In Germany, under the model of “stakeholder capitalism”, employee representatives sit on company boards of directors. In the German model of business, it is assumed that both labor (employee representatives) and capital (shareholder representatives) have important stakes in the enterprise and should work in harmony with each other. In the United States, the board of directors usually represents only the owners of the business. What advantages are there to employees as stakeholders in Germany that are not provided to employees in US companies? In the United States, how do employees let management know their stakeholder concerns?
In Germany, under the model of “stakeholder capitalism”, employee representatives sit on company boards of directors. In the German model of business, it is assumed that both labor (employee representatives) and capital (shareholder representatives) have important stakes in the enterprise and should work in harmony with each other. In the United States, the board of directors usually represents only the owners of the business. What advantages are there to employees as stakeholders in Germany that are not provided to employees in US companies? In the United States, how do employees let management know their stakeholder concerns?
Stakeholder capitalism is a capitalist type where the company involved prioritizes the short-term benefits they may get from shareholders, but it tries to find value creation. It seeks this by considering its stakeholder’s needs and society as a whole. In Germany, employees are represented on the board, a tradition that began a few years ago and continues today (Freeman & Dmytriyev, 2017). Therefore, as most companies’ production, sourcing, and selling occur locally and regionally, they have connected with suppliers and clients. As this representation continued and grew with time, the habit with time built a strong sense that the country’s local companies were rooted in their surroundings. As a result, the companies built mutual respect with the local institutions like health organizations, schools, and governments, to mention a few. Organizations including employees in the organization’s board of directors are essential as it helps set the bar of ethics as high as possible. It is so because with employees as part of the board, and the organization will easily move forward. Also, having employees on the board promotes greater ethical decision accountability within an organization. Even though most organizations do not include employees in their board of directors, they must remember including employees come with lots of importance to the company.
Unlike Germany, most companies in the United States have failed to include employees as part of their board of directors. They should, however, understand that including employees as part of the board of directors and part of the essential decision-making discussions comes with various advantages (Baums & Scott, 2005). For instance, including employees in this promotes equity within the organization, a better representation, and ethics within the work environment. Therefore, when Germany does this and the United States fails to consider this. It only focuses more on including shareholders. The German companies become better and outgrow the United States companies. It is so because apart from shareholders being a major part of a company making them stakeholders, the employees are also a company’s stakeholders. Therefore, considering and including them promotes growth within the organization.
In Germany, a company with more than 2000 employees dedicates half its supervisory seats to the employees. Apart from Germany, a country like France took the big step, and it included a law within its constitution. The law, created in 2013, ensured that employees got board seats from the company they are working in as a way of equal rights efforts (Conchon, 2011). In countries like the US, the argument on whether or not employees should be a part of the board of directors is still ongoing. However, they should remember that since the trend has been rising, it is clear evidence that when employees do this, it indicates that they have a leading interest in their jobs and they care more about the impacts of their work on the company. Most business leaders today are dealing with ethical issues, longevity, and equality. It is necessary to note that employees have a vital perspective in handling these issues.
As earlier mentioned, companies must exclude employees in their vital decision-making process and from their board of governors to note that this impacts their companies at large. Here are some of the benefits associated with employee inclusivity with the board of directors;
Today, most business leaders are more aware and are mindful of the work environment needs (Hougaard, Carter & Coutts, 2016). For instance, they are mindful and try to eradicate the gender pay gap and promote equity among employers. Also, managers are trying to develop inclusiveness and better diversity within the organizations. Therefore, adding and including employees on the board of directors can be essential in achieving all these. Doing this reduces resentment and increases the morale of employees. The United States has a higher CEO pay compared to most countries, especially the European countries. Compared to employee pays, the CEO pays approximates between the ratios 399 to 1 (Jouber, 2019). It may be because they have no employee representation on their boards, but it is conclusive that having employees on the board of directors allow room for more balanced pay ratios. In an organization, equity promotes job satisfaction and employee engagement. It allows employees to be a part of a team where they are considered as one. Because of the pay gap existing between the CEO and the employees of the US companies, it is possible to conclude that companies are missing out on substantial decision-making from the teams. Promoting equity through including the employee in the board of directors promotes employee engagement and company development. It is so because the employees will work harder, and they will be determined to reciprocate the appreciation they get from being included. The US companies may lack this as they have created a gap between the employees and the shareholders.
In most startups and large corporations, there is short-terminism that impacts their operations and growth. Developing long-term views within an organization brings more jobs to the country and increases the GDP as well. For instance, in the McKinsey study, done in 2017, it was concluded that if the United States companies used the long-term view like their counterparts did and had been doing, the country would have created more than 5 million jobs, and they would have gained approximately one trillion dollars in 14 years. This would have been so because employees in the board of directors often help shift the company’s corporate to actions and longer-term view. They do this because most employees often prefer to be part and parcel of a strategy that is mainly long-term. Therefore, they do whatever it takes to ensure the company they dedicate themselves to achieve this growth. The companies in the US are missing out on this because they have failed to implement the employee-inclusive method.
Various ethical issues impact employees and the organizations as a whole. For instance, recently, Facebook faced criticisms from the US users on how poorly they handle ads on political issues. In this case, the CEO, Mark Zuckerburg, has been experiencing ethical dilemmas on this matter, and unfortunately, he has not succeeded (Napoli & Caplan, 2017). During this critical moment, the Facebook employees also signed letters where they gave their concerns and how they felt the company negatively impacted the United States’ democracy. The employees then expressed their concerns and listed the six best proposals the company could use to handle the political concerns and the ethical dilemma they were facing. However, the situation could have been better if the employees were included in the company’s board of directors. It is so because the employees have two roles to play in the case scenario: Facebook employees who could do anything to protect the reputation of their job. Also, they are members of the US society and best understand the best way to solve the existing problem and dilemma. In this case, including employees on the board would have enabled them to have the moral strength in the necessary decisions on free speech and political ads. If a company sets the ethical bar so high, having employees as part of their board allows them to move the organization forward.
The work environment is the one place a person spends most parts of their days. Therefore it is recommendable that one has the easiest time working and staying in their workplace (DeMarco & Lister, 2013). A conducive work environment promotes employee productivity and vice versa. Since the American system is different from the German and European ones, the employees often have no room to express how they feel about their stakeholders and the issues that may affect them. Therefore, they have come up with various ways to ensure they express their feelings, and they include the following;
From the research and the conclusion of the work of previous researchers, it is evident that including employees on the board of directors is essential for the performance and growth of a company. Also, this act promotes the development of a country generally. Most countries like the United States have not implemented this aspect in their companies, but they will see the difference between the two cases in case they do. Employing this policy helps employees feel like they are a part of a team. At the same time, organizations need to remember that employees are also stakeholders in a company. Therefore, if a company includes employees as part of its team and in the decision-making process, they are likely to grow together. The research shows that stakeholder capitalism is the new normal, and companies should do whatever it takes to involve the employees in their boards. The employee’s opinions matter most when making serious decisions because, in most cases, it is the employees that directly interact with the customers. In places like the United States, where employees are not part of the board, the employees have different ways to express their stakeholder problems. For instance, some opt to communicate indirectly about their problems while others avoid. These may impact employee performances which result in poor results for the organization. It is, therefore, conclusive that employee inclusivity gives room to solve problems they face hence improving employee outcomes.
Since the advantages of including employees as a part of the stakeholders and in the decision making processes of an organization are way more beneficial than the disadvantages, I would like to recommend the following;
Stakeholder capitalism is an essential part of organizational development. Even though most companies do not recognize our stakeholders, they are one of the essential stakeholders an organization may have. It is so because employees have a vital role to play in the daily operations of a company. If included in the board of directors, the organization is likely to grow because they will understand first-hand the needs of their employees, which will enable them to thrive. Various advantages are associated with stakeholder capitalism, and it includes equity among the management members and moral strength. Organizations often face ethical dilemmas in their work environments, and in most cases, they can hardly come to a solution. However, including employees in the decision-making process may help solve the dilemmas that may arise. For example, in the case of Facebook, if they had included the employees, the CEO would have solved the problem it was facing. It was evident because when faced with the problem, the company’s employees listed the possible solutions the company may have used to solve the issue.
Baums, T., & Scott, K. E. (2005). Taking shareholder protection seriously? Corporate governance in the United States and Germany. The American Journal of Comparative Law, 53(1), 31-75.https://www.google.com/search?q=Baums%2C+T.%…..
Conchon, A. (2011). Board-level employee representation rights in Europe: Facts and trends. Brussels: Etui.https://www.google.com/search?q=Conchon%2C+A.+(2011).+Board….
DeMarco, T., & Lister, T. (2013). Peopleware: productive projects and teams. New York. Addison-Wesley.https://www.amazon.com/Peopleware-Productive-Projects-Teams-3rd/dp/0321934113
Freeman, R. E., & Dmytriyev, S. (2017). Corporate social responsibility and stakeholder theory: Learning from each other. Symphonya. Emerging Issues in Management, (1), 7-15.https://www.google.com/search?q=Freeman%2C+R.+E.%2C+%26+Dmytriyev%2C+S.+(2017)
Hougaard, R., Carter, J., & Coutts, G. (2016). Mindful leadership: Achieving results by managing the mind. Leader to leader, 2016(79), 49-56.
Jouber, H. (2019). How does CEO pay slice influence corporate social responsibility? US–Canadian versus Spanish–French listed firms. Corporate Social Responsibility and Environmental Management, 26(2), 502-517.https://www.google.com/search?q=Jouber%2C+H.+(2019)
Napoli, P., & Caplan, R. (2017). Why media companies insist they’re not media companies, why they’re wrong, and why it matters. First Monday
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