It's called Mitbestimmung
And it's an important reason why Germany's economy thrives, says Professor Jean du Plessis.
Professor Jean Jacques du Plessis, recent recipient of the prestigious Anneliese Maier Research Award from Germany's Alexander von Humboldt Foundation, smiles at the irony.
A management system thrust upon Germany after World War II by the victorious British occupation authorities is helping the Germany economy recover from the Global and European Financial Crises faster than any other European country, including Britain.
It is called Mitbestimmung, which translates literally into English as “codetermination”.
The German codetermination law underpins industrial and company policy in that country.
It requires that between one-third and just under half of companies' supervisory board members are representatives of workers, while the shareholders appoint the remaining part of the members serving on German supervisory boards.
In fact public companies and even large private companies are required by law to have two boards of directors.
Shareholders and trade unions elect members of a supervisory board known as the Aufsichtsrat.
The supervisory board then elects a management board (Vorstand) that oversees the day to day running of the company.
“One of the most remarkable things about the German law, the corporate law and the labour law in particular, is that they have got the participation of employees at all levels,” said Professor du Plessis.
“Employees have a formal involvement at shop-floor level, through works councils, safety committees, productivity committees, job classification committees and ultimately filling up to just under half of the spots on supervisory boards.
"Allowing employees seats on the supervisory board in Germany is nowadays seen as the ultimate form of recognising the importance of employees and them jointly having an a say, with shareholders and management, in determining the destination of large companies.
“There are many that believe it is one of the reasons the German economy has recovered so much faster from the Global and European Financial Crises, which is interesting when you think that codetermination was something the British forced on to Germany after World War II.”
Despite their enthusiasm for imposing codetermination on the Germans, the British don’t have anything like it in their industrial law.
“At first the Germans didn’t like it, everyone was suspicious of each other, but now if you suggested that they change the law, you would get howled down,” Professor du Plessis said.
Just how a South African-born, Afrikaans speaking descendant of the French Huguenots who grew up in Namibia came to be specialising in German corporate law at Deakin University is, if not quite an irony, a fascinating narrative of itself.
Professor du Plessis came to Deakin from South Africa, first on a temporary basis in 1998, then as a permanent member of staff the following year.
“I really loved Australia and Deakin the first time I came and was pleased to be offered a permanent place here,” he said.
“My connections with Germany began in 1993 when the Germany lawyer and researcher, Professor Bernhard Gro?feld, came to South Africa, where I had been working in Johannesburg at the Rand Afrikaans University (now the University of Johannesburg).
“He encouraged me strongly to do research on the German model of codetermination.
“I thought it would be a good idea to get South Africa to consider such a model because it was the end of apartheid.
“It would be a very nice way of getting black empowerment entrenched into South Africa by reserving a certain number of seats for them on boards.
“So that was in 1993 when the first free elections took place in South Africa.
“I went to Germany in 1995 for a whole year, there I did a German language course and from that stage onwards, I have done all my research on the German corporate law and corporate governance model in German.”
That transition was made a little easier by the cross-over between Afrikaans and German.
“There is an overlap as far as recognising certain words are concerned, but German is much more complicated and I know when I talk with my German colleagues, I make a lot of mistakes, but they seem to understand me and appreciate my efforts to speak German.”
Professor du Plessis, who speaks perfect English as well as his native Afrikaans, is being overly modest about his grasp of German, if his latest achievement is anything to go by.
He was not only nominated – outstanding of itself - for the Anneliese Maier Research Award, which is an award of the prestigious German Alexander von Humboldt research foundation, sponsored by the German Federal Ministry of Education and Research, he is one of only seven recipients in 2013 from a large field of nominees from around the world.
The award is worth EUR50,000 (AUD63,000) per year for a five-year period to conduct research and come up with recommendations to further internationalise the German corporate law and corporate governance model.
Professor du Plessis has big plans over the next five years to bring the best in the world together in various parts of the world to deliberate on worldwide best practices in corporate law and corporate governance.
There will be spin-offs for the Germans, but other countries may also benefit from his research because of the focus on worldwide and international best practices.
“The Anneliese Maier Research Award is a great honour for me,” Professor du Plessis said.
“It has given me renewed energy and new life for two reasons.
“First of all I am really pleased about the international recognition.
“I am also the only lawyer elected to this award.
“The other thing is that it goes on for five years, which while exciting, also brings a lot of responsibility with it.
“You know you cannot disappoint.”
Professor du Plessis has already identified the six areas of research he will be working on over the next five years.
Legal actions against management board members and members of the supervisory board (it determines the way in which board members behave as they will only fulfill their legal duties diligently if there are consequences if they breach these duties, in other words if there are effective ways of suing board members for a breach of their duties);
Board diversity (affecting both the supervisory and the management board) with a particular emphasis on gender diversity;
The role of the primary Corporate Regulator: Giving it a more prominent role to enforce duties against supervisory board members and management board members will have a significant effect on their behaviour and thus on corporate behaviour. In addition, it addresses a fundamental issue relating to the difficulties of enforcing duties in a two-tier system;
The role of the primary Corporate Regulator: Making it a responsibility of the primary Corporate Regulator to play a greater role in applying for the disqualification of supervisory board members and management board members to “to keep corporate Germany clean from rogues”. This will not only affect behaviour of members of the supervisory or management boards, but also corporate behaviour;
Improving business rescue legislation: A massively important area in times of crisis and building future business and economic prosperity for Germany.
- Codetermination (an integral and vital part of the German corporate law and corporate governance model).
“They may seem narrow, but they affect some of the most fundamental aspects of corporate law and corporate governance,” Professor du Plessis said.
“That’s because they affect fundamental structures and have the potential to change corporate behaviour considerably.
“That is another thing about the Germans, they have come to realise they should not be complacent.
“They don’t just sit back and say our system is working well.
“They are always looking outside to find ways to improve their systems.
“That is one reason I think they identified my potential to undertake research to assist in the further internationalisation of the German corporate law and corporate governance model. On the one hand I am exporting some of their unique principles by publishing the results of my German research in English. On the other hand my international experience allows me to point out where the areas are where I think German corporate law and corporate governance can be improved.
“We can sometimes be complacent here in Australia.
“But having said that, there are some aspects of our corporations law and things that the Australian Securities and Investments Commission (ASIC) does here in Australia, particularly in relation to taking action on behalf of shareholders, that is something I am sure the Germans would be interested in.
“There is a lot of scope for cross-pollination in these areas!"
The success of the German economy over time, and particularly in the way it has coped with the Global and European Financial Crises, leads to the inevitable question: Should we be looking to codetermination in Australia, where the corporate and industrial landscape is considerably more combative?
Professor du Plessis smiles again.
“We always have to have our minds open to fresh ideas,” he says.
Hear Professor Du Plessis on ABC Radio National's Future Tense.