In Germany, ‘co-determination’ has a long tradition. Beginning in the late 19th century, the German co-determination system has been developed over more than 100 years to become one of the most dominant co-determination systems in the world.
Employees’ co-determination in Germany becomes visible in two different forms: employees’ participation in ‘works councils’ (‘Betriebsrat’) at establishment level (‘betriebliche Mitbestimmung’) and labour (employees and trade union representatives) participation in ‘supervisory boards’ on board level (‘Unternehmensmitbestimmung’).
German corporate law distinguishes between the ‘management board’ (‘Vorstand/ Geschäftsführung‘) and the ‘supervisory board’ (‘Aufsichtsrat‘) (‘two-tier boards system’ as opposed to the Anglo-American ‘one-tier system’). Co-determination on board level refers to the representation of employees on the supervisory board. Depending on the industry, the corporation is operating in and the size of labour force, the supervisory board composes of one third (‘third part participation’) to half (‘parity participation’) of employees’ representatives.
‘Corporate governance’, the regulations for legal and actual distribution of management and supervision tasks between the supervisory board, the management board and the shareholders has lead in many countries to the development of codes since the 1990s. Germany also has drawn up a corporate governance code meanwhile – the ‘German Corporate Governance Code’. The code builds together with the ‘Stock Corporation Act’ and the different co-determination acts the legal framework for corporate governance principles in Germany. It aims to make Germany’s corporate governance rules transparent for both national and international investors, thus strengthening confidence in the management of German corporations. The code addresses with its ‘recommendation’ and ‘suggestions’ to all major criticisms from the international community against German corporate governance, for instance the inadequate focus on shareholder interests and the two-tier system of management board and supervisory board.
In between time the ‘German Corporate Governance Code’ has achieved a high level of acceptance; in particular in the DAX companies, who set the trend in corporate governance in Germany.
Detailed Contents:
I. Abstract of research
II. Definition of terms related to ‘co-determination’ and ‘corporate governance’
III. Historical development of ‘co-determination’ in Germany
IV. Legal framework of ‘co-determination’ and ‘corporate governance’ in Germany
V. ‘Two-Tier Board System’ in German corporations
VI. ‘Co-determination’ in Germany
VII. ‘Corporate Governance’ in Germany
VIII. Résumé
Abbreviations:
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I. Abstract of research
In Germany, ‘co-determination’ has a long tradition. Beginning in the late 19th century, the German co-determination system has been developed over more than 100 years to become one of the most dominant co-determination systems in the world.
Employees’ co-determination in Germany becomes visible in two different forms: employees’ participation in ‘works councils’ (‘ Betriebsrat’ ) at establishment level (‘ betriebliche Mitbestimmung’ ) and labour (employees and trade union representatives) participation in ‘supervisory boards’ on board level (‘ Unternehmensmitbestimmung’ ).
German corporate law distinguishes between the ‘management board’ ( ‘ Vorstand/ Geschäftsführung‘) and the ‘supervisory board’ ( ‘ Aufsichtsrat‘) (‘two-tier boards system’ as opposed to the Anglo-American ‘one-tier system’). Co-determination on board level refers to the representation of employees on the supervisory board. Depending on the industry, the corporation is operating in and the size of labour force, the supervisory board composes of one third (‘third part participation’) to half (‘parity participation’) of employees’ representatives.
‘Corporate governance’, the regulations for legal and actual distribution of management and supervision tasks between the supervisory board, the management board and the shareholders has lead in many countries to the development of codes since the 1990s. Germany also has drawn up a corporate governance code meanwhile – the ‘German Corporate Governance Code’. The code builds together with the ‘Stock Corporation Act’ and the different co-determination acts the legal framework for corporate governance principles in Germany. It aims to make Germany’s corporate governance rules transparent for both national and international investors, thus strengthening confidence in the management of German corporations. The code addresses with its ‘recommendation’ and ‘suggestions’ to all major criticisms from the international community against German corporate governance, for instance the inadequate focus on shareholder interests and the two-tier system of management board and supervisory board.
In between time the ‘German Corporate Governance Code’ has achieved a high level of acceptance; in particular in the DAX companies, who set the trend in corporate governance in Germany.
II. Definition of terms related to ‘co-determination’ and ‘corporate governance’
- ‘Co-determination’ (Mitbestimmung )
‘Co-determination’, in a broader sense means the involvement of people groups in political or economic planning and decisions (‘participation’); while in the strict sense co-determination describes the participation of employees in the process of deciding or settling in companies and enterprises.[1] Co-determination defines a set of rights that give employees the possibility of actively participating in the shaping of their working environment. This includes legally stipulated co-determination rights, company internal agreements devised in conjunction with union contracts as well as informal determination possibilities that have arisen from co-determination practice.
The institutional core of co-determination is the ‘Works Constitution’ and ‘Corporate Co-determination’.
- ‘Works Constitution’ (Betriebsverfassung )
The ‘works constitution’ is the legal base of employees’ co-determination within the establishment level. It regulates the principles of relations between employees and employers. Its legal source are the ‘Works Constitution Acts’ of 1952 and 1972. The principle organ of the works constitution is the ‘works council’. The ‘works constitution’ also contains individual co-determination rights of employees in establishments where there is no ‘works council’.
- ‘Works Council’ (Betriebsrat )[2]
The ‘works council’ is the institutionalised form of the representation of employees’ interests within an establishment. The foundation of works councils in companies, enterprises and groups of enterprises, its election and composition, the term of office and the chairmanship of the works council, its rights as well as the cooperation and codetermination of the employees on the establishment level are regulated in the ‘Works Constitution Acts’ of 1952 and 1972.
- ‘Supervisory board’ ( Aufsichtsrat )
German Company law requires registered co-operative societies ( eG ), stock corporations (AG) and partnerships limited by shares ( KGaA ) to establish supervisory boards as company organs. For limited liability companies (GmbH), the establishment of a supervisory board is only needed if certain preconditions apply. In all other forms of corporations, the establishment of supervisory boards is optional.
The supervisory board of corporations falling under the regulations of the ‘Stock Corporation Act’ usually comprises three members. The articles may provide for a specific higher number, which has to be divisible by three.[3] The members of the supervisory board are elected by the shareholders’ meeting, unless they are not to be appointed to the supervisory board or elected as representatives of the employees.[4] Depending on the legal base of the employees’ co-determination, the supervisory board comprises representatives of the shareholders, representatives of the employees and additional members.[5] A member of the supervisory board may not also be a member of the management board, a permanent deputy member of the management board, a registered authorised officer or general manager of the company.[6]
The supervisory board that represents the company in and out the court in dealings with the management board and possesses the authority to appoint and remove the members of that board[7] has the essential function of supervising the management of the company.[8]
The supervisory board has the right to inspect and examine the books and records as well as the assets, in particular cash, securities and merchandise of the company.[9]
The supervisory board commissions the auditor to audit the annual financial statements and the consolidated statements.[10]
- ‘Management board’ (Vorstand / Geschäftsführung )
The Management Board represents the enterprise in and out of the court[11] and is responsible for managing the enterprise.[12]
The management board may consist of one or more members[13], being appointed by the supervisory board for a period not exceeding five years.[14] If the management board comprises more than one person, the members shall manage the company jointly[15] and may appoint one member as chairman of the management board.[16] The chairman of the management board coordinates its work.[17]
The management board reports to the supervisory board on intended business policy and other fundamental matters regarding the future strategy of the company; on the profitability of the company, especially the return on equity; on the state of business, in particular revenues; and the condition of the company; as well as on transactions which may have a material impact upon the profitability of liquidity of the company.[18]
- ‘Labour Director’ (Arbeitsdirektor )
In corporations that are subject of the ‘Co-Determination Act’, a ‘labour director’ must be appointed either as a full member of the management board (enjoying equal rights) or, in the absence of a management board, as one of the managers.[19] The labour director who is concerned with personal and social affairs of the enterprise is appointed or removed by the supervisory board. In companies of the coal, iron and steel industry, this cannot be done against the wishes of the elected employees’ representatives in the supervisory board. In all other companies subject to co-determination, the labour director frequently enjoys the trust of the employee representatives.
- ‘Shareholders’ Meeting’ (Hauptversammlung ) [20]
In Germany, shareholders generally exercise their rights with respect to the company at ‘shareholders’ meetings’.[21]
The shareholders’ meeting usually decides about the election of members of the supervisory board, the appropriation of distributable profits, the ratification of the acts of the members of the management board and the supervisory board, the appointment of external auditors, the amendment of the articles as well as on measures to increase or reduce the share capital and the dissolution of the company.[22]
The shareholders’ meeting is called by the management board in all cases provided for in the ‘Stock Corporation Act’, the articles of the company or whenever required by the interests of the company.[23]
- ‘Corporate Governance’
‘Corporate Governance’, which is mostly circumscribed as constitution and control of an enterprise, means first of all the structures of powers and administrations in corporations. When talking internationally about corporate governance, it stands for the legal and actual distribution of management and supervisory tasks between the ‘supervisory board’, the ‘management board’ and the ‘shareholders’.
Corporate governance refers to a company’s mechanisms and control structures that may influence senior management decision-making. The issue of corporate governance has two dimensions. It commonly focuses on the pattern of corporate ownership and the extent to which the shareholders, as the owners of the company, exercise power over management decision-making. However, in the context of decision-making in the area of employment and industrial relations, the issue also reflects a concern about the representation of employees’ interests, who, as stakeholders, have a high interest in the company’s activity, and specifically with the role of employees’ representatives, including trade unions.
[...]
[1] Bibliografisches Institut & F. A. Brockhaus AG, 2008
[2] §§ 1, 7-41 Works Constitution Act (BetrVG)
[3] § 95 Stock Corporation Act ( AktG )
[4] § 101 (1) Stock Corporation Act ( AktG )
[5] § 96 Stock Corporation Act ( AktG )
[6] § 105 (1) Stock Corporation Act ( AktG )
[7] § 112 Stock Corporation Act ( AktG )
[8] § 111 (1) Stock Corporation Act ( AktG )
[9] § 111 (2) S. 1 Stock Corporation Act ( AktG )
[10] § 111 (2) S. 3 Stock Corporation Act ( AktG )
[11] § 78 (1) Stock Corporation Act ( AktG )
[12] § 76 (1) Stock Corporation Act ( AktG )
[13] § 76 (2) Stock Corporation Act ( AktG )
[14] § 84 (1) Stock Corporation Act ( AktG )
[15] § 77 (1) Stock Corporation Act ( AktG )
[16] § 84 (2) Stock Corporation Act ( AktG )
[17] Foreword of the German Corporate Governance Code ( Präambel des Deutschen Corporate Governance Kodex)
[18] § 90 (1) Stock Corporation Act ( AktG )
[19] § 33 Co-Determination Act ( MitbestG )
[20] §§ 118 – 147 Stock Corporation Act ( AktG )
[21] §§ 118 (1) Stock Corporation Act ( AktG )
[22] §§ 119 Stock Corporation Act ( AktG )
[23] §§ 121 Stock Corporation Act ( AktG )
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