Codetermination: A Poor Fit for U.S. Corporations

Abstract


 
 
 The idea that a corporation’s employees should elect some of the corporation’s board members, a system known as codetermination, has moved to the forefront of U.S. corporate law policy. Elizabeth Warren’s Accountable Capitalism Act calls for employees of large firms to elect forty percent of all board members. Bernie Sanders’s Corporate Accountability and Democracy Plan goes even further and states that workers should elect forty-five percent of board members.
 Both Warren’s and Sanders’s plans are broadly similar to the German law on codetermination, which for many decades has allowed employees of large German corporations to elect up to half of all board members. It is therefore unsurprising that Senator Sanders points to Germany’s successful economic development as evidence that economic progress and mandatory codetermination can go hand in hand.
 However, this Article argues that codetermination promises to be a poor fit for U.S. corporations. While Germany arguably reaps significant benefits from codetermination, legal, social, and institutional differences between Germany and the United States make it highly unlikely that the United States would be able to replicate those benefits. Furthermore, the costs of codetermination probably would be much higher in the United States than they are in Germany.
 
 

Participation of trade unions in corporate codetermination: Legitimisation, economic impacts and legal protection

“…36 However, the magnitude of the information benefit depends on the role that collective bargaining plays in a country's economy. 37 Furthermore, this approach cannot legitimise claimed seats on a board. The guarantee of seat for trade unions is considered undemocratic, since the voting workforce is deprived of the right to decide for themselves whether they want to be represented by company employees or by external trade union representatives.…”

“…69 On the other hand, union representatives have incentives to represent primarily the interests of their union on the board, especially if they are dependent on the goodwill of the union in order to be able to run for another term. 70 One could also speculate that external union representatives will, on average, have different objectives than representatives who are actually employees of the firm. The former might be more interested in larger political CSR goals, while the latter might be more focused on securing opportunities for employees, possibly at the expense of CSR.…”

“…Shareholder representatives are equally subject to such conflicts of interest. 83 For example, a bank representative may decide on the granting of a loan to a company on whose board he holds a seat. 84 Shareholder representatives also know that they must please the shareholders in order to get reelected.…”

“…84 Shareholder representatives also know that they must please the shareholders in order to get reelected. 85 But even internal employee representatives are by no means a monolithic group. As a result, the employee representatives may not represent identical interests and may not always vote in a coordinated manner anyway.…”

The impact of BLER on the corporate activity in the UE

“…489-510). The authors also argue that such perception of BLER may discourage investors from buying stocks in the relevant companies, since they investors may be wary of the results of their investments being intercepted by employees (Dammann & Eidenmuller, 2020).…”