Dynamic Efficiency of Supervisory-Board-Codetermination in Germany

Abstract

Under current German legislation, employees are entitled to quasi-parity codetermination on the supervisory board in larger German corporations. The legislation on which these rights are based dates back to the 1950s and 1970s. As economic structures change over time, the economic effects of regulations do as well. The aim of this paper is to consider the theoretical and empirical implications of structural changes as e.g. changing skill-composition of the labour force in the last decades on the economic advantages and disadvantages of supervisory board codetermination. Theoretical considerations and an overview on the empirical literature are given in the first part of the paper. The second part deals with the empirical evidence on the theoretical effects. The basic idea is to compare the long-term differences in productivity and profitability of companies with quasi-parity-codetermination to companies which are only obliged to give 1/3 of their supervisory board seats to labour representatives.

Interestingly, the switch form 1/3 to parity codetermination seems to increase both productivity and profits. In the longer term, the productivity effect does not seem to change, while the profit effect shows an improving path.

Keywords: productivity, profitability, supervisory board, codetermination

JEL Classification: J42, J50