700 companies covered by 1976 Co-determination Act

Zagelmeyer, Stefan

Overview

Article

700 companies covered by 1976 Co-determination Act

Published: 27 December 1998

Stefan Zagelmeyer

Employee representation

Restructuring

The German system of co-determination [1] includes two distinct levels and forms of employee participation - company level co-determination by works council [2] s, and co-determination on the supervisory board [3] of companies through elected employee representatives. There are three forms of board-level co-determination, which are based on:[1] www.eurofound.europa.eu/ef/efemiredictionary/co-determination-2[2] www.eurofound.europa.eu/ef/efemiredictionary/works-council-2[3] www.eurofound.europa.eu/ef/efemiredictionary/supervisory-board-1

Recent figures show that the number of companies covered by Germany's 1976 Co-determination Act has stagnated at just over 700 since a post-unification increase in 1992. In 1997, 705 companies had this form of board-level employee participation, of which 388 had the legal status of a public limited company and 292 were private limited companies.

Co-determination in Germany: the legal framework

The German system of co-determination includes two distinct levels and forms of employee participation - company level co-determination by works council s, and co-determination on the supervisory board of companies through elected employee representatives. There are three forms of board-level co-determination, which are based on:

the 1951 Coal, Iron and Steel Industry Co-determination Act (Montan-Mitbestimmungsgesetz) provides for "parity co-determination" (paritätische Mitbestimmung) for employee and shareholder representatives on supervisory boards;
the 1952 Works Constitution Act provides employee representatives with one-third of the seats on the supervisory board in companies employing between 500 and 1,999 employees; and
the 1976 Co-determination Act (Mitbestimmungsgesetz) provides that all standard forms of companies normally employing more than 2,000 employees should have equal numbers of representatives from the employee and the shareholders' side on the supervisory board. However, in the event of a tied vote, the chair, who is always elected by the shareholders' representatives, has two votes, which means that for all practical purposes the shareholders' side is always over-represented by one vote.

Quantitative information on co-determination under the 1976 legislation

In 1998, the Hans-Böckler-Stiftung (HBS) revived a survey providing quantitative information on co-determination. Until 1992, this survey had been conducted annually by the Institute for Economics and Social Science (Wirtschafts- und Sozialwissenschaftliches Institut, WSI). The most recent HBS figures available cover only the number of enterprises which have co-determination based on the 1976 Co-determination Act. Because of changes, outsourcing and the establishment of new companies, information is made public relatively late and the HBS figures have thus been updated by the Cologne Institute of Business Research (Institut der deutschen Wirtschaft Köln, IW).

Number of companies covered

As table 1 below shows, in 1997 there were 705 companies with co-determination on the basis of the 1976 law. Back in 1978, the first year for which figures were made available, there were 472 companies with such co-determination. With the sole exception of 1993, the number of companies increased continuously every year from 476 companies on 31 December 1985 to 725 companies on 31 December 1996. In 1992, the figure jumped by 136 companies to 709.

**Table 1: Numbers of companies with co-determination on the basis of the 1976 law, 1978-97**
Year	Companies covered on 31 December	Change against previous year before
.	.	total	%
1978	472	.	.
1979	482	10	2.12
1980	485	3	0.62
1981	482	-3	-0.62
1982	479	-3	-0.62
1983	481	2	0.42
1984	477	-4	-0.83
1985	476	-1	-0.21
1986	488	12	2.52
1987	492	4	0.82
1988	500	8	1.63
1989	522	22	4.40
1990	544	22	4.22
1991	573	29	5.33
1992	709	136	23.74
1993	701	-8	-1.13
1994	713	12	1.71
1995	719	6	0.84
1996	725	6	0.84
1997	705	-20	-2.76

Sources: WSI_;_ HBS_;_ IW_;"Mitbestimmungs-Daten '97", W Pege, in IW Gewerkschaftreport 3/1998: 50._

According to empirical analysis conducted by the "Commission on co-determination" (Kommission Mitbestimmung) in its 1998 final report (DE9806267F), the number of companies and corporate groups with more than 2,000 employees that were not subject to co-determination stood at around 75 in 1996. According to the Commission's empirical analysis, there has been a significant decline in the number of employees who work in companies with co-determination on supervisory boards of any kind. In the case of the 1976 law, in the mid-1980s the number of employees in firms covered was estimated at around 4.5 million. By 1996 this had risen to 5 million. The figures show that the increase of more than one third since the mid-1980s in the number of companies covered by the 1976 legislation has been accompanied by a substantially slower rise in the total number of employees in these companies.

Types of companies covered

In Germany, enterprises or companies can be organised in a variety of forms of company under commercial and company law. In addition to sole proprietorship, there are various types of association and company which are established by the conclusion of a contract or deed of association. For the purpose at hand, the relevant types of company are mainly joint-stock companies (ie a company limited by shares, or ""Kapitalgesellschaft), which are legal persons. Within this category, there is a distinction between the registered cooperative society (eingetragene Genossenschaft, eG), the private limited company (Gesellschaft mit beschränkter Haftung, GmbH), the public limited company (Aktiengesellschaft, AG) and the partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA). The limited-liability partnership (Kommanditgesellschaft, KG) occupies a halfway position between a partnership and a joint-stock company. A special type of company is the GmbH & Co KG, where the private limited company has the role of a general partner in limited partnership. Table 2 below categorises the companies covered by the 1976 co-determination legislation by their type.

**Table 2: Companies with co-determination on the basis of the 1976 law, by type, 1978, 1992, and 1997**
.	Companies covered on 31 December	Change against 1992		Change against 1978
.	.	total	%	total	%
All types	705	-4	-0.56	233	49.36
AG	388	-25	-6.05	109	39.07
GmbH	292	22	8.15	123	72.78
GmbH & Co KG	25	1	8.83	5	62.50
KGaA	6	±0	±0	-3	-33.33
eG	6	-2	-25	±0	±0.00

Sources: WSI_;_ HBS_;_ IW_;"Mitbestimmungs-Daten '97", W Pege, in IW Gewerkschaftreport 3/1998: 50._

As the table indicates, among companies with co-determination based on the 1976 legislation, the two most common types by far are public limited companies (AGs) and private limited companies (GmbHs). The number of AGs increased from 279 in 1978 to 413 in 1992 and has since then decreased to 388 in 1997. The number of GmbHs increased from 169 in 1978 to 270 in 1992 and 292 in 1997. GmbHs are the type of company with 1976 co-determination which experienced the largest growth rate - 72.78%. The decrease in the number of AGs and the increase in GmbHs between 1992 and 1997 may stem from the fact that during the 1990s there has been a trend towards changing the legal status of companies. In a number of cases, company holdings have been established in the form of an AG which in turn consists of former AGs in the form of GmbHs.

Commentary

The latest figures indicate that the fears voiced by trade unions that companies would escape the qualifying criteria for coverage by the 1976 Co-determination Act - for example, by strategies of "downsizing" and outsourcing - have not been confirmed by real developments. However, there are challenges to the German model of co-determination. Although the above figures show that there is no decline in the number of companies covered by the 1976 Act, the "Commission on co-determination" found that the number of employees in companies with any co-determination structures has been declining.

Especially against the background of globalisation and internationalisation of the economy and the current wave of cross-border mergers and acquisitions, the German model of co-determination finds itself at the centre of the current debate on the future of German industrial relations. The positions range from trade union traditionalists who claim far-reaching co-determination rights as an expression of economic democracy, to employer opposition which regards co-determination as an unacceptable interference in the freedom of ownership.

The Commission sees a need for a continuous improvement of co-determination practices in order to meet the new challenges of increased international competition and rapid technological, economic and organisational changes. In order to meet the challenges, the Commission elaborates various recommendations for modernisation, among them: a "new social contract at company level" which identifies the advantages of co-determination and the necessary modernisation; the involvement of more employee representatives from foreign subsidiaries on supervisory boards; the observation and accompanying of recent developments of co-determination; and the active support of companies in the creation of efficient co-determination structures by the social partners. (Stefan Zagelmeyer, IW)

Eurofound recommends citing this publication in the following way.

Eurofound (1998), 700 companies covered by 1976 Co-determination Act, article.