer ’ssolutionof progressive personnelmanagement charts theforward course,as it isthe more innovative and istypically adoptedin themost thorough-going way by theminority ofª bestpracticeº employers. Of this group hesays: ª From 10 percentto 25 percentof American employers may besaid to be so far ahead ofthe game that trade unionscannot reach them.Conditions are better,wages are better,security is better, than unionscan actually deliver totheir members.º 67 Although hedid not state it, it isexactly this group ofemployers in the1920s in which employee representationwas concentrated, following asthey werethe Welfare Capitalist personnel/HRMparadigm. Butwhat about the remaining 75± 90% of® rms? Although theproponents of personnel management maintained that with suf®cient time andeducation these companies too couldbe induced to adopt progressive industrial relations policies,Commons knew better.He stated his viewson this matter tothe personnel managers at the1920 conventionof the Industrial RelationsAssociation of America. Hesays: ª Ihave listened hereto what seemedto me to be the most marvelous andkeen discussion of what employers coulddo, of what foremencould do, and of what management coulddo, and Iam ®rmly convincedthat if thesemost informing discussionswe have heard couldbe carried out¼ thecapitalist systemcould be saved, that therewill beno need of unionism or ofrevolution. But we know that will notbe done; we know that youare buta small number¼. There is,therefore, a needfor unionismto supplement management.º 68 Commons’ positionis that therole ofunions and legislationÐ theworkers ’ and community’ssolutionto labor problemsÐ isto establish a¯oor ofminimum labor

67Commons, Industrial Government , 263. 68John R.Commons, ªManagementand Unionism,ºin Proceedings ofthe Industrial Relations Association of America (Chicago: IRAA, 1920),130. 340 B.E.Kaufman

standardsat apoint in time andthen gradually raise this ¯oor over time, while progressive employers (typically nonunion)establish theleading edgeof labor standards.69 What this meanswith respectto trade unionorganizing strategy isquite the opposite,however, of AFL strategy through themid-1930s toorganize thehigh paid, craft workersÐº thearistocracy oflaborº Ð andlet theworkers in thebottom endof the labor market andin themass production industries fend for themselves.The strategy counseledby Commons,on the other hand,was to concentrate on organizing those workerswho most needed the protection offered by collective bargaining, namely the unskilled,semi-skilled, women and minorities, andnewly arrived immigrants. The implication is that company unionshad little todo with thedecline of the organized labor movementin the1920s. Company unionswere predominantly found among those® rms,such as Standard Oil ofNewJersey, General Electric, and DuPont, that wereleaders in employment practices.It istrue that their employee representation plans,along with theplethora ofother personnelpractices usedat thesecompanies, substantially reducedthe interest of the workers in trade unionmembership (a union substitutionstrategy), butsurely this ishard tocondemnas anti-social. Indeed,William Leisersonwell capturedthis thought whenhe observes: ª The weakeningof trade unionismthat has resultedis anundesirable consequence, but who will say thenthat weshould go back tothe days when management neglectedits social responsibilities towardits employees,merely by ®ghting evil conditionswhich have beenremoved? The labor movement¼ if it isweakened by theactivities ofpersonnelmanagement ¼needs tolook toits larger program.º 70 Butlabor didnot look toits larger program in the1920s. The AFLstuckdoggedly toits craft form oforganization andlet nonunioncompanies pioneer a ªverticalº (industrial) form ofemployee organization that appealed more toworkers in mass productionindustries. Similarly, it wasnonunion companies that tookthe lead in establishing permanentin-plant committeesof worker representativesto deal with day-to-day shop¯oor problems, in contrastto the trade unionsthat oftenmaintained contactwith theworkers only through abusinessagent charged with overseeing conditionsin anumberof separate companies.And, further, it wasalso theprogressive nonunionemployers in the1920s whopioneered new employee bene®ts, such as health insurance,pensions, and recreational facilities. While thesenew bene® ts covered only asmall portion oftheworkforce, often suffered from inadequatepay-outs or restrictive eligibility requirements,and sometimes were not what workerswould have freely chosen,they nonethelesswere a notable advancein industrial relations practices. Finally, atrade unionmovement committed to a ªnewprogramº would have had to addresswidespread problems within its ranks regarding corruption,internal autocracy, andrestrictive membership practices. It wouldbe unfair tolay all theresponsibility for thestagnation ofunion membership in the1920s at thedoor of organized labor. Certainly theunions were handicapped by weaklabor laws,hostile courts,and unprincipled useof anti-union weapons by ªOpen Shopºemployers, suchas mass ® rings andpicket line violence.And, furthermore, organized labor didmake certain effortsat innovation,such as the labor± management

69This strategyis also suggestedby HenrySeager in ªCompany Unionsvs. TradeUnions,º American Economic Review (Mar. 1923),3± 13. He concludes that the company union is superiorin promoting ef®ciency and cooperativelabor± management relationsbut that its successdepends on enlightened, forward-thinkingmanagement. Thetrade union, on the otherhand, isrecommended for the ªgrasping type ofemployer.º 70Leiserson,ª Contributions ofPersonnel Management to Improved Labor Relations,º146± 147. TheCase forthe Company Union 341 cooperation program at theB&O railroad andthe establishment oflabor banksand unemploymentinsurance by theAmalgamated Clothing Workers. Butgiven thesepositive accomplishments,it isstill thecase that mostAmerican workersdid not favorably view theorganized labor movementin the1920s andearly 1930s. Indicative ofthis opinionare thesecomments by Thomas Elliot (1992), a professedª NewDealerº and assistant deputy to Frances Perkins in theLabor Depart- mentin theearly years ofthe Roosevelt Administration whostates in his autobiography 71: While Iwasall for upholding workers ’ rights underSection 7(a), andhighly critical ofemployers whodenied them thoserights, Iwasnot automatically pro-union.Far from it. Frequently Iwrotescornfully [to his family in 1933] about theleaders of some of themajor A.F.of L. craft unions,especially in the building trades,calling them ªabunchof racketeers in league with alot ofthe building contractors.ºAnd again: ªIt ’shard tobe enthusiastic about organized labor.ºThose were early comments,but in 1934 Istill felt thesame way: ª I ’d like tosee equality ofbargaining power,but I doubtthe ef® cacy ofany program designedto increase the strength ofthe A.F. of L. asat presently constituted.There isa dearth ofdisinterested labor leaders.If someof thetop mencould be deported,and Sydney Hillman andPhilip Murray anda fewlike that putin charge, thenwe ’dhave aworth-while labor movement.º Seenin this light, company unionsÐdespite their acknowledgedshortcomings and abusesÐwere not as evidently inferior totrade unionsas the critics ofthe former are wontto maintain. Indeed,a well-runcompany unionwas often preferred to anoutside union,as secret ballot representationelections held during 1933± 35 clearly indicate.

TheNIRA Trap Writing in 1929, William Leisersonextolled theaccomplishments of personnel management andapprovingly called employee representationthe most signi® cantpart of theemployer ’sprogram for improved industrial relations.Yet, hardly more than ®ve years later, Leisersonwas testifying beforeCongress in supportof Senator Robert Wagner’sproposedlegislation andits prohibition ofemployer ªdominatedºlabor organizations. Leiserson ’sturn-aroundon the issue of company unionismmirrored a similar reversal ofpublic andpolitical supportfor employee representationin the national polity. Although theevents leading upto the passage ofthe Wagner ActÐand thereasons for its ban oncompany unionsÐhave beentreated in dozensof books and scholarly articles, this area oflabor historiography still doesnot fully capturethe underlying reasonsfor thedemise of employee representation.When these omitted factorsare includedin theanalysis, theverdict onemployee representationchanges substantially. All accountsof labor history during theNew Deal recognizethat thepassage in June 1933 ofthe National Industrial Recovery Act(NIRA) andits Section7(a) guarantee of theright toorganize setin motion theevents leading tothe demise of employee representation.Most of these accounts do not, however, give suf®cient weight tothe macroeconomicpurpose of the NIRA and,later, theWagner Act. 72 This macroeco-

71Thomas Eliot, Recollections ofthe New Deal: When the People Mattered (Boston: NorthwesternUniversity Press,1992). 72But seeColin Gordon, New Deals: Business, Labor,and Politics in America,1920± 1935 (New York: Cambridge UniversityPress, 1994) and Daniel J.B. Mitchell,ª In¯ation, Unemployment, and the Wagner Act: ACriticalAppraisal,º StanfordUniversity LawReview (April 1986),1065± 1095. 342 B.E.Kaufman

nomicpurpose is crucial tounderstanding the NLRA ’sban oncompany unionsand why this ban wasat thetimeÐ andstill remains todayÐ counterproductive.To make my case,a brief overview ofsalient pointsis required. 73 · PresidentRoosevelt and Senator Wagner both concludedthe cause of the De- pressionwas inadequate purchasing powerand that theseverity ofthe slump was exacerbated by acascadingseries of wage andprice cutsÐan outcomethey attributed toª destructivecompetition.º The NIRA wasenacted to stop the downturnand start theprocess of economicrecovery. To accomplish theformer, theNIRA soughtto end destructive competition by stabilizing pricesand wages. Toward this end,the NIRA suspendedportions of the antitrust lawsso ® rms, operating through industryassociations and ª codesof fair competition,ºcould workout price andproduction stabilization agreements. 74 In order tostabilize wages,Section 7(a) ofthe NIRA mandatedthat every codeof fair competition includeminimum wage provisions and,in addition,sought to promote greater unionization andcollective bargaining by guaranteeing labor ’sright toorganizeÐ onthe presumption that unionbargaining powerwould be more successfulin stopping wage cutsat the® rm-level andthat industry-widecollective bargaining contractscould prevent wage cutsat themarket-level. Greater unionization and collective bargaining waseven more important toaccomplishment ofthe NIRA ’s secondgoalÐ economicrecovery. Rooseveltand Wagner believed that recovery dependedon increasing purchasing powerand aggregate demandin theeconomy. To accomplish this they soughtto redistribute incomefrom capital tolabor through collective bargainingÐ onthe presumption that increasedwages would addto consumerpurchasing powerand thus augment spendingand production. 74 · Although criticism ofcompany unionshad begunto surface during thehearings on theNorris± LaGuardia Actin 1931, neither industrial relations in general nor collective bargaining andemployee representationin particular werethe subject of muchdiscussion or debateduring the1932 Presidential campaign and,indeed, the Democratic Party platform andcandidate Roosevelt barely mentionedthem. Little evidenceexists, therefore, of any signi® cantpreexisting public or political oppo- sitionto employee representationprior tothe passage ofthe NIRA. 75 · The NIRA waslaunched with great fanfare,including parades andpatriotic speechesacross the nation. The public wascontinually told that economicrecovery hinged onemployers andworkers acting cooperatively together sothat various economicimbalances couldbe eliminated. It wasthus widely perceivedthat the Rooseveltadministration favored trade unionsand collective bargaining, that these werean important instrumentof economic recovery, andthat theNIRA encour- aged or evenmandated some form ofcollective bargaining. 76 In effect,American

73This discussionis presented in moredetail in Kaufman, ªWhy the WagnerAct?: Reestablishing Contact with ItsOriginal Purpose.º 74Ibid.,and Daniel Fusfeld, The Economic Thought ofFranklin D.Roosevelt andthe Origins ofthe New Deal (NewYork: Columbia UniversityPress, 1956); Charles Roos, NIRAEconomic Planning (New York: Da Capo Press,1989; originally published 1937);Ellis Hawley, The New Deal andthe Problemof Monopoly: AStudy in Economic Ambivalence (Princeton:Princeton University Press, 1966). 75Grant Farr, The Origins ofRecent LaborPolicy (Boulder, Co: Universityof Colorado Press,1959). 76Labor economistDale Yoder states in Personnel andLabor Relations (EnglewoodCliffs, NJ: Prentice Hall, 1938),477 that ªTheAct [NIRA] was widelydescribed as having made collectivebargaining compulsory ¼º TheCase forthe Company Union 343

industrial policy swungovernight from alargely laissez-faire approach toa corpo- ratist or ªcollectivistºapproach. Andone pillar ofcorporatism is abroad-based organized labor movement.Unfortunately for theNIRA planners,America didn ’t have astrong labor movement,so one had tobe quickly puttogether with whatever materials wereavailableÐ per Benjamin Stolberg ’smostperceptively titled article in 1933, ªAGovernmentin Search ofa Labor Movement.º 77 · Organized labor, andparticularly theUnited Mine Workers Union,touted in speeches,placards, andcar caravans that ªthePresident wants you to join the union.ºAlthough theNIRA wasactually neutral onthe issueÐ Section 7(a) protectedthe right tojoin a union,but also allowed workersto join a company- sponsoredorganization ornounion at all, themessage had apowerfuleffect and thousandsof workers rushed to join unions. Without question,a portion ofthis demandfor unionrepresentation was organic, muchlike therush of workers during World War Itojoin unions, and arose from thedeterioration oflabor conditionsduring theDepression, a mounting senseof grievance andinjustice, and disillusionmentwith thebroken promises of Welfare Capitalism. 78 Equally clear, however,is that another portion arosefrom twoquite different motives. The ®rst wasthe belief that unionjoining wasa patriotic dutyneeded to spur economic recovery, per Robert Zieger ’sobservation that in thepaper industry,ª Workers in every sectorseized upon the NIRA promise, asa meansof both bettering their individual lot andof revitalizing theeconomy. Patriotism fusedwith self- interest.º 79 The secondwas the conviction that union-joiningwas necessary if workerswere to have their interestseffectively representedin thepolitical process surroundingthe writing andenforcement of theindustry codes of fair competition. Thus,in this vein,labor economistDavid McCabeobserved in 1934, ªthe Recovery Acthas todate given lessimpetus to organization for collective bargaining ¼than toorganization for political action.º 80 · Mostemployers didnot anticipate theclimactic effectthat Section7(a) wouldhave uponlabor relations, evidencedin part by thefact that little businesslobbying had goneinto deleting Section7(a) from theNIRA bill. 81 Giventhe belated perception ofmany employers that someform ofjoint dealing or bargaining wasnow heavily favored,if notmandated, and their palpable dreadof being organized by AFL unions,hundreds of companies rushed to form employee representationplans, othersresuscitated NERPs that had atrophied in years goneby, andthose with functioningplans oftenmodi® edthem in waysthat wouldhopefully passmuster as agenciesof collective bargaining. · Employers’ rushto set up company unions,coupled with widespreaddiscrimi-

77Benjamin Stolberg, ªAGovernmentin Searchof a Labor Movement,º Scribner’s Magazine (Dec. 1933),345± 350. 78Brody, ªTheRise and Declineof Welfare Capitalism.º 79Robert Zieger, Rebuilding the Pulp andPaper Workers Union, 1933±41 (Knoxville:University of TennesseePress, 1984), 71. In asimilar vein, Slichterin ªTheDevelopment ofNational Labor Policy,º in WesleyMitchell, et al., eds., Studies in Economics andIndustrial Relations (Port Washington, NY: KennakatPress, 1941), 141± 160, says (141)ª Thedepression increased the willingnessof workers to join tradeunions, partly becausethey did not believethat layoffsand worksharing had beenmanaged fairly, and partly becausethey believedwage increases would restoreprosperity by increasingconsumer purchasing power.º 80David McCabe, ªTheEffects of the RecoveryAct upon Labor Organization,º Quarterly Journal of Economics,42(Nov. 1934),52± 78 (Nov. 1985;originally published, 1934). 81Farr, The Origins ofRecent LaborPolicy . 344 B.E.Kaufman

nationagainst unionactivists andrefusals to bargain, ledto a growing adverse public andpolitical reaction.Part ofthis negative reaction wasfueled by asense that employers wereengaged in rank hypocrisy when,on one hand, they supported theNIRA provisions that let companiescollectively determineproduct prices and salesquotas and yet, on the other hand,so stoutly resisted in both principle and practice theability ofworkers to combine in trade unionsto set wages and other termsand conditions of employment. The public also had adif®cult time squaring employers’ adamant resistanceto unions when these same companies had for more than adecadepreached the virtue ofhigh wagesÐa virtue that wasnow made a cornerstoneof economic recovery. · A®nal factor that swungpublic andpolitical opinion against employers andtheir representationplans wasthe willful refusalof some employers toabide by the decisionsof theNational Labor Board, createdby executiveorder in August1933 toresolve disputes arising over Section7(a) andchaired by SenatorWagner. This board, andits successor board, theNational Labor Relations Board createdin 1934, wereempowered to mediate disputesand hold secretballot electionsto determineworkers ’ choiceof representational agent.But some companies, such as Weirton Steeland Bud Manufacturing, either refusedto allow suchelections or to abide by theoutcome, frequently citing thepresence of an employee representation plan asproof they werein compliance with theNIRA. 82 With this background,it isnow possible to see in theCongressional testimony of Leisersonand Wagner onthe proposed NLRA how the events described above came together tospell thedemise of employee representationplans. First, considerLeiserson. The initial point tonote in Leiserson ’stestimonyis that he frames thepurpose of employee representationquite differently than hehad in thelate 1920s. Thenemployee representationwas evaluated largely for its contributionto improved jointrelations within theindividual plant andthe potential for awin-win outcomeof higher pro® tsand wages. But in his testimonyon theproposed NLRA the focusnow shifts to how the relative bargaining strengthof capital andlabor determine thesplit betweenpro® tsand wages. For example, in discussingthe role oflabor organizations, hestates, ª what wewant here is tomake acontract[between labor and the® rm], acommercial contract.ºAnd viewed from this perspective,he ® ndsthe company unionfatally defective:ª For acompany tocome in andsay [to theworkers], `Iwantto be onthe selling endof this through my personnelmanager ’ ¼isobviously todefeat the purpose of the contract.º And what isthe purpose of the contract? He states: thewhole purpose of theN.R.A., it seemsto me, rests on the idea that what weneed is collective organization ofthe people ¼in industry,whether ¼ laborers, or [as] businessmen ¼ Wehave discoveredthat if welet each individual businessman, doing businesson his own¼ thenall sortsof unfair practices creepin. We ®ndthat if laborers competealone, wages go downto $4 a week. Leisersonin his remarks thusmade the case for collective organization ofemployers andemployees in order tostabilize pricesand wages and stop destructive competition. Hethen described the injustice and economic harm resulting from theemployers ’

82IrvingBernstein, The New Deal Collective Bargaining Policy (Berkeley:University of California Press, 1950). TheCase forthe Company Union 345 refusalto allow independentunion representation, saying ofthe latter: ªthewhole recovery program cannot operate with theemployers given themonopoly right to combineto ® xwages,without consulting the employees, without giving theemployees thesame right toparallel theemployers ’ organization.ºAnd with regard tothe former, hestatesthe NIRA is ªmaking it possiblefor theemployers ofthe country to organize nationally into¼ various organizations, todictate collectively wagesto individuals who must,of necessity, bargain against eachother in acut-throatway ¼If youwant anything more calculatedto bring unrest,disorder, discontent, and failure ofthe whole program than that, Idonotknow how you can ® gure anything outbetter than that.º 83 Leisersonhad comefull circle in thespace of ® ve years from arelatively enthusiastic supporterof company-created employee representationplans toa critic whosupported legislation toban them.The irony isthat had therebeen no Depression, or had it ended in 1931± 32, therewould have beenno NIRA andmost likely Welfare Capitalism and employee representationwould have emergedwith enhancedstature and employee approvalÐ given thesubstantial effortsmade to maintain wage rates,prevent layoffs, andother suchameliorative measures. 84 Butthe NIRA wasenacted and, metaphori- cally speaking, theNIRA seta fatal trap for employee representation.The Act® rst inducedhundreds of employers whohad nogenuine interest in employee representation tohastily setup NERPsfor reasonsthat appeared both anti-social andinimical to economicrecovery andthen established criteria for judging therelative merits of alternative formsof labor organizationÐ i.e.the ability tostabilize wagesand redistribute incomefrom capital tolaborÐ that clearly favored trade unionsover company unions.It is thussmall wonderthat Leiserson,and members ofthe polity in general, sawno inconsistency in anabout-face on the issue of employee representation. And,® nally, thereis the position of Senator Wagner oncompany unions.Wagner wasnever a friendof employee representationas Leiserson had oncebeen, but he and Leisersonwere alike in that in 1935 both thought it servedthe purpose of economic recovery toban employer-created plans.Thus, he statesin an article in The New York Times: The company union¼ runsantithetical tothe very coreof the New Deal philosophy. Businessmen are being allowed topool their information and experiencein vast trade associationsin order tomake aconcerteddrive against theevil featuresof modern industrialism ¼If employeesare deniedsimilar privileges, they are notonly unableto uphold their endof the wage bargain, in addition they cannotcope with any problems that transcendthe boundaries ofa single business.The company unionhas improved personal relations, group-welfare activities, discipline,and other matters which may behandled ona local basis.But it has failed dismally tostandardize or improve wage levels,for thewage questionis ageneral onewhose sweep embraces entire industries,or States,or eventhe Nation. Without widerareas ofcooperation among employeesthere can be no protectionagainst thenibbling tacticsof the unfair employer or ofthe worker whois willing todegrade standards by serving for apittance. 85 It is important tonote that Wagner admits company unionsprovide worthwhile

83National Labor Relations Board, Legislative History ofthe National LaborRelations Act ,vols. 1&2,264, 269,2260, 2267. 84Asimilar conclusionis reachedby Brody in ªTheRise and Declineof Welfare Capitalism.º 85Reprintedin National Labor Relations Board, Legislative History ,vol. 1, 22±26. 346 B.E.Kaufman

bene®ts to employees, but he nevertheless advocates banning all ofthem.This inconsis- tencyis readily explicable by keeping in mind theNLRA ’scentral purposeof macroeconomicrecovery. In Wagner ’seyes,the ® rstmacroeconomic reason for banning employer committeesis that theworkers in anonunionrepresentation plan still bargain over wageson an individual basis with theemployer andthus continue to suffer from an inequality ofbargaining power,making it impossible for them toª upholdtheir end ofthewage bargain.ºThe secondreason is that thecompany unionª fails dismallyºto take wagesout of competition becauseits reach is limited toone employer in amarket ofmany. Thus,even though therepresentation plans improve productivity andemployee relations at theplant level, they nonethelessobstruct the more important macroeconomicgoal ofendingdestructive competition andredistributing incomefrom capital tolabor through collective bargaining. The sacri® ceof employee representationfor purposesof macroeconomicrecovery is, in my opinion,suspect on two counts. First, fewmodern-day economists believe that NIRA-type legislation in general, andpromotion ofgreater collective bargaining in particular, isan effectivemethod to end a depressionand restore full employment. 86 The contemporary view ofthe NIRA is that it had at besta small positive impact on aggregate demandÐsince higher wagesand consumer spending is offset by lower pro® tsand less business spendingÐ and a larger negative impact onaggregate supplyÐ sincehigher wagesraises costs of production and increased strikes, and restrictive union workrules lower productivity. Abetterapproach, in themodern view, would have been tokeepnonunion employee representationplansÐ sincethey enhanceproductivity and aggregate supplyÐ andpromote increasedaggregate demandthrough expansionary ®scal andmonetary policy (e.g.tax cuts,expanded public worksspending, lower interestrates). The secondproblematic aspectof Wagner ’spositionregarding company unionsis that it isnot logically consistentwith other positionshe took regarding labor policy. For example, hechampioned the principle offree employee choicein workplace representation.In Congressionaltestimony, Wagner states:ª Whatever themen want to do, within aplant, that is all right, only if it isthe free choice of the men.º 87 Given this philosophical principle, it seemsincongruous for Wagner tothen advocate a ban on employer-sponsoredforms of representation, unless either themacroeconomic rationale for banning company unionsoverrides theprinciple offreechoice or it isimpossible tocreateconditions under which employees can exercise free choice. The latter position is untenable,however, for theNLRA establishedthe secret ballot representation electionprocess to insure workers free choice with regard tounion representation and noobvious reason exists why theballot couldnot be expanded to permit choiceover threeoptions: no representation, union representation, or company-sponsoredrepre- sentation.Wagner knew® rst-handfrom his chairmanship ofthe two pre-NLRA labor boardsthat many workers,if permitted tovote,would choose company representation.

CanadianExperience with Company Unions The ®fth and® nal aspectof the historical recordwith respectto employee representation that has beenslighted in theliterature iswith regard tothe Canadian experience with company unions.In 1944 Canadaenacted federal labor legislation modelledon 86SeeMichael Weinstein, Recovery andRedistribution under the NIRA (1980)and MichaelBernstein, The GreatDepression: Delayed Recovery andEconomic Change in America,1929± 1939 (1987). 87Quoted in Legislative History ofthe National LaborRelations Act ,vol. 1, 440. TheCase forthe Company Union 347 theAmerican NLRA. 88 This legislation includeda provision similar tothe NLRA ’s Section8(a)(2) that prohibited employer domination ofa labor organization, butit narrowedthe NLRA ’sSection2(5) de®nition ofa labor organization toinclude only independentworker organizations establishedfor thepurpose of collective bargaining. Asaresult,employer-created representationplans are legal underCanadian law aslong asemployers donotseek to certify them asagents for collective bargaining or usethem in waysthat obstructthe right toorganize. Unlikethe United States, therefore, Canada neverbanned nonunion representation plans anddozens of them continueto exist to thepresent day. 89 Anexemplar is theJoint Industrial Councilat theImperial Oil Company,Ltd. 90 The Councilis a company-widenonunion plan ofemployee representation,has beenin continuousoperation since1922, andis the closest surviving descendantof the ª RockefellerPlanº established at theColorado Fuel &Iron Com- pany in 1915. The Canadianexperience has several implications with respectto the historiography ofAmerican nonunionemployee representation. · Sincedozens of formal plans ofnonunion representation exist in Canadatoday, it canbe inferred that had theWagner Actnot banned them in 1935 many dozens ofAmerican companieswould also have suchplans. Thus, not only were ªcompany unionsºnot a passing fad,some of the plans establishedin the1920s andearly 1930s wouldundoubtedly have survived andprospered up to the present time. · Only asmall proportion ofCanadian nonunion companies choose to operate formal, company union-likerepresentation plans, such as Imperial Oil ’s Joint Industrial Council.A muchlarger proportion, however,utilize smaller-scale, less formal employee teamsand committees for purposesof employee involvement and participation. 91 Thesecommittees routinely discussterms and conditions of employment, apractice prohibited in theUnited States. The impact ofthe NLRA ’s ban oncompany-dominated labor organizations isthus likely tobe relatively extensiveamong nonunionAmerican companies. · Company unionsin Canadahave nothad an adverseimpact onthe tenor of industrial relations or thewelfare ofworkers. In arecentreview ofcollective bargaining developmentsin Canada,Professor Daphne Taras statesthat company unionismin Canadais ª anonissue.º92 Furthermore, the® nal report recently issuedby atask forceappointed to review federal labor law in Canadamakes no mentionof any problems arising from nonunionforms of employee representation nordoes it proposeany policy change regarding such. 93 Onecan infer that if

88Daphne Taras, ªCollectiveBargaining Regulation in Canada and the UnitedStates: Divergent Cultures,Divergent Outcomes,º in BruceE. Kaufman, ed., Government Regulation ofthe Employment Relationship (Madison, WI:IndustrialRelations ResearchAssociation, 1998),295± 341. 89Daphne G.Taras, ªPortraitof Nonunion Employee Representationin Canada ¼,ºin BruceE. Kaufman and Daphne G.Taras, eds., Nonunion Employee Representation: History, ContemporaryPractice, and Policy (Armonk, NY: M.E. Sharpe, 2000),121± 148. 90Daphne G.Taras, ªContemporary Experiencewith the RockefellerPlan: Imperial Oil ’s Joint IndustrialCouncil,º in BruceE. Kaufman and Daphne G.Taras, 231±258 . 91Anil Verma,ª Employee Involvementand Representationin Nonunion Firms: What Canadian Employers Do and Why,ºin BruceE. Kaufman and Daphne G.Taras, 307±327 . 92Taras, ªCollectiveBargaining Regulation in Canada and the UnitedStates,º 317. 93AndrewSims, Seeking aBalance: CanadaLabour Code, Part I, Review (Ottawa: Governmentof Canada, 1995). 348 B.E.Kaufman

America wereto adopt theCanadian approach tolabor law that theoperation of nonunionrepresentation committees would also fadeinto a ªnonissue.º · Lastly,little evidenceexists that thepresence of company unionsin Canadahas adversely impacted theCanadian trade unionmovement. Union density in Canada,for example iscurrently over twiceas high asin theUnited States (34% versus16%) despitethe fact that theformer permits nonunionplans ofrepresenta- tionand the latter doesnot. 94 Indeed,nonunion representation plans are afertile sourceof new members for someCanadian unions. A leader ofthe Canadian- basedCommunications, Energy, and Paper Unionrecently reported, for example, that one-thirdof the union ’snewmembers have comefrom raids onnonunion councilsand committees. 95 The implication isthat relaxation ofthe NLRA ’s ban oncompany unionsÐcoupled with strengthenedprotections of the right toorga- nizealong CanadianlinesÐ would not adversely impact theAmerican labor movement.

* * * * * * The employee representationplans that emergedand proliferated in American industryin the1920s were,on net, a constructive,positive developmentfor improved industrial relations.Rather than being aªmisadventureºas charged by certain critics,these employee representationplans werea signal stepin theevolution of management thought andpractice away from aªcommodityºmodel oflabor and towarda more humane,strategic, andparticipative model.Nor wouldthese plans have diedout as a passing fadif theWagner Acthad notuprooted them, for they are alive andwell in Canadawhere labor law neverbanned them asin theUnited States. Without themeat-ax approach takento company unionsby theNLRA in 1935, it is very likely that companiessuch as Standard Oil ofNew Jersey, General Electric, AT&T, andDuPont would continue to have someform ofnonunion employee representation. While Ibelieve that theconventional wisdom among labor historians regarding company unionsis far toonegative, Idonot intend that this paper bean uncritical apologia for employee representation.My desireis to balance therecord, not whitewash company unions.Without question,employee representationplans had anumberof ¯awsand were in somecases little more than empty shellsand covert unionavoidance devices.But there is another sideof theemployee representationexperience that is far more positive but,among labor historians,seldom acknowledged. As I have endeavored toshow, employee representationwas in part theleading edgeof a new,more participative andhumane model of employment management that came intovogue among thevanguard ofprogressive employers in thelate 1910s and1920s. Although theend-purpose of this newmodel of personnel/HRMpractices wasadditional pro® t, thepursuit of pecuniary gain neverthelessinduced these companies to install aplethora ofnew employment practices,such as job security, extensive employee bene®ts, supervisor training in human relations, andemployee representation,that measurably improved thelives ofshop¯ oor workers. Andso, what isthe appropriate public policy approach tothe company union question?Sumner Slichter, Ithink, gave thecorrect answer. In his testimonyto

94Citedin Taras, ªCollectiveBargaining Regulation in Canada and the UnitedStates.º 95RegBaskin, ªMyExperience with Unionization ofNonunion Employee RepresentationPlans in Canada,ºin BruceE. Kaufman and Daphne G.Taras, 487±497. TheCase forthe Company Union 349

Congresson Wagner ’sLabor DisputesAct (the forerunner of the NLRA), Slichter states(emphasis added):ª The problem whichimpresses me as overwhelmingly important is notthe one of preventing theformation ofthe so-called ª company union¼ the problem is giving theindependent labor organizations a fairopportunity to compete with theemployee committees and toprovide a methodby which,in an impartialmanner, the wishes, thepreferences of the employees can beascertained .º Afundamentalprinciple, asrecognized early onby Commons,is that abusiness ®rm, if it isto be successful, must have ªmanagementºthat gives ordersto subordinates andwields power in decision-making.The challenge for public policy is toinsure that management doesnot abuse these rights andpowers. And how is this tobe assured?According to Slichter, thekey prerequisite isthat management faceeffec- tive competition ,which is tosay that management will useemployee representationin theª right wayºto the extent that it facescompetition for its workersfrom other ®rms andfor their loyalty from other formsof labor organization. 96 Seenin this light, the abusesand failings ofcompany unionsin thepre-Wagner Actyears stemlargely from thefact that management, or at least somemanagements, did not face suf® cient competition either in thelabor market for workersor in theª marketºfor employee representation. 97 Giventhese forms of competition, employers have considerableincentive to run employee representationplans in waysthat generate mutual gainsÐ surely thedesired goal ofpublic policy andwhat many ofthem accomplished,albeit imperfectly, in the 1920s. The solutionto the company unionproblem in the1930s, in turn,was not to ban them butto use ® scal andmonetary policy torestore full employment (rather than thecartelization ofmarkets approach ofthe NIRA) andto passnew labor law that truly protectsthe right ofemployees to join independent labor unions.As suggested by numerouswriters in the1920s± 1930s, thebest public policy is notª oneor theotherº with respectto company unionsand trade unions,but rather onethat makesboth available in recognition oftheir differentstrengths and weaknesses and the existence of both progressive andreactionary employers. 98 The NLRAwasa signi® cantand much-needed step toward accomplishing part of this policy agenda (protecting theright toorganize), butit seriouslyerred in banning employee representation.This robbednonunion companies and their employeesof a valuable personnel/HRMdeviceto generate socially desirable win-winoutcomes. The only apparent winnerwas organized labor, for its mostfearsome foe was vanquished through legislation, an action justi®ed, paradoxically, in thename of protecting employee freechoice. 99 In thelong run,however, I conjecturethat evenorganized labor islikely aloser.This is partly becausecompetition with employer-sponsoredplans wouldhave forcedthe labor movementto be more responsiveto worker needsand innovative in its ªlarger program,ºand partly becausesome employers wouldhandle their nonunioncommit- teesmaladroitly andthus open the door for successfulunion organization. The latter considerationwas certainly truein thesteel industry in the1930s, istrue in Canadian

96For amoredetailed discussion, seeBruce E. Kaufman, ªDoesthe NLRA Constrain Employee Involvementand Participation Programsin Nonunion Companies?: AReassessment,º Yale Lawand Policy Review,17(1999), 729±811. 97Ibid. 98Paul Douglas, ªShop Committees: Substitutes for,or Supplements to, TradeUnions?,º Journal of Political Economy (Feb. 1921),89± 107; Seager, ª Company Unionsvs. TradeUnions.º 99SeeNelson, ªTheAFL and the Challengeof Company Unionism, 1915±1937.º 350 B.E.Kaufman

industrytoday, and would certainly betrue in theUnited States were it tojointhe rest ofthe industrial worldand give itsemployees the option of nonunion representation. Acorollary, ofcourse,is that labor law hasto also beon apar with that ofother nations in theeffectiveness with which it protectsthe right toorganize. It is probably thecase that theNLRA needsfurther strengtheningin this regard andlegalization ofnon-union committeesshould be contingent on it.