Co-determination

In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors in a company. It also refers to staff having binding rights in work councils on issues in their workplace. The first laws requiring worker voting rights include the Oxford University Act 1854 and the Port of London Act 1908 in the United Kingdom, the Act on Manufacturing Companies of 1919 in Massachusetts in the United States (although the act's provisions were completely voluntary), and the Supervisory Board Act 1922 (Aufsichtsratgesetz 1922) in Germany, which codified collective agreement from 1918 and expanded it in the 1976 Mitbestimmungsgesetz.^[1]

Overview

There are three main views as to why codetermination exists: to reduce management-labour conflict by improving and systematizing communication channels;^[2] to increase bargaining power of workers at the expense of owners by means of legislation;^[3] and to correct market failures by means of public policy.^[4] The evidence on "efficiency" is mixed, with codetermination having either no effect or a positive but generally small effect on enterprise performance.^[5]

Impact

A 2020 study in the Quarterly Journal of Economics found that codetermination in Germany had no impact on wages, the wage structure, the labor share, revenue, employment or profitability of the firm, but it increased capital investment.^[6]

A 2021 Study by the Bureau of Economic Research found that "the European model of codetermination is neither a panacea for all of the problems faced by 21st-century workers, nor a destructive institution that is dramatically inferior to shareholder primacy. Rather, as currently implemented, it is a moderate institution with, on net, nonexistent or small positive effects. Board-level and shop-floor worker representation cause at most small increases in wages, possibly lead to slight increases in job security and satisfaction, and have largely zero or small positive effects on firm performance."^[7]

Canada

See also: Canadian labour law

During the 2021 federal election, Conservative Party leader Erin O'Toole pledged to require that federally regulated employers with over 1,000 employees or $100 million in annual revenue include worker representation on their boards of directors should he be elected Prime Minister.^[8][9]

Germany

See also: German labour law, Codetermination in Germany, and Mitbestimmungsgesetz

The first codetermination plans began at companies and through collective agreements.^[10] Prior to 1976, German coal and steel producers employing more than 1,000 workers already commonly maintained a board of directors composed of 11 members: five directors came from management, five were workers' representatives, with the eleventh member being neutral. (Note: Boards could be larger as long as the proportion of representation was maintained.) In 1976, the law's scope was expanded to cover all firms employing more than 2,000 workers; with some changes concerning to the board structure, which has an equal number of management and worker representatives, with no neutral members (except in the Mining-and-steel industries where the old law remained in force). The new board's head would represent the firm's owners and had the right to cast the deciding vote in instances of stalemate. (The original law comprising coal-and-steel industries thus remained unchanged in force)^[11]

New Zealand

The Companies Empowering Act 1924^[12] allowed companies to issue shares for labour and have them represented by directors, but it was little used,^[13] even its chief promoter, Henry Valder, being unable to get his company board to agree to it.^[14] It was consolidated into the Companies Act in 1933.^[15] The Law Commission recommended its abolition in 1988 for lack of use.^[16] The Companies Act 1993 did not allow for labour shares.^[17]

United Kingdom

See also: United Kingdom labour law

In the UK, the earliest examples of codetermination in management were codified into the Oxford University Act 1854 and the Cambridge University Act 1856. In private enterprise, the Port of London Act 1908 was introduced under Winston Churchill's Board of Trade.^[18]

While most enterprises do not have worker representation, UK universities have done so since the 19th century. Generally the more successful the university, the more staff representation on governing bodies: Cambridge,^[19] Oxford,^[20] Edinburgh, Glasgow and other Scottish universities,^[21]

United States

See also: United States labor law

Massachusetts has the world's oldest codetermination law that has been continually in force since 1919, although it is voluntary and only for manufacturing companies.^[22][23]

See also

• Cooperative
  • Worker cooperative
• Corporatism
• Employee stock ownership
• Labour law
• Labor union
• Market socialism
• Works council
• Workers' council
• Codetermination in Germany
• Polder model
• Paritarian Institutions
• Social Partnership
• Social ownership
• Worker representation on corporate boards of directors
• Workplace democracy

Notes

1. E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
2. Prominent views of codetermination have thus been "social" in nature, concerned with expanding democratic participation in new spheres as a good in itself, reducing "alienation", and smoothing management-labour relations to prevent strong conflicts. A collection of views of this nature are found in Magazin Mitbestimmun 2009-08-03 at the Wayback Machine
3. A conservative economic approach views codetermination as not benign: a political means for transfer of wealth from shareholders to employees and to increase power of political and perhaps union actors; as evidence it is noted firms rarely adopt codetermination voluntarily: see Pejovich, Svetozar. The economics of property rights: towards a theory of comparative systems. Chapter 8. Dordrecht, NL: Kluwer Academic, 1990.
4. Another economist argues that codetermination in effect corrects several market failures so lack of voluntary adoption cannot be viewed as evidence that codetermination is inefficient: see Stephen C. Smith, "On the economic rationale for codetermination law", Journal of Economic Behavior and Organisation, Vol. 16 (December 1991), pp. 261-281.
5. For example see Felix R. Fitzroy and Kornelius Kraft, "Co-determination, efficiency and productivity", British Journal of Industrial Relations, Vol. 43, No. 2 (June 2005), pp. 233-247.
6. Jäger, Simon; Schoefer, Benjamin; Heining, Jörg (2020). "Labor in the Boardroom". The Quarterly Journal of Economics. 136 (2): 669–725. doi:10.1093/qje/qjaa038.
7. Jäger, Simon; Noy, shakked; Schoefer, Benjamin (2021). "What Does Codetermination do?". NBER Working Paper Series. doi:10.3386/w28921. S2CID 235706486. working paper 28921.
8. "Conservative Leader Erin O'Toole to ensure Canadian workers have their voices heard". 23 August 2021.
9. Rendell, Mark (23 August 2021). "Conservatives pledge worker representation on boards, but union leaders remain skeptical about shift in approach". The Globe and Mail.
10. E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135, page 22
11. "MontanMitbestG - Gesetz über die Mitbestimmung der Arbeitnehmer in den Aufsichtsräten und Vorständen der Unternehmen des Bergbaus und der Eisen und Stahl erzeugenden Industrie". Retrieved 3 December 2018.
12. "Companies Empowering Act 1924 (15 GEO V 1924 No 52)". www.nzlii.org. Retrieved 2018-03-22.
13. Parliament, New Zealand (1986). Parliamentary Debates. House of Representatives.
14. Taonga, New Zealand Ministry for Culture and Heritage Te Manatu. "Valder, Henry". teara.govt.nz. Retrieved 2018-03-22.
15. "Companies Act 1933" (PDF).
16. "Preliminary Paper No. 5 COMPANY LAW A discussion paper" (PDF). 1988.
17. "Companies Act 1993 (1993 No 105)". www.nzlii.org. Retrieved 2018-03-22.
18. E McGaughey, 'Votes at work in Britain: shareholder monopolisation and the ‘single channel’ (2018) 47(1) Industrial Law Journal 76, page 9.
19. Cambridge University Act 1856
20. Oxford University Act 1854
21. Higher Education Governance (Scotland) Act 2016 ss 10-11
22. "An Act To Enable Manufacturing Corporations To Provide For The Representation Of Their Employees On The Board Of Directors", General Acts of 1919, chapter 70, page 45, approved 3 April 1919.
23. E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697

References

Articles

• E Batstone, A Ferner and M Terry, Unions on the board: an experiment in industrial democracy (1983)
• P Brannen, ‘Worker directors: an approach to analysis. The case of the British Steel Corporation’ in C Crouch and FA Heller, Organizational Democracy and Political Processes (Wiley 1983)
• E Chell, ‘Worker Directors on the Board: Four Case Studies’ (1980) 2(6) Employee Relations 1
• PL Davies and KW Wedderburn, ‘The Land of Industrial Democracy’ (1977) 6(1) ILJ 197
• E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
• E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2018) 47(1) Industrial Law Journal 76
• E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
• HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69
• S Vitols, 'Prospects for trade unions in the evolving European system of corporate governance' (2005) ETUI, summarising different economic results of codetermination
• Lord Wedderburn, ‘Companies and employees: common law or social dimension’ (1993) 109 Law Quarterly Review 261

Books

• Bank, John, and Jones, Ken, Worker Directors Speak: The British Steel Corporation Employee Directors (Gower Press, Farnborough, 1977)
• HJ Teuteberg, Geschichte der Industriellen Mitbestimmung in Deutschland (1961)
• S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII

Reports

• Lord Donovan, Royal Commission on Trade Unions and Employers’ Associations (1968) Cmnd 3623
• Liberal Party, The Report of the Industrial Partnership Committee: Partners at Work (1968)
• Uday Dokras, doctoral thesis, published as a book, The Act on Codetermination at Work- An Efficacy Study, Almqvist & Wiksell International, Stockholm Sweden, 1990

External links

• German Law in English - 40. Works council. Co-determination

EU Draft Fifth Company Law Directive

• 1983 Revision^{[permanent dead link]}
• 1991 Amendment^{[permanent dead link]}