Corporate Governance and Labor Relations*

This article begins with the premise that since the corporation involves a symbiotic relationship between labor and capital, a single‐minded focus on shareholder value is likely to be shortsighted, and some degree of employee influence on corporate governance has the potential to increase an organization's efficiency and value. But the set of findings and implications that emerge from the author's analysis is a complicated one. On the one hand, “moderate” levels of employee ownership (for example, the 6% ownership of the average American ESOP) are associated with increases in corporate productivity and values as well as worker morale and productivity. On the other hand, majority employee ownership and corporate ownership and governance systems like “co‐determination” that give labor a major say on governance issues often lead to worker‐management alliances that end up hurting the firm's investors—and, in the longer run, the workers themselves— by reducing competitiveness. The author ends with a call for a balanced governance system that, while aiming to maximize the total value of the enterprise, seeks to encourage the participation and emotional allegiance of workers—and indeed all important corporate stakeholders.