Codetermination is a corporate governance system which allows for greater employee participation in the running of a company. The system has a long history in Germany and is deeply entrenched in the country’s corporate culture. Read on to learn more about codetermination in the digital era.
How does codetermination work?
Codetermination is a system which can help reduce the likelihood of workplace disputes arising between employers and employees. By giving employee-representatives the opportunity to participate in the management of the company, the differing interests of employers and workers can be more adequately addressed than in a company run solely in the interest of its shareholders.
Codetermination in Germany involves employees of companies being elected to a ‘supervisory board’ which is responsible for setting the overall direction of the company as well as electing a ‘management board’. The latter is tasked with taking care of the day-to-day operations of the company.
The following legal requirements apply to companies of different sizes:
- Companies with between 500 – 1,999 employees. One-third of members sitting on the supervisory board must be elected by the wider employee base. The remaining board members are elected by shareholders.
- Companies with 2,000+ employees. Half the members sitting on the supervisory board must be elected representatives of the wider employee base. The chairperson of the supervisory board, however, is always a shareholder appointee, meaning shareholder representatives have the potential to out-vote employee representatives if there is a 50:50 split.
Codetermination in the digital era
Current legislation governing codetermination in Germany is sixteen years old, so it doesn’t adequately account for more recent technological developments. Voting for supervisory councils online is not yet allowed under German law. Employees are required to either show up at their polling place on election day or go through the time-consuming process of applying for and casting their votes by mail. This has the effect of discouraging some employees from participating altogether. By allowing employees to effortlessly vote online, voter turnout can be increased leading to more legitimate supervisory councils. This is precisely what several labor lawyers in Germany are calling for. Moreover, companies themselves are keen to see online voting allowed because of the vast cost and time savings that ensue.
We live in an age defined by digitalization, where flexible working arrangements facilitated through online technologies are increasingly the norm. It’s time for German law to catch up with technology. It is also perhaps time for other countries to catch up with responsible German labor practice.