The Economist - USA (2020-02-01)

54 Business The EconomistFebruary 1st 2020

2

W

orkscouncilsandworkerrepre-

sentativesonboardsarea German

invention.ButMitbestimmunghas

spreadthroughoutEurope.Nineteenof

theeu’s 27post-Brexitmembers—allbar

Belgium,Bulgaria,Cyprus,Estonia,Italy,

Latvia,LithuaniaandRomania—have

some“co-determination”intheprivate

sector,atstate-runfirmsorboth.Sodoes

Norway,whichisnotintheeu.

Rulesdiffer.InSwedenworkershave

therighttoberepresentedonboardsof

firmswithmorethan 25 employees.In

Luxembourgthethresholdis1,000.Seats

reservedforworkersrangefromonein

CroatiatohalftheboardinSlovenia.In

NorwayandSwedenworkers’repre-

sentativessitonfirms’solemanagement

board.TheirAustrianandSlovakian

counterpartsaremembersofthesuper-

visoryboard,theuppertierintwo-layer

boardstructureslikeGermany’s.

OutsideEuropethepracticehasnot

takenhold(SouthKoreaisa rareexcep-

tion).Inmanycountriesunionsplaythe

roleofworkscouncils.America’sWagner

actof 1935 prohibitstheformationofany

formofemployer-employeecommittee

thathasthepowertodecideonworking

conditionsandlabour-management

relations,observesSteffenMülleratthe

HalleInstituteforEconomicResearch.

SomeAmericanunionsopposeco-deter-

minationforfearofbeingusurped.

America’sprivate-sectorunionshave

seenmembershipcollapseinrecent

decades,leadingtorenewedinterestin

co-determination.Theidea facesresis-

tance—andnotonlyfromemployers.In

2014 workersata Volkswagenplantin

Tennesseevotedagainstbeingrepre-

sentedbytheUnitedAutoWorkers,one

ofAmerica’sbiggestlabourunions,

whichhadplannedtointroducea Ger-

man-styleworkscouncilattheplant.

LocalRepublicanleadersconvinced

enoughworkersthatthiswouldhurtjobs

bydeteringotherbusinessesfromin-

vestinginTennessee.

What’sAmericanforMitbestimmung?

Labourinmanagement

BERLIN

Mostoftheworldhasyettoembraceco-determination

People to the power

dustrial relations during downturns. In the

dark days of the global financial crisis of

2007-09, when demand for German manu-

facturers’ products dried up, the system

made it easier for the two sides to engineer

a compromise: employees kept their jobs

in exchange for agreeing to fewer hours

(and so less pay) and thriftier holiday bene-

fits. Productivity improved. When the re-

cession ended in 2010 firms were immedi-

ately able to ramp up production.

A study published in October by the

Hans Böckler Foundation, the trade un-

ions’ think-tank, concluded that compa-

nies with labour representatives on super-

visory boards did considerably better

during the financial crisis and its after-

math than those without. They sacked few-

er workers and reinvested more. Their

cumulative total returns between 2006 and

2011 were also 28 percentage points higher.

Co-determination, the reports’ authors

conclude, “prevented short-sighted deci-

sions by management”.

Armed with such numbers, and jolted

by fears of what globalisation and digitisa-

tion might mean for German workers, un-

ions are demanding more of it. Rainald

Thannisch of the dgb, an umbrella group

for German organised labour, wants equal

representation for workers on supervisory

boards at any firm employing more than

1,000 people (and one-third of the seats at

firms with 250 employees). Legal loopholes

that allow companies to avoid co-determi-

nation, such as being owned by a founda-

tion, must be closed, Mr Thannisch says,

and penalties for employers who prevent

workers from forming a works council en-

forced more stringently.

Although they mostly accept co-deter-

mination’s peacemaker role in industrial

relations, German bosses bridle at such

proposals. Two-thirds of those who run

firms with equal worker representation on

the supervisory board see even the current

version of co-determination as a handicap

to doing business, according to the bda, an

employers’ association. Talk to chief exec-

utives and many gripe how works councils

and bloated supervisory boards slow deci-

sion-making and add costs (since works-

council members are paid for every hour

they deliberate among themselves and

with management). This, they add, dis-

courages bold leadership and puts off for-

eign investors. It may tempt managers to

buy labour’s support, as some of Volks-

wagen’s did in 2005 by creating a slush

fund for the carmaker’s powerful works

council to secure favourable votes in deci-

sions on the firm’s restructuring (the exec-

utives responsible were prosecuted). Nor is

it necessarily fair to all employees. One

boss of a company in the dax 30 index of

Germany’s biggest listed firms notes wryly

that co-determination ignores German

multinationals’ foreign workers, whose in-

terests may differ from domestic ones.

All this explains why companies that

can avoid co-determination try to do so.

Many in the Mittelstand, as Germany’s me-

dium-sized export powerhouses are collec-

tively known, convert into a Societas Euro-

paea (se), a public company registered

under European Union corporate law that

is exempt from co-determination rules, be-

fore reaching the 500-employee threshold

for worker board membership. (Converters

must keep co-determination if they had

more than 500 workers before the conver-

sion.) Some flee abroad, for example trans-

forming themselves into a British plc.

Günzburger Steigtechnik, a maker of

ladders in Bavaria, has more than 350 staff

but no works council. Employees are in-

volved in big decisions, insists Ferdinand

Munk, the boss, whose family has owned

and run it for four generations. The com-

pany pays attention to workers’ special

needs—such as organising an employee’s

shift around the care of his ailing wife—

without badgering by a works council. A

formal structure, Mr Munk thinks, would

only slow things down. He says that co-de-

termination is “actually counterproduc-

tive” in an age where speed and nimble-

ness are of the essence. Mario Ohoven,

head of the Mittelstand association, calls it

“out of date”.

Most employers concede that co-deter-

mination played a constructive role in the

decades after the war. But times have

changed. The world is overtaking German

corporate giants. Only one, sap, a software-

maker, is among the world’s 100 biggest

companies. Apple’s $1.4trn market value is

roughly that of the entire dax 30. Co-deter-

mination may not be the sole reason. Euro-

pean countries which do not embrace it

hardly do better. But as cars go electric and

manufacturing goes digital, German in-

dustry faces drastic restructuring—includ-

ing of its biggest companies’ vast work-

forces. Bosses who agree with Mr Ohoven

will be ever less timid to say so. 7