Labor Relations Energy Executive says Germany's Model for Including Workers in Corporate Decisions Works

In Germany workers participate in management decisions and sit on key company boards. Giving workers a stake in the company as a whole is important and the model has proven very successful for corporate Germany.
Uwe Tigges, chief of HR at energy company RWE, says workers' councils help companies.

The energy industry is in the grip of a severe crisis. Electricity prices on the wholesale market are falling dramatically and providers are writing off billions of euros for their power plants. Industry research shows that the energy market crisis is now eating into municipal utilities and regional providers too.

The crisis demands action to get stricken electrical providers running well again. Reorganization, rigorous cost discipline, and, unfortunately, job cuts are becoming more routine in the energy industry. But how should companies carry out these necessary and far-reaching changes? Certainly not with a sledgehammer from above. Workers should also play a big role.

The Works Council Constitution Act is the Magna Carta of German co-determination – or the right of workers to participate in management, both through work councils and on supervisory boards of companies.

Naturally, some details of worker participation can be criticized. Some think work councils are too large and too inflexible. “Many decisions are delayed because compromises must be laboriously negotiated,” said the Cologne Institute for Economic Research.

Others would say that the time and effort spent through worker participation is time well spent, since it helps achieve stable decisions supported by consensus.

Fear is not compatible with motivation and creativity – which companies must demand of employees in troubled times if crises are to be mastered. Uwe Tigges

Co-determination is and remains – especially in a crisis – a valuable asset of the German corporate constitution. This is also recognized outside of Germany. Just recently the U.S. economist, former presidential advisor and Stanford professor, Edward Lazear, offered praise for the concept. “The German system of co-determination has held up remarkably well,” he said, “and led to improved company performance.”

Nothing can be added to that, particularly in the energy industry. We find well-established structures of co-determination and wage negotiation partnerships in utility providers – from large, integrated companies to medium-sized and even smaller municipal plants.

In contrast, worker representation is often weakly defined in many “green economy” firms. As union people sometimes say:  “Green jobs” are not automatically good or social jobs.

The advantages of co-determination according to The Works Council Constitution Act are plain to see. Work councils represent all employees. Work councils and employers are legally bound to cooperate for the good of the company. The rights and processes of co-determination are clearly regulated. Making difficult changes in company strategy without too much friction and loss in confidence are only possible when workers participate in the decisions.

Reorganization always means uncertainties for affected employees, especially when downsizing is discussed and vested rights are questioned as unaffordable. This is frightening to some workers.

But fear is not compatible with motivation and creativity – which companies must demand of employees in troubled times if crises are to be mastered. Crisis management goes far beyond cutting costs. It should raise the potential for innovation that is important for growth and for the future.

Therefore, fear-free crisis management is also imperative now for the energy industry. It’s important for companies, work councils and unions to work together toward goals through co-determination with mutual trust – so changes are fair and transparent. Goal-oriented cooperation means a clear understanding of how the organization is supposed to look in the future, and a clear understanding of how negotiations, work agreements and a balance of interests are tied in.

Many who practice co-determination think from experience that “each management gets the work council it deserves.” Where companies are honestly convinced that necessary changes must be fair and predictable for all affected, co-determination is a vital asset in overcoming difficult times.

Uwe Tigges is chief human resources officer at RWE, one of Europe’s five leading electricity and gas companies.