German Codetermination Research Articles

Current Trends of German Codetermination by Works Councils: On Path Dependencies, Erosion and Innovation

Current Trends of German Codetermination by Works Councils: On Path Dependencies, Erosion and Innovation

Board-level Employee Representation and Risk Sharing between Shareholders and Employees: Evidence from the German Codetermination Act of 1976 by

Board-level Employee Representation and Risk Sharing between Shareholders and Employees: Evidence from the German Codetermination Act of 1976 by

Recent trends in German co-determination: a critical assessment of new research evidence

The purpose of this paper is to look at the developments in co-determination at workplace level as well as at the level of supervisory boards during and after the financial and economic crisis of 2007-2009. In Germany, co-determination is not only considered a way to develop industrial democracy, but also a way of increasing the efficiency and competitiveness of companies. Various studies show that co-determination contributes to the competitiveness of companies and that co-determined companies have also recovered from the financial and economic crisis more quickly. Although co-determination has a positive influence on the productivity, innovative capacity and competitiveness of companies, there is a growing number of companies that put in place strategies aimed at avoiding co-determination. However, despite the reduced spread of co-determination the German participation model has survived so far and is still part of the key institutional settings of German industrial relations. This is also due to the fact that the German co-determination system has always shown a remarkable capacity to adapt to new developments. The most recent examples in this regard are the Works Council Modernisation Act and the Act on Corporate Due Diligence in Supply Chains. That also means that basically co-determination has proved to be a stable yet flexible institution. Today, employee participation thus appears to be a helpful instrument for successfully managing transformation processes.

Giving Employees a Voice in Times of Digital Transformation: Modelling Employee Representation Voice in Algorithm-Based Decision-Making

Digital transformation goes hand in hand with profound changes to company structures. One aspect of digital transformation are algorithm-based decisions which strongly affect decision-making processes in general but also those between the company and employee representatives. This changes where employee representation can be introduced in decision-making, as well as how it is implemented and what competencies are required to do so. This conceptual article looks into how employee representation voice can be kept alive in organisational algorithm-based decision-making processes. To do this, employee (representation) voice will be derived from the German co-determination model. Analogue decision-making is then initially described as a social negotiation process, and modelling is used to show how it is linked to sensemaking in order to back up this claim. In contrast, it is highlighted how algorithm-based decision-making influences this analogue process. To face the resulting changes and challenges, the concept of “big judgement” is described. This concept proposes both structural problem-solving approaches as well as employee representative qualification requirements to provide scope for employee representation voice in algorithm-based decision-making and to avoid a culture of silence.

Between industry and establishment: recent developments in German collective bargaining and codetermination

ABSTRACT The German dual system of labour relations is at a crossroads. The two cornerstones of the system, collective bargaining at the industry level and codetermination of works councils in companies and establishments, are eroding. Only one third of the workforce is now covered by both institutions. In this situation, trade unions have developed new strategies for revitalisation, including new strategies regarding derogations from collective bargaining agreements, new approaches to organising, and new projects to activate works councils. As a result, the traditional boundaries between union action at the establishment and industry levels, traditionally characterised by a strict separation of roles between works councils and trade unions, are dissolving. The trade unions are now developing active strategies at the establishment level with the aim of strengthening their position in the companies, and strengthening the capacity of works councils to act. At the same time, the importance of works councils as actors in collective bargaining is increasing. This new interplay of actors and levels seems to be an important precondition for the revitalisation of German industrial relations, even if it does not mean that all problems will be solved.

The Structure of the Board of Directors: Boards and Governance Strategies in the US, the UK and Germany

The chapter continues and advances our earlier research on ‘Board Models in Europe’.** We explore ‘The Structure of the Board of Directors’ with a view to the basic governance structure as provided by a board model vis-a-vis techniques of structuring the decision-making body, which can be used independent of the chosen board model. We focus on boards of large business corporations with a stock exchange listing to secure cross-country comparability. Our three sample jurisdictions are the US, the UK and Germany. France and Italy are also considered to round out the discussion of selected issues. Our key findings are as follows: 1. Board models like the one-tier board, as used in the US and the UK, or the two-tier board, as used in Germany, provide a basic governance structure that enables the use of specific governance strategies. It is the use of specific governance strategies, not the choice of a board model, which determines the role of the board in alleviating agency problems between owners and managers, controlling and non-controlling shareholders, and shareholder and stakeholder constituencies. Based on this finding, the choice of the suitable board model should be left to private parties. 2. The market for corporate control is known as a removal strategy that alleviates the agency problem between owners and managers of potential target companies. To achieve this effect, it must be ensured that takeover defenses are adopted in the interest of shareholders rather than as a means to shield the incumbent board from removal by the acquirer. The governance options include focusing the board structure through the allocation of decision-making power to independent directors (US) or to the supervisory board (Germany), and, as an alternative, reinstalling shareholder decision-making and thus removing the board from its coordination task (UK). Counter-intuitively, one might group US and German law together, despite differences in their basic board structures and despite the European Union’s adoption of UK-style control shift regulation. 3. The three sample jurisdictions follow a similar pattern for securing fairness of related party transactions (RPTs). The UK relies on a structuring of the shareholder body, requiring ex-ante approval of the disinterested shareholders (MOM approval), a strategy that is also used in France but in a weaker form due to the possibility of ex-post authorization. In the US, the predominant choice seems to be structuring the board so as to leave the decision to independent directors, a strategy that Italy has, on one hand, sought to enhance with the obligatory involvement of a minority appointed director but, on the other hand, has weakened by allowing the board to override a recommendation of the independent directors. Germany also relies on board structuring in that it requires supervisory board approval of RPTs, but compared to the use of independent directors, the cooperation between the two boards provides a basis for manager-friendly results one would expect only from a jurisdiction that openly promotes board empowerment. 4. The most far-reaching advance of the corporate purpose debate relates to a further structuring of the board so as to provide employee representatives with a voice, as known from German co-determination. Proposals to reallocate a proportion of the appointment rights from shareholders to employees have not found their way into legal reform in the US or the UK. Out of the governance strategies discussed in this chapter, it is only employee co-determination that calls for a basic governance structure which solely a two-tier board model can provide.

독일의 사업장 차원에서의 공동결정제도와 시사점

독일의 사업장평의회는 사업장조직법에 따라 근로자의 대표로 구성되어 집단적 근로조건이나 일반적 인사정책에 대하여 상당한 공동결정 권한들을 가지고 있다. 경영상의 사항에 대해서도 실질적인 정보취득과 협의에 관한 권한이 있고, 특히 근로자의 이익에 중대한 영향을 미치는 합병 등의 사업변동에 대해서도 사전에 이해관계를 조정하고 불이익을 보상받을 수 있는 수단들을 가지고 있다. 독일의 사업장평의회는 노동조합의 단체협약을 보충하는 범위에서 근로자의 권리를 보호하고 참여와 자율성을 보장하는 제도로서 역할을 하고 있다. 우리나라에서의 근로자 보호와 자율성의 보장은 노동3권을 기반으로 하는 단체협약 제도가 중심이 되고 있는데, 특히 중소기업의 경우 노동조합의 조직률이 매우 낮아 그 실효성과 대표성에 문제를 드러내고 있다. 이러한 상황에서 노사협의회는 단체협약 제도를 보완하는 실질적인 임무를 수행하는 대안이 될 수 있는데, 그러기 위해서는 우선 근로자의 대표성이 있는 조직이 있어야 한다. 즉, 근로조건 등에 관하여 구속력 있는 결정을 하기 위해서는 노사 동수의 위원회가 아닌 근로자대표로 구성된 근로자대표기관이 따로 조직되어야 한다. 그리고 대상에 따라 정보취득, 협의, 합의, 이의제기 등에 관한 권한을 가지는 방향으로 개선할 필요가 있다. 단기적으로는 근로자위원의 민주적인 선출방법을 분명히 규정하여 근로자의 대표성을 확보하고 근로자 위원들만으로 구성된 ‘근로자위원회’를 두어 일정한 역할을 맡기는 방안이 합리적이며, 노사협의회의 의결의 효력을 분명히 규정한 후 노사 간에 협의가 이루어진 사항은 의무적으로 의결을 하도록 하여 의결사항으로서 실효성을 확보할 필요가 있다.

독일의 이사회 차원에서의 공동결정제도와 수용가능성 검토

독일의 이사회 차원에서의 공동결정제도와 수용가능성 검토

Does Human Capital of Chief Human Resources Officers Make a Difference?

The present study analyzes how characteristics of Chief Human Resources Officers (CHROs) influence firm innovativeness. Elaborating on theories of human capital and dynamic managerial capabilities, we hypothesize that the education, industry tenure, internal as well as external social capital of CHROs are systematically related to the degree of firm innovation. To test our hypotheses, we collected panel data from 2005 to 2014 on all German listed companies that are subject to the German Co-determination Act, according to which corporations have to appoint a CHRO to their management board. Our results indicate significant associations between the studied CHRO characteristics and firm innovation. With regard to social capital, however, these effects do not support our proposed hypotheses.

Productivity and distribution effects of codetermination in an efficient bargaining model

Codetermination can be regarded as an extreme regulatory intervention of the legislator in the labor market which might affect the efficiency of production and the bargaining power of labor. Based on a model that covers both efficient bargaining and employment bargaining a simple equation is derived that is suited to empirical testing. The empirical test is based on German data and includes years before and after the extension of German codetermination law in 1976. The estimates determine the productivity of labor and relative bargaining power of capital and labor. It turns out that codetermination does not affect productivity, but leads to a significant increase in workers’ bargaining power and the distribution of rents. Results based on a second data source with more recent information support the conclusions of the difference-in-differences estimations.

Workers’ participation at plant level: A South African case study

This article examines the attempt in a democratic South Africa to shift from an adversarial class struggle approach (with heavy racial overtones) towards a more participatory and cooperative industrial relations system based on workplace forums. The authors argue that the experiment failed because this attempt at institutional transfer from the successful system of German co-determination did not take sufficient account of the specific social and economic context of South Africa’s distinct industrial relations system. The majority of organized workers in South Africa have over the past three decades opted for engagement with employers on the basis of a union agenda and union independence in order to transform and democratize the workplace. At the centre of this strategy has been the shop steward as the instrument for worker participation at plant level. However, the ethnographic account of participation at plant level suggests that workers feel disempowered and unable to significantly shape decision-making.

독일과 한국의 노동조합 이념과 전략에 관한 비교연구

In this paper, the German and Korean trade unions are investigated on their history, unionism and strategies. Through an international comparative study between the two countries, the author attempts to draw applicable implications from German-style unionism unique labor relations for Korean unions and their leaders. During the Weimar Republic, the German labor unions were divided along partisan lines, a situation that led to competition among the socialist, communist, Catholic, and liberal trade associations. After World War II, labor leaders wanted to break from the past, and to form a trade union federation independent of political parties. The result was the establishment of the Federation of German Trade Unions (Deutscher Gewerkschaftsbund—DGB) in 1949. Four principles guided the founders of the DGB. First, the labor movement wanted representation through an organization that was unitary and autonomous, with no ties to particular religions or political parties. Second, labor leaders decided to organize the unions along with industrial lines so that all workers at one firm would belong to the same union irrespective of their individual occupations. This organizing principle provides unions with greater bargaining power when negotiating with employer associations, because one union represents the entire workforce of an industry. Third, a decentralized system of interest representation was created. Individual unions typically emulate the federal structure, with local, district, state, and national offices. Each level has some input into the shape of union policy. Fourth, the unions chose to rely on legislation for the protection of workers' rights, rather than on direct negotiations with business representatives. German Codetermination Act (Mitbestimmungsgesetz). The act implements the rule of parity (that is, equal representation of shareholders and employees on a supervisory board), especially for German stock corporations, German private limited liability companies and German limited liability partnerships with more than 2,000 employees. The German Codetermination Act was originally highly disputed, but has become an accepted part of corporate Germany in past decades due to attempts to balance the interests of shareholders and employees. ‘Social partnership’ has played a major role to integrate German society, and to alleviate labor disputes after the World War II in Germany. German unionism characterized by codetermination and ‘social partnership’ between the labor and management can shed light on Korea’s future industrial relations. Korea’s union participation rate of 10.2 percent is less than half of what it was in 1989. Among OECD countries, Korean workers’ unionization ranks near bottom. That does not mean that unions do not wield considerable power. Critics accuse union leaders of serving their own interests before those of their workers and undue participation in politics, and say the current setup harms Korea’s business competitiveness. To others, the unions are a necessary counterweight to the power of chaebol and to thank for gains in workers’ rights and working conditions―making the idea of curbing their power ridiculous if not sinister. An important development in Korean unionism after 1987 was the emergence and rise of a movement independent of the officially recognized Federation of Korea Trade Unions. There were many attempts to organize a separate national center by union activists who did not follow FKTU policy lines although Korean law allowed only one national center until 1997. Non-recognized unions formed the Korea Confederation of Trade Unions and the KCTU was officially recognized by the government in 1999.

The End Of History For Corporate Law

Despite the apparent divergence in institutions of governance, share ownership, capital markets, and business culture across developed economies, the basic law of the corporate form has already achieved a high degree of uniformity, and continued convergence is likely. A principal reason for convergence is a widespread normative consensus that corporate managers should act exclusively in the economic interests of shareholders, including noncontrolling shareholders. This consensus on a shareholder-oriented model of the corporation results in part from the failure of alternative models of the corporation, including the manager-oriented model that evolved in the U.S. in the 1950's and 60's, the labor-oriented model that reached its apogee in German co-determination, and the state-oriented model that until recently was dominant in France and much of Asia. Other reasons for the new consensus include the competitive success of contemporary British and American firms, the growing influence worldwide of the academic disciplines of economics and finance, the diffusion of share ownership in developed countries, and the emergence of active shareholder representatives and interest groups in major jurisdictions. Since the dominant corporate ideology of shareholder primacy is unlikely to be undone, its success represents the end of history for corporate law. The ideology of shareholder primacy is likely to press all major jurisdictions toward similar rules of corporate law and practice. Although some differences may persist as a result of institutional or historical contingencies, the bulk of

Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth

AbstractSeveral countries legally mandate representation of workers on boards of directors. The evidence on the shareholder wealth effects of such a corporate governance design is mixed. I examine abnormal announcement returns around major milestones leading to the passing of the German Codetermination Act in 1976. I find that news about the act causes an average decline in the equity value of firms that are certain to have been affected by the new law of up to 1.5% relative to the control firms. Firms close to the regulatory threshold of 2,000 employees remain unaffected implying an expectation of avoiding compliance.

The ECJ Erzberger Case: An Analysis of German Co-Determination and EU Law

German co-determination law regarding large companies mandates that employees elect half of the members of the Supervisory Board. However, only employees working in Germany are involved in this process, whilst those outside Germany are not. On November 3, 2015, the European Court of Justice received a request from the Appeals Court Berlin for a preliminary ruling in the Erzberger-case, whether this system complies with EU law, specifically the provisions prohibiting discrimination on grounds of nationality (Art. 18 TFEU) and/or restrictions concerning the free movement of employees (Art. 45 TFEU). On July 18, 2017, the European Court of Justice ruled that the current German co-determination system does not violate EU law. In this article, we critically analyse this decision. Furthermore, we explore what the consequences and the options for the German legislator would have been if the ECJ had found that the German system does violate EU law.

Productivity and Distribution Effects of Codetermination in an Efficient Bargaining

Codetermination can be regarded as an extreme regulatory intervention of the legislator in the labor market which might affect the efficiency of production and the bargaining power of labor. Based on a model that covers both efficient bargaining and employment bargaining a simple equation is derived that is suited to empirical testing. The empirical test is based on German data and includes years before and after the extension of German codetermination law in 1976. The estimates determine the productivity of labor and relative bargaining power of capital and labor. It turns out that codetermination does not affect productivity, but leads to a significant increase in workers’ bargaining power and the distribution of rents.

Formation, development and current state of industrial democracy in Germany

The article covers the history and development of German co-determination (works councils and board-level representation). The first section addresses the terminology of industrial democracy by comparing the different meanings in English and German industrial relations vocabulary. This is followed by a section on the history of the institutions of worker committees, works councils and board-level representation in German industries, beginning from the first voluntary introduction of worker committees by social-minded employers through the periods of the Kaiserreich and the Weimar Republic and on into post-war Germany. A third section addresses the present role and functions of works councils, including their learning process by interaction with management and their symbiotic relationship with the trade unions, followed by a section on the differences and similarities between works councils and human resource management. The last section analyses the changes and current trends in the field of shop-floor participation, works councils and board-level representation.

German Codetermination without Nationalization, and British Nationalization without Codetermination: Retelling the Story

Codetermination – workers’ participation in management – forms part of the industrial relations traditions of a number of European countries. Among these, the German system of parity codetermination (paritatische Mitbestimmung) which was first introduced in the iron and steel industries by the British military command after the Second World War provides the greatest level of involvement for workers. Similar debates which are often overlooked over the introduction of codetermination were taking place in the UK in the late 1940s. This article provides a new perspective on the history of codetermination in the UK and Germany in order to explain why codetermination was introduced in its current form in Germany but not in the UK. The article questions whether the failure to institute a system of workers’ participation in management in the UK should be considered a missed opportunity.

The Codetermination Bargains: The History of German Corporate and Labour Law

Why does codetermination exist in Germany? Law and economics theories have contended that if there were no legal compulsion, worker participation in corporate governance would be ‘virtually nonexistent’. This positive analysis, which flows from the ‘nexus of contracts’ conception of the corporation, supports a normative argument that codetermination is inefficient because it is supposed it will seldom happen voluntarily. After discussing competing conceptions of the corporation, as a ‘thing in itself’, and as an ‘institution’, this article explores the development of German codetermination from the mid-19th century to the present. It finds the inefficiency argument sits at odds with the historical evidence. In its very inception, the right of workers to vote for a company board of directors, or in work councils with a voice in dismissals, came from collective agreements. It was not compelled by law, but was collectively bargained between business and labour representatives. These ‘codetermination bargains’ were widespread. Laws then codified these models. This was true at the foundation of the Weimar Republic from 1918 to 1922 and, after abolition in 1933, again from 1945 to 1951. The foundational codetermination bargains were made because of two ‘Goldilocks’ conditions (conditions that were ‘just right’) which were not always seen in countries like the UK or US. First, inequality of bargaining power between workers and employers was temporarily less pronounced. Second, the trade union movement became united in the objective of seeking worker voice in corporate governance. As the practice of codetermination has been embraced by a majority of EU countries, and continues to spread, it is important to have an accurate positive narrative of codetermination’s economic and political foundations.

The Codetermination Bargains: The History of German Corporate and Labour Law

Why does codetermination exist in Germany? Law and economics theories have contended that if there were no legal compulsion, worker participation in corporate governance would be ‘virtually nonexistent’. This positive analysis, which flows from the ‘nexus of contracts’ conception of the corporation, supports a normative argument that codetermination is inefficient because it is supposed that it will seldom happen voluntarily. After discussing competing conceptions of the corporation, as a ‘thing in itself’, and as an ‘institution’, this article explores the development of German codetermination from the mid-19th century to the present. It finds the inefficiency argument sits at odds with the historical evidence. In its very inception, the right of workers to vote for a company board of directors, or in work councils with a voice in dismissals, came from collective agreements. It was not compelled by law, but was collectively bargained between business and labour representatives. These ‘codetermination bargains’ were widespread. Laws then codified these models. This was true at the foundation of the Weimar Republic from 1918 to 1922 and, after abolition in 1933, again from 1945 to 1951. The foundational codetermination bargains were made because of two ‘Goldilocks’ conditions (conditions that were ‘just right’) which were not always seen in countries like the UK or US. First, inequality of bargaining power between workers and employers was temporarily less pronounced. Second, the trade union movement became united in the objective of seeking worker voice in corporate governance. As the practice of codetermination has been embraced by a majority of EU countries, and continues to spread, it is important to have an accurate positive narrative of codetermination’s economic and political foundations.