Theresa May eyes merits of German blue-collar boardroom model

Britain’s new Prime Minister Theresa May wants to ape Germany by appointing workers to corporate boardrooms.

She might balk at going quite as far as big German companies, where staff take half the seats on supervisory boards and have a say over investment and firing executives.

But there’s plenty to commend a reappraisal of Britain’s cosy and ineffective system of non-executive directorships.

The German “co-determination” model has merits — for investors and workers. There are four positives.

Shareholder returns: Employees worry about more than the stock price, so you might expect their boardroom presence to mean poor shareholder returns.

In fact, Germany’s Dax and mid-cap M-Dax indexes have outperformed their UK equivalents over the past decade. Correlation isn’t causality. We don’t know how German stocks would have performed had workers not had a voice.

But it’s not preposterous to think having a say helps motivate workers, which benefits shareholders and workers alike.

Productivity: Germans work fewer hours than any other OECD nationals. Yet, that has upsides.

Despite some high-profile exceptions, German employees don’t strike that much. Their labour productivity per hour is better than the Brits.

Looking at the long term: Many US companies seem to be prioritising share buybacks over corporate investment. That may be unhealthy because today’s investments are tomorrow’s profits.

Buybacks are far less common in Germany, where workers tend to think building plants or developing products is a better use of cash. R&D spending is higher in Germany than the UK.

Employment: Workers on boards might discourage executives from cutting jobs, even when it’s needed. But, strong ties between management and workers can help in tough times.

When demand for German exports slumped in 2009, labour board representatives backed working hour reductions, meaning job cuts were avoided.


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