Worker representation on corporate boards of directors

Worker representation on corporate boards of directors refers to the right of workers to vote for representatives on a board of directors in corporate law. In 2018, a majority of Organisation for Economic Co-operation and Development, and a majority of countries in the European Union, had some form of law guaranteeing the right of workers to vote for board representation. Together with a right to elect work councils, this is often called "codetermination".

Overview

The following is a list of 35 countries in the Organisation for Economic Co-operation and Development and their practices of worker representation on corporate boards of directors.[1]

CountryLawMinimum worker representationMinimum number of employees at which law appliesNotes
Austria (private companies)Labour Constitution Act 197533.3%300One-third of the supervisory board from 300 employees in private companies.
Austria (public limited companies)Labour Constitution Act 19750%N/ANo general law
BelgiumN/ANo general law, but some public companies have employee representatives.[2]
Bulgaria0%N/ANo general law, but employees have rights to speak at shareholder general meetings.
CroatiaLL 2009 art 166"One"300Employee representative on the supervisory board if the company has over 300 employees
Cyprus0%N/ANo general law
Czech Republic (private companies)0%N/ANo general law. Before 2014, private companies over 50 employees had one-third employee representation.
Czech Republic (state-owned companies)33.3%1
DenmarkCompanies Act 2010 s 14066.7% - 33.3%35Companies over 35 employees have between two and one-third board membership
Estonia0%N/ANo general law
Finland1990 Act on Personnel Representation in the Administration of Undertakings20%150From 150 employees, there must be an agreement on employee representation. If there is none, employee representation automatically defaults to one-fifth of board members.
France (private companies)Commercial Code Art. L. 225-79"One" or "Two"1000Private companies over 1000 employees in France or 5000 worldwide must have at least one or two board members.
France (state-owned companies)Commercial Code Art. L. 225-7933.3%1
GermanyDrittelbeteiligungsgesetz 2003 (One-third Participation Act 2003), Mitbestimmungsgesetz 1976 (Codetermination Act 1976), Montanmitbestimmungsgesetz 1951 (Coal and Steel Codetermination Act 1951)33.3%500Enterprises with over 500 employees must have one-third representation on a supervisory board, but the chair of the supervisory board is a shareholder representative and has a casting vote. In coal and steel companies shareholder representatives do not have a deciding vote.
GermanyDrittelbeteiligungsgesetz 2003 (One-third Participation Act 2003), Mitbestimmungsgesetz 1976 (Codetermination Act 1976), Montanmitbestimmungsgesetz 1951 (Coal and Steel Codetermination Act 1951)50%2000Enterprises with over 2000 employees must have one-half representation on a supervisory board, but the chair of the supervisory board is a shareholder representative and has a casting vote. In coal and steel companies shareholder representatives do not have a deciding vote.
Greece (private companies)0%N/ANo general law
Greece (state-owned companies)"One"1
Hungary33.3%200From 200 employees, one-third of supervisory board members are employees.
Ireland (state-owned companies)Workers Participation (State Enterprises) Act 197733.3%1
Italy0%N/ANo general law
Latvia0%N/ANo general law
Lithuania0%N/ANo general law
Luxembourg (private companies)33.3%1000
Luxembourg (state-owned companies)33.3%1
Malta0%N/ANo general law
Malta?1For companies owned by unions or the Labour Party.
NetherlandsWorks Constitution Act 1971, amended in 200433.3%100
NorwayLimited Liability Companies Act 1973"One"30-50One director in companies with 30 to 50 employees; one-third of the seats in companies with more than 50, with the possibility of an extra seat in companies with more than 200
NorwayLimited Liability Companies Act 197333.3%51-200One director in companies with 30 to 50 employees; one-third of the seats in companies with more than 50, with the possibility of an extra seat in companies with more than 200
NorwayLimited Liability Companies Act 197333.3%+1201One director in companies with 30 to 50 employees; one-third of the seats in companies with more than 50, with the possibility of an extra seat in companies with more than 200
Poland (private companies)Law on Workers’ Self Management of 19810%No general law
Poland (state-owned companies)Law on Workers’ Self Management of 198133.3%1In state-owned companies employees have one-third of supervisory board seats, and a seat on the management board.
Portugal1976 Constitution, Arts. 30 and 33 and Law 46/79No co-determination, but, in state owned companies, workers have a right to be consulted. In private companies work councils may elect representatives, but the number is determined by the employer.
Romania0%N/ANo general law, but unions can be heard at meetings.
Slovakia (private companies)33.3%50
Slovakia (state-owned companies)50%1Half the supervisory board in state-owned companies.
Slovenia1991 Constitution art 75, and 1993 law.50% - 33.3%50Companies over 50 employees, or with supervisory board, have one-third to one-half representation.
SpainLaw 41/1962, repealed 19800%N/ASome state-owned companies retain two board members though it has not been compulsory since 1980 to have employee representation in private companies.
Sweden33.3%25Over 25 employees, around one-third representation on boards.
Switzerland0%N/ARepresentation in postal services. No general law, but there was employee representation in railways.
United KingdomCambridge University Act 1856, etc0%N/ANo general law, except in universities, although Financial Reporting Council is introducing comply or explain rules for employee representation in the UK Corporate Governance Code
Australia0%N/ANo general law
Canada0%N/ANo general law
New Zealand0%N/ANo general law
United States0%N/ANo general law, although in Massachusetts manufacturing firms may voluntarily have employees on boards. Any collective agreement can achieve the same result.
Chile0%N/ANo general law
Israel (private companies)0%N/ANo general law
Israel (state-owned companies)1977 Law and a 1985 High Court decision, Dapey Shituf (Tel-Aviv 1985)?1Worker representation in government companies
Japan0%N/ANo general law
South Korea0%N/ANo general law
Turkey0%N/ANo general law

History

Some of the first codetermination laws emerged in universities in the UK during the 19th century, such as the Oxford University Act 1854 and the Cambridge University Act 1856. Further Acts included the South Metropolitan Gas Act 1896 and the Port of London Act 1908.[3] In Germany, there were experiments with worker representation through work councils over the late 19th century, after the first attempts to introduce worker voice by an ex-member of the Frankfurt Parliament named Carl Degenkolb.[4] At the end of World War I, the German trade unions made an historic collective agreement with representatives of German business for full partnership in economic management throughout the country. This was put into the Weimar Constitution article 165, and resulted in a work council law in 1920,[5] and a board representation law in 1922.[6] The fascist government abolished codetermination in 1934, but after World War II, German unions again made collective agreements to resurrect work councils and board representation. These agreements were codified in law in 1951 and 1952.[7]

In most countries around Europe, different forms board representation law spread slowly, especially from the 1970s. In the UK there were repeated experiments from iron and steel to the post office, with worker directors.[8] However, after the Bullock Report of 1977 failed to pass and Margaret Thatcher won the 1979 election, almost all worker participation was ended.[9] Germany recast and extended its laws in 1972 and 1976.[10] The European Commission did propose a Draft Fifth Company Law Directive, but it did not complete passage. In the United States, growing interest in worker "involvement" through Scanlon plans led to unions such as the United Steelworkers at Chrysler, or at United Airlines to negotiate board representation, although usually this was forcibly linked to employee share schemes. Notably, the share scheme at Enron failed in 2003. Almost all modern worker representation laws enable votes without any requirement to invest money. In 2013, France became the largest country to create a modern board representation law to mandate workers with equal rights to all other directors to be on boards.

Theoretical explanation

There are three competing interpretations regarding the participation of employees:

  • Unitarian: The idea that the interests of employees and employers are fully compatible and there may be a cooperation in industrial relations
  • Pluralistic: Pluralists think that while searching for mutual benefit, both sides can look for compromises and common solutions; however, they cannot lean solely on the initiative of employers. The followers of such standpoint adheres to the notion, that the best form of employee participation in industrial relations is the operation of trade unions in the companies and negotiations on the basis of collective agreement
  • Critical: It is interpreted that the interests of employees and employers differ radically, due to the fact that industrial relations in essence are exploitable and inhumane.[11]

See also

Notes
  1. See worker-participation.eu and Z Adams, L Bishop and S Deakin, CBR Labour Regulation Index (Dataset of 117 Countries) (Cambridge: Centre for Business Research 2016))
  2. See I Ferreras, Firms as Political Entities: Saving Democracy through Economic Bicameralism (2017)
  3. E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2017) 46(4) Industrial Law Journal 444. See also JS Mill, Principles of Political Economy (1870) discussing, albeit very different, Henry Briggs & Son Co, incorporated 1865, which had an employee share plan and a worker director. South Metropolitan Gas Act 1896 extract in the London Gazette, abolished by the Gas Act 1948.
  4. HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69. See the Arbeitsverordnung 1890, the first law enabling worker councils, but only on a voluntary basis. The Hilfsdienstgesetz 1916 was a war time requirement for worker councils in some industries.
  5. Betriebsrätegesetz 1920
  6. Aufsichtsratsgesetz 1922. E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  7. E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135. See the Montan-mitbestimmungsgesetz 1951, the Betriesbrätegesetz 1952 and the Mitbestimmungsergänzungsgesetz 1956.
  8. Iron and Steel Act 1967 Sch 4, Part V, created a negotiation process with trade unions in British Steel Corporation to introduce workers, put into effect from 1968. Post Office Act 1977 s 1(2) created worker directors for the Post Office by amending the Post Office Act 1969. The Transport Act 1968 allowed the secretary of state to appoint members of the British Railways Board. In 1997, John Prescott appointed a worker director overseeing some aspects of the now privatised industry.
  9. Transport Act 1985, privatised the bus networks. Employee share ownership plans were created by Labour councils as this happened, as a way to protect workers, though shares were quickly bought up by ordinary business owners.
  10. The Betriebsverfassungsgesetz 1972, standardised law for one third employees on company boards with over 500 staff. The Codetermination Act 1976 required one half in large companies, but with the upper hand for shareholders. Now, the Drittelbeteiligungsgesetz 2004, BGBl. I S. 974, in German codified again, one third worker directors in companies with over 500 staff.
  11. Civinskas, R.; Dvorak, J. In Search of Employee Perspective: Understanding How Lithuanian Companies Use Employees Representatives in the Adoption of Company’s Decisions. Adm. Sci. 2019, 9, 78

References
  • I Ferreras, Firms as Political Entities: Saving Democracy through Economic Bicameralism (2017)
  • TH Hammer, SC Currall and RN Stern, ‘Worker Representation on Boards of Directors: A Study of Competing Roles’ (1991) 44(4) Industrial and Labor Relations Review 661-680
  • LW Hunter, ‘Can Strategic Participation be Institutionalized? Union Representation on American Corporate Boards’ (1998) 51(4) Industrial and Labor Relations Review 557-578
  • E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  • E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2017) 46(4) Industrial Law Journal 444
  • RB McKersie, ‘Union-Nominated Directors: A New Voice in Corporate Governance’ (1 April 1999) MIT Working Paper
  • RB McKersie, ‘Labor's voice at the strategic level of the firm’ (2001) 7 Transfer: European Review of Labour and Research 480
  • HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69
  • HJ Teuteberg, Geschichte der Industriellen Mitbestimmung in Deutschland (1961)
  • S Webb and B Webb, Industrial Democracy (1920)
  • S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII
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