Do We Need Employee Representation on the Board of Directors?

36 Pages Posted: 9 Feb 2016

See all articles by Laurent Germain

Laurent Germain

Toulouse University, Toulouse Business School

Clément Lyon-Caen

affiliation not provided to SSRN

Date Written: February 9, 2016

Abstract

We develop a model of corporate board including employee representatives in addition to shareholders and top executives. In line with the empirical literature, our model shows that low levels of employee representation may increase the shareholder value, even in the presence of a conflict of interest between employee representatives and other directors because employees hold specific valuable private information. We also show that a minority employee representation may cause the board to switch from a short-term to a long-term strategy. Such a strategy switch is always in the employees’ interest and can be beneficial or detrimental to shareholders as well as top executives. Thus, employee representation can be beneficial to shareholders as well as other stakeholders. However, employee representation may be harmful for firms whose shareholder base has a short time horizon such as venture capitalists.

Keywords: corporate governance, board composition, employee representation, employee directors, codetermination

JEL Classification: D820, G340

Suggested Citation

Germain, Laurent and Lyon-Caen, Clément, Do We Need Employee Representation on the Board of Directors? (February 9, 2016). Available at SSRN: https://ssrn.com/abstract=2729708 or http://dx.doi.org/10.2139/ssrn.2729708

Laurent Germain (Contact Author)

Toulouse University, Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31000
France

Clément Lyon-Caen

affiliation not provided to SSRN

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