The Codetermination Bargains: The History of German Corporate and Labour Law

46 Pages Posted: 23 Dec 2014 Last revised: 23 Apr 2018

See all articles by Ewan McGaughey

Ewan McGaughey

School of Law, King's College, London; Centre for Business Research, University of Cambridge; University of California, Berkeley - Berkeley Comparative Equality & Anti-Discrimination Law Study Group

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Date Written: December 22, 2014

Abstract

Why does codetermination exist in Germany? Law and economics theories have contended that if there were no legal compulsion, worker participation in corporate governance would be ‘virtually nonexistent’. This positive analysis, which flows from the ‘nexus of contracts’ conception of the corporation, supports a normative argument that codetermination is inefficient because it is supposed it will seldom happen voluntarily. After discussing competing conceptions of the corporation, as a ‘thing in itself’, and as an ‘institution’, this article explores the development of German codetermination from the mid-19th century to the present. It finds the inefficiency argument sits at odds with the historical evidence. In its very inception, the right of workers to vote for a company board of directors, or in work councils with a voice in dismissals, came from collective agreements. It was not compelled by law, but was collectively bargained between business and labour representatives. These ‘codetermination bargains’ were widespread. Laws then codified these models. This was true at the foundation of the Weimar Republic from 1918 to 1922 and, after abolition in 1933, again from 1945 to 1951. The foundational codetermination bargains were made because of two ‘Goldilocks’ conditions (conditions that were ‘just right’) which were not always seen in countries like the UK or US. First, inequality of bargaining power between workers and employers was temporarily less pronounced. Second, the trade union movement became united in the objective of seeking worker voice in corporate governance. As the practice of codetermination has been embraced by a majority of EU countries, and continues to spread, it is important to have an accurate positive narrative of codetermination’s economic and political foundations.

Keywords: Codetermination, corporate governance, nexus of contracts, worker participation, history, collective agreements

JEL Classification: L23, M11, N00, K12, K22, K31, K00

Suggested Citation

McGaughey, Ewan, The Codetermination Bargains: The History of German Corporate and Labour Law (December 22, 2014). (2016) 23(1) Columbia Journal of European Law 135; King's College London Law School Research Paper No. 2015-15. Available at SSRN: https://ssrn.com/abstract=2541877 or http://dx.doi.org/10.2139/ssrn.2541877

Ewan McGaughey (Contact Author)

School of Law, King's College, London; Centre for Business Research, University of Cambridge ( email )

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

HOME PAGE: http://kclpure.kcl.ac.uk/portal/ewan.mcgaughey.html

University of California, Berkeley - Berkeley Comparative Equality & Anti-Discrimination Law Study Group

Boalt Hall
Berkeley, CA 94720-7200
United States

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