Worker representation on corporate boards of directors

Worker representation on corporate boards of directors, also known as board-level employee representation (BLER), 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.

The first laws requiring worker voting rights include the Oxford University Act 1854 and the Port of London Act 1908 in the United Kingdom, the Act on Manufacturing Companies of 1919 in Massachusetts in the United States (although the act's provisions were completely voluntary), and the Supervisory Board Act 1922 (Aufsichtsratgesetz 1922) in Germany, which codified collective agreement from 1918 and expanded it in the 1976 Mitbestimmungsgesetz.

There are three main views as to why codetermination exists: to reduce management-labour conflict by improving and systematizing communication channels; to increase bargaining power of workers at the expense of owners by means of legislation; and to correct market failures by means of public policy. The evidence on "efficiency" is mixed, with codetermination having either no effect or a positive but generally small effect on enterprise performance.

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.

During the 2021 federal election, Conservative Party leader Erin O'Toole pledged to require that federally regulated employers with over 1,000 employees or $100 million in annual revenue include worker representation on their boards of directors should he be elected Prime Minister.

In China, during the late twentieth century, worker representation on corporate boards of directors was mandated by law for state-owned enterprises and permitted in non-state-owned collectives and companies via "Staff and Worker Representative Congresses" (SWRCs), composed of workers directly elected by all workers in the workplace to represent them. As of the 1980s and 1990s, SWRCs were, in principle, broadly similar to continental European and Japanese workers' workplace councils in terms of rights and powers and consensus building. Research based on interviews in 1997 suggested that in practice, SWRCs did have some real power, including some cases of dismissing managers.

The first codetermination plans began at companies and through collective agreements. Prior to 1976, German coal and steel producers employing more than 1,000 workers already commonly maintained a board of directors composed of 11 members: five directors came from management, five were workers' representatives, with the eleventh member being neutral. (Note: Boards could be larger as long as the proportion of representation was maintained.) In 1976, the law's scope was expanded to cover all firms employing more than 2,000 workers; with some changes concerning to the board structure, which has an equal number of management and worker representatives, with no neutral members (except in the Mining-and-steel industries where the old law remained in force). The new board's head would represent the firm's owners and had the right to cast the deciding vote in instances of stalemate. (The original law comprising coal-and-steel industries thus remained unchanged in force)

The Companies Empowering Act 1924 allowed companies to issue shares for labour and have them represented by directors, but it was little used, even its chief promoter, Henry Valder, being unable to get his company board to agree to it. It was consolidated into the Companies Act in 1933. The Law Commission recommended its abolition in 1988 for lack of use. The Companies Act 1993 did not allow for labour shares.

In the UK, the earliest examples of codetermination in management were codified into the Oxford University Act 1854 and the Cambridge University Act 1856. In private enterprise, the Port of London Act 1908 was introduced under Winston Churchill's Board of Trade.

While most enterprises in the UK do not have worker representation, universities there have done so since the 19th century. Generally the more successful the university, the more staff representation on governing bodies: Cambridge, Oxford, Edinburgh, Glasgow and other Scottish universities.

Massachusetts has the world's oldest codetermination law that has been continually in force since 1919, although it is voluntary and only for manufacturing companies.

A 2020 study in the Quarterly Journal of Economics found that codetermination in Germany had no impact on wages, the wage structure, the labor share, revenue, employment or profitability of the firm, but it increased capital investment.

A 2021 study by the Bureau of Economic Research found that "the European model of codetermination is neither a panacea for all of the problems faced by 21st-century workers, nor a destructive institution that is dramatically inferior to shareholder primacy. Rather, as currently implemented, it is a moderate institution with, on net, nonexistent or small positive effects. Board-level and shop-floor worker representation cause at most small increases in wages, possibly lead to slight increases in job security and satisfaction, and have largely zero or small positive effects on firm performance."

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 (59 & 60 Vict. c. ccxxvi) and the Port of London Act 1908. 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. 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, and a board representation law in 1922. 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.

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. However, after the Bullock Report of 1977 failed to pass and Margaret Thatcher won the 1979 election, almost all worker participation was ended. Germany recast and extended its laws in 1972 and 1976. 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.

• Codetermination in Germany
• Cooperative
  • Worker cooperative
• Corporatism
• Employee stock ownership
• Labour law
  • European labour law and European company law
  • UK labour law and UK company law
  • German labour law
  • French labour law
  • Indian labour law
  • US labor law and US corporate law
• Labor union
• Market socialism
• Paritarian Institutions
• Polder model
• Social Partnership
• Social ownership
• Works council
• Workers' council
• Workplace democracy

• Bank, John, and Jones, Ken, Worker Directors Speak: The British Steel Corporation Employee Directors (Gower Press, Farnborough, 1977)
• 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, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
• 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)
• J Waddington (ed.), 'European board-level employee representation: national variations in influence and power' (2018), Kluwer Law international editions [1]
• J Waddington, A Conchon, 'Board-level employee representation in Europe: priorities, power and articulation' (2016), Routledge edition [2]
• S Webb and B Webb, Industrial Democracy (1920)
• S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII

Articles

• E Batstone, A Ferner and M Terry, Unions on the board: an experiment in industrial democracy (1983)
• P Brannen, ‘Worker directors: an approach to analysis. The case of the British Steel Corporation’ in C Crouch and FA Heller, Organizational Democracy and Political Processes (Wiley 1983)
• E Chell, ‘Worker Directors on the Board: Four Case Studies’ (1980) 2(6) Employee Relations 1
• PL Davies and KW Wedderburn, ‘The Land of Industrial Democracy’ (1977) 6(1) ILJ 197
• 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’' (2018) 47(1) Industrial Law Journal 76
• E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
• HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69
• S Vitols, 'Prospects for trade unions in the evolving European system of corporate governance' (2005) ETUI, summarising different economic results of codetermination
• Lord Wedderburn, ‘Companies and employees: common law or social dimension’ (1993) 109 Law Quarterly Review 261

Books

• Bank, John, and Jones, Ken, Worker Directors Speak: The British Steel Corporation Employee Directors (Gower Press, Farnborough, 1977)
• HJ Teuteberg, Geschichte der Industriellen Mitbestimmung in Deutschland (1961)
• S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII

Reports

• Lord Donovan, Royal Commission on Trade Unions and Employers’ Associations (1968) Cmnd 3623
• Liberal Party, The Report of the Industrial Partnership Committee: Partners at Work (1968)
• Uday Dokras, doctoral thesis, published as a book, The Act on Codetermination at Work- An Efficacy Study, Almqvist & Wiksell International, Stockholm Sweden, 1990

• worker-participation.eu
• Z Adams, L Bishop and S Deakin, CBR Labour Regulation Index (Dataset of 117 Countries) (Cambridge: Centre for Business Research 2016))

• Emire: Germany - Co-Determination
• Emire: Austria - Co-Determination
• German Law in English - 40. Works council. Co-determination
• Co-Determination and Cooperative Culture in Israel

EU Draft Fifth Company Law Directive

• 1983 Revision^{[permanent dead link]}
• 1991 Amendment^{[permanent dead link]}