Abstract:
In recent years, the number of labor dispute cases in China has continued to increase, and the issue of labor relations in private enterprises is the most critical problem in labor-management conflicts. At present, state-owned enterprises are mandatorily required to establish employee director positions, private enterprises adopt them voluntarily. Whether employee directors in private enterprises can protect workers' rights and alleviate labor-management conflicts warrants in-depth investigation. Using private listed companies on Shanghai and Shenzhen A-share markets as samples and based on judicial verdict data, this study finds that the establishment of employee directors significantly reduces labor litigation in private enterprises, a conclusion that remains robust after a series of robustness checks. The mechanisms operate through: First, participation in compensation and assessment committees enhances the objectivity and rationality of compensation systems, effectively restrains excessive executive compensation, significantly improves compensation equity, and reduces the likelihood of labor disputes arising from distributional imbalances. Second, participation in major decision-making and supervision of decision implementation constrains management's opportunistic behavior, reduces agency costs, enhances employee identification and trust, and decreases labor disputes stemming from governance issues. Heterogeneity tests indicate that the governance effect of employee directors is more pronounced in enterprises with higher labor costs, lower employee trust, and higher labor intensity, as well as in enterprises operating in highly competitive industries, regions with higher unemployment rates, and regions with weaker legal environments. This study provides valuable reference for improving China's employee director system, constructing harmonious labor-management relations, and promoting high-quality development of private enterprises.
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