This work throws a spotlight on the German model of corporate governance, which enshrines employee co-determination in law, and provides for the establishment of Works Councils, which play an important mediating role between employers and employees.
In Germany, Works Councils play an important interfacing and mediation role at both the individual employee and at the company level. The Councils aim to improve conflict resolution and align the long-term interest of all parties around company resilience. This model has enjoyed broad acceptance domestically and is considered by many to have been a supporting factor in Germany’s robust economy. The question is whether this stakeholder model could be considered a corporate governance option, which if exported, would provide results that are similarly successful in other countries.
Executive Summary
This paper looks at the history of stakeholder capitalism as it has been applied in Germany as early as the 19th century through law and business practice.
We approach this subject through one of its particular dimensions, that of employee co-determination.
In practice, Germany has managed gradually to engrain in its corporate governance structures the notion that management and employees had to work cooperatively towards the success of their companies.
We review the origin of employee co-determination in the country and how it has shaped the economic development of the German industrial complex over the years. Specifically, we were interested in analysing how Works Councils are operating in practice.
These internal bodies that exist within companies to represent employees have a role to play in the general decision-making framework. Their overarching objective is to foster an alignment of interests among shareholders, management, and employees towards the longer term success of the company.
Beyond the good intentions, we need to understand what Works Councils achieve concretely. For example:
- Do they have an impact on competitivity or staff turnover?
- Do they help smooth conflict resolution?
- What is their actual level of influence over decision making?
- In a world that is perhaps rediscovering the virtues of re-internalising and re-localising supply chains for reasons pertaining to strategic autonomy in times of crisis, could it be that stakeholder capitalism and employee co-determination will help establish stronger ties with the local community?
Overall, the question is whether it is possible to align the traditional interests of shareholders who assume the financial risk with that of a broader set of stakeholders over the realisation of long-term objectives and the sustainability of the company as a going concern.
Our research examines a series of practical case studies of companies in Germany, involved in various industries.
The objective was to obtain a practical understanding of the ways in which the governance of these companies can consider wider stakeholders’ interest through the operations of the Works Councils.