Boardroom battles

It's Time to Rethink Co-Determination

Boardmembers generic Wavebreak Media
Is co-determination good for the company's health?
  • Why it matters

    Why it matters

    Having inexperienced but powerful worker representatives on supervisory boards could hold back modernization at large German companies.

  • Facts

    Facts

    • Co-determination gives workers the right to participate in a company’s senior management.
    • German firms with more than 2,000 employees must appoint workers to their supervisory boards.
    • Critics question whether workers now have sufficient skills to contribute to modern, expert boards.
  • Audio

    Audio

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Bernd Osterloh is an important man. As the chairman of the General and Group Works Council of the Volkswagen Group, he represents the interests of 600,000 auto workers across the globe.

He also derives great power from his seat on the company’s supervisory (non-executive) board. Together with Berthold Huber, the former chairman of the influential IG Metall union, Mr. Osterloh leads the ten-person bloc of employees on the board. He is also a member of the immediate decision-makers’ circle, the supervisory board presidium.

This makes him a power player in the current battle over the future of Volkswagen, which has seen CEO Martin Winterkorn and chairman Ferdinand Piëch fall out royally in the past few days. No board member can be removed without his support, and no new one can be installed.

But should a works council member have so much influence over company decisions?

The simple answer is yes, because the law wants it so. The goal is a balance between the interests of capital and labor. There are just as many representatives of the owners sitting across from the employees. In large companies, an employees’ representative is often the deputy supervisory-board chairman – at Volkswagen, it is Mr. Huber.

Workers’ council representatives on supervisory boards should be just as well qualified as shareholders.

Such a set-up is called equal co-determination. It has been an obligation for German companies with more than 2,000 employees since the 1970s, and has been controversial ever since.

Today, co-determination is at a crossroads. The core questions: Are the employees in the supervisory board sufficiently qualified for the job? Can they exercise the roles of the active and professional supervisors, as is also demanded by law? Many critics think not.

The responsibility is great. In no other country with a substantial economy are workforces able to block the occupation of a board seat, or promote a candidate. Nowhere else do workers and employees have so much influence over investments, restructuring plans or strategic direction.

This system has many advantages. Germany distinguishes itself with great stability. The relationship between companies and employees is largely shaped through consensus. Many conflicts are resolved this way.

However, there are also visible weak points. In former state-controlled companies, urgently needed replacements are occasionally blocked – for example at the former offices of Deutsche Telekom and Deutsche Post, where boards clung for too long to the benefits of past times.

Other cases show that the separation of powers in management control does not prevent crises erupting. The steelmaker ThyssenKrupp, for example, skidded into an existential threat, and neither shareholders nor workers’ councils saw the misfortune coming.

These examples do not prove that co-determination is a bad idea. But they are good reasons to reflect thoroughly on the role of employees on supervisory boards. Today, companies seek highly qualified executives to fill supervisory board roles, rather than rely on the rubber-stamping yes men of days gone by. The danger is too great that members could be held responsible because they overlooked mistakes by the executive board.

Supervisory boards should now be multitalented. They should have entrepreneurial experiences and economic know-how. A legal background is just as appropriate as a deep knowledge of the digital world. Admittedly, that is unrealistic. But it shows that supervisory boards are no longer a sideshow, as they were once viewed.

No one had anticipated in the 1970s what requirements would be placed on supervisory boards today. And because workers’ council representatives on supervisory boards are also obligated to protect the company’s welfare, they should be just as well qualified as shareholders to take up their lawful mandates. An election by the employees alone is no longer sufficient.

 After 37 years in the service of Volkswagen and ten years as the most senior workers’ council member, Mr. Osterloh may well have gained enough experience to deal with the leadership crisis at Volkswagen. But few other workers’ council representatives in Germany can match Mr. Osterloh’s experience. To do that, the 160 largest German corporations alone would need 800 workers’ council and union members of his class.

 

To contatct the author: fockenbrock@handelsblatt.com

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