Sen. Elizabeth Warren floated the idea of allowing workers at big companies to elect members to the corporate board at Tuesday’s presidential debate.
“That will make a difference when a corporation decides, gee, we could save a nickel by moving a job to Mexico,” she said. “When there are people on the board in the boardroom saying, ‘no, do you know what that does to our company? Do you know what that does to our community, what it does to our workers?’”
The economic term for this is co-determination, and the Germans have been filling their boardrooms this way for 70 years.
Warren’s Accountable Capitalism Act calls for employees to select at least 40% of a company’s board.
In Germany, one of the biggest capitalist companies in the world, workers at big corporations elect 50% of the board. At medium-sized companies with up to 2,000 employees, workers elect a third of the board, says Simon Jäger, an economist at the Massachusetts Institute of Technology who has studied the policy’s impact on German industry.
The idea behind this policy was to empower workers and give them a voice, but there’s also a strong economic argument.
The hypothesis is that giving workers a seat on the board leads to a more cooperative relationship between management and its workforce, he says — forming a mutual perception of what the Germans call social partners.
“Interestingly, often the decisions that these boards take are unanimous,” he says. “So the workers and the shareholders’ representatives negotiate until there is a compromise.”
Beyond cooperation, this social partnership gives workers a chance to share important information about what’s going on at the company, suggestions on how to improve production or issues that bother them like outsourcing. This type of information can get lost at a corporation with multiple levels of management, he says.
Co-determination differs from having a union because workers elected to the corporate board are equals with the directors chosen by shareholders.
“They are involved in decision making,” he says. “It is a more co-operative institution rather than a firm head-to-head negotiating with a union.”
Through his work on labor in boardrooms with Benjamin Schoefer of the University of California Berkeley and Jörg Heining of the Institute for Employment Research, Jäger and his colleagues found that companies become more productive when they put workers on their boards.
Critics of co-determination fear workers will push for higher salaries and drive up labor costs. And that would then lead to fewer investments from shareholders, making it harder to run these corporations.
Jäger’s research hasn’t shown evidence of higher wages but rather increased productivity.
“We found that these companies produce more in-house and [labor] actually become more productive,” he says. “We don't find effects on negative effects on [overall] productivity, for example.”
Plus, he says the system doesn’t give labor as much power as one might think. If workers on the board were pushing for high wages, the shareholder-selected members could still outvote them.
To wield influence on a board, the elected workers need to build a relationship and compromise with the other members to form solutions that work for both sides, he says.
It’s tough to tell if what works in Germany would work in the U.S., he says — but if you never try, you never know.
This segment aired on October 18, 2019.