This topic had been on the schedule for today for some time, and, coincidentally Elizabeth Warren released a codetermination bill last week.

Codetermination laws are very common in the developed world. A┬ácorporation is a creation of law; there’s nothing special or sacred about any of it. For example, American corporate law specifies that a corporation must have a board of directors, which is responsible for the “big picture” decisions. The board of directors hires/fires the CEO and other executive officers. American corporate law specifies how often the board of directors of corporations must meet, how they must take notes on their meetings, how directors are elected by shareholders, etc.

In exchange for following corporate law, corporations get special legal protections, such as limited liability. Corporate law isn’t a stick; it’s a carrot. Corporations follow corporate law in order to get the carrot of limited liability and other protections; corporate law isn’t a stick that corporations are forced to follow, it’s a carrot that they choose to follow because it is beneficial to do so.

Codetermination laws require that workers are represented on the board of directors. For example, in Germany, a third of the board of directors must be elected not by shareholders, but by the employees–that’s for companies with 500 or more employees. For companies with over 2000 employees, half the board must be elected by the workers. Such laws are very common in the developed world. Research shows that codetermination has very positive effects on worker pay and productivity–obviously, since the board of directors is the highest decision-making body of a corporation, putting workers on that board will make the entire operation friendlier to workers.

It’s worth repeating: a corporation is a creation of law. And corporate law is a carrot–corporations follow it to get rewards like limited liability–not a stick, or a threat of punishment of corporations don’t follow it. Corporate law already dictates all kinds of things corporations can and cannot do, from how they are structured on down to how often the board of directors must meet. Why not change the law to require worker representation on the boards?


Discussion questions:

  • How is codetermination different from unions? Better or worse?
  • Elizabeth Warren is adamant that she is a capitalist, not a socialist. Yet she proposed a codetermination law. What do we make of this?