The Labor Contract in America is Dead. Is German Codetermination a Solution?

Google has seen significant activism this year. Employees first wrote petitions in opposition to Project Maven, a collaboration with the U.S. Department of Defense, followed by walkouts after the reporting by The New York Times of Google’s mishandling of sexual misconduct by executives and their lucrative exit packages that followed. Some Google employee demands called for an end to forced arbitration and the appointment of an employee representative to the company board of directors.

This activism is fairly novel in white collar, tech-heavy Silicon Valley; labor unions in the U.S. private sector have typically represented traditionally blue collar trade-oriented functions. But without unions, employees in U.S. corporations seem to have very little stake. Walk into the basic finance course of any reputable business school, and it’ll say the answer to the question of “what is the primary goal of a corporation” is “to maximize shareholder value.” This largely defines the operations of publicly traded U.S. corporations, emphasizing a focus on quarterly profits and share prices, without considering other stakeholders such as employees. Indeed, it seems as the U.S. has entered the 21st century and as union participation has declined, the balance of power has drastically shifted away from employees toward executives, with companies engaging in anti-poaching collusion and making mandatory arbitration a condition of employment. Not to mention the existence of “independent” boards of directors stacked with friends and siblings of the CEO.

In contrast, Germany is well known for corporate governance that is defined by codetermination, or the right of employees to participate in management. Indeed, in companies with greater than 2,000 employees, workers are represented with 50 percent of the board seats, ensuring greater stakeholder representation, less emphasis on short term quarterly results, and less income disparity. Although opponents of this model argue that it in turn results in lower profits to shareholders, the fact is that middle-class wages have been stagnant for decades under the current U.S. model, with the decline of labor union participation hypothesized to be a contributing factor.

Whilst the recent Google issues are not strictly about employee pay, they are a symptom of a dead social contract between employees and employers, in a time when a significant part of the electorate sees the model as rigged and broken. For now, in the absence of a sweeping mandate to adopt the German model in the U.S., perhaps more middle-class white collar workers need to examine forming their own 21st century unions.