Corporate Governance and Employees in Germany: Changing Linkages, Complementarities, and Tensions

Abstract

This article examines institutional linkages between corporate governance and labour management in Germany. German corporate governance was characterised by the importance of banks, ownership concentration, long-term investment, and stable corporate networks. This system displayed important complementarities with stable long-term employment, investment in worker training, flexible quality production, low variability and dispersion in pay, and cooperative industrial relations during the postwar period. Since the mid-1990s, corporate governance has changed dramatically-a decline in the role of banks, the unwinding of corporate networks, the rise of foreign and institutional investors, en emerging market for corporate control, and changing careers and compensation of top managers. The paper investigates the resulting introduction of shareholder-value management practices and their impact on employees in large German companies. The findings show that these changes are related to the shrinking of stable core employment and the growth of variable pay. However, such tensions with shareholder value management have not undermined employee codetermination and collective bargaining institutions. Both play an important mediating role between capital market pressures and employment outcomes. The implications for the German "model" of corporate governance are discussed.

Non-union worker representation, foreign owners, and the performance of establishments

“…According to this view, codetermination requires patient capital to cooperatively realize long-term mutual gains for investors and employees. Yet, foreign owners are often thought to have a stronger focus on shareholder value (Jackson et al, 2005). This may particularly hold true for Germany that experienced a rise in the number of Anglo-American investors.…”

“…3 The extreme case is the breach of trust in hostile takeovers (Shleifer and Summers, 1988). Indeed, barriers to hostile takeovers seem to have eroded in Germany (Jackson et al, 2005). variable is log of productivity, with productivity being defined as value added (sales-material costs) per employee. Each wave of interviews provides retrospective information on productivity in the previous year.…”

Does National Context Affect Target Firm Employees’ Trust in Acquisitions?

“…To explain this finding, it is necessary to look at the broader institutional context that may shape individuals' reactions to a takeover. In Germany, there is a long established tradition of industrial democracy through powerful workers' councils that is reinforced by a system of worker co-determination (Jackson, Hoepner & Kurdelbusch, 2004). 4 HRM practices include more restricted employer autonomy, difficult hiring and firing decisions, lower employee mobility, and a stronger link between seniority and career progression (e.g., Aguilera & Dencker, 2004;Sparrow, Schuler & Jackson, 1994).…”

The Influence of Stock Market Listing on Human Resource Management: Evidence for France and Britain

“…The studies carried out by Deakin et al (2006), Jackson et al (2005) and Perraudin et al (2008) reveal a somewhat different picture than that implied by the idea of a corporate governance constraint. There is the possibility of a scenario in which shareholders' requirements for financial returns can be met on the basis of a long-term time horizon, with management and labour making mutually specialised investments in skills, know-how, work design and related aspect of the production process.…”