Representation of Employee’s Interest Vis-a-Vis the Employing Enterprise in the UK and Germany: Differences and Explanations

Abstract

The questions of who should define the goals and objectives of a firm, and whether they should be defined in such a way so as to give a certain level of recognition to the well-being of other groups interested in the long-term success of the company and not only to the interests of the shareholders leads us to a deeper discussion on the need and ways of stakeholders’ participation in the setting of company’s objectives and goals. Two of the most dominant approaches to corporate governance (Principal - Agent or Finance Model, and the Stakeholder Model) acknowledge strongly the conflict that exist between the shareholders who require a firm oriented toward “shareholders’ value maximization” and the other interested groups including among others suppliers, customers and employees, referred to as stakeholders, who require the firm, in the course of its actions, to take into consideration their interests as well. It is the purpose of this paper to identify the conflict existing between the company and its employees (other stakeholders’ conflicts such as customers and suppliers will not be addressed because they fall out of the purpose of this paper), explain its reasons, as well as show how the problems arising from this conflict tend to be solved in Germany and the UK.

Keywords: principal-agent problem, finance model, stakeholder model, works council, co-determination

JEL Classification: G30, G34, G39