Hansmann and employee participation

Hansmann (Henry Hansmann, "Worker participation and corporate governance", (1993) 43 University of Toronto Law Journal 589) suggests that the corporation’s collective choice mechanisms should have the twin aims of minimizing transaction costs and of yielding substantially good quality decisions. Where decision-making is in the hands of people with heterogeneous interests, decision-making is likely to be inefficient (as it becomes bogged down by in-fighting). Where decision-makers have the same interests, where there is homogeneity, efficient decision-making becomes possible. Shareholder-dominated decision-making is homogenous in the sense that the range of issues that affect shareholders qua shareholders is relatively restricted. The same cannot often be said of employees since within their ranks there will be radical differences of interest (according to age, status, location and so on) and these differences will affect their decision-making qua employees. Any successful approach needs to minimize the risk of “intra-firm politics”. It has been pointed out that Hansmann appears not to be comparing like with like: he is comparing direct employee representation with indirect shareholder representation. If employees participated in governance through representatives (indirect participation) then the risk of intra-firm politics would be substantially diminished.