Europe and the German co-determination model

In the diverse European context we can find different organizational practices which tend to reflect the national culture or particular needs of each country. An example of this is the German co-determination model, which is going to be the object of this post.

Map of Europe Taken from: (Central Intelligence Agency - CIA, n.d.)

This post is going to be structured as follows; in the first part I will briefly explain what is co-determination to proceed then to explain a little on how is it implemented and to show some difficulties the French businessmen have when making business in Germany, to finally end by answering the proposed question for this module.

According to the definition given in class co-determination “refers to the participation of the employees in the decision-making process of the company”, this is that their status as stakeholders was taken so seriously that they were given participation in the companies. This codetermination principle works in two levels according to the Eurofound (Eurofound, 2009):

“Co-determination at establishment level by the works council (…) and co-determination above establishment level, on the supervisory board of companies”

The supervisory board is made up of an even number of members which varies according to the size of the company, the seats of this board are divided evenly (in most cases) among the workers and the managers, but when there is the need of a majority when the members cannot agree the chairman, who is appointed by the company, has two votes in order to break the tie. Among the functions of this board is the naming of the members of the board of directors (in charge of the everyday managerial tasks) and to make decisions when consensus is not reached within the board of directors (Piette, 2004).

The works council is made up entirely out of members chosen by the employees. And, as (Piette, 2004) puts it, “The works council has the power of signing all agreements in the company.”

With this complicated decision making process the outsiders may have problems coping with it, to give you an example let’s take the case of EADS that appears in the document of (Piette, 2004), that relate to the French making business in Germany.

The case is about the “two CEO at the same time” system implemented when the German and French companies, which gave birth to the EADS, merged. For the French two signatures (one from the French CEO and another from the German CEO) was “absurd” (as stated by (Piette, 2004)), and for the Germans it was something normally since they always require two signatures in their decisions: one from the supervisory board and/or the other from the board of directors.

This shows how differently can two neighboring countries perceive their managerial practices and how can they become a source of conflict.

Now is questions and answer time, the question for this module is: There is a current discussion around the existence of the co-determinism principle in Germany. Select, define and explain 3 arguments in favor and 3 against such principle.

I will discuss first the three arguments for the model and then the three ones against it (according to what we discussed in class), and then conclude briefly.

The co-determination should be conserved because:

• It promotes social integration and is highly motivational, well the social integration is promoted when you sit the top managers next to the blue collar workers who can have the chance to interact and discuss ideas as equals with their bosses in a way that otherwise would be really difficult. And this integration has the double effect of generating the motivation associated with “I am being recognized and heard”
• It makes employees want to get involved and help, as (Piette, 2004) states it “When an agreement is reached [between managers and employees], everyone works together to help the company move forward”
• Minimizes conflict, is barely understandable since the main tool is consensus and the circumstances that originate the conflict can be dealt with on a daily basis thanks to the labor of the board of directors.

The codetermination should be eliminated because:

• It supports bureaucratic monsters which are slow and old fashioned, that is the perception specially when considering the entire decision process as compared to a different decision process: “In France, the decision is taken by two people or even only one!: in Germany, a whole chain is involved (‘implying an agreement from the supervisory board, from the local works council, and so on’)” (Piette, 2004)
• No longer applicable due to current trends, consider that any current business model should have the ability to change and innovate (in other words dynamism) and “Germans lack dynamism!: imagination is not really the order of the day when one has to share a decision with fifty people!!” (Piette, 2004)
• Is hard for multinationals to adapt, take the case of EADS and their two CEO in (Piette, 2004).

To conclude there are arguments for and against the system, and from my point of view it constitutes an entry barrier to the market since it imposes legally binding obligations on the company, but nevertheless it cannot be left out that it works. So I stand in the middle position to say that the legal obligations should be eased so the model can become more flexible.

For further readings on the topic check:

Central Intelligence Agency - CIA. (n.d.). Map of europe. Retrieved May 4, 2010, from CIA Factbook Regional Maps: https://www.cia.gov/library/publications/the-world-factbook/docs/refmaps.html

Eurofound. (2009, August 14). Co-determination. Retrieved May 3, 2010, from Germany: http://www.eurofound.europa.eu/emire/GERMANY/CODETERMINATION-DE.htm

Piette, J.-J. (2004). Understanding Management German-Style. Les amis de l'École de Paris (p. 11). Paris: École de Paris du management.