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Co-determination is a practice whereby the employees have a role in management of a company. The word is a somewhat clumsy and literal translation from the German word Mitbestimmung. Codetermination rights are different in different legal environments. In some countries, like the USA, the workers have virtually no role in management of companies, and in some, like Germany, their role is very important. The first serious codetermination laws began in Germany. At first there was only worker participation in management in the coal and steel industries. But in 1974, a general law was passed mandating that worker representatives hold seats on the boards of all companies employing over 500 people.
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In systems with co-determination workers in large companies usually form special bodies - works councils and in smaller companies elect worker representatives. These act as intermediaries in exercising the workers rights of being informed or consulted with on decisions concerning employee status and rights. They also elect or select worker representatives in managerial and supervisory organs of companies.
In systems with co-determination the employees are given seats in a board of directors in one-tier management systems or seats in a supervisory board and sometimes management board in two-tier management systems.
In two-tier systems the seats in supervisory boards are usually limited to 1/3 of all members. In some systems the employees can select 1/2 of all members of supervisory boards, but a representative of shareholders is always the president and has the deciding vote. The employee representatives in management boards are not present in all systems. They are always limited to a workers director, who votes only on matters concerning employees.
In one-tier systems with co-determination the employees usually have only one or two representatives in a board of directors. Sometimes they are also given seats in certain committees (e.g. the audit committee). They never have representatives among the executive directors.
The typical two-tier system with co-determination is the German system. The typical one-tier system with co-determination is the Swedish system.
The German codetermination law (Mitbestimmungsgesetz) forms part of the bedrock of German industrial and company policy. Introduced in 1974, it requires that just under half of companies' supervisory boards' members are representatives of workers. German company law is curious to an English speaker's eye, because it has not one but two boards of directors. Shareholders and trade unions elect members of a supervisory board (Aufsichtsrat). The chairman of the supervisory board, with a casting vote, is always a shareholder representative under German law. The supervisory board is meant to set the company's general agenda. The supervisory board then elects a management board (Vorstand), which is actually charged with the day to day running of the company. The management board is required to have one worker representative (Arbeitsdirektor). In effect, shareholder voices still govern the company for a number of reasons, but not least because the supervisory board's vote for the management will always be a majority of shareholders.
Codetermination enjoys intractable support among Germans in principle. In practice, there are many calls for amendments to the laws in various ways. One of the main achievements seems to be that workers are more involved and have more of a voice in their workplaces, which sees a return in high productivity. Furthermore, industrial relations are more harmonious with low levels of strikes, while better pay and conditions are secured for employees.
In Britain, the proposals for co-determination were drawn up, and a command paper produced named the Bullock Report (Industrial democracy). This was done in 1977 by the Harold Wilson Labour government. It involved a similar split on the board, but its effect would have been even more radical. Because UK company law requires no split in the boards of directors, unions would have directly elected the management of the company. Furthermore, rather than giving shareholders the slight upper hand as happened in Germany, a debated 'independent' element would be added to the board, reaching the formula 2x + y. However no action was ever taken as the UK slid into the winter of discontent and, as Labour lost the next election, two decades of Thatcherism. This tied into the European Commission's proposals for worker participation in the 'fifth company law directive', which was never implemented.
Also in the 1970s, the European Community (now the European Union) drafted the 5th Directive on company law, proposing a two-tier board and worker representation on supervisory boards. This was similar to the German model. The directive did not win widespread support and did not come into force.
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