Institutionalising inclusive company governance

👉🏽 This story is developed as part of the Doughnut Economics for Policymakers guide.

Several countries have taken action to enhance employee participation and influence in the workplace. This includes institutionalising collective workers’ bodies, mandating employees’ representation in company strategic decision-making bodies, and developing national strategies. Enhanced workers’ rights and participation at work can help reduce inequality, integrate better social and ecological considerations, and enhance wider social cohesion.

Overview

Employees’ participation in company decision-making processes is crucial for making businesses more distributive and regenerative. Governments can play an active role in fostering employee participation in governance. Examples of this include: 

• Strengthening collective bargaining and inclusion in day-to-day decisions: France, Germany and South Korea have all institutionalised works councils or labour management councils alongside trade unions. These ensure continuous employee consultation and participation in workplace decisions that impact most workers such as salaries, welfare and training budgets. South Korea mandates such councils to include both employee and management representatives, while Germany allows only employees and trade union members.  
• Mandating employee representation in company strategic decision-making bodies: About a dozen countries, primarily in Europe, legally require employee representatives on supervisory or management boards. These representatives participate in shaping company strategy, organisational goals, and social and environmental policies. Germany, Slovakia, and Slovenia mandate up to 50% employee representation on supervisory boards, while many other EU countries require at least one-third representation. Czech Republic requires 30% employee representation for state-owned enterprises, and Brazil requires state-owned enterprises with more than 200 employees to include at least one employee representative on boards.
• Strategic national initiatives to deepen democratic workplace governance: Spain’s constitution requires its governments to promote employee participation in the workplace and facilitate workers' access to business ownership. Guided by the constitution, Spain commissioned an international expert committee that led extensive consultations and developed a strategy for democratising workplaces.   

Implementation

These policies have primarily been implemented at the national level, though the scope and strength of employee participation rights vary significantly across countries. Works councils can participate in a wide range of company decisions, but their rights are often more limited as they concern workplace decisions and not company-wide strategies. Countries like the UK and Ireland only mandate limited rights for employee bodies, like mandatory information and consultation instead of actual decision-making power.

The most effective approaches to improving workers' participation and decision-making power involve combining multiple mechanisms: for example, Germany requires both workers' representation on boards and works councils.  

Employee representatives are usually elected through democratic processes and have a duty to report back to the workforce. Legislation in some countries, including Germany and the South Korea, stipulates the election processes and sets requirements to improve inclusiveness; for example, Brazil requires the inclusion of women in the process. 

Impacts

Employee involvement in company decision-making improves salary ratios and the integration of social and ecological considerations. Furthermore, research shows that companies with employees on board are more resilient in crises and lay off fewer people. Research indicates that countries with stronger employee governance laws experience spillover effects beyond the workplace, boosting broader democratic engagement and social cohesion. 

Legislation can greatly improve employee participation in the workplace. For example, Germany’s legislation has led to participation rates as high as 75% in elections for employee representation, while companies required to include employees on boards have seen more women in board positions, more in-house production and higher output per employee. 

Challenges

• Weakening democratic institutions and workers’ rights: The democratic decline in many countries and the dominance of shareholder supremacy mindsets are weakening workers’ rights globally. This creates a hostile environment for advancing employee governance.
• Power imbalances despite representation: Even when laws require workers' representation, capital investors often still hold more power, especially when they outnumber employee representatives on boards. Currently, no legislation gives employees majority voting rights, limiting their ability to fundamentally challenge decisions prioritising shareholder value over social and ecological goals.
• Fear of retaliation: Employee representatives may be reluctant to speak up or challenge management decisions if they feel their job security and career progression could be negatively impacted and their rights are not adequately protected.

Reference and further reading

• Overview of countries' law on Supervisory boards: Wikipedia.
• Overview and explanation of works councils and countries implementing it: Wikipedia.
• Political impact of mandatory co-determination: Article by the Centre for Economic Policy Research (CEPR) (2020).
• Introduction to German codetermination: Institute for Codetermination and Corporate Governance.
• Various resources from the IMU Institute for Codetermination and Corporate Governance.
• Spillover effects of workplace democracy: Uwe Jirjahn, Thi Xuan T. Le (2024).
• Explanation of the South Korean Law on Labour Management Councils (2018).
• Employee participation and corporate social and ecological responsibility: research paper by Crifo and Rebérioux (2024).

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