Worker Empowerment and Subjective Evaluation: On Building an Effective Conflict Culture

Although conflicts typically lead to a waste of resources, organizations may still benefit from a corporate culture that tolerates or even encourages conflicts. The reason is that coordinated conflicts may help to enforce norms and foster cooperation. In this paper, we report results of a series of laboratory experiments designed to explore whether and under what conditions an efficiency-enhancing conflict culture can emerge. Using a principal-agent setup with subjective performance evaluation, we show that establishing a functional conflict culture is a delicate matter. If conflicts are encouraged in a careless hands-off manner, the destructive side of conflicts is likely to dominate. To be successful, a conflict culture requires a careful management of fairness norms. In our experiment, we find that conflicts have positive net effects on efficiency only if an explicit code of conduct is established and conflicts are institutionalized through a grievance process. Thus, providing workers with more power may be a necessary but not sufficient condition for improving productivity when performance evaluations are subjective.