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.

This chapter sets out the second of two positive arguments for extending corporate voting rights to employees. Democratic participation theory provides a unique argument for extending governance rights to both shareholders and employees. The theory is derived from the uncontroversial propositions that governance rights should be tied to interest and that we must be able to assess that interest in a way that is both accurate and manageable. These notions largely spring out of political theory, but are also consistent with economic and social choice theory and their focus on preference fulfillment and the construction of incentive structures designed to promote good decision-making. And, like the theory of the firm, democratic participation theory generally counsels in favor of adding employees to the corporate electorate, but also tells us when we might be in one of those rare situations where governance rights should be extended to other stakeholders. That is, both aspects of the shared governance model of the corporation – the theory of the firm and the theory of democratic participation – have a flexibility that the arguments for the exclusive shareholder franchise seem to lack.

This chapter sets out the first of two positive arguments for extending corporate voting rights to employees. The long-standing theory of the firm, in confronting the question why firms even exist, explains the separation of corporate insiders from outsiders in a way that allows firms to most efficiently carry out joint production. Those inside the corporation should have their preferences captured through more direct governance mechanisms such as voting, those outside the firm through processes like contract or regulation. Under this understanding of the firm, employees are, of course, the classic insiders, a conclusion that’s only reinforced by more recent work on the generation and flow of information within firms. The economic theory of the firm, then, provides a powerful argument for extending the corporate franchise to employees.

In this concluding chapter, we note some of the societal problems associated with corporations, such as income inequality, and explore the relationship between those problems and the fact that shareholders have ultimate control of corporate decision-making. We then catalog the ways in which the theoretical underpinnings of this arrangement – shareholder primacy – appear to be in decline and the accompanying law and economics arguments in favor of the exclusive shareholder franchise have fallen apart. The chapter, and the book, conclude with some thoughts about how incorporating employees into firm governance is the best path forward.