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.E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135

Overview There are three main views as to why codetermination exists: to reduce management-labour conflict by improving and systematizing communication channels;Prominent views of codetermination have thus been "social" in nature, concerned with expanding democratic participation in new spheres as a good in itself, reducing "alienation", and smoothing management-labour relations to prevent strong conflicts. A collection of views of this nature are found in Magazin Mitbestimmun to increase bargaining power of workers at the expense of owners by means of legislation;A conservative economic approach views codetermination as not benign: a political means for transfer of wealth from shareholders to employees and to increase power of political and perhaps union actors; as evidence it is noted firms rarely adopt codetermination voluntarily: see Pejovich, Svetozar. The economics of property rights: towards a theory of comparative systems. Chapter 8. Dordrecht, NL: Kluwer Academic, 1990. and to correct market failures by means of public policy.Another economist argues that codetermination in effect corrects several market failures so lack of voluntary adoption cannot be viewed as evidence that codetermination is inefficient: see Stephen C. Smith, "On the economic rationale for codetermination law", Journal of Economic Behavior and Organisation, Vol. 16 (December 1991), pp. 261-281. The evidence on "efficiency" is mixed, with codetermination having either no effect or a positive but generally small effect on enterprise performance.For example see Felix R. Fitzroy and Kornelius Kraft, "Co-determination, efficiency and productivity", British Journal of Industrial Relations, Vol. 43, No. 2 (June 2005), pp. 233-247.

By country 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.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))

Country Law Minimum worker representation Minimum number of employees at which law applies Notes (private companies) Labour Constitution Act 1975 33.3% 300 One-third of the supervisory board from 300 employees in private companies; no employee threshold for public limited companies. (public limited companies) 33.3% 0 N/A No general law, but some public companies have employee representatives.See I Ferreras, Firms as Political Entities: Saving Democracy through Economic Bicameralism (2017) 0% N/A No general law, but employees have rights to speak at shareholder general meetings. (limited companies) LL 2009 art 166 "One" 300 Employee representative on the supervisory board if the company has over 300 employees (limited companies); no employee threshold for public limited companies (public limited companies) "One" 0 0% N/A No general law (private companies) 0% N/A No general law. Before 2014, private companies over 50 employees had one-third employee representation. (state-owned companies) 33.3% (may be increased up to 50% voluntarily) 1 Companies Act 2010 s 140 ≤33.3% (two members minimum) 35 At least two members of the board, up to one-third of the board's membership. 0% N/A No general law Co-operation Act 2021 s 31 20% 150 From 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" 1000(or 5000 worldwide) Private companies over 1000 employees in France or 5000 worldwide must have at least one or two board members. France (state-owned companies) 33.3% 1 Germany Drittelbeteiligungsgesetz 2003 (One-third Participation Act 2004), Mitbestimmungsgesetz 1976 (Codetermination Act 1976), Montanmitbestimmungsgesetz 1951 (Coal and Steel Codetermination Act 1951) 33.3% 500 Enterprises with over 500 employees must have one-third representation on a supervisory board. 50% 2000 Enterprises 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. (private companies) 0% N/A No general law (state-owned companies) "One" 1 33.3% 200 From 200 employees, one-third of supervisory board members are employees. (state-owned companies) Workers Participation (State Enterprises) Act, 1977 33.3% 1 0% N/A No general law 0% N/A No general law 0% N/A No general law (private companies) ≤33.3% ≤1000 A third of the board in companies with 1,000 or more employees, up to a third in others 33.3% 1000 (state-owned companies) 33.3% 1 0% N/A No general law ? 1 For companies owned by unions or the Labour Party. Works Constitution Act 1971, amended in 2004 ≤33.3% 100 Limited Liability Companies Act 1973 "One" 30-50 One 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 33.3% 51-200 33.3%+1 201 (private companies) Law on Workers’ Self Management of 1981 0% No general law (state-owned companies) 33.3% 1 In state-owned companies employees have one-third of supervisory board seats, and a seat on the management board. 1976 Constitution, Arts. 30 and 33 and Law 46/79 No 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. 0% N/A No general law, but unions can be heard at meetings. (private companies) Labour Code (Law 311/2001), Art. 233-236 33.3% (may be increased up to 50% voluntarily) 50 (state-owned companies) 50% 1 Half the supervisory board in state-owned companies. 1991 Constitution art 75, and 1993 law. 50% - 33.3% 50 Between a third and a half of seats in companies with supervisory board plus management board member if more than 500 employees; around a third in companies with single tier board Law 41/1962, repealed 1980 0% N/A Some state-owned companies retain two board members though it has not been compulsory since 1980 to have employee representation in private companies. Board Representation (Private Sector Employees) Act (1987:1245) 33.3% 25 Over 25 employees, around one-third representation on boards. 0% N/A Representation in postal services. No general law, but there was employee representation in railways. Cambridge University Act 1856, Higher Education Governance (Scotland) Act 2016, Education Act 2002 s 19,Number of staff reduced to 1 by Education Act 2011 s 38 National Health Service Act 2006 etc. 0% N/A No general law, although staff participation required in universities, schools, and in NHS foundation trusts. The Financial Reporting Council has a comply or explain rules for employee representation in the UK Corporate Governance Code 0% N/A No general law 0% N/A No general law 0% N/A No general law 0% N/A No general law, although in Massachusetts manufacturing firms may voluntarily have employees on boards. Any collective agreement can achieve the same result. 0% N/A No general law (private companies) 0% N/A No general law (state-owned companies) 1977 Law and a 1985 High Court decision, Dapey Shituf (Tel-Aviv 1985) ? 1 Worker representation in government companies 0% N/A No general law 0% N/A No general law 0% N/A No general law

Canada

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.

China

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.

Germany

The first codetermination plans began at companies and through collective agreements.E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135, page 22 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)

New Zealand 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.

United Kingdom

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.E McGaughey, 'Votes at work in Britain: shareholder monopolisation and the ‘single channel’ (2018) 47(1) Industrial Law Journal 76, page 9.