GoingGlobal 175levels between senior executives and ordinary laborers is relatively
narrower under the bank/labor model than it is under the market
model.
In terms of formal governance, the German and Dutch version
of this model formally elevates labor as a third key participant in the
leadership of a corporation. These corporations operate with worker
councils which management must consult on a variety of matters
concerning corporate policy. German corporations generally have a
two-tiered board system which consists of a management board and
a supervisory board.
The management board (Vorstand) manages the corporation, rep-
resents it in third-party dealings, and submits regular reports to the
supervisory board. The supervisory board (Aufsichtsrat) appoints and
removes the members of the management board and oversees the
management of the corporation. Under German law, employee-
elected and shareholder-elected representatives are represented on
the supervisory board in equal shares. While it cannot make man-
agement decisions, the supervisory board may determine that certain
actions or business measures contemplated by the management
board require its prior approval.
The German dual-board structure is based on the concept of
codetermination (Mitbestimmung). According to this view, because
labor and capital codetermine a corporation’s future, labor should
protect its interests from within the corporate governance system
through formal representation on the supervisory board rather than
through contract or governmental regulation. Banks, which occupy
the unique positions of debt holder and shareholder, constitute the
other half of the supervisory board. Consequently, the separation of
ownership from control, a defining characteristic of the shareholder
market model, is expressly absent in the bank/labor model.
In the bank/labor model, even sole shareholders may lack the
power to remove or replace management. This lac kof power is es-
pecially pronounced under the two-tiered board structure prevalent
in Germany and the Netherlands, in large part as a result of the
wor kcouncil regulations that have been adopted across Europe. The
European Union (EU) mandates that all members except the United
Kingdom require most of their corporations to establish procedures
for employee consultation and worker council formation.
Many Continental European countries have gone beyond the EU
mandates to require that virtually all corporations establish and
maintain worker councils. Management must consult with these