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Workers on boards? Germany has had them for decades
IN the late 1970s, the United Automobile Workers (UAW) union had a brazen idea. During negotiations for a new contract, members asked Chrysler to give workers representation on its board, a practice called "co-determination" that had been germinating all over Europe.
The proposal was far outside the bounds of management-labour relations in America at the time, and Chrysler was initially immovable. But the union had helped secure a federal loan for the company, which shielded it from bankruptcy, and management eventually relented. In 1980, Chrysler's chief executive, Lee Iacocca, nominated UAW leader Douglas Fraser to the board as a reward.
But the presence of a single labour representative on a 17-member board did not translate into meaningful results for workers. At one point, Mr Fraser did vote against a plush executive pay package, but he was the only nay. He stepped down in 1984, and Chrysler eliminated the union seat altogether in 1991. Only a handful of other companies tried worker representation - the unions didn't fight for it, and the American experiment in co-determination was over before it began.
In today's Gilded Age - when chief executives are making well over 300 times what the typical worker brings home in pay - the idea is getting new life. Senator Elizabeth Warren of Massachusetts, who recently announced her bid for president, introduced a bill last year to give workers the right to vote for two-fifths of all corporate board seats, with a companion bill in the House of Representatives introduced by Ben Ray Luján of New Mexico. A similar bill by Senator Tammy Baldwin of Wisconsin would entitle workers to elect one-third of the seats.
These proposals are part of a fundamental rethinking of whom corporations should serve, but they are not new. American companies were once run with the interests of people other than just shareholders - workers, customers, the public - in mind. (In 1965, corporate managers earned only 20 times what the typical worker did.) There is already a thriving example of how co-determination can work. Germany has the strongest system of co-determination in Europe, and it is a defining feature of its economy, the biggest in Europe. German laws dictate that workers at large companies elect up to half the members of supervisory boards, which make high-level strategic decisions, including how to invest profits and whom to hire for senior management positions. Workers also elect representatives to work councils, the "shop-floor" organisations that deal with day-to-day issues such as overtime pay, major retrenchments and monitoring and evaluation.
Is co-determination good for business? The results from Germany are mixed. Some research shows that co-determination has a positive effect, especially through work councils, and some shows no effect. Co-determination doesn't guarantee corporate growth and profits, but it certainly doesn't undermine them.
German workers have fared well under co-determination. Along with strong trade unions, co-determination helped German workers minimise job losses from a financial crisis in the 1990s. Workers traded raises for job security, but that investment has paid off. Workers' wages in Germany have begun to rise recently after decades of stagnation.
This history means that generations of Germans have grown up believing that having workers involved in decision-making is the right way to do business. While co-determination has plenty of critics inside Germany, it is accepted by almost every German political party.
What would co-determination look like in the United States? If workers elect up to two-fifths of the members of a corporate board, their representatives could have a decisive effect on matters like whether to use a tax windfall to buy back stock, or whether to approve bonuses for company leadership. (In 2015, the typical German chief executive made US$5.6 million while his American counterpart took home US$14.9 million.) Worker representatives would not win all of these votes, but their presence would disrupt the power dynamics of corporate boards, and workers at all levels of the company would be more aware of what's happening in the boardroom. This could help to revitalise labour organising, which could lead to better pay, benefits and job security.
But co-determination was never simply about wages and profits. It is about giving workers more power. "Co-determination is just like democracy," the political scientist Stephen Silvia told me. It isn't justified on economic terms. "We have a democracy so that people have a voice in public affairs. Co-determination extends that principle so that people have a voice in the workplace as well." American workers are in a crisis that stems, in part, from having no voice in their economic lives. For decades, American corporations have been run exclusively for the benefit of shareholders, and that model has enabled rising inequality, stagnant wages, runaway executive compensation and under-investment in research and innovation.
Would all this be different if workers had seats in the boardroom? Not overnight. But renewing America's experiment with co-determination would help workers feel valued, and that is a necessary starting point for change. NYTIMES
- The writer (@SusanRHolmberg) is a political economist and a fellow at the Roosevelt Institute, where she researches inequality, corporate governance and climate change.