Codetermination: A Poor Fit for U.S. Corporations

Codetermination: A Poor Fit for U.S. Corporations

Jens Dammann, Horst Eidenmüller

Series number :

Serial Number: 
509/2020

Date posted :

April 10 2020

Last revised :

April 10 2020
SSRN Share

Keywords

  • codetermination • 
  • Corporate governance • 
  • Corporate Objectives • 
  • shareholder value • 
  • comparative law • 
  • United States Corporations • 
  • Sanders Proposal • 
  • Warren Proposal • 
  • German Law

The idea that a corporation’s employees should be allowed to elect some of the corporation’s board members, a system known as codetermination, has moved to the forefront of U.S. corporate law policy. Elizabeth Warren’s Accountable Capitalism Act calls for employees of large firms to elect 40% of all board members.

Bernie Sanders’s Corporate Accountability and Democracy Plan goes even further and states that 45% of Board Members should be elected by workers.


Both Warren’s and Sanders’s plans are loosely modeled on the German law on codetermination, which for many decades has allowed employees of large German corporations to elect up to half of all board members. It is therefore unsurprising that Senator Sanders points to Germany’s successful economic development as evidence that economic progress and mandatory codetermination can go hand in hand.


However, this Article argues that codetermination promises to be a poor fit for U.S. corporations. While Germany arguably reaps significant benefits from codetermination, legal, social, and institutional differences between Germany and the United States make it highly unlikely that the United States would be able to replicate those benefits. Furthermore, the costs of codetermination would probably be much higher in the United States than they are in Germany.

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