Co-determination

Co-determination (also: codetermination) is a practice whereby the employees have a role in management of a company. Codetermination rights are different in different legal environments. In some countries, like USA, the workers have virtually no role in management of companies, and in some, like Germany, their role is very important. There is a lot of controversy on co-determination and its effects on performance of companies and economies.

In systems with co-determination workers in large companies usually form special bodies - workers councils and in smaller companies elect worker representatives. These act as intermediaries in exercising the workers rights of being informed or consulted with on decisions concerning employee status and rights. They also elect or select worker representatives in managerial and supervisory organs of companies.

In systems with co-determination the employees are given seats in a board of directors in one-tier management systems or seats in a supervisory board and sometimes management board in two-tier management systems.

In two-tier systems the seats in supervisory boards are usually limited to 1/3 of all members. In some systems the employees can select 1/2 of all members of supervisory boards, but a representative of shareholders is always the president and has the deciding vote. The employee representatives in management boards are not present in all systems. They are always limited to a workers director, who votes only on matters concerning employees.

In one-tier systems with co-determination the employees usually have only one or two representatives in a board of directors. Sometimes they are also given seats in certain committees (e.g. the audit committee). They never have representatives among the executive directors.

The typical two-tier system with co-determination in the German system. The typical one-tier system with co-determination is the Swedish system.