Why you should run the company you work for: The case for codetermination

Why you should run the company you work for: The case for codetermination

Joel Duggan
CodeterminationCorporate Structureorganisational behaviour
August 29, 2023

“Inequality” gets tossed around a lot these days as a problem that we need to solve. Bill Shorten focused on the consequences of economic inequality in his 2019 election campaign. Joe Biden has made addressing it the cornerstone of some of his greatest policy achievements. This is a good thing, of course. Inequality has socioeconomic costs that are incredibly undesirable, including on health, education and quality of life. Yet, a lot of these policy discussions around inequality revolve around particular types of inequality: inequality of income, of wealth, of gender. What is often ignored is the far more everyday inequality of power within the workplace.


Here's the traditional structure of the modern workplace. Workers are subject to the authority of bosses, who are in turn subject to the authority of the board of directors depending on the business’ size. This board of directors consists predominantly of shareholder representatives, meaning that the workers are ultimately controlled by the profit interests of shareholders. There is no representation for the worker. In fact, this structure incentivises shareholders to squeeze as much as they can out of workers in line with the doctrine that their sole social responsibility is to increase profits.

It's a whole other ball game with codetermination. This is a system where that board of directors is not solely the shareholder’s lair because the government mandates a certain percentage of that board be populated by worker representatives. It’s not a new idea either: Germany has had its codetermination system of Mitbestimmungsgesetz enshrined in law since 1976, in addition to its works council system of Betriebsverfassungsgesetz that entitles workers a voice to management on operational issues.

Codetermination in Germany has been a model example. Research indicates that German codetermination has led to less short-term thinking in corporate decision-making, more egalitarian distributions of pay, and increases in productivity and innovation.

Corporate governance under shareholder capitalism has been a slow drain on the economy and the life of the everyday prole. An easy illustration of this is the ratio known as Tobin’s Q: “the value of all the shares of stock outstanding divided by the book value of everything publicly traded companies own”. Historically, this ratio was quite low, but since the 1980s it has skyrocketed to the point where some countries have even surpassed the 1.0 threshold. Australia has also come dangerously close to that threshold. This soaring Q value represents the financial value of corporate ownership overtaking the growth of the underlying enterprises – great for people who own plenty of stock, not so great for the worker or an economy that relies on stable growth.


Codetermination presents an alternative vision for corporate governance: stakeholder capitalism, not shareholder capitalism. Unlike the current system, codetermination forces boards to consider the interests of not just the shareholder, but the worker. Any decision the board makes is one that requires some level of worker support.

Codetermination has been picking up steam these past few years, no doubt driven by the great disasters of corporate governance that we have seen during the 21st century. Elizabeth Warren championed it in her campaign to be the Democratic nominee for President in 2020, promising to mandate worker representation and broadened social responsibilities for any corporation larger than $1 billion. The Australian Council of Trade Unions have urged future Labor governments to implement codetermination policy.

However, codetermination is not a panacea. There’s good reason to believe that it has benefits, but there is not significant agreement on just how significant these benefits are. Countries where codetermination has been implemented tend to be countries with stronger unions and labour market institutions, and it is difficult to extricate the consequences of codetermination from these other factors. It is easy for codetermination to become a tokenistic policy, where workers sit on the boards but as disempowered minorities. Some of the potential shortcomings of codetermination can likely be attributed to this tokenism, as it is difficult for codetermination to be truly effective if it is not taken seriously by companies.

Yet, even if codetermination is neutral in economic benefits, there’s still good reason to support it. It’s the same reason why, even if a democracy and an autocracy were to produce the exact same policy environments, there would still be no question as to whether you favour the democracy. Codetermination grants a level of dignity and democracy to the worker that is unavailable to them otherwise through the traditional firm structure. The consequentialist argument for codetermination is, in my view, of moderate strength, but even if it weren’t, the proceduralist view holds tight as a justification for incorporating the voices of the working class into decision-making.