(Dis-)Owning the Corporation: Three Models of Employee-Shareholder Activism

Abstract

This article focuses on the experimentation with shareholder activism by employee representatives in several large German corporations. I argue that these experiments are a manifestation of a new politics of solidarity that has emerged in the wake of the financialisation process in Germany. What unites the employee-shareholder activists is a strong rejection of short-term shareholder value maximisation, particularly as it affects the corporation's employees. To this end, they have created of a new form of interest organisation, the so-called employee shareholder associations (Vereine der Belegschaftsaktionäre or ESAs) that have institutionalised local practices of employee-shareholder activism within German corporations. In this article, I will take a closer look at three ESAs and their activities, each representing a different type of employee-shareholder activism: a ‘front door strategy’ at Deutsche Telekom, a ‘back door strategy’ at Siemens, and ‘peeking through the window’ at TUI. This article will demonstrate that shareholder activism by local employee representatives offers an innovative variation on the typical conflict lines within the corporation identified by scholars of corporate governance.

Keywords:

• Corporate governance
• industrial relations
• shareholder activism
• organised labour
• Germany

Notes

  I would like to thank Alexandra Budabin, Kalaya Chareonying, Teresa Ghilarducci, Victoria Hattam, Daniel Kinderman, Josh Lerner, Julia Ott, Victoria Quiroz-Becerra, and the anonymous reviewer and editorial board of this journal for helpful comments and suggestions on previous versions of this article. Thanks also goes out to my interviewees, the German Historical Institute in Washington, DC, and the Deutscher Akademischer Austausch Dienst (DAAD) for making this research possible. All errors remain my own.

In this article, I draw extensively on the work by Gourevitch and Shinn (2007). They identify three cleavage lines between managers, workers and owners. The first of these is the coalition of managers and workers against shareholders, a sectoral conflict. The second cleavage line posits a coalition of managers and shareholders against workers, which is known as a class conflict. Finally, shareholders and workers may align against corporate managers, a situation referred to by the authors as a transparency conflict. Which coalition prevails, depends largely on the political preferences of each of the three groups and the nature of the political system in which they are located.

All translations are my own, unless otherwise indicated.

For an alternative point of view, see Kamp and Krieger (2006).

There is no official count of the number of ESAs in Germany. My count is based on personal interviews with ESA officials, shareholder proposals on proxy statements, and mentions of employee shareholder associations in the press.

The organisation of the German annual shareholder meetings could offer an alternative explanation for the lack of success of ESA shareholder proposals. If the ESAs have only limited participation rights, then it might be too difficult for these organisations to persuade the other shareholders of their point of view. However, although small shareholders do not have agenda-setting power in the annual shareholder meeting – this right only belongs to shareholders who hold 1/20 of a corporation's capital stock or €500,000 – they do have the right to speak during the annual shareholder meeting. Small shareholders are allowed to pose questions to management on issues pertaining to agenda items, and they need to be physically present at the meeting to present their counter-proposals. One of the reasons why German annual shareholder meetings are often long events (a day-long meeting is not uncommon) is that small shareholders take full advantage of these participation rights.

Deutsche Telekom was the first company to be privatised by the Kohl administration through the issuance of so-called People's Shares (Volksaktien) in 1996. The People's Shares were invented by Minister of the Treasury, Hermann Lindrath in 1959. The goal behind this initiative was to reduce state ownership in German companies. More specifically, the government hoped to head off communism by making German employees co-owners of German corporations (Volkskapitalisten). The campaign was predominantly aimed at low-income families and employees of state-owned enterprises. The People's Shares made a comeback in the 1990s, as part of a broader project to expand Germany's capital markets.

A continuing problem facing the corporation has been the high costs of labour despite a significant labour force reduction. Since privatisation, Telekom's had reduced its staff from 230,000 in 1994 to 170,000 in 2000. Labour costs, however, had increased from €9.3 billion in 1997 to €9.7 billion in 2000 (Börsch 2007: 125).

Moreover, Siemens' ownership structure is characterised by an extraordinary level of dispersion for a German corporation, at 94 per cent, half of which is owned by institutional investors. In addition to this large number of external investors, the Siemens family also owns a significant share of corporate stock with 6 per cent of common shares and 1.65 per cent of preferred shares (Börsch 2007: 76).

They added: ‘Does a Siemens employee care if his shares yield a couple of cents more or less in dividends, when he has lost his job?’ (Scheytt 2005).

Like the other corporations studied here, the creation of the ESA was an extension of a longer tradition of employee stock ownership at TUI that dates back to its predecessor Preussag (Hexel 2009).

The Schröder government (1998–2005) continued the Kohl Administration's efforts to promote capital ownership among broad layers of the population. It introduced several pieces of legislation to make it more attractive for employees to purchase shares of stock or stock options in their companies, such as the Fifth Capital Formation Act (Fünfte Vermögensbildungsgesetz).

An additional development that may hinder the success of the ESAs in the future has been the restriction of small shareholders' right to speak at annual shareholder meetings, following the passage of the Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts (UMAG) in 2005. As a result of this legislation, the chair of the annual shareholder meeting is now allowed to restrict the number of questions posed to management and the speaking time of the shareholders. In addition, new possibilities for shareholders to vote their proxies online may lead to a decrease in the number of shareholders present at the annual meeting and thus reduce the direct audience available to the ESAs.