Co-determination is a concept “which refers to the form of workers’ participation in management practised in Germany since 1951. Under the terms of the law passed in that year, employees have a right to participate not just in the management of the workplace but also in that of the company as a whole, through elected board representatives.” (Scott, John (2014)). From review of co-determination it is seen that “In Germany there are two distinct levels of co-determination: at establishment level via the works council, and at enterprise level, on the supervisory board of companies.” (Eurofound, 2019). Based on these two levels of co-determination the two most important Acts in relation to co-determination in Germany include the Works Constitution Act 1982 and the Co-Determination Law. The legislation for establishment level is the Workers Constitution Act “According to this law, in firms with five or more workers the employees can ask for the introduction of a works council. The works council has co-determination rights on ‘hiring and firing’ decisions, on technological change and many other issues. The co-determination rights depend in part on the size of the plant. For example, if the plant has 100 employees or more, the management is required to inform the works council about major economic development” (Kraft, Stank and Dewenter, 2009).
Then main legislation under the company & group level of co-determination (supervisory level) is the co-determination law “In contrast to the works constitution act, the co-determination law is put into practice in all firms where it can be applied. It is based on three different laws. The coal and mining industry has had full parity co-determination since 1951. The most significant regulation is that on the supervisory board 50% of the seats go to the workers (in the case of a conflict, an external member who is said to be neutral decides). In addition, the member of the top management who is responsible for the employees (personal director) must be approved by the workers (or their representatives).” (Kraft, Stank and Dewenter, 2009)
Why Co-determination in Germany is a Good Idea
Critics of co-determination will decry the concept citing an undermining of management’s capacity to make decisions both operational and strategic; especially in situations where timely decisions are vital. Our team will argue that the opposite is the case with management fully empowered on the substantive operational matters; whilst secondary logistical matters are dealt with utilising codetermination.
German stock companies and large non-traded firms with limited liability (GmbHs) are managed and controlled by a two-tier system: the management board (Vorstand) who make the majority of operational decisions on the one hand and the supervisory board (Aufsichtsrat) who oversee the executive on the other. The elected worker representatives sit on this supervisory board and thus have little opportunity to frustrate the day to day management of the company. Furthermore, since 1977 representatives from labour and capital in such organizations have had an equal number of seats on the supervisory boards. Nevertheless, in case of dispute the head of the supervisory board, appointed by the capital owners, has two votes. Therefore, the term “quasiparity” is used for this kind of codetermination. According to (Kraft, 2017) in practice these disputes tend to be rare. According to Elson et al (2015) this was particularly the case in Volkswagen, where the worker representatives were distracted from proper oversight to such a point that they were unable to prevent management from adhering to proper legal compliance. At this enterprise level it has been found that there is no evidence of works councils impeding important strategic decisions that could theoretically be detrimental to their own interests such as offshoring. Though there are elements to suggest that they may influence the way such decisions are taken and moderate their effects on employment in the home country (Bramucci & Zanfei, 2014).
At the establishment or factory level Frick (2004) goes as far to declare that “they apparently increase internal flexibility by promoting the introduction of working time arrangements that deviate from “standard” working hours among their constituents”. Whilst Hubler (2015) makes the salient point that the rights of works councils differ from those of unions in that they do not have the right to strike or to negotiate on wages. This allows management to get on with their job of running the enterprise without the zero-sum game of Industrial Relations strife that is commonplace in other countries.
The fast and unexpected recovery of the German national economy began after the destruction caused by World War 2 which led to the economic miracle (Wirtschaftswunder) of the 1950’s and 1960’s. The creation of a high productivity, high- added value and high-wage model of production based on highly skilled workforce lasted until the mid-1970’s. Over several decades, The Western part of Germany was not only reconstructed, but developed into the strongest Economy of Europe, as well as one of the leading nations in world trade.
The very high average levels of blue-collar skills and training in Germany also complement the institutions of mandatory co-determination, allowing the most skilled workers (Facharbeiter) to hold extensive responsibilities in production, of a kind that would be reserved for supervisory, white-collar employees in most other countries. Case studies of matched British and German plants again show that human capital deployment is the main reason for the superior productivity of the German plants. (Prais 1990)
Participation theorists argue that the market process does not necessarily lead to a first best solution. Co-determination enables the use of information from the employees, which would otherwise be lost. Furthermore, it will lead to a more cooperative solution, and the conflict between capital owners and the workers is reduced if not solved. According to this view, productivity will increase as a result, and such firms will be successful in the market.
It is important to note that collective bargaining and pressure of work council has a substantial impact on productivity and a less intense impact on wages.
Germany, along with many other European countries, places a great deal of value on employee participation. The significance of this concept dates back to post war times; Germany’s federal chancellor, Mr. Helmut Schmidt, once proclaimed ‘that the key to his country’s post-war economic miracle was its sophisticated system of workers’ participation.’ (Lawrence E. Mitchell, 2009, p.194)
Employee participation is a dominant feature in a system of co-determination. In defining co-determination, Hans Böckler Stiftung, (2018) characterizes it as ‘a set of rights that give employees the possibility of actively participating in the shaping of their working environment.’ Consequently, it can be described as an inclusive framework as it allows the workforce to have an input in various happenings in the business which directly affect them, such as; working conditions and strategic decisions. Although, others may disagree, this benefit alone shows the value co-determination can yield to a company.
To add to this argument further, co-determination is an excellent mechanism which allows the worker to have a voice in the organization, which can prove beneficial on an organizational level as well as on an individual level. It has been disputed employee participation is ‘essential for organizational performance and management employee interrelationship, which plays an equally important role in enhancing job satisfaction and hence in enhancing organizational productivity’ (Brown & Heywood, 2002, p.103). Reports based in West Germany also suggest contractual innovations such as participation may promote efficiency rather than otherwise (Freeman, 1976).
By promoting employee voice, the organization will have a wider scope, opinions and feedback in decision making. Depending on the size of the given organization, a third or even a half of the board are made up of representatives elected by employees. This dynamic encompasses views and other findings which may have not been considered previously. Pfeffer (1983) justifies this theory in saying ‘a variety of perspectives and diverse knowledge can enhance strategic renewal.’
Reduced Strike Action
Workers in countries with weak or non-existent co-determination policies in place strike at an average rate of 10:1 compared to countries with strong co-determination policies in place. This amounts to over 100 strike days on average per year (Vitols, 2005, p.22). In analysing these two groups of countries, it is a clear advantage to have workers being represented on the boards of companies through the policies of co-determination, rather than workers being represented by only trade unions i.e. countries with weak or non-existent co-determination policies (Forcillo, 2017, p.2 ).
The policies of co-determination originated from the threat of industrial action by two-hundred-thousand steelworkers and half-a-million mine workers in 1950 which compelled the Bundestag to take action. This resulted in the 1951 law which required companies with over 1000 employees to have 50% employee representation on supervisory boards (Meissel and Fogel, 1975, pp.183-184). Essentially, co-determination was born from the need to reduce and prevent strike action and it is clear that it has been successful.
Prior to this, there were two sides in employment relations - the employees who would form unions and the employers who would form associations. These two groupings had their own powers in organising industrial action and collective bargaining etc. With the introduction of co-determination, these divisions were broken down as both employees and employers were functioning together on a more equal footing (Meissel and Fogel p.190). Striking becomes less appealing to employees as they now have representation on boards of management. This means that should there be a call for a strike amongst the employees, they would be acting against their own interests (Meissel and Fogel p.190).
Employees are providing the human capital to the company, so in providing those who are aware of their importance and contributions to a company with a voice, the idea of strikes becomes less appealing (Forcillo p. 2). The employee’s presence on the boards helps to provide an input from the ground level of workers in the high-level decision making, which in turn can help shareholders etc from making decisions that will cause high levels of unhappiness amongst the workers. Workers are more likely to feel that they are being heard and feel secure in their role on the board enough to voice their opinions (di Mauro, 2018). This in turn could devolve industrial action (Forcillo p.7).
We can see that over the year’s co-determination in Germany has proved itself to be a tried and tested model “since its origin in the nineteenth century, co-determination survived major economic shocks, as well as social and political upheavals” (Streeck and Thelen, 2005), with the most current example of an economic shock being the economic downturn in 2008 – 2009; during which Germany made a quick recovery in contrast to other countries in the EU such as Ireland and the UK which do not use this system of employee representation in their countries. So to conclude, based on all these arguments and evidence given above, we can see that co-determination in Germany is a good idea, from these points we can see that co-determination has its advantages for all stakeholders involved in this practice including the government, trade unions, employers, employer organisations and the employees. We can see that co-determination considers all these participating parties’ interests and gives all parties equal involvement when it comes to making decisions within the organisation an advantage for all.