Britain's leader-in-waiting Theresa May wants to ape Germany by appointing workers to corporate boardrooms. She might balk at going quite as far as big German companies, where staff take half the seats on supervisory boards and have a say over investment and firing executives. But there's plenty to commend a reappraisal of Britain's cozy and ineffective system of non-executive directorships. The German "co-determination" model has merits -- for investors and workers. Here are four positives:
1. Shareholder returns
Employees worry about more than the stock price, so you might expect their boardroom presence to mean poor shareholder returns. In fact, Germany's Dax and mid-cap M-Dax index have outperformed their U.K. equivalents over the past decade.
Correlation isn't causality. We don't know how German stocks would have performed had workers not had a voice. But it's not preposterous to think having a say helps motivate workers, which benefits shareholders and employees alike.
Okay, so Germans work fewer hours than any other OECD nationals. Yet, that has upsides. Despite some high-profile exceptions -- such as airline Lufthansa -- German employees don't strike that much. Their labor productivity per hour is better than the Brits. When they're not leaving the office early and enjoying long holidays, German workers get things done.
3. Looking at the long term
Many U.S. companies seem to be prioritizing share buybacks over corporate investment. That may be unhealthy because today's investments are tomorrow's profits. Buybacks are far less common in Germany, where workers tend to think building plants or developing products is a better use of cash. R&D spending is higher in Germany than the U.K.
Of course, workers on boards might discourage executives from cutting jobs, even when that's needed. Take Volkswagen, where employee reps have protected German jobs and productivity has suffered. Still, VW's board is an oddity. Strong ties between management and workers can help in tough times. When demand for German exports slumped in 2009, labor board representatives swiftly backed working hour reductions, meaning job cuts were avoided. Exports recovered and German companies were able to reap the benefit.
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That's because the State of Lower Saxony, where VW has its headquarters, also holds supervisory board seats. Both the state and labour representatives have a vested interest in protecting jobs. Between them they control a majority of the supervisory board seats.
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