Should We Have Worker Representation on Boards?

It’s long been a perception in some circles that the corporate fat cats don’t have the best interests of the working man (or woman) in mind. But, what if that group of fat cats included those workers? That is, in essence, what Massachusetts Senator Elizabeth Warren has been proposing.


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A Novel Approach in the United States

As Raffaella Sadum writes for Harvard Business Review, “U.S. Senator Elizabeth Warren has proposed a novel way to reform corporate governance. It would require companies with more than $1 billion in revenue to get a corporate charter from the federal government (rather than from an individual state), which in turn would require a commitment to a broad range of stakeholders, including not just shareholders but also employees and the communities in which the businesses operate.”

Sadum writes that the proposal also includes other aspects, such as a requirement for federally chartered companies to let workers elect 40 percent of board members. Additional aspects are available here and here.

Would European Practices Translate Here?

Warren and other proponents of proposals such as hers point to countries like Germany where workers have a significant input into the composition of boards. But as Sadum writes, there are many differences between Germany and the United States.

For one, Sadum notes that when Harvard’s Richard Freemand and Stanford’s Ed Lazear studied Germany’s work councils, one of their conclusions was that work councils were effective in large part because the country’s centralized wage-setting systems meant that wage setting wasn’t the purview of the work councils, which could then focus on less contentious points.

Additionally, Sadum notes that simply giving workers greater representation on corporate boards won’t necessarily be enough to change culture. “Collaborative structures like the work councils in Germany may be a product of specific cultural values and norms,” she writes. “For instance, in places where there’s a high level of trust between workers and employers, these structures may be more likely to arise, and therefore more likely to succeed.”

Senator Warren’s proposal is a bold one, and in the world of contentious politics, bold proposals rarely make it through the process intact and without substantial compromise on key points. But it makes for an interesting thought experiment to consider what American corporate culture could look like if it borrowed some strategies from other major economies like Germany.