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Co-determination: its practice and applicability to the U.S.

Co-determination, as broadly defined and used in Germany, provides for worker participation in the management process through works councils and representation on the supervisory boards of private and, to a lesser extent, public organizations. As practiced in the Federal Republic of Germany, Scandinavia, Austria, and Luxembourg, it was much in the news a few years ago with the passage of the German Co-determination Act of 1976. American management was especially concerned whether co-determination could indicate how labor-management relations might be carried out in the future.|1~

This subject is even more significant today, when viewed as a part of the movement toward greater worker participation and evidenced by the introduction of programs in the U.S. and other countries such as labor-management cooperation, quality of work-life, quality circles, and the like.

To gain some insight on co-determination in Germany today, informal discussions were held with knowledgeable individuals to reveal issues and concerns that might be hard to detect through more formalized approaches. Meetings were held with representatives of three major German employers and unions: two private sector industries (broad-based electrical/electronics and instrumentation/control for transportation and other industries); a municipal employer for the public sector; and unions which were among the largest in Germany and represented blue collar, hourly paid workers and white collar, professional and technical, salaried staff, including civil service. Since the individuals interviewed were speaking from their own experiences and not as official representatives of their organizations, they are not further identified here.

The interview portion of this study is not presented as a scientifically-based one from which rigorous conclusions might be drawn, but it does shed light on how co-determination is viewed by labor and management officials in Germany today, its applicability to the U.S., and its role in the broader participative management movement.|2~ The presentation includes a brief review of the legal requirements, essential to understanding the effects of the laws in the workplace.

Legal Requirements

Co-determination (Mitbestimmung in Germany) is covered by different laws pertaining to works councils and employee representation on supervisory boards, and the two elements are easier to understand if examined separately. Both apply to subsidiaries of American multinational organizations.

Works Councils. Employees' participation through works councils originated in the mid-nineteenth century and is now governed by the Works Constitution Act of 1972. The Act requires works councils in private establishments having more than five permanent employees. Employers and executive directors of firms are not represented on the councils, and the councils co-exist with any unions representing workers in the workplace. The number of council members is determined by the size of the enterprise; and wage earners, salaried employees, males and females are to be represented, as far as possible, in the same ratio as their numbers.|3~

As described in the Act, councils are to work with employers in a spirit of trust and cooperation for the good of the employees and the enterprise. They also have a general obligation to observe the law and to safeguard the interests of the employees in labor-management matters.

Powers are related to the subject matter at hand. The employer must, for example, have the consent of the council in establishing shift times, overtime and rest periods, in using devices to monitor employee behavior or performance, in setting performance-based incentive rates, and in setting up any special compensation plan necessitated by a curtailment of operations. Hiring, classifying, and transferring employees also require the consent of the council, with disagreements resolved by the labor courts. The council has the right to be informed and consulted by management regarding organization structure, job design, work environment, manpower planning, personnel management, and employee training. Employees cannot be dismissed unless management consults with the works council.

Co-determination on the Supervisory Board. Employee participation at the board level, outside the special case of the coal, iron and steel industries, is governed by the Co-determination Act of 1976. This Act provides for equal representation of employees and stockholders on the supervisory boards of German enterprises having their own legal identity (including subsidiaries of multi-national firms), and having at least 2,000 employees. In enterprises with 500 to 2,000 employees, a one-third employee representation rule under the earlier Works Constitution Act of 1952 applies, and firms having fewer than 500 employees are not required to have any such representation.|4~

The supervisory board's major function is the selection of the management board, as well as oversight authority of the management of the enterprise. Further, the by-laws of the firm may require the consent of the supervisory board on other matters, such as investment decisions, loans above certain limits, and the selection and retention of management staff. This board meets two to four times a year and makes policy decisions for the enterprise.

The size of the supervisory board depends upon the number of employees. Assuming an organization of more than 2,000 employees, the maximum board size of 20 would apply, and the makeup of the board would be ten employees' representatives and ten representatives selected by the stockholders. Of the ten employees' representatives, seven must be employees of the firm and must include at least one representative from wage earners, one from salaried employees, and one senior management employee. The remaining three positions are reserved for unions represented in the firm.

Perceptions of the Parties

Before proceeding with this section, a disclaimer is in order. All the parties involved in this study emphasized that their comments should be interpreted as based on experiences with co-determination in their own firms, and would represent what one could expect in enterprises operating as the various co-determination laws envisioned. The interviewees noted that organizations in Germany respond in various ways to the laws. This is certainly not unlike the American experience, where attitudes toward labor relations range from outright hostility toward unions to compliance with both the letter and the spirit of applicable laws.

Viewing co-determination in its broadest sense, both labor and management officials agreed that on a relative basis, the influence of the works council on labor-management relations is more significant than that of employee representation on supervisory boards. This is not too surprising, since supervisory boards, by law, do not regulate labor-management relations; the latter is a function of the management on the management board. Nevertheless, those interviewed emphasized that employee representation on supervisory boards should not be taken lightly, because worker involvement on a board which oversees management and makes policy-level decisions is important from ideological, political, and social perspectives, as well as in terms of labor relations. Regarding the latter, European labor leaders say it is impossible to make a clear distinction between management decisions which concern workers and those which do not, since all management decisions will affect the workers in one way or another.|5~

Basically, the lesser influence of employee supervisory board representatives stems from the infrequency with which the boards meet (two to four times a year) and the relative lack of detailed information, which is more readily available to management than employee representatives. This is not unlike the more limited operating information available to outside directors of U.S. corporations.

A ranking official of one major corporation said that his policy was to frequently and fully inform works councils in all the plants on the status of operations. In this way, surprises did not arise at the supervisory board level, and workers had little reason to become alarmed or disturbed by groundless rumors. While not knowing whether this behavior is typical, this official found no particular difficulties in managing the firm within the framework of co-determination, but, as can be seen, took care to communicate with, and provide for, worker involvement in the decision-making process.

Co-determination is seen as being vested with the ultimate objective of safeguarding socio-economic stability and growth, and management views it as a stabilizing influence on labor and management relations. Referring to the extensive co-determination practiced in the coal, iron and steel industries, one writer reports that "parity on supervisory boards has not led to revolutionary changes in company policy. Moreover, the boards functioned smoothly, and unanimity in decision-making was the rule."|6~

As might be expected from the description of the purposes and powers of the works councils, their impact on labor-management relationships can hardly be exaggerated. This is especially true in Germany, where collective bargaining is largely carried out by the unions on an industrywide, national or regional basis. With national or regional bargaining, local issues at the plant or shop level are not given the attention by the unions that they are by the works councils. Contrast this national or regional bargaining with the more common structure of bargaining in the U.S., where a single local, either an independent or a member of a national union, bargains with a single employer. Non-economic work rule issues in America are as important, sometimes more so, than economic ones.

Works councils fill the important function of the typical American union by addressing the local issues. The 1972 Works Constitution Act includes requirements for employers to keep employees informed on many job-related factors, the right of the employee to be heard and to request explanations for employer actions, employee access to their personnel files, employee rights to make complaints, the works council's role in grievance handling and conciliation, its role in the operation of suggestion systems, and the many functions and powers previously mentioned.

Another benefit of the works councils is that they represent all workers, both those who are union and non-union members. Although most workers in German establishments are covered by industrywide labor agreements, including salaries, white-collar, professional, and even managerial employees, many of them may not be members of a union. The negotiated agreements establish base wages, salaries, and benefits for almost all workers in the industry, but the works council may play a role in implementing these agreements to accommodate local conditions, including adopting wages or benefits which exceed the terms of the industry agreement. Further, while Germany generally follows the industrial union principle of "one shop--one union," exclusive jurisdiction, whereby only one union represents a given group of workers, is not mandated. Thus, there can be situations where workers belong to one or two other unions, in addition to the majority union, which represents the shop. In these cases, the works councils serve as a vehicle to bring together members of all the unions present. Since the works councils are selected by all employees, any unions present will probably be represented on the works council through candidates nominated for election by them.

The relationship between the unions and the works councils is beyond the scope of this article and not essential to the discussion, but two points are noted. The works councils are more likely to have full-time representatives in the workplace than the unions, although the council representatives are frequently union members or are viewed as union representatives. Also, the councils do not have the right to call for a strike, but typically do not need to, because collective agreements are legally enforceable through the employers' association or the labor courts. Unions, on the other hand, do have the right to call for a strike, and it is clear that works councils, to be effective, must have a strong relationship with a union.

The union officials interviewed were concerned about the last German national elections and what the results might mean for the future of co-determination. There is a sentiment in some political parties to scale back, or otherwise modify, co-determination, but since the composition of the newly elected government has not shifted to these parties, co-determination is not likely to be affected. Union officials also expressed concern over what is taking place in the American labor movement, which they see as having spillover effects on labor in other countries, especially industrialized ones such as Germany. Concession bargaining, for example, is viewed as stemming from a weakening of labor in America, and is seen as creating potentially serious competition for German industry and workers. They raise the question, "Will this require similar action by German unions, and if so where will the process end?"

Applicability to the United States

The significant differences between labor relations as practiced in Germany and the U.S. militate against any easy transference of either of the elements of co-determination: works councils or participation on supervisory boards.

Perhaps the overriding obstacle is the voluntary character of collective action in the U.S. by which workers can determine whether they wish to be represented by a union, and employers can, and often do, take steps to avoid union organization. In Germany, nationally or regionally negotiated labor agreements apply to almost all firms in an industry, unless an individual firm has negotiated its own contract with its union(s), or, under certain conditions, has chosen to operate without a union. Thus, works councils typically exist in an environment in which collective action is a given. In the U.S., although workers in a non-unionized establishment might benefit the most from a works council, the workers themselves may not desire such a form of concerted action.

Unlike Germany, American labor law does not require any element of co-determination; moreover, it raises questions regarding the legality of even such things as quality of work life programs. When does employer involvement in such programs, for example, become employer domination of a "labor organization," a possible violation of the Labor Management Relations Act, Sec. 8(a)? Works councils, as operating in Germany, unless established as a bona fide collective bargaining agent and established by a majority of those voting in a representation election, would likely violate existing American labor law.

The likelihood of U.S. law changing in substance, beyond accommodating some forms of worker participation, seems remote. The American labor movement has never had the ideological, political, or social orientation of the European labor movement, which might help to promote such legislation. Also, it is far more fragmented than the relatively few unions existing in European countries (only 17 in Germany, for example).|7~ Furthermore, fewer than 20% of American workers are members of unions, while in Germany about 40% are members.|8~ Most important, in Germany, almost all workers, regardless of membership status, including salaried, white collar and professional, are covered by basic wage, salary, and benefits agreements negotiated by unions. These differing levels of union membership and coverage under union-negotiated contracts are products of differing individual philosophies, cultures, and economic circumstances and experiences, which are unlikely to support statutory changes in the U.S.

In American establishments, where employees have elected to be represented by a union, the role of the works council is basically supplanted by the local union. Through exclusive jurisdiction of unions, either for the entire workplace or among workers having a community of interest by occupation, all similarly situated workers are represented by a common organization. This, combined with the traditional local, grass roots or "bread and butter" concerns of American labor unions, means that the matters dealt with by works councils are commonly the subjects of collective bargaining.

Local issues addressed by the works councils resemble those found in the provisions of an American labor agreement, but the works councils have a base of legally mandated provisions--such as hiring, dismissals, health insurance and pensions--as well as union-negotiated economic benefits, from which discussions on local issues can begin.

The possibility of worker participation on supervisory boards in the U.S. is almost pointless to discuss, since the analog of works councils, a local union, is itself difficult to establish for reasons previously mentioned. Only in special cases, such as the severe financial difficulty of Chrysler Corporation, has American management accepted even the token representation of one, or a very few, labor officials on boards of directors. Absent the compulsion of law, management is not likely to entertain the concept of co-determination. Further, most American labor leaders are unimpressed by a role on policy-making boards, believing they can better represent their membership through traditional bargaining structures. Such thinking on the part of both labor and management may, however, be changing. At the GM Saturn Plant in Tennessee, management and the United Auto Workers leadership have developed something bordering on co-determination, with shared decision making on several high-level councils. These include strategic areas not strictly related to manufacturing, such as marketing.|9~

Co-determination as Worker Participation

Co-determination as practiced in Germany and some other European countries today is the most extensive form of worker participation anywhere. Current activities in American organizations, whether labor-management cooperation, quality of work life programs, quality circles, or the like, pale in comparison. Only in some unionized establishments can one see the kind of worker involvement in rule making and workplace regulation that approaches that of the works councils, but even here, with rare exceptions, there is no participation at the supervisory board level. Yet, it has been argued that worker participation in the management process, particularly along the lines of works councils, may represent the trade-off needed in American industry to gain the kind of production flexibility sought by management.

For reasons discussed, however, it is unlikely that we will see European-style co-determination practiced as a form of worker participation in the U.S. Indeed, German unions are concerned with the extent to which co-determination, especially employee participation at the supervisory board level, will be maintained in Germany. This concern existed when the 1976 Act was passed and contrasts with the optimism of a proposal to extend co-determination throughout Western Europe.|10, 11~ This proposal is still before the European Economic Commission.

Conclusion

Co-determination provides for the establishment of works councils and the participation of workers on the supervisory boards of companies. Labor and management officials interviewed concluded that the works councils, and not the supervisory board representation, provided the more influential vehicle for worker participation in the decision-making process. The works councils are seen to fill a particular need in countries practicing national or regional industrywide bargaining, which historically gives less attention to local issues than the American experience. This purpose served by the councils, coupled with the voluntary nature of collective bargaining in the United States and restrictions in American labor laws, means that the introduction of the European model of co-determination to the U.S. is unlikely. Yet, as a form of worker participation, it is far more substantive than anything practiced in the U.S. today, and, in altered form, may find its way into some firms.

Professor Prenting, principal author of the book, Humanism and Technology in Assembly Line Systems, and of numerous articles, is also a mediator/arbitrator for the New York City Public Employment Relations Board and Mediation Board.

Footnotes

1. R. J. Kuhne, "Co-Determination: A Statutory Re-Structuring of the Organization," The Columbia Journal of World Business, Vol. XI(2), 1976, p. 18.

2. For a study on how workers view their unions and the various elements of co-determination, see C. J. Hobson and J. B. Dworkin, "West German Labor Unrest: Are Unions Losing Ground to Worker Councils?," Monthly Labor Review, Vol. 109(2), 1986, pp. 46-48 and J. B. Dworkin and others, "How German Workers View Their Jobs," The Columbia Journal of World Business, Vol. XVIII(2), 1983, pp. 48-54.

3. Co-determination in the Federal Republic of Germany, Bonn, The Federal Minister of labour and Social Affairs, June, 1980, p. 108. English translation by International Labour Office. (This is an excellent, 192 page, booklet providing more detail on the legal aspects of the various German Co-determination laws.)

4. ibid. p. 13.

5. J. Schregle, "Workers' Participation in Management," Industrial Relations, Vol. 9(2), 1970, p. 121.

6. F. Furstenberg, "West German Experience with Industrial Democracy," The Annals, Vol. 431(5), 1977, p. 51.

7. F. Bairstow, "The Structure of Bargaining: International comparisons--A Story of Diversity," Proceedings of the 1980 Spring Meeting, Madison, Wisconsin, Industrial Relations Research Association, 1980, p. 518.

8. E. M. Kassolow, "Industrial Conflict and Consensus in the U.S. and Western Europe," in B. Martin and E. M. Kassalow, eds. Labor Relations in Advanced Industrial Societies, Issues and Problems, Washington, D.C., Carnegie Endowment for International Peace, 1980, p. 47.

9. H. Guzda, "Saturn: The Sky's the Limit," Labor Relations Today, Vol. V, No. 2, March/April 1990.

10. D. T. Fisher, "Worker Participation in West German Industry," Monthly Labor Review, Vol. 101(5), 1978, p. 62.

11. R.J. Kuhne, Co-Determination in Business, New York, Praeger, 1979.
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Author:Prenting, Theodore O.
Publication:SAM Advanced Management Journal
Date:Mar 22, 1992
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