WZB Berlin Social Science Center

1. WZB Berlin Social Science Center Ulrich Jürgens The Impact of Ownership Structures on Work Systems andEmployee Voice Conference on Financial Institutions for Innovation and Development Ford Foundation, Hans-Böckler Foundation, SOFI 10-11 November 2014, Berlin

2. Central QuestionandUnderlyingResearch • Central question: • How do different arrangements of corporate governance impact the development of work systems, in particular forms of work organization that favour high-road jobs? • Research project (together with IngeLippert) carried out 2009/2010 financed by the Hans-Böckler-Foundation • Company level interviews in the automotive supplier industry. Three companies each in Germany, Sweden, USA. • Theory perspective: Path theory, Varieties of Capitalism Publications: Lippert, Inge, Tony Huzzard, Ulrich Jürgens and William Lazonick(2014): Corporate Governance, Employee Voice, and Work Organizations: Sustaining high-road jobs in the automotive supply industry, Oxford University Press.

3. ThreeTypesofCompanies • Capital marketbufferedcompanies (Type I): Stable (private) capital, littledependency on capitalmarkets • Capital marketexposedcompanies (Type II): High dispersionofshareownership, predominanceofinstitutionalinvestors, high dependency on capitalmarketsforfinancing • Private Equity controlledcompanies (Type III): Short-term orientedcapital, closecontrolbyfinancialinvestors

4. The Company Sample

5. Findings: Capital Market buffered (Type I) Companies • No change of path in the Corporate Governance System, endogenously driven change • High continuity of corporate governance actors (owners, management, labor representatives); • Resources areusedforreinvestment. Investment in long-term skilldevelopmentofemployees was not reduced. • Management remunerationandbonuseslowerthan in listed stock companiesandbased on long-term developmentcriteria.

6. Findings: Capital Market bufferedCompanies - continued • … but isomorphousadaptationprocesses • The companiesadoptedstrategiesandmodesofbehaviorwhicharesimilartotheonesof type II companies: • Increasedprofitabilityexpectationsanduseoffinancialindicators (EBIT and ROCE) also usedbymarket-listedcompanies. • Incentive systems (systemsofmanagementpayment) areadaptedtothesystemsofmarket-listedcompanies. • Adoption of so called „bestpractice“ strategies(off-shoringintolow-wage countries, benchmarkingwith ‚bestpractices‘, restructuringofvalue-addedchains etc.)

7. Corporate Governance System in a German foundation-owned Company IG Metall Foundation Selection Holding Company (15 Management RepresentativesfromcooperatingSupplier Companies) 3-6% Dividend Supervisory Board (issubjecttoParticipation Law, 16 Members) Performance Requirements Strategical Development Management Central Works Council (40 Members) WC WC WC WC WC 20 Local Works Council Lippert, I. and U. Jürgens (2012): Corporate Governance und Arbeitnehmerbeteiligung in den Spielarten des Kapitalismus: Pfade der Unternehmensentwicklung in der Automobilzulieferindustrie in Deutschland, Schweden und den USA, Hans-Böckler-Stiftung, Edition Sigma, Berlin: p. 91.

8. Summary ofFindings on individual Type I Companies

9. Findings: Capital Market exposed (Type II) Companies • Changesofpathandtransformationwithnewstrategies, newgoalsandnewactors. • Increasingly „impatientcapital“ in theownershipstructures. The shareholdersaremainlyinstitutionalinvestors. • Radicalrestructuringmeasures: closureofplants in peripheralareas, openingofnewplants in coreareasofcompetence, aggressive strategiesconcerningrelocationtolow-cost countries, therebyunderminingthemodeloflong-term employment, also in the European companies. • The goalof shareholder-valuemaximizationisaccompaniedby shareholder friendlypoliciesaiming at a redistributionofressources in favouroftheshareholders. • The changeofcoursetowards a shareholder- valuemodelwentalongwithcompleteexchangeofpersonnel in managementandofcorporategovernanceinstitutions. High bonusesinducethemanagementtoprioritizeshort-term shareholder interests.

10. Summary ofFindings on individual Type II Companies

11. Findings: Private Equity financed (Type III) Companies • Abrupt changeofpath • Exchange ofpersonnel in centralmanagementpositionsand in corporategovernanceinstitutions, determinedbythe private equityinvestor. • Development of a mid/long-term plan, describinggoalsandactivitiesoftheturnaroundprocess. The implementationofthemeasuresisevaluatedbytheinvestor. • Farreachingrestructuringprocesses: in somecasesevenrelocationoftheentireproductiontolow-wage countries and fast growthbyacquisitions. • Measurestoincreasethe cash flow, forexampleselling real estateandmachinerywhichhavetoberented back (expensively).

12. Summary ofFindingson individual Type III Companies

13. General Findings • The differencesbetweenthetypesofcompaniesarebiggerthantheonesbetweennations. The positioningvis à viscapitalmarketsisthecentral variable explaning different pathdevelopments. • Instancesof a re-alignmentwiththe national modelare observable in somecases (US_insider, Sweden_equity). The changesof CG in type II companieswerehoweverfirmlyestablished. • Interactions betweentheelementsoftheinstitutionalsystemare not just causedbychanges in theownershipstructure. Theycan also becausedbychanges in thesystemofemployeeparticipation. • In casesofweakinterestrepresentationtheimpactoffinancializationisclearly observable (private equityfinancedcompanies, Sweden_stock) • A strong representationofworkerinterestshowevercancountervail „lowroad“ developments (Ger_stock)

14. Backup: Explanatory Model Corporate governance Employeeparticipation Path Continuity Breaking Ofpath Change of path National system Strategic decisions Governancecompromises Capital market Work system High road/lowroad