11 - The German Codetermination Experience

Summary

This chapter discusses the German experience with supervisory codetermination, in which shareholder and employee representatives share governance of large corporations. After discussing the basic features of the system, we examine how it has been viewed by American corporate law scholars as an anomaly that could only arise through legislative fiat. In fact, the German system was born of consensual agreement at a time when labor and capital had roughly equal bargaining power, and only later became enshrined in law. We then discuss recent studies that evaluate how well codetermination serves the needs of various corporate constituents, including employees, creditors, and shareholders, and the role it played in Germany's relatively rapid recovery from the global financial crisis. In the end, the success of the German system serves as an empirical rejoinder to the hypothetical arguments used by law and economics scholars to justify the exclusive shareholder franchise, as well as a sort of proof of concept of the shared governance model.