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German Employees Help Define Company’s Board of Directors

Through a process called "codetermination," large companies must elect half their board according to employee vote. A recent review of studies shows almost uniformly positive results.

Article written by guest writer Kecia Lynn

What’s the Latest Development?

Researchers at the University of South Carolina recently published a review of 17 studies on the German practice of “codetermination,” in which large companies are required to elect half of their board of directors according to a vote by the employees instead of the shareholders. While each of the stages of research provided much better data than the last, “the most recent [stage] is almost uniformly positive” towards the practice.

What’s the Big Idea?

Economically speaking, Germany’s better off than almost all of its European peers, but it still struggles with wage stagnation, and codetermination doesn’t seem to have helped with overall employment or increased sales. However, companies that give employees a say in the directorship have enjoyed improved productivity, with one study noting a 30 percent jump in Eastern German firms coming out from under communism. The researchers do advise skepticism on recent figures, and note that smaller and non-union companies may not see dramatic productivity changes. That said, the positive results mimic those found in studies on American employee stock ownership plans, leading one professor to suggest that “combining employee ownership with increased employee participation may generate astounding returns on investment.”

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