This paper examines the role of accounting in management–labour relations within the context of contemporary moves to re-conceptualise and reorganise manufacturing processes. We explore how new manufacturing and accounting discourses are received by employees, and how their (more or less accommodating) responses to such initiatives shape the trajectory of their introduction. So doing we show why a more adequate understanding of accounting's presence and significance in the workplace does not simply require a little more attention to the politics of the production process but, rather, its positioning at the centre of analysis. We develop our argument by drawing on material collected from an intensive and longitudinal case study of a manufacturing plant of a large multinational company based upon participant observation and extensive interviews. We show how, following shifts in market conditions and company ownership, pressures to enhance productivity and improve profits led to several attempts by senior management at the plant to introduce change initiatives in production methods, management style, and accounting techniques. We demonstrate how shopfloor workers interpreted these initiatives as intensifying labour by reducing head count, leading them to resist these initiatives over a period of 13 years. We argue that during this period the rhetoric of corporate governance was mediated by workers’ ability to create a space through which their own interests were defined, articulated and brought to bear on the discourses and rationalities advanced by senior management in support of ‘new’ accounting (and management) techniques. By appreciating the presence and significance of labour in the politics of production, additional ways of accounting for the rise and demise of ‘new’ or ‘excellent’ accounting techniques are contemplated.

Accounting and management–labour relations: the politics of production in the ‘factory with a problem’

Prior results from the labor relations literature suggest that revealing information weakens management's position in collective bargaining. Thus, when facing organized labor, management has an incentive to preserve the information asymmetry with outsiders. This study uses a sample from a large cross-section of the economy over several years to test this relation. Results are consistent with this prediction. Strong organized labor is associated with higher bid-ask spreads, higher probability of informed trading, lower trading volume and lower analyst coverage. These relations hold after controlling for numerous factors such as growth opportunities or risk.

Organized Labor and Information Asymmetry in the Financial Markets

Prior results from the labor relations literature suggest that revealing information weakens management’s position in collective bargaining. Thus, when facing organized labor, management has an incentive to preserve the information asymmetry with outsiders. This study uses a sample from a large cross-section of the economy over several years to test this relation. Results are consistent with this prediction. Strong organized labor is associated with higher bid-ask spreads, higher probability of informed trading, lower trading volume and lower analyst coverage. These relations hold after controlling for numerous factors such as growth opportunities or risk.

Organized labor and information asymmetry in the financial markets

Evidence suggests that the negotiated wage for a unionized employee group is an increasing function of the firm’s prior profitability. As a result, managers may have an incentive to strategically signal a negative outlook to their unionized workers in order to improve the firm’s bargaining position. I assess the strategy of missing mean consensus analysts’ earnings estimates as a way for managers to signal a negative outlook to their unionized employees. I find that unionized firms are more likely to miss estimates than their nonunionized counterparts. Additionally, this propensity to miss estimates is increasing in both the firm’s percentage of unionized employees and multiunionism, but is unaffected by the timing of the signal relative to contract renewal. Finally, the increased propensity to miss estimates appears to be driven by both differences in expectations management and earnings management across the two groups. Specifically, managers of unionized firms take less action than their nonunionized counterparts to guide forecasts downward when estimates are too high, and they take more action to deflate earnings when expectations are too low. Taken together, the findings suggest that managers do seek to project a negative outlook to their unions, and that this tendency is increasing in the union’s negotiation strength.

Labor Unions and Management’s Incentive to Signal a Negative Outlook*

Evidence suggests that managers have an incentive to keep information opaque with the market when negotiating with employees who can extract above-market rents from the firm. We argue that employee ownership should mitigate this incentive to extract above-market rents and, in turn, alleviate the firm’s need to keep information opaque. Consistent with our expectations and using a number of proxies for disclosure, we find that firms whose non-manager employees have strong bargaining power provide less disclosure. However, this effect is mitigated, the greater the equity in company common stock held by non-manager employees. Our results suggest a novel capital market benefit to employee ownership. Specifically, employee ownership for non-manager employees appears to benefit the firm by not only aligning goals between the firm and its employees, but by also increasing disclosure from the firm to all of its stakeholders by mitigating the firm’s need to keep information opaque.

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James A. Knoblett

Papers

Unionization and accounting policy choices: An empirical examination

Accounting Information and Collective Bargaining: A Literature Review and Research Framework

Accounting Information and Collective Bargaining