CORPORATE GOVERNANCE: Editorials: Edition: March / May 2020


An idea whose time has come

At least for due consideration. Germany extends an offer to SA for adaptation its co-determination model.

In SA from time to time, the prospect of worker representation on company boards rears its contentious head. What does this have to do with pension funds? Everything, because it goes to the heart of their role in a stakeholder democracy on whose functioning their fortunes rely. Two years ago, rather diplomatically, President Cyril Ramaphosa asked the Cosatu national congress to think about workers on boards. Whether it thought or didn’t – it’s a difficult think for the union federation – the response was apparently mute. In the UK, when Jeremy Corbyn put it into the UK Labour Party election manifesto, it was broadly dismissed as leftist lunacy for its prescriptive quotas. Also in the UK, when Teresa May suggested a moderate version on becoming leader of the Conservative Party, she rapidly withdrew under pressure from organised business. When Elizabeth Warren recommends the principle, in her candidature for the Democratic Party’s presidential nomination in the US, support is obtained from at least one large institutional shareholder. It had tabled a resolution at the Microsoft meeting where the motion was defeated. But the shareholder seemingly intends to table similar resolutions at other high-profile companies for the controversy to become an election issue that will challenge the standpoints of rival candidates.

One way or another, it’s a debate more likely to gain than lose traction. And no less in SA where Germany has become active in promoting for discussion its highly successful model of co-determination in corporate governance. After a state visit by Ramaphosa to Germany two years ago, last November a powerful German delegation of senior officials from employer and trade union confederations visited SA. They held a series of workshops with their SA counterparts to discuss the potential and limits of the German model for local adaptation. To the ears of South Africans, the concept should be far from revolutionary. Rather, it invites a refinement of the workplace forums for which the Labour Relations Act provides. These forums, the Act states, are “entitled” to be consulted by the employer “with a view to reaching consensus” on a wide range of workplace matters. This aspect of the legislation, still operative, was enacted in 1995 during the halcyon Mandela era. Back then, in line with the new Constitution, there was a discernible aspiration to build consensus. Since then, there’s been regression into confrontation. Even with the Companies Act allowing pension funds – including those in which trade unions are persuasive – to nominate main-board directors of companies where they’re shareholders, there’s reluctance to walk through the open door. The topic of the German model could be addressed at the next meeting, due to be held later this year, of the Germany-SA binational commission. SA can only benefit, for it has much to test against the “partnership in conflict” concept that underlays one of the world’s most successful growth economies. The essential element is trust between employers and employees, respectively recognising their interdependence as “social partners”. Such trust is built in Germany through a legal framework of supervisory boards and works councils for joint representation to enable joint decision-making. Martin Schaefer, Germany’s ambassador to SA, is under no illusions about rapid adaptation of his country’s complex model. For one thing, he points out, German policy counters rent-seeking oligopolies. For another, there’s the attitude in government that the social-market economy understands capital as a means to generate growth equally. By contrast, he observes that in SA there are ongoing ideological battles where capital and labour continue to see themselves as class enemies: “There’s a lack of trust.”

For the German experience to help SA, he’d like to see “better competition policies that make more room for new entrepreneurs from where growth will come”. Obviously too, trust would have to be developed between government, the private business sector and labour “for which we need success stories”. He points, for example, to the “magic triangle” that helped Germany avert the worst consequences of the 2008-09 global financial crisis: “Drastic decisions were taken together. Government financed short-term work to help affected companies. Business promised to avoid large-scale retrenchments. Labour agreed to renounce real and nominal salary increases. A few years later, we emerged stronger from the crisis with less unemployment and real salary increases.” The message is that everybody benefits from everybody’s participation. It’s from this “credible desire for dialogue”, as Schaefer puts it, that Germany can boast hugely profitable companies, the highest salaries for industrial workers and the lowest ratio between executive and employee remuneration: “Without economic growth there can be no social transformation, and without social transformation there can be no constitutional stability.” SA, beset by instabilities, can take note. It has much to learn from the German konflikpartnerschaft, including the way in which it encourages vocational training. To be hoped is that the learnings won’t be entirely academic; rather that efforts through the binational commission will help to make them usefully catalytic.

In Germany there are basically three “communication vessels”:
* Works councils, at workplaces where there are
at least five employees, for sharing of workplace information, facilitating consultation and exercising co-determination rights;
* Supervisory boards, where companies with more 
than 500 employees have one-third of board seats for employee representatives and where companies with over 2 000 employees have 50% of employee representation, for co-determination at supervisory board level;
* Trade unions for participating in negotiation of 
collective agreements. The unions cooperate with works councils and have seats on the supervisory board.
Source: Hans Bockler Stiftung