68 How do the power of employees as stakeholders vary by firm?

We have considered the legal and ethical duties in the employment relationship. Now, we consider the unique status of employees as stakeholders within a company. Employees are a unique stakeholder for several reasons. First, a large company cannot typically operate without employees. This gives employees a great deal of power to influence what a company does. Second, and in contrast, many employees depend on the employer for their livelihoods, which gives employers a great deal of power to influence employee behavior. The challenges in this uniquely bi-directional relationship have often resulted in violence during the history of the United States, such as the famous armed battle fought between Andrew Carnegie’s workers and strikebreakers. In the modern era, a significant source of conflict has been when employees have urged their employers to take certain political stances which may affect the profits of the company. 

The power of employees to influence the firm’s behavior depends on a wide variety of factors. If there are many potential substitutes for the employee, then the employee may have little power to negotiate with the employer to change work conditions or company policy. On the other hand, if the employee has a great deal of specialized knowledge or skills that are hard to replace, the employee may have a great deal of leverage to influence company policy. Similarly, the lower the SRT of the firm, the more power employees may have because other stakeholders of the company, such as customers or activist investors, may place great weight on how the company treats its employees, which may give those employees greater power to influence the actions of the company.

Next, the lower amount of information asymmetry in the firm, the greater the power of employees as a stakeholder. For instance, if warehouse workers are mistreated but nobody knows, other stakeholders who care about employment conditions will not be able to respond. In contrast, if warehouse workers are mistreated but customers are able to observe, those who care about employment conditions may respond forcefully.

Another significant factor in the power of employees as stakeholders is whether they form part of a union, which we will address in the following Question.