The creeping end of codecision – and why that’s bad news

Zalando SE

The textile dealer operates as a European listed company SE.

(Photo: images imago / Christian Kielmann)

Düsseldorf They say Germany is a country of poets and thinkers. So much for our culture. But we also have a special profile in business. It is hardly an exaggeration to say that the German economy is a codecision economy. It was enshrined in federal law from July 1, 1976. The business conduct of the largest German listed companies is also controlled and co-decided by employee representatives.

But this feature of the German economy is fading away quietly and insidiously. More and more Dax 40 supervisory boards no longer work with representatives of employers and employees. Currently, only 28 out of 40 Dax companies have equal representation and are therefore jointly determined. In 2015, there were 29 more of the then 30 Dax companies.

There are many reasons for this, the main one being the increasing internationalization of Dax. The insurance giant Allianz, the Vonovia housing group, the food supplier Hello Fresh and the online clothing store Zalando have the European legal form of SE. The Linde gas specialist, the aircraft manufacturer Airbus, and the Qiagen diagnostic group are not based in Germany. Dialysis specialist Fresenius Medical Care and the Siemens Healthineers group of medical technologies have special corporate structures with co-determination on other levels, and Porsche SE is the financial holding company of the car manufacturer.

Good for a return

This development is not good news for Germany as a business location. Because co-determination has historically been one of the success secrets of the German economy. It works especially well in crisis situations. According to the 2019 empirical analysis by Michael Wolff, professor of management and controlling at the University of Göttingen, and Marc Rapp, professor at the University of Marburg, co-determined companies not only got better through the financial and economic crisis, but also recovered faster from the effects of the crisis.

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Their profitability fell less sharply during and after the financial and economic crisis than in the case of non-workers. An example of this is the chemical group BASF. According to the analysis, it has survived the financial and economic crisis much better than other European chemical giants that are not co-determined.

The construction of short-term work is also due to the cooperative model of co-determination. An instrument that ensured that there were no – politically dangerous – mass layoffs and that the German economy could quickly recover.

This resilience to the crisis is more important than ever as the economy appears to be in permanent crisis mode and under transformation stress. The financial crisis was followed by a pandemic of the crown, a war in Ukraine over problems in the supply chain and an energy crisis.

Feminine and younger

Moreover, co-determination is not only a proven instrument, but also a very modern one. This made the supervisory boards of German corporations more diverse at a time when the word “diversity” was not yet on everyone’s lips. The staff side was traditionally more feminine and younger and they brought different career perspectives.

The discussions between the two blocks were not always easy. However, the German economy early practiced a comprehensive and balanced stakeholder perspective and operated not only in the sense of the short-term and concentrated Anglo-Saxon shareholder approach.

It is necessary to endure the inertia that sometimes results from quarrels between workers ‘and employers’ representatives. The belief is that it’s better to decide later than to make the wrong decision. Democratic processes simply last longer than the dictatorial announcements.

Codecision is a viable model for the future, especially for a country like Germany whose raw materials are citizens. Increases the attractiveness of corporations as employers. Especially the young generation feels this prospect of participation.

Therefore, codecision should not be abandoned as a specific form of cooperation. It would be neglect. Because the diverse and, in a sense, bottom-up, democratic perspective that was institutionalized early on through co-determination strengthens multinational corporations in particular. Comprehensive transformations, such as those caused by digitization, can only be managed and developed in a sustainable way if you take the people who work for the group with you.

More: A new generation of board members is storming Dax companies.

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