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Backhaus, Jürgen G. --- "Company board representation" [1999] ELECD 19; in Backhaus, G. Jürgen (ed), "The Elgar Companion to Law and Economics" (Edward Elgar Publishing, 1999)

Book Title: The Elgar Companion to Law and Economics

Editor(s): Backhaus, G. Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781858985169

Section: Chapter 12

Section Title: Company board representation

Author(s): Backhaus, Jürgen G.

Number of pages: 13

Extract:

12 Company board representation
Jiirgen G. Backhaus


Introduction
Corporations can have widely differing forms. Against the backdrop of the
peculiar German system of codetermination, we can illustrate the law and
economics rationale behind different types of board composition. Boards are
split into two, the managing and the supervisory board. Works councils elect
the powerful chairmen, who can end up on supervisory boards and, more
importantly, the steering committees. In addition, investment bankers may
join forces with employee representatives in controlling management ap-
pointments. How did this system come about, which events shaped it, and
why is it being continued by globally operating companies?

Codetermination as an interlocking system
Codetermination is an interrelated set of institutions which consists of five
major elements (Table 12.1).At the plant level, it involves the representation of
workers in works councils. Works councils need to be heard in many matters
referring to the daily practice of work and they need to be involved in discus-
sions with respect to such issues as hours, time and form of payment, and the
hiring and firing of individual workers. They need to agree on economic
matters that concern them existentially, in particular if a plant is to be closed. In
such a case, a social plan needs to be implemented. Obviously, the works
councils have no say over what is being produced, what the prices are, what
kinds of investments are being made, and so on. But what is crucial is that they
determine the exit costs ...