Works Councils and Organizational Performance

Most studies on the effects of works councils simply analyze whether their mere presence contributes to firm performance. This study seeks to offer a contribution to the literature by adding, to date, largely unexplored potential contingencies: the attitudes of Dutch top managers and works councils as to the functioning of the latter, in bad vis-à-vis good times. The overall conclusion from our probit analyses is that the way in which management and works councils interact, and hence the way in which codetermination is implemented, makes all the difference to the firm’s economic position. Our most compelling finding relates to the role of management: a positive attitude of managers toward the works council is positively associated with organizational performance, both in the private and the public sector. In the private sector, this result is even reinforced in times of reorganization.