Bundestag Passes Legislation on Codetermination Summary

  • Last updated on November 10, 2022

The West German government enshrined in law an Allied-occupation policy giving workers in the steel and coal industries representation on the governing boards of companies.

Summary of Event

The Act Regarding Co-determination by Employees in the Supervisory Boards and Management Boards of Companies in the Mining and in the Iron- and Steel-Producing Industry was passed by the new West German Parliament (Bundestag) on April 10, 1951. It went into effect on May 21, 1951. The act gave representatives of the employees on the governing boards of companies in the coal mining and the basic iron and steel industries voting rights equal to those of representatives of stockholders. [kw]Bundestag Passes Legislation on Codetermination (Apr. 10, 1951) [kw]Legislation on Codetermination, Bundestag Passes (Apr. 10, 1951) [kw]Codetermination, Bundestag Passes Legislation on (Apr. 10, 1951) Labor unions;West Germany Corporate governance and codetermination Co-determination Act, German (1951)[Codetermination Act, German] Labor unions;West Germany Corporate governance and codetermination Co-determination Act, German (1951)[Codetermination Act, German] [g]Europe;Apr. 10, 1951: Bundestag Passes Legislation on Codetermination[03500] [g]Germany;Apr. 10, 1951: Bundestag Passes Legislation on Codetermination[03500] [g]West Germany;Apr. 10, 1951: Bundestag Passes Legislation on Codetermination[03500] [c]Laws, acts, and legal history;Apr. 10, 1951: Bundestag Passes Legislation on Codetermination[03500] [c]Business and labor;Apr. 10, 1951: Bundestag Passes Legislation on Codetermination[03500] Adenauer, Konrad Böckler, Hans Dinkelbach, Heinrich Jarres, Karl McCloy, John Jay

German workers first achieved representation on works councils. Works councils were first given legal sanction by the Weimar Republic. Article 165 of the Weimar Constitution guaranteed workers equal rights with employers in determining wages, salaries, and working conditions. A law passed in 1920 authorized establishment of workers’ councils throughout Germany. Many had been created informally during the heady days of the upheaval that accompanied collapse of the imperial government; now they were officially sanctioned. They constituted advisory bodies to management in all the larger German firms of the period. They were abolished by the Nazis.

As the democratic institutions that had been done away with by the Nazis began to reemerge after Germany’s defeat in 1945, the unions also came back to life. They were welcomed by the occupation powers, as their anti-Nazi credentials were generally impeccable. They began to organize and develop programs that would serve their traditional goals. They had long sought to exercise more power over the decisions of the companies that dominated their members’ working lives, and this goal gained concrete expression in the demand for codetermination, that is, equal representation on the governing boards of companies and also of industrial and commercial associations. In this objective, they were supported by their old political ally, the Social Democratic Party. In addition, the concept won some converts in the left wing of the more conservative Christian Democratic Party.

Even some elements of management were thinking along the same lines. Karl Jarres, managing director of the Kloeckner Steel Works Kloeckner Steel Works , in late 1945 consulted the works council about the possibility of including in the management structure of the company individuals who would represent the workers’ point of view. At the same time, Heinrich Dinkelbach, a member of the board of the Vereinigte Stahlwerke Vereinigte Stahlwerke , gained the trust of the occupation authorities and was shortly appointed trustee of the Ruhr Valley iron and steel industry, which had been confiscated by the Allies. In December, 1946, Dinkelbach discussed with union representatives the introduction of new arrangements for the selection of members of the boards of the new steel companies that were emerging from the decartelized industry ordered by the Allies. Dinkelbach, as trustee, was in charge of decartelization.

By early 1947, what came to be known as the Dinkelbach plan Dinkelbach plan had taken concrete form. Because German management is organized somewhat differently from American management, representation of workers had to take place at two points. General policy is set by the supervisory board. Dinkelbach proposed that the decartelized steel companies should have eleven-member boards. Of these eleven persons, three would represent the trust, one would represent the actual management, and one would represent the general public (that is, be a government-designated individual).

These first five board members were seen as representing the owners. On the workers’ side there would also be five members. Two would be chosen by the works council, one to represent the blue-collar workers, the second clerical workers. Two members would be designated by the unions, one by the metalworkers’ union, IG Metall IG Metall , and one by the German Labor Federation German Labor Federation (DGB). Another member would represent the public on the workers’ side (that is, be chosen by a government agency). Finally, there would be an eleventh “neutral” member, who would function as chair and provide the deciding vote in the event of a tie.

Eventually, workers would also gain representation in active management as well. In German companies, besides the supervisory board, there is a management board, generally composed of three individuals. One is in charge of the technical or production side of the operation; another is in charge of the commercial or financial side. Sometimes this management responsibility is split between two individuals. A third is in charge of personnel. Worker participation came in time to include a decisive role in the selection of the individual in charge of personnel.

Codetermination was introduced in the iron and steel industry, and eventually in the coal industry as well, in Germany’s industrial heartland, the Ruhr Valley, in 1947-1948, as German industry gradually revived. Allied Law Number 75 Allied Law Number 75 (1948) , issued in 1948, gave formal authorization for codetermination in the iron and steel industries, pending adoption of legislation by the reconstituted German government.

American high commissioner John Jay McCloy saw to it that codetermination was high on the German agenda. In January of 1950, Konrad Adenauer, now chancellor, promised the Americans that the Bundestag, the German Parliament, would shortly enact legislation on this subject. McCloy, in turn, was being pressured by the American Federation of Labor American Federation of Labor (AFL), which German union leaders had persuaded to support their drive for this goal.

The first draft of the proposed codetermination legislation, put together by the new Economics Ministry and made public in the fall of 1950, fell short of union aspirations. In response, both the iron and steel union, IG Metall, and the coal miners’ union, IG Bergbau IG Bergbau , asked for strike votes among their workers. More than 90 percent of the members of both unions voted in favor of a strike. At this point, Chancellor Adenauer intervened, calling on his friendship with Hans Böckler, now president of the German Labor Federation. The negotiations were intense, and the unions did not get all they had hoped for, but they did achieve their primary goal of parity on the governing boards of all companies in the coal, iron, and steel industries. This feature, together with the right, exercised through the union, to nominate the personnel director, was incorporated in the legislation passed on April 10, 1951. In return, the unions called off the planned strikes.

The Co-determination Act generally followed the pattern first devised by Heinrich Dinkelbach. Although some boards exceeded the eleven-person model designed by Dinkelbach, most did not. Five members represented the owners (shareholders), though one of these came from management; five represented the workers, though clerical workers (and later higher management) also had to be represented on this side. The chair was supposedly “neutral” and cast the deciding vote in cases of a tie; in fact, the chair generally represented the owners. Although the personnel director was actually appointed by the supervisory board, no one could be appointed to that position who did not receive the support of the labor representatives. The act applied only to firms with more than one thousand employees, and only to the coal mining, iron, and steel industries.

New laws extending codetermination were passed in 1956 and 1976. The latter law extended codetermination to all firms, regardless of industry, with two thousand or more employees. The rights enjoyed by workers under the 1976 law were less extensive than those in the 1952 law. The association of German industries challenged the constitutionality of the 1976 law in court but lost.

Significance

From the beginning, most representatives of management regarded codetermination as a denial of the right of ownership. Although Chancellor Adenauer shared the conservative, property-oriented point of view of the old industrial owners and managers, he was first and foremost a politician. He believed strongly in the need to devise a system for the new German government that would reduce social conflict to an absolute minimum. That was his goal in working with union leader Hans Böckler to draft the first codetermination law. Adenauer secured for owners the swing vote, in that the chair, although nominally neutral, was in fact a representative of the owners. Böckler secured for workers what had been for them a slogan, parity. That is, they won equal representation with owners on the supervisory boards.

In pursuit of his goal of social stability, Adenauer pushed through the Bundestag a related law, the Works Constitution Law Works Constitution Law, German (1952) , the following year. The objective of the Works Constitution Law was to strengthen the works councils, giving to them many of the responsibilities exercised by union officials in other countries. They, not the unions, dealt with local plant management over supplementary wages (basic wages were set in nationwide sectoral negotiations with the sectoral union leadership; in the iron and steel industry that was IG Metall) and handled negotiations over local benefits including vacation time, workers’ housing and other facilities, health benefits, overtime, and work scheduling. Layoffs had to be negotiated with the works council, not with the union. Finally, the works councils were entitled to select one-third of the members on the supervisory boards of companies with more than five hundred employees.

When, in the late 1960’s, Adenauer’s party, the Christian Democratic Union, lost its political dominance and was forced to share power with the Social Democratic Party, the latter secured the appointment of a special commission to consider the impact of codetermination. Appointed in 1968, the Biedenkopf Commission Biedenkopf Commission (named for its chairman) reported its findings in 1970. The commission maintained that German industry had not lost its efficiency as a result of codetermination. The system had, however, forced the management of large German firms to give much more thought to the social implications of policies. This emphasis played an important role, as German firms, like their American counterparts, experienced “restructuring” in the highly competitive global economy.

In some respects, the worker representatives on the supervisory boards came to share the aims of the owner representatives, as they beagn to see their welfare as bound up in the welfare of their company. Moreover, when it came to trade-offs between policies that benefited their particular workers balanced against benefits for working people generally, they almost always opted for the policy benefiting their workers specifically. Job security had a high priority with them, more so than job opportunities for others.

One intensive study of codetermination as it worked in particular plants in the steel industry found that it lessened the power of the old-time foreman. A worker with a grievance could go directly to the personnel director, an individual chosen for empathy with worker problems, and thus evade the favoritism that ruled under the old system, in which the foreman dominated. “Cronyism” thus was significantly reduced.

Although personnel directors were rarely able to prevent layoffs when business conditions required them, they were often able to soften the blow. Frequently they could stretch out the process and restructure layoffs so that casual labor was let go first, then women with employed husbands, and only last those with a family to support. The general effect was to induce German companies to maintain only a minimal full-time workforce and to use casual labor when heavy demand required it. This, along with substitution of machinery for labor, lessened conflicts with full-time workers when layoffs were required.

Although management in Germany has regarded codetermination as a direct assault on its prerogatives, codetermination has, on the whole, worked well. It is one reason why Germany has far fewer strikes than most other major industrialized countries. However, Germany faced a series of major labor-related problems as it moved into the twenty-first century, including a declining educational system, very high unemployment rates (8-9 percent), low productivity rates that would have been lower still without capital improvements that displaced the need for more workers, and the threat of much higher taxes to pay for the high social and retirement benefit packages of an increasingly aging population with a shrinking native workforce. All this is a harbinger of either large future tax hikes and/or a reduction of benefits in the future, unless major changes are made in the nation’s economic policy, and this might well have serious implications for the codetermination system. Labor unions;West Germany Corporate governance and codetermination Co-determination Act, German (1951)[Codetermination Act, German]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Berghahn, Volker R. The Americanisation of West German Industry, 1945-1973. New York: Berg, 1986. An intensive study of the influences of labor and management on the structure of West German industry since World War II. Berghahn describes in great detail the efforts of the older elements in management to derail codetermination.
  • citation-type="booksimple"

    xlink:type="simple">Berghahn, Volker R., and Detlev Karsten. Industrial Relations in West Germany. Oxford, England: Berg, 1987. Focuses on more recent developments than Berghahn’s other work. Valuable for a description of the major developments of the 1970’s.
  • citation-type="booksimple"

    xlink:type="simple">Blumenthal, Werner Michael. Codetermination in the German Steel Industry: A Report of Experience. Industrial Relations Section Research Report Series 94. Princeton, N.J.: Princeton University 1956. A survey of the effects of codetermination in nine different German plants. The author went on to achieve prominence in American business and as secretary of the Treasury.
  • citation-type="booksimple"

    xlink:type="simple">Frick, Bernd, and Erik Lehmann. “Corporate Governance in Germany: Ownership, Codetermination, and Firm Performance in a Stakeholder Economy.” In Corporate Governance and Labour Management: An International Comparison, edited by Howard Gospel and Andrew Pendleton. New York: Oxford University Press, 2005. Compares the German codetermination system to other European structures of industrial relations. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Schuchman, Abraham. Codetermination: Labor’s Middle Way in Germany. Washington, D.C.: Public Affairs Press, 1957. A prolabor account of the operation of codetermination.
  • citation-type="booksimple"

    xlink:type="simple">Thelen, Kathleen A. Union of Parts: Labor Politics in Postwar Germany. Ithaca, N.Y.: Cornell University Press, 1991. Argues that over time a close interweaving of labor representation has occurred in Germany, with unions carrying the burden on the national stage while works councils are the principal vehicle of worker representation at the plant level.

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