Companies are finding ways to undermine the concept of codetermination, which gives workers the right to sit on non-executive boards and influence management, according to a new study.
The Hans Böckler Foundation, a think tank aligned with trade unions, said companies are exploiting loopholes in the 40-year-old law to keep workers out of the boardroom.
Unions, predictably, feel that the law on codetermination is the backbone of the German economy. Reiner Hoffmann, head of the German Confederation of Trade Unions, or the DGB, said: “The strength of the German economy is based in large part on the fact that employees contribute their knowledge and their commitment to corporate policy.”
But not everyone feels the same.
Under the 1976 law, labor representatives must make up one-third of the supervisory boards in companies with more than 500 employees, while half of all supervisory board members must represent labor in companies with 2,000 or more employees. In 2002, there were 767 companies with equal representation on their supervisory boards, but that number had declined to 635 by 2014, according to a Hans Böckler study seen by Handelsblatt.
“800,000 employees are being deprived of equal representation on the supervisory board through legal tricks”
This form of legal participation of employees has truly collapsed in listed companies, where the number of firms with equal representation on their supervisory boards plunged from 386 to 241.
The trend is also exarcebated by the fact that there are now more and more companies headquartered in Germany, which use foreign legal structures and are not bound by the codermination law. The Böckler Foundation estimates there are 94 such companies based in Germany with more than 500 employees, but without codetermination.
Some of these use the & Co. KG listing. One example is Alba Group plc & Co, the waste disposal company owned by Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry (DIHK). He argues that the company is an international one and therefore its legal structure is perfectly appropriate.
German companies are also increasingly using a European stock corporation, marked as Societas Europaea, or SE. SE companies too do not have to abide by codetermination laws. Of the 185 SEs operating in Germany, 80 are currently without codetermination.
The Böckler Foundation experts are critical of the fact that primarily small Mittelstand companies on the verge of reaching the thresholds of 500 employees are being converted into an SE. The supervisory boards of these companies decide to convert to an SE when they still have fewer than 500 employees and are therefore exempt from codetermination laws. Once they go over 500 employees, they are an SE, and therefore still exempt. Interestingly, companies that already have codetermination must keep it even if they revert to an SE.
“It’s scandalous that the retail industry, which already engages in brutal price competition at the expense of employees, is employing such tricks.”
According to the study, a total of 800,000 employees “are being deprived of equal representation on the supervisory board through legal tricks.” The retail industry is conspicuous as a “black sheep,” with a majority of companies lacking codetermination. In this case, avoidance is the rule, not the exception. The authors of the study identified 21 companies, from Aldi to Zara, none of which have codetermination. The Schwarz Group, which includes retail chains Lidl and Kaufland, cites its special legal form as justification for its lack of codetermination. As a foundation & Co. KG, the company argues, it is not subject to the codetermination law.
For the head of the DGB union, these are merely excuses. “It’s scandalous that the retail industry, which already engages in brutal price competition at the expense of employees, is employing such tricks,” said Mr. Hoffmann. He noted that this is partly the fault of lawmakers, because there are currently no legal sanctions for the tricks being used to avoid codetermination.
Mr. Hoffmann expects that the next administration will become more involved in the issue. The current legislative period has been marked by “stagnation when it comes to action on codetermination policy,” he said. For instance, unions did not prevail in their demand for true participation by works councils in the use of temporary workers and contracts for services.
Mr. Hoffmann already has an ally in Annegret Kramp-Karrenbauer, premier of the western state of Saarland and a member of the center-right Christian Democrats. Ms. Kramp-Karrenbauer said that she witnesses almost daily in neighboring France how contentious the disputes are between labor and management. “Codetermination has proven to be helpful, especially in the case of large restructuring processes,” she said.
Daniel Delhaes reports on politics, transport and airlines from Handelsblatt’s Berlin office. Frank Specht is based at Handelsblatt’s Berlin bureau, where he focuses on the German labor market and trade unions. Dieter Fockenbrock is Handelsblatt’s chief correspondent for the companies and markets desk, focusing on corporate governance, opinion and rail transport. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org.