Corporate hierarchies and workplace voice

Abstract

We investigate whether workplace voice through institutionalized forms of employee representation (ER) affects the design of firm hierarchies. We look at the role of ER within a knowledge-based view of hierarchies, where the firm's choice of hierarchical layers depends on the trade-off between communication and knowledge acquisition costs. Using a sample of more than 20,000 private-sector firms in 32 countries, we find that the presence of ER is positively associated with the number of organizational layers, though the relationship is tempered by firm size. ER positively correlates with job training, skill development and enhanced internal communication via staff meetings. The analysis of managers' perceptions suggests the higher frequency of meetings in firms with ER does not lead to more delays in the implementation of organizational changes. Taken together, our findings point to ER as facilitating the flow of information to top decision-makers and hence reducing communication costs. This may enable the firm to economize scarce cognitive resources without retarding the accumulation of new shop-floor capabilities. We contribute to recent literature on organizational design by suggesting ER institutions as possibly relaxing the trade-off between communication and knowledge acquisition costs within firms.