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New research from HBS: "Strong Codetermination - stable companies"

Marc Steffen Rapp and Michael Wolff of the Institute for Codetermination and coporate Governance of the Hans-Böckler Stiftung have recently published a new report on the relationships between codetermination and company performance in German enterprises.

This Mitbestimmungsreport is a brief presentation of a project supported by the Hans-Böckler-Stiftung, entitled 'The effects of codetermination in the supervisory board on corporate governance'. The object of study was the role of company codetermination in German companies in relation to company performance and company decision-making during the recent financial and economic crisis. While the research was limited to German companies only some conclusions are of general relevance and interest.

For the purpose of answering the research question companies with and companies without codetermination were compared. The findings show clearly that companies with codetermination not only were more robust during the financial and economic crisis, but also recovered more quickly from its consequences. The study thus underlines the potential of company codetermination for coping with the effects of external shocks, such as the financial and economic crisis.

Some key findings of the report comprise:

Companies with codetermination (i.e., board-level employee representation) were not only more robust during the financial and economic crisis, but also recovered more quickly from its consequences.
– Companies with codetermination laid off fewer employees both during and after the crisis than companies without codetermination.
– During the crisis companies with codetermination maintained their investments in research and development and in fixed assets at a higher level than companies without codetermination.
– For the duration of the financial and economic crisis companies without codetermination raised less outside capital and indulged more in share buybacks, while companies with codetermination tended to do the opposite.
– Companies with codetermination instigated fewer strategic adjustments during the financial and economic crisis. Such companies were also less active in company takeovers.
– During the period under examination companies with codetermination registered higher profits and exhibited less capital market volatility. Company valuations were subject to less drastic deterioration than in the case of companies without codetermination.
– Return on assets among companies with codetermination decreased (during and after the financial and economic crisis) less than among companies without codetermination. Return on sales among
companies with codetermination maintained their pre-crisis level during the crisis, all things being equal.

The report can be downloaded from the HBS website for free.

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