Case Study

Germany’s Codetermination

German law puts workers on the same board as shareholders.

Germany

In German corporate law, large companies have two boards. The management board (Vorstand) runs daily operations. The supervisory board (Aufsichtsrat) oversees strategy and appoints the management board. Under the Codetermination Act of 1976 (Mitbestimmungsgesetz), companies with more than two thousand employees must fill half of the supervisory board seats with worker-elected representatives.1

The arrangement is called Mitbestimmung, literally "co-determination," the principle that workers have a right to participate in the governance of the companies that employ them.2

The roots stretch back to the aftermath of World War I, when German unions and employers reached a collective agreement for worker participation in corporate governance. Article 165 of the 1919 Weimar Constitution stated that workers and employers shall cooperate on an equal footing in the regulation of working conditions.3 The Nazis abolished codetermination in 1934. After World War II, the Allies and German unions restored it.

The 1951 Montan-Mitbestimmungsgesetz required full parity in coal and steel companies with over one thousand employees. The 1976 law extended near-parity representation to all sectors.4

729

German companies with supervisory boards governed by the 1976 Codetermination Act, as of December 2005

By December 2005, 729 companies operated under the Codetermination Act. Worker representatives on supervisory boards participate in discussions of strategy, mergers, plant closures, and executive compensation. A dedicated management board position for labor affairs, the Arbeitsdirektor, cannot be appointed without the support of worker representatives.5

A 2021 study published by the National Bureau of Economic Research concluded that codetermination as currently implemented in Europe has, on balance, nonexistent or small positive effects on wages, job security, and firm performance.6

In 2018, Democratic U.S. senators proposed legislation modeled on the German system, including the Reward Work Act and the Accountable Capitalism Act, which would have required large American companies to allocate one-third to 40 percent of board seats to worker-elected representatives. Neither bill passed.7

Timeline

1919

Weimar Constitution Article 165 establishes the principle of equal cooperation between workers and employers.

1951

Montan-Mitbestimmungsgesetz requires parity codetermination in coal and steel companies.

1976

Mitbestimmungsgesetz extends near-parity worker representation to all companies with over 2,000 employees.

Endnotes

1 Rebecca Page, "Co-determination in Germany: A Beginner’s Guide," Hans Böckler Stiftung, Arbeitspapier 313 (2018).

2 Page, "Co-determination in Germany."

3 Weimar Constitution, Article 165 (1919).

4 Simon Jäger, Shakked Noy, and Benjamin Schoefer, "Codetermination and Power in the Workplace," IZA Discussion Paper No. 14805 (2021).

5 Page, "Co-determination in Germany."

6 Jäger, Noy, and Schoefer, "Codetermination and Power in the Workplace."

7 Economic Policy Institute, "Codetermination and Power in the Workplace," epi.org, October 2021.