Dynamic efficiency of supervisory board codetermination in Germany

Abstract

The aim of this paper is to consider the implications of structural changes, e.g. changing skill composition of the labour force, on the economic advantages and disadvantages of supervisory board codetermination in Germany. Theoretical considerations and an overview of the empirical literature on supervisory board codetermination are given in the first section of the paper. The second section deals with the empirical evidence of the theoretical effects. The basic idea is to compare the long-term differences in productivity and profitability of companies with quasi-parity codetermination to companies that are only obliged to give one-third of their supervisory board seats to labour representatives. Interestingly, the switch from one-third to parity codetermination seems to increase both productivity and profits. In the longer term, the productivity effect does not seem to change, whereas the profit effect shows an improving path. © 2007 The Author. Journal compilation © CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd. 2007.