The Elgar Companion to Law and Economics
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The Elgar Companion to Law and Economics

Edited by Jürgen G. Backhaus

This authoritative and comprehensive reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant areas and breaks new ground by bringing together widely dispersed but theoretically congruent ideas for the first time.
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Chapter 12: Company board representation

Jürgen G. Backhaus


Jiirgen G. Backhaus Introduction Corporations can have widely differing forms. Against the backdrop of the peculiar German system of codetermination, we can illustrate the law and economics rationale behind different types of board composition. Boards are split into two, the managing and the supervisory board. Works councils elect the powerful chairmen, who can end up on supervisory boards and, more importantly, the steering committees. In addition, investment bankers may join forces with employee representatives in controlling management appointments. How did this system come about, which events shaped it, and why is it being continued by globally operating companies? Codetermination as an interlocking system Codetermination is an interrelated set of institutions which consists of five major elements (Table 12.1).At the plant level, it involves the representation of workers in works councils. Works councils need to be heard in many matters referring to the daily practice of work and they need to be involved in discussions with respect to such issues as hours, time and form of payment, and the hiring and firing of individual workers. They need to agree on economic matters that concern them existentially, in particular if a plant is to be closed. In such a case, a social plan needs to be implemented. Obviously, the works councils have no say over what is being produced, what the prices are, what kinds of investments are being made, and so on. But what is crucial is that they determine the exit costs and thereby the entry costs of a...

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