Dr. Vera Glassner is Senior Researcher at the Department of Economic and Organizational Sociology at the University of Linz. Her research focus is on labour relations from an international comparative perspective and the dynamics of transnational inequality in Europe.
Workers participation to company represents a concept that has found different forms and levels of application in the international context; which value do you assign to this concept from a competitiveness and corporate social responsibility point of view?
Models of worker participation are embedded within national industrial relations (IR) systems. Participation and involvement of workers, besides collective bargaining on wages and working conditions, are important functions of industrial relations. National systems of IR are varying widely within the European Union (EU). While in the Scandinavian and centre-western European countries (Austria, Germany, Belgium, the Netherlands) organised labour relations with coordinated, mostly sectorial, collective bargaining is prevailing, collective bargaining is less coordinated in southern Europe. State-sponsored bargaining is widespread and IR institutions and practices are more contested than in northern and western Europe, even more so since the interventions in the collective bargaining systems in those countries that have received loans from international financial organisations during the recent fiscal crisis. In the UK (and to a lesser extent in Ireland) labour relations are disorganised and collective bargaining is uncoordinated, as it is the case for most of the central and eastern European countries (with the exception of Slovenia, and partly, Slovakia) where employers’ organisations are often non-existent, bargaining is decentralized, collective bargaining coverage and trade union densities are low.
Worker involvement and participation comprises information and consultation of workers, as well as co-determination and co-management of labour representatives. National models of employee participation vary with regard to these functions. Minimum standards for employee information and consultation were established by EU legislation, i.e. Directive 2002/14/EC establishing a general framework for informing and consulting employees in companies in the EU. At the transnational level, the European Works Council (EWC) Directive (94/45/EC) for the information and consultation of employees in (groups) of ‘Community-scale undertakings’, including the recast EWC Directive (2009/38/EC), provides a basic framework for employee participation. However, although not explicitly provided for by law, some EWC are negotiating agreements, often together with European and/or national trade unions, with the management of multinational companies (MNC). The importance of such transnational company negotiations has increased (Rüb et al. 2013; European Commission 2008) but remains limited to industrial sectors such as metalworking and a number of private services (ETUI 2016a). In substantive terms EWC agreements are often addressing ‘soft’ issues such as health and safety, training and equal opportunities. However, an increasing number of transnational company agreements deals with more conflictual issues such as company restructuring, in particular in the automotive industry, or, as in some large car producers such as GM-Opel, with the allocation of product models. In these exceptional cases, worker involvement is far reaching and employee representation bodies are taking on a co-determination or co-management function in so far, as workers are involved in company decision-making, influencing production strategies and working conditions. Employee participation at transnational level is however shaped by national IR institutions and practices. In the EU, it can be distinguished between different models of employee participation at the workplace and in supervisory boards of companies (‘board-level employee representation’).
With regard to workplace-level employee participation two basic models can be distinguished, that is, single and dual channel systems of worker representation. In practice, various mixed forms can be found and in a number of countries both structures coexist. While single channel representation implies unitary representation of either works councils or trade unions as the sole employee representation body, dual channel representation allows for both types of employee representation. Single channel representation is dominating in countries such as Sweden, Finland, Denmark, Ireland, the UK, Italy, the Czech Republic and Poland. Pure dual channel representation based on works councils which are (formally) independent from unions is found in countries such as Germany, Austria, Belgium, the Netherlands, Luxembourg, France and Spain. In many countries, trade union and works council representation are complementary, and often imply a division of tasks between them, e.g. collective bargaining and industrial action tend to be performed or organized by trade unions, while works councils are dealing with more ad hoc and company-specific issues (e.g. work organization, aspects of working time). In countries where works councils are de lege independent of unions, and where works councils are the only statutory body for workplace-level employee representation (e.g. in Germany, Austria and the Netherlands), the unionisation rate of works councils is relatively high (e.g. in Germany around 75% of elected works councillors were union members in 2014). In quantitative terms, the spread of legally based workplace representation bodies (excluding voluntary bodies) varies widely in the EU, from 4 % of all establishments with 10 or more employees in Greece to 68 % in Denmark (see graph). However, since employee participation at the workplace is embedded in the wider system of industrial relations, more comprehensive measures are better suited to assess employee involvement. The ‘European participation index’ (see graph) considers the existence of regulation for board-level employee representation, collective bargaining coverage (the share of workers covered by collective agreements in the total number of dependently employed workers) and trade union density (ETUI 2016c). Employee participation is strongest in Denmark, Finland and Sweden, as well as in Slovenia where collective bargaining coverage is comparably high and regulation on board-level employee representation is in place. High index values are also found in the Netherlands, Austria and Germany, although in the latter country collective bargaining coverage is declining and collective bargaining became fragmented in parts of the service sectors. Institutions for employee participation are lowest in the UK, the Baltic countries and Bulgaria.
Graph: European participation index (EPI) and legally established forms of employee representation*
*Base= all establishments with 10 or more employees Source: ETUI 2016c
What are the effects of worker participation on the competitiveness of firms? Empirical evidence does not allow for a clear-cut answer. Although some earlier studies do not sustain a positive correlation between employee participation and economic performance of firms (e.g. FitzRoy/Kraft 1987, 1990), empirical findings tend to indicate that employee involvement via board-level representation does not have any negative consequences on the economic performance (e.g. return-on-investment, return-on-assets) and financial market evaluation of companies (Vitols 2008). Due to the different methods and data used in these studies, it is not possible to draw a general conclusion that would allow the assessment of the economic effects of worker participation.
Do you think there is a positive correlation between high levels of employees involvement and law-based forms of codetermination in countries such as the Netherlands, Germany, Austria and the Scandinavian countries Denmark, Norway, Sweden, Finland?
With regard to their functions and competencies workplace employee representation bodies differ largely between EU member states. While information and consultation rights are established in all southern European countries, with the most far-reaching provisions beyond those stipulated in the EU Directive found in France and Spain, co-determination rights in southern European countries are traditionally weak. Involvement of workers in corporate governance is most developed in the Nordic countries as well as in Germany, Austria and the Netherlands where labour representatives are entitled to jointly decide with the management in specific areas. A precondition for effective co-determination practice is, for instance, the timely and comprehensive provision of information on strategic business decisions by the management which allows works councils to participate in corporate governance. Traditions of co-determination are most deeply entrenched among both the employers’ and employees’ side in the Scandinavian countries. In Sweden, co-determination is perceived as a decision-making instrument both by unions and employers. This is particularly the case in arising disputes, where employers perceive co-determination as an obligation to negotiate with the local or national union. In countries such as Austria, Germany, the Netherlands and Belgium, mandatory consultation rights exist for issues such as mergers, business transfers, mass redundancies, training, and the introduction of new technology. Areas in which works councils have co-determination rights (e.g. on daily working hours, reductions/extensions of normal working hours in the company, introduction of technical devices to monitor workers’ performance, remuneration schemes) are stipulated by law. In both the north and central-western European countries works councils (in Austria, Germany, the Netherlands) and (local) trade union representatives (in the Nordic countries) negotiate collective agreements at plant or company level on specific topics that are stipulated by law. Conditions settled in such company agreements however usually have to be more favourable for workers than those provided for in collective agreements.
In countries where arrangements for the representation of employees in companies’ supervisory boards are provided for by law, employee participation tends to be most extensive. Regulation on board-level representation of workers in both public and private companies is established in Sweden, Denmark, Norway, Finland, Germany, the Netherlands, Luxembourg, France, Austria, Slovakia, Hungary and Slovenia, while it covers only employees in state-owned companies in Spain, Portugal, Ireland, the Czech Republic and Poland.
Italy and UK are the only western European countries where legal provisions for workers’ board-level representation are lacking (ETUI 2016b).
The German system of dual governance, in particular, institutionalizes the participation of workers (Mitbestimmung) both to the supervisory board and at production unit level. Compared to the Anglo-Saxon and Latin system of governance, which is the role of these instititutions in terms of promoting common corporate interests (not of only one stakeholder such as shareholders or employees) and the resolution of conflicts of interests?
The concept of the ‘sustainable company’ has gained in importance since the recent economic crisis (Vitols/Kluge 2011; Vitols/Heuschmid 2012), when the concept of ‘shareholder value’, that is, the maximization of shareholder wealth, as a leading principle for corporate governance was discredited. Worker involvement in corporate governance is considered as crucial in ‘sustainable companies’ as they have a long-term interest in the social, ecological and financial sustainability of the firm. Therefore, countries with legal arrangements that guarantee the involvement of workers in companies’ decision-making are expected to provide more favourable conditions for the emergence of companies that prioritize stakeholder over shareholder value. Germany was a frontrunner regarding the regulation of board-level employee representation. Regulation that grants employees the right to be represented on boardrooms of companies in the coal, iron and steel industries was adopted in 1951. Parity board-level representation in all companies with more than 2,000 employees was introduced in 1976 (in companies with more than 500 employees one third of the seats in supervisory boards is reserved for employee representatives). Since the 1970s, in 15 other EU countries regulation on board-level employee representation was adopted (see above).
In the wake of the economic crisis the issue of executive pay became salient in political debates in Germany and was addressed by legal initiatives. The regulation adopted in 2009 provides for a stricter control of top managers’ remuneration by supervisory bodies. Already before these legal changes studies have shown that board-level employee representation is related to significantly lower levels of remuneration. Thereby, the inclusion of trade union representatives in supervisory boards of listed German companies proved to be decisive for lower total pay and the use of stock-market linked remuneration (Vitols 2008). In addition to this, the participation of trade union representatives did not negatively affect ‘good governance’ practices, such as disclosure of the composition of executive boards and remuneration of executive board members (ibid: 33).
The German model of employee participation is among the most developed ones in Europe and beyond. However, industrial relations in Germany came under pressure since the early 1990s. Reunification and the intensification of global market integration gave rise to labour market deregulation, the erosion of sectoral collective bargaining, in particular in private services, and ‘concession bargaining’. Opening clauses in sectoral collective agreements that allow for deviations from sectoral standards at company level became widespread, in particular in the export-dependent metal industry. At the workplace the model of ‘conflict partnership’ (Müller-Jentsch 1993) was increasingly replaced by ‘productivity coalitions’ when local partnerships between management and labour representatives facilitate concessions, often without openly arising conflicts (Streeck 2016). Works councils that occasionally take on a more assertive, conflict-oriented stance, as for instance at the Volkswagen (VW) company, are an exception rather than the rule (the VW works council derives its strength vis-á-vis the management from outstandingly high union organisation of the workforce and the VW-law that grants employee representatives extensive co-management rights). Declining trade union organisation and the (partial) erosion of collective bargaining are considered as the greatest challenges for the German model of employee representation.
European Commission (2008) Industrial relations in Europe 2008, Luxembourg: Publications Office of the European Union.
ETUI (2016a) ewcdb. The European works councils database, http://www.ewcdb.eu/, accessed: 1 June 2016
ETUI (2016b) Worker participation in Europe, http://www.worker-participation.eu/About-WP/What-s-new/Updated-map-of-Board-level-Employee-Representation-in-Europe-BLER, accessed: 1 June 2016
ETUI (2016c) European participation index (EPI), http://de.worker-participation.eu/About-WP/European-Participation-Index-EPI, accessed: 1 June 2016
FitzRoy F. and Kraft K. (1987) Efficiency and internal organization: works councils in West German firms. Economica 54: 493–504.
FitzRoy F. and Kraft K. (1990) Innovation, rent-sharing and the organization of labor in the Federal Republic of Germany. Small Business Economics 2: 95–103.
Müller-Jentsch, W. (1993) Konfliktpartnerschaft: Akteure und Institutionen der industriellen Beziehungen. 2. Auflage. München: Hamp.
Rüb, S., Platzer H.-W. and Müller, T. (2013) Transnational Company Bargaining and the Europeanization of Industrial Relations. Oxford: Peter Lang.
Vitols, S. (2008) Beteiligung der Arbeitnehmervertreter in Aufsichtsratsausschüssen, Studie im Auftrag der Hans-Böckler-Stiftung.
Vitols, S. and Kluge, N. (2011) The Sustainable Company: a new approach to corporate governance. Brussels: European Trade Union Institute (ETUI).
Vitols, S. and Heuschmid, J. (2012) European company law and the Sustainable Company: a stakeholder approach, Vol. II, Brussels: European Trade Union Institute (ETUI).
Streeck, W. (2016) Von Konflikt ohne Partnerschaft zu Partnerschaft ohne Konflikt: Industrielle Beziehungen in Deutschland. Industrielle Beziehungen 23(1): 47-60.