Dutch Works Councils in Times of Transition: the Effects of Changes

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Dutch Works Councils in Times of Transition: The Effects of Changes in Society, Organizations and Work on the Position of Works Councils Jan Kees Looise and Michiel Drucker University of Twente

This article assesses the current position of Dutch works councils within their organizations and within the broader system of Dutch industrial relations. The authors use data from a recently conducted national survey on works councils to establish the impact that societal and organizational developments in the 1990s have had on the formal position and actual in¯uence of the works council. These data show that, contrary to popular opinion, societal developments and the introduction of new management concepts have not had a negative impact on the position of the works council. An exception to this is the internationalization of ®rms, which curtails the range of works council in¯uence. Further, the gradual increase in the actual in¯uence of the works council that characterized the postwar period does seem to have levelled off in the 1990s.

Keywords: Dutch works councils, industrial relations, internationalization, organizational change

Introduction

In 2000, the Dutch law on works councils had its 50th anniversary. Over this period the works council has become an accepted and even respected institution, while it has also slowly gained a certain degree of genuine in¯uence in organizational decision-making. State legislation, through several revisions of the law on works councils, has always been the main driver behind this development, although the works council has had to earn its position vis-a-vis the initial

Economic and Industrial Democracy & 2003 (SAGE, London, Thousand Oaks and New Delhi), Vol. 24(3): 379±409. [0143±831X(200308)24:3;379±409;034867] 380 Economic and Industrial Democracy 24(3) reluctance of both management and unions. Gradually, the works council has come to be seen as an integral part of the `consultation culture' in the Netherlands, not as an extension of the unions, but as a representative body in its own right. This position, however, may be threatened. Several commentators (such as Soete, 2000; Weggemans, 2000) have argued that, in a `knowledge society', indirect forms of participation, such as trade unions and works councils, will become increasingly redundant or irrelevant for managers as well as for workers. They expect these forms of participation to be replaced by forms of direct, possibly even individual, participation. Others (Homan, 1995; Wissema et al., 1995) have come to similar, but less far-reaching, conclusions based on an analysis of internal changes in organizations (¯atter structures, introduction of team work and/or forms of participative management). They expect the works councils, as a consequence of these developments, to change gradually into institutions for co- management and to lose their position as a body representing workers' interests. However, at the same time, it has been predicted (van der Heijden and van der Hulst, 1995) that the works council will have a growing role in negotiations over wages and bene®ts, which in the Netherlands has traditionally been the prerogative of the unions. Again, other commentators (such as van der Heijden, 2000; de Jong et al., 2001) point to the negative effects of the ongoing globalization on the position of works councils in subsidiaries of international companies. If we categorize the developments that are seen as causes of a possible decline, or change, in the position of the works council, we arrive at the following four trends and effects:

1. General developments in society and politics, such as ongoing individualization, changing attitudes of governments, employers' organizations and trade unions, and deregulation of laws, which may lead to a decline in the general support for the works council at national, industrial and organizational levels; 2. The introduction of new management concepts, particularly those involving decentralization and/or direct participation, which may lead to a different appreciation of indirect participation by both managers and workers; 3. The decentralization of collective bargaining, pushing the level of negotiations down to the level of the organization, at which Looise and Drucker: Dutch Works Councils in Times of Transition 381

unions are virtually absent in the Netherlands, thus necessitating a larger involvement of works councils; 4. The ongoing internationalization of enterprises, which leads to the isolation of local and national works councils from decisions made at the supranational level.

In this article, we seek to establish to what extent these developments have had an impact on the position of the works council in the Netherlands. Our main data come from a recent survey (van het Kaar and Looise, 1999), that can be seen as a repeat of the previous major survey of works councils in 1985 (Looise and de Lange, 1987). The survey consisted of separate questionnaires for the managing director and a works council member (in most cases the chair of the works council) of a representative sample of organizations with more than 50 employees.1 Compared to the survey of 1985, the response rates of the latest survey were rather low: 12 percent (407 responses) for the works council survey and 14 percent (N 475) for the management survey. In 1985, the response rate was 47 percent for both parties. The main explanation for the low response rate is the `research fatigue' of works councils and organizations, which can also be seen in comparable surveys. In recent years, a large number of surveys have been conducted in the Netherlands on the functioning of works councils. Comparison of the results of our survey with other, less all-encompassing, surveys (Visser, 1995a; van Brummelen and van den Toren, 1998; van den Tillaart, 1999) does not show large differences. Our survey sample consisted solely of organizations with a works council, so we wanted to compare our response to the actual distribution of works councils according to their organizations' size and sector. Since there are no direct data on this actual distribution of works councils, we calculated it on the basis of data on compliance to the law on works councils (Oeij and Stoppelenburg, 1998: 17± 19): the percentage of organizations of different sizes and in different sectors that have a works council. Our response favoured large organizations as well as organizations in the government sector. We have added a weight variable to the cases so as to make our survey more representative in that respect. Comparing the results of the 1985 and the 1998 surveys gives us the opportunity to establish shifts in the position of the works council over the last 15 years. In addition to the results of our own and other surveys, we make 382 Economic and Industrial Democracy 24(3) use of statistical data gathered on behalf of the Dutch Ministry of Labour and Employment. Our report in this article uses mostly descriptive statistics. We start the article with an overview of the position of the works council as it has developed from the ®rst law in 1950 to the time of the 1985 survey. Following this, separate sections deal with each of the four trends summarized earlier. We conclude with an overall assessment of the current and future position of works councils in the Netherlands.

Dutch Works Councils in Historical and Comparative Perspective

Because of the high degree of legislation, any characterizations of the Dutch works councils have tended to be based on assessments of the consecutive laws affecting works councils. The early works councils, following the ®rst law of 1950, have been described by de Nijs (1987: 89) as bodies for `pseudo-democratization' because of the absence of substantial rights. Visser (1995b: 89±91) has described these early works councils as `paternalistic', because of the dominant position of the managing director in the works council. The absence of sanctions left the establishment of works councils to the discretion of the managing director, while the task of the works council was described as looking after the interests of the company, with recog- nition of the `independence of the entrepreneur'. The latter quali®ca- tion was reinforced by the fact that the managing director of the company also acted as chair of the works council. This concept of the works council ®tted into the dominant ideology of harmonious labour relations, and the then fashionable human relations management style, and kept the discretion of management over organizational matters, and that of unions over wages and bene®ts intact (de Nijs, 1987: 89±102; Looise, 1989: 256±60). As in other European countries, the labour unrest of the 1960s led to state-initiated attempts in the Netherlands to increase representation of employees and their interests through of®cial channels at the workplace. Streeck (1995: 321±7) shows, through a comparison of different national systems in continental Europe, that in most countries after the 1970s forms of employee participation became a fusion of representative and consultative functions, the latter meaning increasing productivity through consultation. In the Looise and Drucker: Dutch Works Councils in Times of Transition 383

Netherlands, as in Germany, a stronger legislation had preserved works councils from marginalization, which meant that through revision of the law on works councils their traditional consultative function could be `fused' with their new representative functions (Streeck, 1995: 327). Following two major revisions of the laws on works councils, in 1971 and 1979, the formal character of the works council changed. The revision of 1971 included sanctions on the mandatory establishment of works councils, and extended the of®cial tasks of the works council to looking after the interests of the employees, alongside those of the organization. The 1979 revision made the works council a truly `representative' body (Visser, 1995b: 92±3), since its membership became restricted to employees. Aseparate construction was introduced for contacts with the managing director: the so-called consultation meeting. This construction was meant to pre-empt a radicalization of the works council and to preserve the consultative character of employee participation (Visser, 1995b: 81±2). Together, the revisions entailed the provision of a large number of rights:

. Aright to give advice on a number of speci®c economic and organizational matters, such as the transfer of control over the company, lasting cooperation with other companies, the closing down of the company or parts of it, major changes in the organization, major investments and loans and ± more recently ± the introduction of new technology; . The right to veto proposals by the employer regarding changes in a number of social and personnel matters, such as working hours and holiday arrangements, arrangements for remuneration or job evaluation schemes, working conditions, recruitment, promotion and training. These rights only exist if such arrangements are not determined by a collective labour agreement; . The right to appeal ± in various courts ± if the aforementioned rights of veto or advice are not respected by the managing director; . The right to initiate proposals with respect to all matters related to the company, to which the employer is obliged to respond; . The rights to assemble at least six times a year during work time (excluding the presence of the managing director), to follow courses outside the company (®ve days a year), and to consult external experts. 384 Economic and Industrial Democracy 24(3)

Through several revisions of the law on works councils, and the extension of works councils' rights, the `dependent works council' of the 1950s and 1960s gave way to the `independent works council' of the 1980s. Formally, the works council is a body representing employees, whose functioning is independent of the perceived need of the employer of such a representative body. In practice, however, the actual functioning of the works council is not as independent as the legal provisions would suggest. Legislation in the Netherlands has been important in increasing the independence of the works council from management (Looise, 1989). Other systems such as that of Italy and Sweden, where legislation has been less prevalent or leaves more room for employers and employee representatives to design their own forms of participation, appear to have had comparable success in enlarging employee in¯uence, although this success is dependent on the strength of unions (Streeck, 1995: 327± 33). In the Netherlands, however, unions have always had an ambiguous position towards works councils. Initially, unions saw works councils as a threat to their position, because the unions were organized primarily at the sectoral and national levels. For this reason the unions supported the limited character of the ®rst law of 1950 on works councils. Only after failed attempts to unilaterally solve the problem of the lack of local union presence in companies in the 1960s and 1970s ± through the establishment of shop steward systems (bedrijfsledengroepen) ± have the unions come to accept the works council as the main body for worker representation at the level of the organization. This acceptance was tempered by the exclusion, at least until the 1990s, of works councils from negotiations over wages and bene®ts. The ambiguous position of the unions towards works councils has meant that union and works council policies are less integrated than in comparable systems of employee representation in other countries, such as Germany. While of all European countries, the German system of employee participation is closest to that of the Netherlands, the Dutch system of employee representation is, even more than the German system, a `dual channel' system (Tijdens and van Klaveren, 1997: 462). The number of works councillors who are also union members is relatively large (about two-thirds of works councillors are also union members). However, the fact that the majority of works councils do not have close ties with the unions forces these works councils to orient their expectations, in terms of the execution of Looise and Drucker: Dutch Works Councils in Times of Transition 385 their rights, towards the managing director (Looise, 1989: 241±2). For this reason, although the law places the works council to an extent outside the company hierarchy (Teulings, 1981: 39), the works council's functioning, in terms of its in¯uence and the execution of its rights, is to a large extent dependent on the management style of the managing director in general, and his or her disposition towards the works council in particular (Looise and de Lange, 1987: 224±6, 239±42). This partly supports the assertion of Minett (1992: 11±14) and Clegg (1983) that even with legislation, managers have a large say in how works councils' rights will be enacted in the ®rm. Employers' organizations have always ®ercely opposed the extension of works councils' rights in the legal revisions, especially those of 1971 and 1979, but have afterwards gradually accepted the shift in the role of the works council. As our survey results con®rm, this was again the case in the 1990s, during which period the works council changed into a consultative body instead of a body only for the exchange of information. Compared to the German works councils (MuÈ ller-Jentsch, 1995) which, because of their rights and relationships to the unions, are primarily directed towards the representation of employee interests and the social preconditions for company policy, the Dutch works councils are more directed towards consultation and cooperation. While the German works councils can exert in¯uence on strategic policy through their in¯u- ence on the composition of the board of supervisors, the Dutch works councils have fewer rights in this respect, and in practice make less use of these rights than is legally provided for (van der Heijden, 1999). This leaves the works council to in¯uence strategic policy through the execution of its advisory rights, and this tends to be through consultation rather than negotiation.

Societal Developments and the Works Council

As in most other countries, since the beginning of the 1980s, there has been a trend in the Netherlands towards the deregulation of labour law. Although this is generally called deregulation, it is now becoming clear that a better word would be `re-regulation' ± not the abolition of regulation as such, but rather a shift of regulation from the macro-level to the micro-level. This is the result of a rede®nition of government's role in society (retrenchment) and a growing need for `tailor-made' agreements on a decentralized level. 386 Economic and Industrial Democracy 24(3)

Examples of this development can be found in recently changed laws with respect to working hours (1996), working conditions concern- ing health and safety (1998), labour and care (2000) and the reinte- gration of sick and handicapped employees (2001). Already a substantial part of Dutch national labour law has been changed from speci®cs to procedural rules. Although deregulation of social policy and decentralization of negotiations have, in the Netherlands, been the dominant political trends, so far these developments have not had negative consequences for the position of the works council. Even at the height of the deregulation wave of the mid-1980s, the works council was never the target of attempts at deregulation. Discussions that started in this period even led to a new revision of the law on works councils in 1998, which again entailed a strengthening of the position of the works council (albeit less drastic than the revisions of 1971 and 1979). In these discussions, unions, employers' associations and the various political parties inevitably held different opinions, but only regarding speci®c parts of the law ± the law in itself was never in question. Political support for the works council has not decreased. On the contrary, political decisions on deregulation are often justi®ed by a proposed increase in the involvement of the works council (ter Veld and Jaarsma, 2000). Increasingly, legal changes and collective labour agreements contain clauses which make provisions for further cooperation with works councils (see Huiskamp, 1998). In 2002 a new evaluation of the 1998 law took place. This has not led to a substantial revision, either in the form of an extension or a reduction in the rights of the works council. The general consensus is that the law on works councils is largely satisfactory.2 At the industry level, we cannot ®nd evidence of a decrease in support for works councils either. Every ®ve years research is carried out on behalf of the Ministry of Labour and Employment into the compliance with the law in terms of the percentages of organizations that have installed a works council. From these ®gures we know that the percentage of organizations with 50±100 employees that have works councils has grown from 65 percent in 1992 to 76 percent in 2000, while the percentage of organizations with over 100 employees that have a works council has remained stable at around 90 percent in the same period (van den Burgh and Kriek, 1992: 7, 37; Bruin and Huijgen, 2000: 6). In other words, the large majority of Dutch organizations that are obliged to have a work council do have Looise and Drucker: Dutch Works Councils in Times of Transition 387 one. Most managing directors of organizations that do not have a works council explain its absence by claiming that the personnel have no need for it, or that there are other forms of consultation present (Oeij and Stoppelenburg, 1998: 41±6). Apart from the size of the organization, the compliance with the law on works councils varies among sectors. Sectors with traditionally high percentages of works councils are the industry and the non-pro®t ®elds, while low percentages of works council can be found in the building, transport, trade and service sectors. However, in recent years, in these sectors, the percentage of works councils has increased considerably (Oeij and Stoppelenburg, 1998: 20±2). Only the smaller companies in the building sector are still lagging behind in this respect. In this context, it is interesting to give some attention to a group of companies in which the works council has traditionally been under- represented, namely the information technology sector. According to some commentators (e.g. Soete, 2000), this situation can be explained by the special characteristics of this sector, it being at the forefront of the information society with knowledge-intensive organizations in which the individual workers have no need for traditional forms of worker representation. However, in recent years, this sector has also seen a gradual increase in the number of works councils and even some trade union representation, especially in the larger and more established IT companies (Seifert, 2000). In the smaller and newer companies, employees do indeed have a more individualist attitude towards interest representation (Leisink, 2001). One can speculate, however, whether this is a result of the special features of the IT sector or, perhaps, linked to the newness and immaturity of these companies. Given the experiences with the now matured large IT companies, the latter seems plausible, in which case it can be expected that these new companies will also follow the same pattern as the older ones. At the organization level, the results of our surveys show a shift in the opinions of both managing directors and works councillors about the role of the works council. Examples of this shift are:

. The changing character of the consultation meetings between management and works councils. In 1985, about half of both the managing directors and the works councillors saw the consultation meetings as occasions for the exchange of information. In 1998, roughly the same percentages saw these meetings as occasions for genuine consultation, while now only a quarter of 388 Economic and Industrial Democracy 24(3)

both managing directors and works councillors see these meetings as occasions solely for the exchange of information. . This is also re¯ected in the opinion of works councillors about the function of the works council in the organization. In 1985, about a third of both works councillors and managing directors saw the function of the works council as one of in¯uencing decision- making. In 1998, this percentage for works councillors increased. . The 1998 survey shows an increase in the willingness of managing directors to consider the works council as a serious partner in decision-making. More than a third of both managing directors and works councillors say that the works council is not just involved in the ®nal phase of the decision-making process but already in the preparation phase. In 1985 this was only around 15 percent according to both parties. . The most remarkable shift can be found in the opinions about the effects of the functioning of the works council. In terms of all possible effects included in the survey, which include employee as well as organizational effects, we see a much more positive attitude by the managing directors.

The results are summarized in Table 1. The results of our survey indicate that works councils have become more integrated in large Dutch organizations over the last decade. The role of the works council imposes limitations on management, especially in the obligation to observe proper procedures and to accept delays in the speed of decision-making: 48 percent of the managing directors reported that having a works council leads to slower decision-making. However, the works council also has advantages for management. Support from the works council for decisions increases the likelihood of their acceptance by personnel, which in turn may enhance the successful implementation of these decisions. This is particularly important in the event of drastic changes such as mergers, reorganizations, changes in the organization structure and layoffs. These were the type of decisions, together with health and safety, and working times, that works councils paid most attention to in the period 1997±8 (this was also found by van Brummelen and van den Toren, 1998: 17). In the majority of these situations, managing directors were able to reach an agreement with their works councils, albeit with conditions added by the works council, which made a fast and smooth implementation of Looise and Drucker: Dutch Works Councils in Times of Transition 389

TABLE 1 Role ofWorks Council According to Managing Directors and Works Councillors

Managing Directors Works Councillors 1985 1998 1985 1998

Nature of consultation meetings Exchange of information 52% 25% 48% 28% Negotiation from ®xed 21% 8% 21% 10% standpoints Open consultation 27% 41% 27% 50% Combinations of the ± 26% ± 12% foregoing

Function of works council in organization Communication channel 33% 28% 45% 29% In¯uencing of decision- 37% 38% 31% 41% making Checking of decisions 30% 24% 24% 23% Other ± 10% ± 7%

Involvement of works council in decision-making All phases 20% 39% 12% 36% Only last phase 62% 29% 71% 31% No involvement 17% 26% 15% 29% Combinations 1% 6% 2% 4%

Effects of works councils Better decisions 16% 35% 33% 45% More careful decisions by 23% 63% 37% 60% management More support from personnel 34% 66% 34% 43% for decisions Better interest-representation 31% 56% 61% 79% for personnel Decrease in power differences 6% 30% 7% 29% between management and personnel

± Empty cells represent answer categories that were not available in that survey. 390 Economic and Industrial Democracy 24(3) the change possible. In this way, works councils have become important partners for management. Our survey provides no direct indications of the attitudes of employees towards the works council. From other research we know that their attitude has always been very positive (Drenth and van der Pijl, 1966: 65; Winder et al., 2000: 123±38). Our survey results show that average election turnout is around 70 percent, which is consistent with other studies carried out in recent decades (Visser, 1995a: 167). In line with popular perceptions, a high percentage (91 percent) of works councillors do report a decrease in motivation among personnel for becoming a works council member. Although the survey results do show a high percentage (27 percent) of works councils with a shortage of candidates, there has been no increase in this percentage since 1985. The passive and active involvement of personnel with the works council has thus not been subject to a dramatic decline; it has remained largely static. In terms of the overall position of the works council, we can conclude that it has been strengthened rather than weakened. We can speak of a `mature' works council. This maturity, however, applies more to the acceptance of the works council's role on the different levels than to its actual in¯uence in decision-making. The latter, as we report later, has decreased somewhat. The formal position of the works council is no longer a subject for discussion; it has become an integral part in the national consultation culture. At the same time, this general acceptance and integration of the works council may indicate an appreciation of the more ritualistic character of the Dutch style of cooperation between employers and employees (organizations) rather than any substantial in¯uence on decision-making.

New Ways ofOrganizing and the Works Council

Especially since the 1990s, there has been growing attention to the relationship between representative participation and developments in organizations. In the Dutch debate on this topic, the issue is not so much whether works councils will disappear, but more on a possible new role for them. As was concluded in the previous sections, the existence of works councils itself is rarely an issue. What is at stake is the position of the works council vis-a-vis top management as a consultation partner, and its role as the primary representative Looise and Drucker: Dutch Works Councils in Times of Transition 391 of employees' interests in the organization. New management concepts which include the decentralization of authority within an organization, such as unit-management and team work may result in a decrease in the relevancy of the works council, since some decisions are no longer taken at the organizational level but at departmental or team level. The sustaining popularity of direct participation may mean that both managers and employees no longer see the works council as the main body through which con¯icts of interests should be solved (Homan, 1995; Goodijk, 1993; Looise et al., 1996). These developments are only partly con®rmed by our 1998 survey. New organizational forms, which deviate from the traditional centralized or bureaucratic company, are becoming prevalent in most Dutch organizations. We see a strong presence of unit- management, multifunctional teams and task groups (see Table 2). Unfortunately, comparable ®gures are not available in our survey of 1985; but, based on research by the Dutch Ministry of Labour and Employment from that period (LTD, 1987), we know that the presence of these new organizational forms has grown considerably since that time. However, our expectation that these new organizational forms would be accompanied by more decentralized decision-making is not con®rmed. The existence of task groups within organizations is uncorrelated with decentralized policy-making, while the existence of unit-management and multifunctional teams correlates only very weakly with the decentralization of decision-making. This implies that the existence of new forms of organizations ± contrary to what is often assumed in management literature ± does not auto- matically entail a downward shift in authority. If authority relationships do not change with the introduction of new organizational forms, should we still expect a change in the ways or forms of participation, and if so, can we still expect a shift in participation from the works council to more direct forms of participation? Our survey evidence shows widespread direct participation in organizations. Job, or work, consultation (werkoverleg in Dutch) exists in almost every organization, presumably because this form of participation has such a long-standing tradition in the Netherlands. Individual participation occurs in almost two-thirds of the organizations, and quality circles exist in almost half of them. Forms of direct participation are also more prevalent than forms of indirect participation other than works councils; such as local union representation and worker directors (see Table 2). 392 Economic and Industrial Democracy 24(3)

TABLE 2 Percentage ofOrganizations Having New Organizational Forms and other Forms ofParticipation

New organizational forms Unit-management 55% Task groups 43% Multifunctional teams 72% Teleworking 11%

Other forms of participation Individual participation 60% Job/work consultation 96% Quality circles 45% Local union representation 18% Worker directors 16% Other forms 10%

Again, there are no comparable data from the 1985 survey, but with respect to job and work consultation there is ample evidence that its existence, as well as its reach, has grown in most organizations (Looise et al., 1996; LTD, 1987, 1993). We have not found any relationship between the existence of new organizational forms and the existence of forms of direct participation. However, this might be because the main form of direct participation, job consultation, is present in almost all organizations. Beyond its existence, we should also have investigated its extent and the subjects covered by direct participation. Although, as was noted earlier, managing directors rarely make the existence of a works council an issue, the actual functioning of the works council has been shown to be largely dependent on the attitude of management towards them. This raises the question as to whether we can observe a growing preference among managing directors for direct rather than indirect participation, as this could indirectly affect the functioning of the works council. We have found no evidence of this possible marginalizing effect. Most managing directors stated that the works council was their preferred form of participation, while direct forms of participation were only given preference alongside the works council. Apparently, direct participation is seen by most managing directors not as a substitute for indirect participation, but as a separate and complementary form. However, both managing directors and works councillors report Looise and Drucker: Dutch Works Councils in Times of Transition 393

TABLE 3 Shift of Works Council Tasks According to Managing Directors and Works Councillors

Managing Directors Works Councillors

Shift of works council tasks to: Individual participation 24% 8% Job/work consultation 38% 18% Quality circles 25% 17% Local union representation 7% 3% Worker directors 4% 4% Other forms 8% 6%

that task shifts are already taking place, from works councils to other forms of participation, especially to direct forms such as job/work consultation, individual participation and quality circles (see Table 3). One might also ask whether these shifts in works council tasks have impacted upon the in¯uence of the works council within an organization. As was stated earlier, we did ®nd a decrease in works council in¯uence compared with the situation in 1985 (see Table 4). Only the in¯uence of the works council over organizational policy has increased somewhat. This can be explained by their increased involvement in organizational issues such as restructurings and mergers, as was reported in the previous section. Despite its grown acceptance in general, and by management speci®cally, the works council's in¯uence over all the other policy ®elds seems to have decreased. Initially, the most striking change is its decrease in in¯uence over personnel policy, which has always been the strongest feature of works councils. There must be other explanations for the overall decrease in works council in¯uence. The shift of tasks to direct forms of participation, especially job/work consultation and individual participation, could play a role but cannot be the decisive factor. These concern only minor issues, mainly in the ®eld of work organization and opera- tional aspects of personnel management. It does not imply a funda- mental change in the position and the in¯uence of the works council. We also found no evidence of new management concepts directly having negative effects on the functioning of the works council. The existence of new management concepts was not negatively correlated with the in¯uence of works councils. Also, those problems 394 Economic and Industrial Democracy 24(3)

TABLE 4 In¯uence of Works Council on Different Policy Fields According to Managing Directors and Works Councillors a

1985 1998

Reasonable Large Reasonable Large

In¯uence according to managing directors Policy ®elds General 52% 12% 47% 5% Commercial 15% 3% 10% ± Financial 16% 3% 17% 5% Technology N/AN/A13% 1% Organizational 43% 13% 64% 15% Personnel 36% 58% 56% 35%

In¯uence according to works councillors Policy ®elds General 50% 8% 44% 3% Commercial 19% 5% 14% 1% Financial 24% 3% 13% 2% Technology N/AN/A19% 1% Organizational 50% 12% 56% 13% Personnel 48% 40% 55% 22% a For reasons of presentation, the column with the category `small' has been excluded from the table. in the functioning of works councils that were expected to be related to new management concepts were found to be unrelated. Abad ®t to the organization structure was reported by 44 percent of works councils, 62 percent reported a growing distance from their constituency, and 67 percent reported insuf®cient involvement in important decisions. Despite this, no correlation could be found between these problems and the introduction of new organizational forms or direct participation. Apart from investigating the attitude of managers, we also asked works councils about their attitude towards direct participation. The promotion of direct participation is a high priority for only 24 percent of works councils. The contact between works councils and their constituents, the employees they represent, is in general weak. Only 11 percent of the works councils have regular contact Looise and Drucker: Dutch Works Councils in Times of Transition 395 with their constituents, 36 percent only in special cases, and 52 percent have no contact with their constituency at all. The percentage of works councils that have regular contact with persons in depart- ments has even declined, from 44 percent in 1985 to 26 percent in 1998. Just as with management, the vast majority of works councils (80 percent) are not prepared to shift tasks from representative to direct participation. In conclusion, we can state that although new management concepts that entail organizational change or direct participation are quite popular in many organizations, these developments have had, contrary to popular expectation, little impact on the popularity and position of the works council. Works councils are not margin- alized, either directly by being displaced by direct participation, or indirectly through changes in the organization structure. Works councils themselves do not foresee, or strive for, a revised division of tasks between the several forms of participation.

Works Councils and Collective Labour Agreements

Since the end of the 1970s, it has been assumed by a number of Dutch authors that works councils will increasingly become involved in the negotiation of employment conditions such as wages and bene®ts (van Gorkum, 1982; de Vries, 1985; van der Heijden and van der Hulst, 1995). The reason for this assumption is the ongoing process of decentralization in the determination of conditions of employment that has been evident since the 1970s. Following the Second World War, such conditions were determined in detail by the government; in the 1960s and 1970s the responsibility gradually shifted to the unions and employers' associations, but with the government having the last say. With the 1982 Wassenaar agreement, the unions and employers' federations acquired the major responsibility, but then delegated it to the negotiating partners at the industry and ®rm (for large companies) levels. Since the 1990s, decentralization seems to have entered a new phase. The number of single-company agreements has increased, while several industry-wide agreements have been split up into smaller ones. Anumber of industry (such as those in the graphics/media sector, the metal sector and the hotel and catering industry) and company (such as those with Unilever, Dutch Railways, ABN-AMRO) agreements have become so-called framework agreements, with general 396 Economic and Industrial Democracy 24(3) agreements on certain subjects, with the details to be worked out at the company or even department level. Since Dutch unions are hardly represented at the organization level, this means that the works councils have to take part in negotiating these agreements. In many industry agreements, the works council has a role in the determination of wages and bene®ts, which is a remarkable development given that the ambivalent attitude of unions towards works councils has mainly been because of the perceived threat to their prerogatives regarding wage agreements (Looise, 1989). The major unions have, to an extent due to changing circumstances, changed their standpoint, and have expressed the opinion that works councils should become more involved in the determination of employment conditions. According to the law, works councils have a right to veto social and personnel issues, including employment conditions. However, these rights can be restricted or extended by a collective agreement: certain issues that are prescribed in these agreements can be withdrawn from works council competencies, and conversely additional rights can be delegated to the works council. In terms of employment conditions, collective agreements take priority over the veto rights of works councils, which gives unions and employers the right to decide which subjects will be left to works councils to arrange. According to our survey data, collective agreements on conditions of employment were in effect in 90 percent of the organizations: in 77 percent of the organizations these were industry-wide agreements, and in 13 percent, company agreements. In the remaining 10 percent of the companies there were no collective agreements with the appropriate unions, and so the organizations made their own arrangements with the works council (see Table 5). These ®gures are slightly at odds with the statistics from the Ministry of Labour and Employment (Royer, 2000), which show that, in 2000, 80 percent of employees were covered by a collective agreement, of which 84 percent were under an industry agreement and 16 percent under a company agreement. According to our survey, in about 35 percent of the companies, besides the collective agreement, organization-speci®c arrangements for employment conditions existed. These can be arrangements on speci®c subjects or for speci®c categories of personnel (e.g. senior management). These arrangements also are subject to veto by the works council. In the survey, we asked to what extent the works councils exer- cised their rights on employment conditions, and to what degree Looise and Drucker: Dutch Works Councils in Times of Transition 397 the collective agreements offer the works council additional rights regarding employment conditions. As Table 5 shows, about 60 percent of the works councils have a right of veto, while the rest are only involved in consultation or information exchange, or a combination of these forms. In 36 percent of the organizations for which a collective agreement was in effect, the works council was given additional rights. This percentage is lower in the industrial, healthcare and construction sectors, and higher in the trade, business-to-business, ®nancial and government sectors. The tasks given to the works councils by collective agreements pertain mostly to working times (e.g. shift work, days off). The preceding breakdown is re¯ected in the attention that works councils give to conditions of employment. Athird of the works councils in our survey claimed to be involved intensively, while another third reported being involved to some extent. Other studies have found comparable results (e.g. van Brummelen and van den Toren, 1998). In the 1998 survey, employment conditions were ranked the ninth most important subject in which works councils were involved, while this subject was not mentioned at all in the 1985 survey. This trend of increasing involvement by works councils is a recent phenomenon. The majority of works councils that are involved in determining the conditions of employment have been doing so only since the 1990s, many (38 percent) only since 1995 (see Table 5). It is safe to conclude that a shift in the involvement of works councils in the conditions of employment is taking place. Tradition- ally, the role of the works council has been limited to checking that agreements were honoured, while the unions themselves made the agreements. Now the works council is increasingly becoming involved in the making of these agreements. However, this does not mean that the works councils are fully displacing the unions in this ®eld; an expectation, or fear, that has been expressed in the past. The number of collective agreements in which unions are involved has increased during the 1990s (van den Toren, 1997). The role of the works council has, so far, been limited to working out the details of the agreements, after the main content has been negotiated with the unions. However, the increase in the number of framework agreements may be a sign of a greater involvement by works councils, not just in number, but also qualitatively. Since a majority of works councillors express the desire to become more involved in negotiating collective agreements (van Brummelen and 398 Economic and Industrial Democracy 24(3)

TABLE 5 Involvement ofWorks Council in Conditions ofEmployment

Arrangements for employment conditions Industry agreement 77% Organization agreement 13% No collective agreement 10%

Organization arrangement on employment conditions? No 65% Yes 35%

Works council rights regarding employment conditions Information 3% Consultation 22% Veto 59% Combination 16%

Additional rights based on collective agreements? Yes 36% No 74%

Start of works council involvement Before 1981 4% 1981±90 15% 1990±5 18% 1995±8 38% Not provided/unknown 25% van den Toren, 1998: 69), the unions are likely to increasingly come under pressure to involve them more closely.

Internationalization and the Works Council

The internationalization of organizations can have consequences for the works council in two ways. First, a works council can be affected directly when an organization becomes part of an international enterprise; through its acquisition by a foreign enterprise, the creation of a Dutch subsidiary by a foreign enterprise, or the internationalization of a once national company. In most of these situations, the works council will not consult with the top level of Looise and Drucker: Dutch Works Councils in Times of Transition 399 management but only with the management of the Dutch subsidiary. In the last scenario, the internationalization of an originally Dutch enterprise, this change in consultation partners is not inevit- able, but experience does show that most Dutch multinational enterprises isolate their Dutch works councils from decisions made at the international level. AEuropean works council only partly offsets this problem, ®rst because it does not cover decisions made at the global level, and second because a European works council is in a far weaker position in terms of rights and facilities than a Dutch works council. The function of a European works council is more one of information exchange than of genuine consultation (Veersma, 1999). The second way in which a works council is affected by internationalization is by the change within the corporate governance culture, particularly the way in which enterprises place increasing emphasis on ®nancial performance, to improve stock market and shareholder value. This development is commonly perceived as emanating from the Anglo-Saxon economies through the internationalization of markets and competition, and is seen as posing a threat to the continental European system of `stakeholder capital- ism'. While, in practice, enterprises are placing more emphasis on ®nancial performance, so far in the Netherlands no institutional changes have taken place that are detrimental to the position of the works council. However, of®cial inquiries into the in¯uence of shareholders have resulted in a recent government proposal for a change in the law with respect to the nomination and composition of the supervisory board of large companies. According to this proposal, the in¯uence of the shareholders will be increased by giving them the right to appoint the members of the supervisory board, who were previously independently coopted. On the other hand, the works council will get the right to nominate one-third of the supervisory board members. Their nominations can be rejected by the shareholders but only in exceptional cases. It is dif®cult to esti- mate the effect on the position of the works council if this change in the law is passed. On the one hand its formal position will be strengthened, but ± given the increased shareholder in¯uence ± its actual in¯uence might be reduced. In our survey, the number of works councils within subsidiaries of larger concerns is about 30 percent of the whole research population. Within this subgroup, works councils within subsidiaries of entirely 400 Economic and Industrial Democracy 24(3) 11) N 14) ( N 20) ( N ( TABLE 6 National Concerns Dutch MNCs Foreign MNCs Reasonable Large Reasonable Large Reasonable Large Position ofWorks Councils within National Concerns, Dutch and Foreign MNCs GeneralCommercialFinancialTechnologyOrganizationalPersonnelCommunication channel (top-down and bottom-up)Cooperation in decision-makingControl of management 15%All phases ±Only ®nal phaseNo involvement 16% 58% 70% 16% 79% 12% 36% ± 5% 37% ± ± 10% 15% ± 6% 21% 47% 7% 64% ± 7% 43% 7% 10% ± 52% ± 35% 7% ± ± 59% 21% ± 6% ± 39% 27% ± 40% 9% ± ± ± ± 40% ± 45% ± 10% ± 33% ± 50% 50% 18% 17% ± ± ± ± ± ± 36% 18% 46% ± ± ± In¯uence on policy ®elds Function of works council within organization Involvement of works council in decision-making Looise and Drucker: Dutch Works Councils in Times of Transition 401

Dutch enterprises make up 41 percent of the total, while the proportion of Dutch enterprises with foreign subsidiaries is 24 percent, and the proportion of Dutch subsidiaries of foreign enterprises is 31 percent. Since the previous survey in 1985, there has been a steady increase (10 percent) in foreign ownership of subsidiaries in our survey. The effects of this internationalization are dif®cult to measure directly. We can, however, ®nd indications in the data con- cerning the in¯uence of works councils on certain policy ®elds, such as those reported in Table 5. If we consider the responses from the works councillors3 for the three aforementioned categories (works councils within full Dutch concerns, within Dutch MNCs, and within foreign MNCs), there are strong indications that the internationalization of organizations does have an impact on the in¯u- ence of the works council (see Table 6). Acomparison between these three categories shows that those works councils in subsidiaries of foreign MNCs report a much lower in¯uence over all policy ®elds than those in the other ®rms. Works councils of subsidiaries of Dutch-owned MNCs report a lower level of in¯uence over strategic policy ®elds such as general, commercial, ®nancial and technology issues, while their in¯uence on organizational and personnel policy is about average. Works councils of subsidiaries of primarily nationally operating concerns report more in¯uence than average, especially over general, organizational and personnel policy. These ®gures indicate that being part of a large national concern does not have a negative impact on the in¯uence of works councils. The higher than average in¯uence of this group of works councils may be explained by the availability of better resources and professional expertise within larger concerns. However, we also see that, when an organization starts to expand its international activities, the in¯uence of a works council diminishes, especially in terms of strategic and organizational policy. When an organization becomes part of a foreign MNC, again a reduction in in¯uence occurs, especially over organizational and personnel policy. We can thus conclude that internationalization of organizations does have a negative impact on the in¯uence of works councils. Another indication of the effects of internationalization on the position of works councils can be found when we take the data from Table 1 with respect to the role of the works council in the organization and decision-making, and break it down into our three categories (subsidiaries of national concerns, Dutch MNCs 402 Economic and Industrial Democracy 24(3) and foreign MNCs). If we do so, we see that (Table 6) compared to the average:

. The works councils in subsidiaries of national concerns are the most integrated in the decision-making process: they are more likely to be seen as an institution for cooperation in decision- making, and are more often involved in all phases of decision- making. . The works councils of subsidiaries of Dutch MNCs are a little less integrated than the average works council: they act more frequently as communication channels instead of as partners in decision-making, but on the other hand they are frequently involved in all phases of decision-making. . The works councils of subsidiaries of foreign MNCs are by far the least integrated in decision-making: these works councils function mostly as a post hoc check on management decisions, and in almost half of the situations are not involved in decision- making at all.

Based upon these data, we conclude that there is clear evidence of differences in the position of works councils among national concerns, Dutch MNCs and foreign MNCs. We see, with an increasing distance of an organization from the national context, a decrease of in¯uence and a less serious role for the works council. With the internationalization of Dutch ®rms, the in¯uence of the works council over strategic policy is lost, while works councils in foreign MNCs also lose in¯uence over what have traditionally always been the works councils' strong points, personnel and organizational policy. This might also be the main explanation for the general reduction in works council in¯uence as was shown in Table 4 of the previous section.

Conclusion and Outlook

On the basis of the evidence presented, the overall conclusion is that the role of the Dutch works council has not been undermined by external developments, nor is it likely to be in the future. Govern- ment, employers and employees have all come to accept the works council as the principal representative of the workers in an organization. In this respect, the Netherlands ®ts into the general continental Looise and Drucker: Dutch Works Councils in Times of Transition 403

European trend in which representative forms of participation such as works councils have become an established part of national systems of industrial relations (Streeck, 1995: 327±33). On the European level, this trend is con®rmed by the establishment of European works councils and the EU directive, proposed in 1998, for the establishment of national arrangements for information exchange and consultation within enterprises with at least 50 employees. The foregoing assessment does not mean, however, that changes have not occurred in the position of the works council. In summar- izing our ®ndings we can say that:

1. There seems to be a growing role for works councils in decision- making with respect to organizational issues. Works councils increasingly tend to become partners of management, and co- operate in decision-making with respect to major organizational changes such as restructuring, mergers and layoffs. 2. Changes in the position and role of the works council as a consequence of new ways of organizing, and the introduction of direct forms of participation, are less noticeable. Only where these developments entail a downwards shift of authority and where direct participation involves genuine consultation over a broad range of subjects, is there likely to be an impact on the position of the works council. 3. There are signs of a growing and more active role for the works councils in the establishment of employment conditions such as wages and bene®ts. However, so far, the role of the works council in this ®eld has been one of following and complementing, rather than one of leading. It does not seem likely that works councils will become a replacement for unions in the form of `company unions'. 4. The internationalization of companies seems to have the greatest impact on the position of works councils. This pertains especially to their role in strategic decision-making as a consequence of the fact that, following internationalization, most of these decisions are made beyond the reach of works councils. With the process of internationalization accelerated by foreign takeovers, these ®ndings may be indicative of a development in which two separate systems take shape; one `normal' regime for national enterprises and a weakened one within multinational enterprises. 404 Economic and Industrial Democracy 24(3)

Given their weaker position, European works councils will not be able to fully compensate for this development.

In our survey, we asked both managing directors and works councillors their opinions of future changes in the position of the works council. The answers are summarized in Table 7. Alarge majority of both managing directors and works councillors expect an unchanging situation or at most only minor changes. Only a small minority expect drastic changes, or even the disappearance of the works council. The types of changes raised by both parties are very much alike, and also consistent with our previous conclusions. Both managing directors and works councillors expect a gradual change, with the works council becoming an `active business partner', a professional consultation partner (managing directors) or an equal partner for management (works councillors), and an institution to coordinate participation at other levels (both). Further, they foresee a broader and more active role in the setting of employment conditions and in the ®eld of social policy. We have visualized our ®ndings in Figure 1. Overall, the position of the works council within the organization remains largely unchanged. The issues involving the works council, however, do change. Traditionally, participation through the Dutch works council has focused on giving advice on strategic decisions, and vetoing unwelcome social and personnel changes. While these issues remain important aspects of the work of works councils, a shift can be seen in which the works council increasingly plays a role both in cooperation with management on organizational issues, and in the setting of employment conditions. What will be the ®nal position of the Dutch works council? To date, there has not been any debate in the Netherlands on the

TABLE 7 The Future Position ofthe Dutch Works Council

Managing Directors Works Councillors

No signi®cant changes 42% 32% Minor changes 41% 40% Drastic changes 5% 13% The works council will disappear 5% 2% Other developments 4% 13% Looise and Drucker: Dutch Works Councils in Times of Transition 405

Strategic role

Societal developments Internationalization

À À

À À À ! ÀÀ ! Works Council Role

Cooperation Negotiation on organizational on employment issues conditions

Interest representation

! À

À À À

À À

À À À À ÀÀ New ways of organizing Employment conditions

FIGURE 1 Changes in the Position and Role ofthe Works Council possibility or need to harmonize the tasks and roles of the Dutch work councils with those in other European countries such as Germany, Austria, Belgium and France. The main reason for this lack of debate should be sought in the combination of the belief in the uniqueness of one's own works councils' arrangements (the Dutch law) and the large real differences with the arrangements in other countries. Naturally, the Dutch works councils are unique, because they are embedded in the unique Dutch system of industrial relations, and large differences do exist and will continue to exist with works councils in other countries. However, looking closely at the described and foreseen developments, one might conclude that these will take the Dutch works council back to its more traditional position, and thus also closer to its foreign counterparts, especially the German works councils. Most of the described changes can be seen as corrections to the unique position that the Dutch works council has developed since the 1980s. The decline in in¯uence over strategic decision-making brings the Dutch works council more in line with, especially its German, counterparts; albeit that the German works councils have their own particular linkage to the supervisory boards. However, if the government proposals with 406 Economic and Industrial Democracy 24(3) respect to corporate governance are accepted, then the position of the Dutch works council will become, at least on the surface, more comparable with those in Germany. Further, the increased involvement of the Dutch works councils in regulating the conditions of employment can be seen as a correction to the extreme division of tasks between works councils and unions in this ®eld. Agreater involvement of works councils in this area takes them back to a more normal situation, and also one more in line with the role played by their German counterparts.

Notes

1. According to the last change in the law on works councils in 1998, all organizations with 50 or more employees are obliged to have a works council. Previously, there were two categories of relevant organizations: those with between 35 and 100 employees (works councils with reduced rights) and those with 100 or more employees (works councils with full rights). Since 1998 all works councils have the same rights. 2. Anoteworthy exception to this is the position of the CNV, the second largest Dutch trade union federation. Of®cials in this federation have stated that arrangements for representative participation should be negotiated by employers and employees, only using the law on works council as a back-up where these negotiations do not lead to an arrangement (Dikker, 2001). 3. The answers by the managing directors to these in¯uence questions differ only slightly from those of the works councils. They see similar in¯uences by the works councils on general policy issues, somewhat less in¯uence on commercial, ®nancial and technology policy issues, and somewhat more in¯uence on organizational and personnel policy issues.

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Jan Kees Looise is Professor of Human Resource Management at the Faculty of Technology and Management at the University of Twente. He has published widely on the subject of works councils and participation. His other interests include human resource management, industrial relations and the management of innovation.

Michiel Drucker works at the Faculty of Technology and Management at the University of Twente, where he is writing a dissertation on organizational change, direct participation and Dutch works councils.