Press release: Involving workers reduces risks

No. 106 - 11.06.2019

Companies with employees on their supervisory boards performed significantly better during the financial crisis

Supervisory boards, which are common in Germany and some other parts of Europe, oversee management boards and take their membership from shareholders and employees. Companies where employees have a voice at these boards have thrived in comparison with companies without this worker-involvement during the major financial crisis and in the years following the crisis. This is the conclusion of a study by the Universities of Göttingen and Marburg published by the Institut für Mitbestimmung und Unternehmensführung and sponsored by the Hans B Böckler Foundation.

In this study, researchers examined 560 listed European companies. They considered the standard German practice of “co-determination” at supervisory board meetings, where shareholders and workers work together in overseeing the management board. The two main authors, Professor Michael Wolff from the University of Göttingen and Professor Marc Steffen Rapp from the University of Marburg, write that corporate co-determination had "prevented companies from behaving in a short-term manner during the crisis" and then "made it possible to switch back to a growth mode more quickly". In their opinion, the findings are particularly important for the future in view of increasing globalisation: employee participation on their supervisory boards can be seen "as an element of modern corporate governance that is appropriate for cushioning companies against the possible risks of strategic transformation processes in an environment of increasing economic volatility".

The key findings of the study are: companies endorsing co-determination recorded higher returns in the period under review and lower fluctuations in returns; and their company valuations were subject to a less drastic decline overall. Co-determination also led to systemically different corporate decisions in the crisis: firms with co-determination avoided major redundancies for the most part and kept their staffing levels relatively stable; while companies without co-determination cut jobs sharply. In addition, companies with co-determination reduced their investments relatively less during the crisis and expanded them more robustly after the crisis.

Overall, the study paints a positive picture of the practice of co-determination on supervisory boards in the context of the financial crisis in three respects: "Co-determination can help to cushion risks both with regard to the company and the individual situation of employees. In turn, that also protects the economy as a whole," said the researchers. "The participation of employees on the supervisory board should therefore be seen not as an obstacle, but as an opportunity”.

Original publication: Marc Steffen Rapp, Michael Wolff, Jan Hennig und Iuliia Udoieva (2019). Wirkung der Mitbestimmung im Aufsichtsrat auf die Unternehmensführung – Eine empirische Analyse vor dem Hintergrund der Finanz- und Wirtschaftskrise. ISBN 978-3-86593-339-3

Contact:

Professor Michael Wolff

University of Göttingen

Faculty of Business and Economics

Professor of Management and Control

Platz der Göttinger Sieben 3

37073 Göttingen

Tel: +49 (0)551 39-7273

Email: michael.wolff@wiwi.uni-goettingen.de

Internet: www.controlling.uni-goettingen.de