October 2016 – Escondido Framework

The Uber employment tribunal decision through the prism of the Escondido Framework

How does the Escondido Framework interpret the impact of the decision of an employment tribunal in London that Uber drivers are not self-employed?

The Escondido Framework describes an organisation as both the solution space that exists between the external interfaces, or markets, and the structure, systems and processes within the solution space that mean that it creates value above and beyond what would exist in the absence of the organisation.

The first consequence of the employment tribunal was to address as matter of law as opposed to economics what Uber buys and sells. Uber hitherto has maintained that it provides a platform that brings together drivers and passengers – ie it provides a service that facilitates the provision of rides by self employed drivers to would be passengers who log on to the platform – rather it provides a transport solution to passengers using drivers that it employs. The judgement challenges the first model by effectively establishing that framework of the contract between the Uber and its drivers means that are being treated as though they were employees rather than self employed at arms length by the company.

The Escondido Framework is helpful in understanding how a judgement by lawyers considering employment lawyer can apparently transform the relationship between an Uber driver and Uber. Uber describes a relationship with the driver that makes them a customer of the company – a self-employed person who pays 25% of the fare secured to Uber in recognition of his or her use of the Uber platform. The Employment Tribunal found that, because of the constraints on the driver under the contractual relationship with company, the Uber driver is a supplier of labour – “an employee” – a factor of production in the provision of a minicab service by Uber to passengers.

The Escondido Framework is essentially neutral between the parties to a transaction: each is a customer of the other and is subject to terms that agreed in a contract of one sort or another, either explicit or implicit. Uber has certainly created value in creating and operating the platform, and thereby has created an organisation that occupies a virtual space bounded by market interfaces with drivers and passengers. Other interfaces bounding Uber’s virtual space include: those with its other employees – programmers and software engineers for example[1]; with its investors; and, as illustrated by this dispute and others with city transport authorities that license taxis, with the political and legal interfaces.

Given the restrictions on drivers, meaning that they cannot simultaneously be attached to multiple platforms, and that the passenger, although able to make choices among available drivers and vehicle classes, has relatively little ability to discriminate between drivers (I see a considerable contrast between Uber and other internet platform businesses such as eBay in this regards) it is hard to see Uber as a company selling a platform to users as opposed to selling journeys to passengers with drivers as employed labour, or at the very least suppliers that allow it to provide those journeys. In this interpretation, Uber is a very conventional organisation providing taxi services, with a highly efficient and well developed set of systems and processes that has created a lot of value, and in Escondido Framework language “solution space”, between the market interfaces of supplier/labour and customer.

Visualising the organisation within the Escondido Framework, in its most simple form as a Reuleaux Tetrahedron, one interpretation of the employment tribunal decision for Uber is that the interface with the labour market has moved and changed in shape. Alternatively, the judgement could be interpreted as a movement of the interface with the regulatory and political market place that reduces the solution space by limiting the parts of the labour market interface that are available to Uber (ie the self employment part of the interface is no longer available to it).

The outcome is indisputable. The solution space available to Uber is smaller, with a consequence that the latitude in terms of strategy available to its management is reduced, along with the amount of economic available for capture by the management and any other interested parties being reduced.

But assessing which of the market interfaces has changed to reduce the size of the solution space is more complex. Is it that the consequence of the legal judgement is that drivers will no longer be willing – as a consequence of the protection of rights arising from the employment tribunal decision – to work on the mix terms that they would previously have accepted? If so, this would represent a change in the position and shape of the market interface. Or is it that the market interface – which is collection of points representing an acceptable mix of terms of “employment” to drivers (payment, sick pay, holiday pay, employer imposed restrictions on availability, ability to take other work, ability to turn down rides, access to tips from passengers, discretion about routes to take, condition of the car that they driver must maintain etc) has not changed, but that the movement of the interface with the political and regulatory world (the market for political influence, which in Uber’s case may well have been influenced by other aspects of the company’s conduct), has moved in way that has removed some of these points from being available (see illustration below)

Impact of new regulation to reduce solution space

[1] Subsequent to this post some very interesting issues arose surrounding the way that Uber has positioned itself against this market interface, giving rise to repeated charges of sexism and sexual discrimination

Three Faces of Power, Kenneth E Boulding 1989

The great thing about Amazon is how easy and inexpensive it is to track down potentially interesting texts referenced in footnotes. The outlay of 1p plus £2.70 post and packaging secured the arrival of a copy of Kenneth E Boulding’s “Three Faces of Power”. This arrived virtually in mint condition other than a barcode and a stamps indicating that it been discarded from the library of the Ecole Superieur de Commerce de Paris – and certainly with little evidence that it received much attention from the ESCP’s students.

Published in 1989, it addresses – albeit from a different angle – the three currencies that have since the early 1980s been among the core elements of the Escondido Framework. The publisher’s blurb on the back cover claims that Boulding’s “creative analysis lays the groundwork for important future debates about power.” I have been scratching around for this sort of stuff – albeit as hobbyist rather than academic – since leaving Stanford in the summer of 1980. The fact that it has taken me so long to come across this work and that it, in turn, appears to have sunk almost without trace, reminds me of T S Eliot’s lament:

“And what there is to conquer

By strength and submission, has already been discovered

Once or twice, or several times, by men whom one cannot hope

To emulate—but there is no competition—

There is only the fight to recover what has been lost

And found and lost again and again”

(from East Coker, No 2 of The Four Quartets, T S Eliot)

Boulding divides power into three major categories: “threat power”, destructive in nature and applied particularly to political life; “economic power”, resting largely on the power to produce and exchange items, and on the constantly changing distribution of property ownership; and “integrative power”, based on such relationships as legitimacy, respect, affection, community and identity. These three categories do not map directly onto the three currencies within the Escondido Framework, but Boulding himself accepts that they are what mathematicians call “fuzzy sets”. However, there is a rough approximation for “threat power” to the approach to transacting using the “force” currency. It is easy to see how Boulding’s “economic power” maps onto the approach transacting using the “cash” currency. Unsurprisingly, his “integrative power most closely relates to the “influence” currency of the Escondido Framework.

Right diagnosis, wrong prescription: Theresa May’s worker representation proposal

Just in case we weren’t listening in when she talked about worker representation on boards on becoming prime minister in July, Theresa May used exactly the same words (highlighted in the speech extract below) in her leader’s speech at the Conservative Party conference today:

Too often the people who are supposed to hold big business accountable are drawn from the same, narrow social and professional circles as the executive team.

And too often the scrutiny they provide is not good enough.

A change has got to come.

So later this year we will publish our plans to have not just consumers represented on company boards, but workers as well.

The risk when you same something exactly the same way twice is that you leave yourself without any wriggle room.

Her diagnosis isn’t too wide of the mark but the rush to the particular prescription suggests very shallow intellectual foundations. Mrs May’s proposal for worker and consumer representation on boards has already been challenged on the basis that it conflicts directly with the principle of the unitary board adopted in the UK, which means that all members of the board have the same responsibility for the interests of company – currently defined very broadly under section 172 of the 2006 Companies Act. Individuals appointed by whatever method (and this in itself is a potential source of contention) would inevitably face conflicts of interest between their responsibility to their constituency and to the wider interest of the company and the resolution of the interests of all its “stakeholders”.

However, it is good that Mrs May is committed to rebalancing the interests of the various parties – particularly workers and customers (but by extension surely she would include suppliers, certainly in the grocery industry) – with shareholders, and containing executive pay. I fear that the prime minister herself lacks both the appetite and opportunity to engage with a new intellectual model of the firm to help her decide how best to reform corporate governance. We can only hope that she is willing to instruct her advisors to seek out frameworks to provide a solid platform for reform. With such a framework, there is a great deal that can be delivered by soft power – exhortation and challenge from No 10 to change behaviour on boards, among the institutional investors few of whom have chosen to use the power they possess, and in the commentariat of academics and journalists.

There is currently an enormous risk that we will have reforms that either deliver unintended consequences or are ineffective. Brexit will clearly consume a vast amount of government attention and parliamentary time, but by repeating the commitment quite so explicitly, the prime minister was not flying a kite but making a commitment.

So what should she do? There is a way for her to secure representation of worker interests on boards without appointing worker representatives. Submitting the appointment of all directors to a vote of all employees, in the same way that they are subject to approval in a shareholder ballot, would demonstrate an equality between shareholders and employees. In practical terms, it would force chairmen, nomination committees and large shareholders to consider the balance within the board, demonstrate that the slate of directors represent the interests of the company as a whole, and avoid the nomination of directors to whom the label “toxic” could be attached and whose inclusion could result in rejection in the employee ballot.

Paul Polman, CEO of Unilever, on sustainability, purpose and living by his values

In the late 1980s, the buying and merchandising team I led at high street retail chain WHSmith launched a substantial new range of environmentally responsible stationery. It resonated with the personal values of the team, in short we believed that it was the right thing to do. We also argued that it would be good for the company and provide us with an edge over competitors, since it would be attractive to a significant number of our customers, would help us with staff recruitment since we believed that smart young people wanted to work for an environmentally responsible company, and would help enhance the wider reputation of the company with marketing benefits spilling over into other product categories and win sympathy for us in other ways, even to the extent, for example, of creating a benign audience in local authority planning decisions.

This weekend’s FT contains a profile of Paul Polman, chief executive at Unilever for the past seven years, who has taken an even bolder and more extensive approach to environmental responsibility. His leadership reflects an explicitly understanding of the diversity of market dimensions and that companies need to consider, a sense of that the purpose of the company reflects long term sustainability – of the company and the environment in which it operates.

His responses to his FT interviewers speak for themselves:

“P&G started in 1837, Nestlé in 1857. These companies have been around for so long because they are in tune with society. They are very responsible companies, despite the challenges that they sometimes deal with, all the criticism they get”

When Polman became chief executive of Unilever …. he said that he only wanted investors who shared his view that Unilever needed to shepherd the Earth’s future as carefully as it did its own revenues and profits…..“Unilever has been around for 100-plus years. We want to be around for several hundred more years. So if you buy into this long-term value-creation model, which is equitable, which is shared, which is sustainable, then come and invest with us. If you don’t buy into this, I respect you as a human being but don’t put your money in our company.”

The FT article explains that Sustainable Living Plan adopted by Unilever has not met all its targets, pushing back the date for halving its products’ environmental impact from 2020 to 2030 but it has reduced the waste associated with the disposal of its products by 29 per cent, with the aim of hitting 50 per cent by 2020. It is not without its critics, but a report from Oxfam report on the company’s practices in Vietnam identified “a number of critical challenges in translating the company’s policy commitments into practice”, the charity’s latest Behind the Brands ranking, which looks at the top 10 food companies’ record on small farmers, women’s rights, the use of land and water and greenhouse emissions, put Unilever in first place, ahead of other leading consumer products companies.

The outcome has been good for the company’s relationships with investors. In the FT’s words: “while he told short-term shareholders to shove off, he delivered good returns to those who stayed. Unilever’s total shareholder return during Polman’s tenure has been 203 per cent, ahead of his old employer Nestlé and well ahead of P&G………. The company has also succeeded in attracting more long-term shareholders………before Polman’s reign, 60 per cent of the company’s top 10 shareholders had been there for five years or more. Today, 70 per cent have held their shares for more than seven years.”

It is also clear from the FT article that Polman has also adopted this approach to environmental sustainability because of its alignment with his personal beliefs, and that his belief that the wider purpose of the company (which he likes to an NGO) is a further illustration of his own belief that he should live his personal values in his corporate career. The Saïd Business School’s Colin Mayer, author of The Firm Commitment, tells the FT “He has demonstrated immense courage and vision in promoting a concept of the purpose and function of business that initially met with considerable resistance, bordering on hostility, from several quarters.”