A New Standard for Governance: Reflections on Worker Representation in the United States

The contemporary state of corporate law in the United States is one that is skewed toward the archaic principle of shareholder primacy. This narrow conception of corporate purpose has resulted in governance mechanisms that tend to overlook the many stakeholders that are affected by, and, in turn, affect the bottom line of modern corporations. In the wake of the recently proposed Accountable Capitalism Act, this Note investigates the viability of adopting a system of mandated worker board representation—codetermination—in the United States. The Note employs a comparative analysis of the German and Swedish experiences with codetermination, and then evaluates the policy, efficiency, and legal arguments made by prominent scholars and experts in the field of comparative corporate law. This Note begins by examining the history of codetermination in Germany and Sweden. It then details several pertinent developments in United States corporate law and reflects on how these developments have affected the economy. Next, it introduces relevant arguments for and against codetermination that are rooted in economic and legal considerations. This Note then proposes a set of parameters for the adoption of codetermination in the United States—primarily maintaining a single-tier board structure and mandating a nationwide, industry-wide application. Finally, due to the unpredictability of transplanting foreign governance mechanisms, it calls for additional research and constructive debate on the topic

Class Struggle Inside the Firm: A Study of German Codetermination

Who should control the firm? What should be the firm's objective function? If contracts are incomplete, then the group of input providers that most needs their interests protected should be allocated control rights to the firm. Existing theories argue that the suppliers of capital are most in need of protection. We empirically assess this answer by examining the German system of codetermination,' a governance system under which employees are allocated some control rights over corporate assets by law. Codetermination laws require that employees be represented on the (supervisory) board of directors. If codetermination sufficiently empowers employees, and if stockholders' rights cannot be contractually protected, then employees may redistribute the firm's surplus towards themselves. In addition, if employee interests are not contractually protected, then employees' may prefer a different objective function for the firm. For example, employees may hamper capitalist flexibility by resisting restructuring of the firm if that would jeopardize their human capital. We examine this with particular reference to the unification of East Germany and West Germany, a shock that may have caused employees in the former West to resist restructuring; the more so in codetermined firms. We also examine whether shareholders respond to codetermination with more concentrated block holdings, perhaps increasing their bargaining power with employees, or with higher leverage, committing more cash to leave the firm. Finally, we examine the relationship between codetermination and the performance sensitivity of compensation for board members.

Co-determination in Germany : the impact on the market value of the firm

Paper presented at the conference on "Employees and Corporate Governance", Columbia University Law School, New York, November 22, 199

Worker Directors: A German Product that Didn't Export?

Despite its lack of attractiveness to other countries, the German system of quasi-parity codetermination at company level has held up remarkably well. We recount the theoretical arguments for and against codetermination and survey the empirical evidence on the effects of the institution, tracing the three phases of a still sparse literature. Recent findings hold out the prospect that good corporate governance might include employee representation by virtue of the monitoring function and the reduction in agency costs, while yet cautioning that the optimal level of representation is likely below parity. And although the German system may be better than its reputation among foreigners, it might have to adapt to globalization and the availability of alternative forms of corporate governance in the EU.codetermination, board-level employee representation, firm performance, Germany

Universal banking, allocation of control rights, and corporate finance in Germany

Corporate governance practices differ greatly in the United States and Germany. This paper describes the main institutional features of the German corporate governance system, focusing on universal banks and codetermination. The paper also summarizes existing empirical evidence that has investigated how- and how well- this system works.Germany ; Banks and banking

Worker directors: a German product that didn't export?

Despite its lack of attractiveness to other countries, the German system of quasiparity codetermination at company level has held up remarkably well. We recount the theoretical arguments for and against codetermination and survey the empirical evidence on the effects of the institution, tracing the three phases of a still sparse literature. Recent findings hold out the prospect that good corporate governance might include employee representation by virtue of the monitoring function and the reduction in agency costs, while yet cautioning that the optimal level of representation is likely below parity. And although the German system may be better than its reputation among foreigners, it might have to adapt to globalization and the availability of alternative forms of corporate governance in the EU. -- Trotz seiner geringen Attraktivität für andere Länder hat sich das deutsche System der quasi-paritätischen Unternehmensmitbestimmung als bemerkenswert stabil erwiesen. Wir erörtern die theoretischen Argumente für und gegen Mitbestimmung und bieten einen Überblick über die empirische Evidenz zu den Auswirkungen dieser Institution, wobei wir drei Phasen einer eher spärlichen Literatur nachzeichnen. Jüngere Erkenntnisse deuten darauf hin, dass zu einer guten Corporate Governance auch die Beteiligung der Arbeitnehmer (aufgrund ihrer Überwachungsfunktion und der Verringerung von Agency-Kosten) gehören könnte, wobei jedoch das optimale Ausmaß der Mitbestimmung unter 50 Prozent liegen dürfte. Auch wenn das deutsche System besser sein mag als sein Ruf im Ausland, muss es sich wohl an die Globalisierung und die Verfügbarkeit alternativer Unternehmensformen in der EU anpassen.codetermination,worker directors,board-level employee representation,firm performance,Germany

The Measurement of Firm Ownership and its Effect on Managerial Pay

This paper uses German evidence to address two questions about corporate governance. The effects of ownership on corporate governance have received much recent attention, but very little of this has been devoted to the appropriate way to measure firm ownership. The results of this paper show that the conclusions reached about the effects of ownership on corporate governance can depend critically on the particular ownership measure used, and that the widely-used weakest-link principle is wholly unsatisfactory as a means of dealing with the issues raised by pyramid ownership structures. The paper also shows that greater ownership concentration typically weakens the link between managerial pay and firm profitability. This is inconsistent with the hypothesis, emphasised in the recent literature on the USA, that large owners are a complement to, rather than a substitute for, such a link.

The impact of Dutch works councils according to managers

Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of Dutch works councils on firm performance. We use a nation-wide Dutch dataset with information on management’s perceptions of the works council’s impact on their firms’ efficiency and innovation. Inspired by the German study of Jirjahn and Smith (2006), we analyze which determinants influence management’s attitude toward employee participation in the Netherlands. We establish a preponderant influence emanating from the works council’s role attitude and management’s leadership style.works councils, managerial response, effectiveness, efficiency, innovation

Labor market policy in the new economy

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