Democratizing Enterprises: An essay to Co-Determination and Financial Participation

Financial participation in Austria

Estimates put the number of employees in Austria financially participating in the companies where they work at 100.000 in large companies and a further 60.000 in small and medium-sized companies (SMEs). This is about 6% of the total workforce and means that the participation rate in Austria corresponds to the European average. To get a deeper insight and more details about the financial participation in Austria, we have made a study based on a survey of Works Councils, who implemented an Employee Stock Option Program (ESOP) in their company. Thus I want to point out some results:

1) Generally, we can say that more than a third of all participants welcomed (i.e. ranked positively) the possibility of ‘Employee Stock Option Programs’ and 43% were open-minded about it. About 20% were more sceptic about a collective capital formation within the own company.

2) The Works Councils estimated that about a third of the employees are actually making use of their vote. While we were asking more in detail, we found out that just organized foundations (who were administrated from the Works Council or Trade Union) got the power to collect a common voice in the name of all employees.

3) The higher the qualification or hierarchy level was, the more ESOPs were accepted from employees.

4) The main motives to implement Employee Stock Ownership Programs were twofold: The first important category can be entitled with ‘getting a better financial situation’ for the colleagues: To improve the individual financial situation of the worker, to use fiscal incentives for their workers, to invest money for the savings. The second category, why Works Councils are interested in Employee Stock Foundations, is a strategic one: Especially for state-owned companies, who could initiate to privatize company shares. In that way, such Employee Stock Option Programs might be a possible concept to compensate the risk to be overtaken by private or institutional investors.

Anyway, you won't find even more than five employee-company foundations in Austria that own 10% or more of their company’s shares. With at least 10% of the market value, shareholders have the legal power to fight against a ‘squeeze out’. To nominate a person in the board of directors would need even a higher percentage of shares.

What makes an organization great? The people.

If I were asked, what makes a company or organization great, I would perhaps answer: It’s not the organization. It’s the people in the organization. People make organizations great, productive, effective, vibrant, and innovative, etc. And in case of problems, they need a voice. Therefore, I would like to underline that the so called Co-Determination should to be a basic column in the democratization of enterprises.

Co-Determination across Europe

The Economic Report Series 2013 was examining the differences and similarities in provisions on worker representation in corporate governance in different European countries. What is lesser known is that workers have the right to be represented on company boards in 19 European countries. 

Across Europe, there are different existing legal provisions: In 13 countries (dark blue) are widespread rights to employee representation at board level (in public and private Sectors); in 6 countries (blue) exist limited participation rights (mainly found in state-owned or privatized companies) and in 12 countries (light blue) there are no participation rights at all.

Furthermore, the study examined different voice distinctions (of worker’s participation) all over Europe:

1. Employee involvement in the composition of the top management team (e.g. Slovenia, Poland, Germany);
2. Employee representation at Annual General Meetings (e.g. Netherlands, Hungary, Bulgaria);
3. Employee representation in boardrooms with a consultative voice (e.g. France, Sweden);
4. Employee representation in boardrooms with decision-making power (across Europe).

Asking myself, which results are affected by the legal possibility of ‘parity principle’, or co-determination; I think that the communication between bosses and workers is much more regular and much more profound in Europe than anywhere else in the rest of the world. Furthermore, workers’ concerns can’t be dismissed so easily. The corporate governance system requires a level of cooperation between workers and bosses. Additionally, it gives workers knowledge, what’s going on at highest level of decision-making in the corporation.

Finally, the history of more than 40 years (e.g. Germany, Austria) of ‘Mitbestimmung’ has shown that having workers on the board of directors hasn’t humbled or weakened companies. It is necessary, to get more research about the efficiency of the ‘parity principle’.