Prof. Dr. Ulrich Jrgens Dr. Inge Lippert

1
Communication and Cooperation in German
Supervisory Boards How do executive managers
evaluate the German codetermination system?

• Presentation at the SASE Conference, Thursday,
  June 30, Budapest

2
The Current Debate in Germany

• The employers organisations, BDA and BDI, have
  launched a broad discussion about the future of
  the German codetermination system.
• Major arguments against the existing system
• the system is a hindrance for foreign investment
  and a competitive disadvantage for the Standort
  Deutschland in the global economy.
• German companies will be excluded from
  partnership in the establishment of the new
  European Stock Company
• German supervisory boards are too large and
  decision processes are too slow and bureaucratic
  
• Votum for fundamental change
• Urgent need to modernise the German model of
  codetermination with the aim to reduce employee
  representation.

3
Proposals for Reform of BDA/BDI
4
Aim of the Survey

• Inquiry of the work process of supervisory
  boards. Concentration on aspects of information
  and flow of knowledge with the aim of identifying
  preconditions and criteria of good supervisory
  work.
• Focus on strengths and weaknesses of the German
  codetermination system.
• Underlying assumptions
• The German codetermination system is not a relict
  of the past but a necessary element of a modern
  corporate governance system
• The institutions of codetermination must however
  be adapted to the new conditions and developrd
  further
• Communication, cooperation and knowledge use are
  the decisive elements in this change process

5
Survey Details

• Scope of Inquiry
• From a total of about 800 codetermined companies
  280 companies were selected. 104 companies took
  part in the project (37,1).
• Participants of Inquiry
• Representatives of executive managers in
  supervisory boards. The research findings are
  valid for this group of members in the
  supervisory board (1 representative of managers
  in each supervisory board).
• Time of Inquiry
• The survey was conducted in Sept./Oct. 2004 by
  the Science Center Berlin and InterCase in
  cooperation with the Association of Executive
  Managers (ULA).

6
Object of Inquiry
7
Empirical Findings (1)

• Weaknesses of the German Model

8
Information Delay
9
Lack of Quality
10
Undermining by Sub-Committees
11
Low Contacts with Shareholders
12
Open Discussions are Rare
13
Low Degree of Consultation
14
Empirical Findings (2)

• Strengths of the German Model

15
Broad Spectrum of Knowledge
16
Positive Impact on Implementation
17
Positive Impact on HR-Development
18
Ability to Balance Diverse Interests
19
Size of Supervisory Boards
20
Tested Hypotheses

• Representatives of larger supervisory boards
  (16-20 members) regard the existing structures as
  more appropriate to meet the requirements of
  consultation than representatives of smaller
  supervisory boards (12 members and less) (high
  level of significance ,017).
• Representatives of larger supervisory boards
  (16-20 members) regard the ability of their
  boards to balance the interests of shareholders
  and employees as higher than representatives of
  smaller supervisory boards (12 members and less)
  (high level of significance ,016).

21
Conclusion

• The empirical data refer to decisive strengths of
  the German system of high employee
  representation. There is no evidence for the
  necessity of a fundamental change of the system.
  
• Regarding communication and strategic orientation
  of the supervisory boards also weaknesses could
  be shown. These weaknesses have to be overcome in
  order to avoid structural disadvantages in
  comparison with the monistic system.
• A critical point in the current discussion is the
  size of the German supervisory boards.
  According to the empirical data, size is not a
  restraining factor for the efficiency of the
  supervisory board work. From the perspective of
  knowledge representation it is regarded even as
  an advantage against the monistic anglo-saxon
  model.
• The survey so far refers only to one group of
  representatives in German supervisory boards, the
  executive managers. A more representative picture
  could only be drawn if also the other groups get
  involved in the survey.