Germany: Board-level representation under threat

A study by Russell Reynolds

Russell Reynolds, one of the world's leading recruitment consultancies recently conducted a study assessing democracy at work in the future Dax companies. The study is of huge importance since the number of DAX companies will be increased from 30 to 40 companies in September 2021. According to the study, employee representation in the board-level will drastically decrease with the add-on.

Why equal board-level representation is vanishing

There are several reasons why supervisory boards do not have equal representation.

  • Some companies have their headquarters abroad are not subject to German co-determination. This is currently the case with Linde, and Airbus and Qiagen among the Dax 40 candidates.
  • Companies that operate as a Societas Europaea (SE) and that were not subject to co-determination when they were founded can continue to do so in the future, no matter how they increase in size. This currently applies to Vonovia and Deutsche Wohnen, and among the Dax 40 aspirants to Brenntag and Hellofresh.
  • Two Dax companies (Fresenius Medical Care and Siemens Healthineers) are considered subgroups of co-determined group parents and are therefore not subject to parity co-determination.
  • Financial holding companies such as Porsche SE are also exceptions to parity co-determination. The two candidates for promotion, Zalando and Hannover Re, are only subject to one-third co-determination.

Although the proportion of women on the shareholder representative side has continued to increase in 2021, the average share of women in supervisory boards remains unchanged at 36%. Moreover, there has again been no progress in the proportion of women as chairpersons of the supervisory board or of committees.

A development in the wrong direction

"It must be questioned whether this is creepingly undermining the thoroughly successful German model of co-determination," says Russell Reynolds representative Thomas Tomkos, who supervised the analysis. The importance of parity in board-level representation is not negligible, especially in the context of the current pandemic and the economic crisis it has entailed.

During the last financial crisis, the Hans-Boeckler Foundation conducted a study to assess the impact of board-level parity in the moment of crisis. It showed that corporate co-determination helped to reduce short-term behaviour and to successfully manage transformation processes. It is is a beneficial instrument to communicate between owners and employees to find compromises. On the one hand, co-determined companies showed better results in the capital market as well as in operational performance during the financial and economic crisis, and on the other hand, corporate decisions continued to pay special attention to long-term livelihood security.