BusinessWeek on Labor Problems at Volkswagen

Business Week features a commentary on the recent problems at Volkswagen (see past blog post HERE and HERE). Here is an excerpt:

The Real Scandal At Volkswagen (free)

"Volkswagen's burgeoning scandal exposes a deeper problem for Corporate Germany than alleged fraud. It highlights an underlying cause of the country's economic stagnation -- Germany's co-determination law, which gives workers' representatives 50% of the seats on the supervisory boards of all large companies. What started out conceptually as a law to ensure a balance between the interests of management and labor in many large companies has morphed into an insidious alliance aimed at not rocking the boat. CEOs and top managers depend on votes from the labor reps to be reappointed. Instead of making tough decisions on restructuring or job cuts, German managers are inclined to delay or avoid change and instead curry favor with union bosses sitting on their boards, often to the detriment of their companies. ``The implicit dialogue is: 'If you are nice to me [the labor representative], I prolong your [CEO] contract,''' says Theodor Baums, a corporate governance expert and professor of finance at Frankfurt's Goethe University."