Employee participation in corporate governance: Implications for company resilience

Abstract

How do works councils and employee board-level representation affect company performance? Research on employee participation provides mixed and sometimes contradictory findings. This article argues that the performance effects of employee participation depend on the business cycle. Specifically, the conservative impact of employee participation on strategy may be associated with lower company value in good times, but may also provide a buffer against a loss of value in bad times. This argument is supported by data from 726 European firms in the period surrounding the financial crash of 2006-2008.

How and when matter: Exploring the interaction effects of high‐performance work systems, employee participation, and human capital on organizational innovation

“…On the other hand, corporate governance participation serves as an “indirect” employee participation practice that protects employees' interests by enabling employee representatives to effectively influence decision‐making by discussing management affairs, reviewing and approving decisions made by enterprises, monitoring management, and negotiating issues related to employees' well‐being (Kleinknecht, ; Pohler & Luchak, ). It is noteworthy that, although the primary purpose of direct voice mechanism is to provide a mechanism for employees to speak up, it may not have a major impact on decision‐making.…”

“…Through such formal and even legal structures, employees are organized to play a definite, substantive role in workplace decision‐making via representatives. They can share ideas on business matters, negotiate the employment conditions under which they work, and oversee organizational management (Kleinknecht, ; Pohler & Luchak, ). Engaged in corporate governance participation, employees have more control over the process that leads to outcomes.…”

Codetermination: The Presence of Workers on the Board. A Depth Analysis

“…So, during any periods of crisis, codetermination allows a reduction of any probability of strikes and therefore a greater cooperation between shareholders and workers. Kleinknecht (2015) emphasizes that a greater diversity of a board can bring better decisions, increasing the quality of monitoring and making better decisions in the long run for the company, without thinking merely of short term profit. Kluge and Wilke (2007) supporting the Lisbon Strategy of European Union based on active workers' participation, underline that countries with participation rights for employees, on average perform better in the rankings of the World Economic Forum's Business Competitiveness Index (BCI) than those without this type of right.…”

“…Through the results obtained, they suppose that the workers are able to give specific contribution with particular reference to corporate social responsibility and strategy control. More recently, a study by Kleinknecht (2015) that analyses data of 726 firms in Europe in the pre-financial crisis period, 2006-2008, sustains that the effectiveness of the board and participation of the workers depend on the business cycle and from the external context where the firm lies in the market. This is because the workers generally are risk averse of new investments out of the normal functions of the firm and this could cause a lower company value in periods of boom and economic growth, but at the same time, could represent security during periods of recession.…”

“…Hence for this reason the presence of workers on the board of a company should reduce strikes, an advantage that does not have those workers represented only by labour unions (Fauver and Fuerst, 2006). Another reason is that the workers have daily contact with the management of the firm and therefore are more informed than the shareholders and they can guarantee a better level of monitoring (Kleinknecht, 2015). Lastly, the presence of the workers can ensure that the company is managed with more directness because the company gives to the workers a salary and therefore is the source of their existence and that of their families (Stiglitz, 1985;Hansmann, 1990).…”