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The most formal and advanced system of worker representation at company board level is to be found in Germany. It is a two-tier system with an administrative board that is responsible for the day-to-day running of the firm; and a supervisory board to appoint and control management. This is the clear legal order of the German “Aktiengesetz”.
Therefore the supervisory board has a number of specific responsibilities laid down in the law. Primarily, the members of the company’s administrative board must be appointed by the supervisory board. Further responsibilities include comprehensive rights to supervise and scrutinize management procedures, the right to inspect company books and reports and to inspect and approve the company’s annual statement of accounts. In addition, the supervisory board can commission the auditors of the firm, employ outside experts to help them in their task, and call a general meeting if the interests of the company require this. More importantly, the supervisory board has the power under the law to approve a company’s important investment decisions and large-scale restructuring measures and closures. It is also needed to approve of company mergers, acquisitions and disinvestments as well as taking loans out above a specific size.
The supervisory board is composed of representatives from the shareholders and the workforce. The employee representatives must be elected directly by the workforce themselves or by delegates who are elected from the workforce. According to two of the laws (Acts of 1951, 1976, see below) the trade union representatives can propose representatives on the supervisory board who are not employees of the company. But only unions with members in the company are entitled to make proposals for these seats. All of the workers’ representatives have the same rights and responsibilities on the supervisory board as the shareholder representatives. They are also covered by the same codes of confidentiality in the conduct of their affairs on the board. The law protects them from discrimination or obstruction as they go about their business. They are allowed to serve four year terms.
Although its origins date back to the early part of the last century and the Weimar Republic, it was not until 1951 that co-determination by law was first introduced. The German trade unions at that time had only achieved the political power to establish legal rights to co-determination in the basic industries of coal and iron and steel. The system introduced in those two sectors remains the model of co-determination that the trade unions in Germany would like to see used in other industries. The law provided for parity of representation for workers and shareholders on the supervisory boards of firms in coal and iron and steel. Under its provisions trade unions and works councils nominate half the places on the company’s supervisory board. The chair of the board is independent not from either the employee or shareholder side. The supervisory board has the power to appoint the administrative board, responsible for the day to day running of the enterprise. This includes the appointment of the company’s labour director who sits on the administrative board. He cannot be appointed against the vote of the employee representatives.
Over the next twenty-five years the trade unions tried to extend the co-determination system from coal and iron and steel to other sectors but they did so without success. Already in 1952 a further law was introduced that made provision for employee representation at board level. However they were to account for only up to a third of members of a company’s supervisory board. This law still applies today in all enterprises which employ between 500 and 2000 workers. The legal provisions involved under the 1952 Act are more designed to advance the information and consultation rights of the works council rather than to establish co-determination. The employee representatives may only come from employees in the firm. Trade unions remain dissatisfied with this form of workers` co-determination.
The real advance in the expansion of co-determination took place in 1976 under the Social Democratic/Liberal coalition government. The 1976 Act extended the principle of parity in employee representation to the supervisory boards of all private firms that employed 2,000 or more workers across all industries and services. But compared with the provisions of parity within the 1951 Act it was a much weaker form of co-determination.
Under its provisions, the chair of the company’s supervisory board has the casting vote and must be a shareholder representative. Moreover, one place among the worker representatives must be reserved for the representative of the firm’s executives. The employee representatives on the supervisory board do not have a vote in the appointment of the labour director.
The exact size of representation on the supervisory board is set out in the law. It must consist of 12 members in firms employing between 2,000 and 10,000 workers. Of the six employee representatives, four must come from among the workers in the enterprise and the other two from trade unions.
The employers lodged a complaint against the new law before the German Constitutional Court. They argued that such an extension in co-determination rights imposed a restriction on the firm’s ownership rights. But the Constitutional Court rejected their arguments twice and judged that the Law was not a breach of the country’s constitution.
According to a 1998 survey carried out by a commission on co-determination and corporate governance established by the Bertelsmann Foundation together with the Hans Böckler Foundation an estimated 700 companies are covered from one of the two kinds of company co-determination with equal representation on supervisory boards. In 1998 around 24.5 per cent of workers employed in the country’s private sector were involved in the system. In addition, a further 15 per cent of workers were believed to be employed in private companies which had works councils but no co-determination at board level. But the most important finding in 1998 was that as many as 60.5 per cent of workers employed in private firms had neither works councils nor employee board representation.
But the practice of co-determination in Germany does not reflect a single and uniform model of employee representation. Indeed, the evolution of the system has always been in line with the uneven development of companies in highly competitive product and consumer markets both within Germany and internationally. In recent years co-determination has become much more important as the institutional focus for work reorganisation and modernisation at plant level and less as the national or sector-wide recognition of the power of organised labour. It is the intricate linkage between employee representation at supervisory board level in the company and the activities of the company’s works council that provides the corporate dynamic for necessary change. In short, the modified laws of the 1970s have ensured the social integration of the German company.
German employers used to be strong opponents of the principles of co-determination for a long time but nowadays they recognise the practical advantages it provides them with in helping them to carry through their corporate strategies with the active consent and cooperation of their employees.
The introduction of the European Company statute provides German firms with an opportunity to modernise and reform their organisations beyond national borders. However, this will not mean the export of the German system elsewhere in the European Union. Nor will it mean its destruction by the introduction into Germany of less advanced systems from other European countries.
source: Robert Taylor (2004) in ETUI and Hans Böckler Foundation, The European Company - Prospects for board-level representation
DOCUMENTS.
- BRIEF OVERVIEW: Company law and existing legislative provision for employee participation in Germany (by A. Büggel).
(pdf)
 COUNTRY REPORT GERMANY: Workers' participation at board level
(by Roland Köstler)
prepared within the project "Prospects for participation and co-determination under the European Company Statute" - more about this project
download country report (pdf, 190 kb) download whole report (pdf, 1.3 MB)
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Biedenkopf Commission sees no need for fundamental reform of German codetermination, Dr Torsten Müller - European and Global Industrial Relations Research Group, University of Applied Sciences at Fulda (Germany)
On 21 December 2006 the three independent academic members of the so-called “Biedenkopf Commission” on the modernisation of the German system of codetermination issued their report, which sees no need for fundamental changes to the German system of codetermination. In doing so, the independent report strengthens the German system of codetermination. Download full report as pdf
Document: Bericht der wissenschaftlichen Mitglieder der Kommission zur Modernisierung der deutschen Unternehmensmitbestimmung vom Dezember 2006 (Link to pdf, only available in DE)
Employer-side attack on the German codetermination system (Nov 2004)
The peak German employers’ organisations have used the debate on the introduction of the SE legislation as an opportunity to launch a renewed attack on the German system of codetermination. They claim that in light of intensified competition in an increasingly globalised economy, EU enlargement and recent European-level developments in company law, there is an urgent need to ‘modernise’ the German codetermination model, in other words, to reduce employee representation rights in order to remain competitive. more
DOCUMENTS:
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(3) Transposition process
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Final Update: December 2004
With the votes of the ruling SPD / Greens coalition, the German Bundestag has rejected on 17-12-2004 the objection raised by the (opposition dominated) second chamber (Bundesrat). The transposition law has come into force on 29 December 2004.
DOCUMENTS: (Link to EU Commission website, inofficial translations are available for some countries)
Press release of the Ministry of Justice (28-12-04)(link)
Other information and documents on transposition in Germany (Link)
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Update: October 2004
by Torsten Müller, Fachhochschule Fulda
The German government failed to meet the 8 October deadline for transposition of the SE statute and directive into national law. However, on 29 October the Lower House (Bundestag) passed the draft legislation on introduction of the European Company (Societas Europeae or SE) after its second and third readings. The draft legislation is now to be debated by the Upper House (Bundesrat) at its 26 November session. Although the legislation on the introduction of the SE does not require Upper House approval to come into effect, there is still a possibility that the Opposition will request that the matter be considered by the mediation committee, so delaying the legislative process. In that case, the earliest possible date on which the Upper House could finally adopt the draft legislation would be 17 December 2004. Thus, the legislation is unlikely to come into force before 1 January or 1 February 2005.
Update: May 2004:
Draft Legislation on the Introduction of a European Company
In April 2004 the German legislator issued draft legislation on the introduction of a European Company (SE) which consists of two main parts: first, the law on the implementation of Council Regulation No. 2157/2001 on the European Company Statute which contains provisions on the company-law aspects of the establishment, structure and operation of an SE under German law; and second, the law on the transposition of Council Directive 2001/86/EC supplementing the European Company Statute with regard to employee involvement.
Since the main aspects of the SE Regulation’s introduction have already been dealt with in a previous country report, this update on the situation in Germany will focus on the rules for employee involvement in the SE as laid out in the draft legislation.
Concerning the introduction of the SE Regulation into national law the most notable feature of the draft legislation is the fact that it enables SEs to choose between a monistic corporate governance structure with a single administrative organ – the so-called ‘administrative board’ – and a dualistic structure involving a supervisory organ and a management organ. The option of a monistic corporate governance structure is a novelty in Germany because the German law on joint stock companies provides exclusively for a dualistic structure.
Therefore, the German legislator saw the need to make use of the authorisation provided by Article 43, Paragraph 4 of the SE Regulation in order to define a detailed catalogue of rules concerning the rights and duties of an administrative board and the managing directors appointed by the administrative board.
With respect to the rules on employee involvement in the SE, the crucial feature of the draft legislation is that the German legislator applied the ‘before and after principle’ as laid out in the SE Directive: this means that employee participation rights already applying to participating companies are retained within the SE. Therefore, the draft legislation follows the SE Directive by specifying that a special majority of the members of the Special Negotiating Body (SNB) – two thirds of SNB members representing at least two thirds of the total workforce, and including the votes of members representing employees in at least two member states – is required to approve an agreement which would lead to the reduction of employee participation rights. This applies in the case of SEs established by merger, if board-level participation rights already cover at least 25% of the total workforce of the participating companies. In the case of SEs established by creating a holding company or a subsidiary, a special majority vote is required if co-determination rights already apply to at least 50% of the combined workforce of the participating companies. In the case of SEs established through transformation, a reduction of employee participation rights is not possible.
Concerning the composition of the SNB, the draft legislation follows the proportional principle set out in the SE Directive; that is, the seats on the SNB must be allocated in proportion to the number of employees employed in each member state by the participating companies. However, the draft legislation explicitly stipulates that men and women should be represented on the SNB in proportion to their numbers in the workforce. It also explicitly allows SNB membership for trade union representatives. According to the draft legislation, German SNB members are to be elected by the highest-level body of employee representation (that is, group works council, central works council or works council). Since the SNB is only a temporary body, the only provisions of the draft regulation which deal with its internal structure state that the SNB must elect a chair and a deputy chair from among its members. In accordance with the SE Directive, the SNB has the right to request experts of its choice, including representatives from Community-level trade union organisations. Any expenses relating to SNB functioning, and the negotiations in general, shall be borne by the participating companies.
The fall-back provisions governing the establishment, as well as the rights and duties of, the so-called ‘SE Works Council’ which has to be established if management and SNB fail to reach an agreement (or if they so decide) essentially echo the legal provisions on EWCs. However, the draft legislation on SE introduction contains important improvements, such as a more precise definition of information and consultation rights, the right to training for SE Works Council members and no explicit restrictions on the number of external experts to be financed by the company.
Assessment of the two sides of industry
In its statement, the DGB welcomes the draft legislation as a good opportunity to retain the German system of co-determination in the event of SE establishment and in that way to make a substantial contribution to promoting the EU’s social dimension. The detailed suggestions put forward by the DGB to improve transposition of the SE Directive concern the following: clearer definition of when the company should provide information to the employee side in the event of SE establishment; making mandatory the provision that men and women should be represented on the SNB in proportion to their numbers in the workforce; ensuring trade union participation in the negotiations between management and SE Works Council on information, consultation and co-determination if negotiations have to be resumed due to structural changes in the SE; expanding the select committee of the SE Works Council in order to ensure appropriate representation of the various European member states; and two joint meetings a year between management and SE Works Council (instead of the one stipulated by the draft legislation).
In contrast to the positive assessment of the DGB, the German employers’ organisations are rather critical in their joint statement. While they appreciate the opportunities offered by the SE with regard to cross-border cooperation and restructuring for companies operating on a European scale, they criticise the ‘de facto 1:1 transfer of the existing system of co-determination to the SE’. The employers’ federations emphasise that, due to the strong co-determination rights envisaged in the draft legislation on introduction of the SE, foreign companies will hesitate to invest in Germany. Furthermore, the employers argue that the strong co-determination rights retained in the SE under German law will practically exclude German companies from partnership in the establishment of SEs. They criticise in particular the fact that the German legislator made no distinction between the monistic and dualistic corporate governance structures in respect of employee involvement. According to the joint statement, some foreign investors may even consider this as ‘expropriation’ because the German legislator intends to extend employee involvement beyond the supervisory organ to the management organ in a monistic SE. A recurring theme is the employers’ criticism that the German legislator went beyond the provisions of the SE Directive: for example, in strengthening the definition of consultation or in specifying that trade unions have the right to up to one third of the seats in the German SNB delegation. In sum, the German employers’ federations call the draft legislation on SE introduction ‘a failure’.
by Torsten Müller, Fachhochschule Fulda
Archived reports:
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PUBLICATIONS / ARTICLES
- Study by ULA (Deutscher Führungskräfteverband) on the role of managerial staff being represented on supervisory boards
The German affiliate of the Confédération Européenne des Cadres, the interest association of managerial staff ULA, has published a study on the significance of having managerial staff represented on supervisory boards and the precise role of these representatives who, under the German law on co-determination (Mitbestimmung), are guaranteed one seat on the worker representation on the supervisory board. The research findings are highly instructive as they make it clear, among other things, that the less effective aspects of German supervisory boards are not attributable to their general structure or large size. This being the case, the ULA concludes that measures should be taken to improve communication and cooperation among representatives of the different parties insofar as every party indeed has a special and useful role to play. The ULA accordingly rejects the prospect of the kind of fundamental changes for which the need has been argued in some political quarters in Germany. Instead it advocates measures designed to effect internal improvements. The study is based on a survey among 280 members of supervisory boards. Unfortunately, it is as yet available in German only, but an English summary is promised for the near future.
Download ULA report (447 KB, pdf)
Website ULA (Deutscher Führungskräfteverband): http://www.ula.de/
- Participation proves its purpose (Mitbestimmung, international edition 2004)
The 2004 international edition of the journal "Mitbestimmung" of the German Hans Böckler Foundation contains a variety of interesting articles and interviews with practioners on participation issues, e.g.- Handle with care - How economic civil rights in Europe are taking shape (by Norbert Kluge, ETUI)
- “If anyone knows the company, we do !”- An interview with BASF’s senior employee representative Robert Oswald
- „Saying no is easy“ - An interview with ThyssenKrupp’s senior employee representative Schlenz
- Pilot project Arcelor- Trying out European co-determination at board level
All articles can be downloaded free of charge from the homepage of the Hans Böckler Foundation. The articles are available in  and 
Mitbestimmung der Arbeitnehmer in der Europäischen Aktiengesellschaft [Employee involvement in the European Company]
In their article, Thomas Blanke and Roland Köstler examine in detail the rules on employee involvement foreseen in the SE Directive and the German law transposing the SE Directive. (Source: Thomas Blanke: Europäisches Betriebsräte-Gesetz - Kommentar, 2. Auflage)
Download article as pdf (340 KB) only in
Legal assessment: Formation of “empty SEs” (having no employees) is against the law
Looking at the first SEs to have been established, in a number of cases the company declared that the SE does not have any employees at the time of registration. As a consequence, no negotiations with the employees took place as required by the SE directive and its national transpositions. In most cases, registration was accepted nevertheless. However, nobody knows what will happen when such companies come to have employees at a later point in time. Will there be negotiations at that time? Business interests of some legal firms may well have motivated this kind of SE foundation, based on an intention simply to sell the SE as an “empty shell company” when the time is right. German law professor Bernhard Blanke argues in his legal assessment (which was commissioned by the German Hans Böckler Foundation) that there always need to be negotiations under the SE directive. If not, registration has to be refused because such SE shells were plainly not the intention of the European legislator.
Download summary in EN (pdf).
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(5) Other relevant information (Info-Box)
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Links:
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