September 05, 2007
Powerful German Union Elects Moderate
Germany's powerful IG Metall engineering trade union appears set for greater compromise with industrial and political leaders after the decision by its leadership on Monday to back a moderniser as its next chairman.
The union's executive board proposed Berthold Huber, deputy chairman, as the next leader. Chairman Jürgen Peters, a left-wing hardliner who has clashed with business and government on economic reforms, is to step down at a union congress in November.
There are different schools of thought on whether or not we see a convergence or divergence of Industrial Relations Systems. I am in the camp that believes we are seeing a convergence and the election of a moderate to head Germany's most powerful union is another sign in that direction.
The response of Western European trade unions to 'globalization' has been interesting. Many US activists used to point to European Unions because they were seen as so much stronger than U.S. unions and were able to maintain pay and benefit levels while U.S. unions were making large concessions.
In reality the European Unions were not more militant or stronger, rather they did not face the same pressures as U.S. unions and were operating under a very different IR system. That has begun to change and if anything when faced with the same pressures European Unions seem less willing to engage in the type of industrial battles seen in the U.K. and U.S. during the 1980's.
***Side note, the UK model of Industrial Relations and UK economic policy are more similar to the U.S. than continental Europe - for Industrial Relation purposes this is referred to as the Anglo-Saxon model
July 14, 2005
Germany to Be the Vanguard of Moving the EU Closer to the US Economic Model? Political and Business Climate Shifting
It's looking like Germany will take the lead in moving the EU and continenntal Europe towards greater liberalization of its markets, particularly the labor market.
Today's Wall Street Journal features an article on East German born Angela Merkel and her free market philosophy. Ms Merkel is considered a serious contender to be the next leader of Germany. From the article Free Market Voice in Germany, (subscription required):
Polls show Ms. Merkel's Christian Democrats leading Mr. Schröder's party by more than 15 percentage points before an election brought on by Mr. Schröder's decision to call for a vote of no confidence in himself after losing an important local election. Although the election date, expected in September, has yet to be scheduled, her party announced its platform this week, and Ms. Merkel is now filling in the details of how differently she would lead Germany from Mr. Schröder.
In the interview, Ms. Merkel eschewed explicit talk about whether a Merkel-led government would change Europe's power balance, but she said an alignment in favor of more-flexible labor markets "could mean that Europe works better again." She continued: "We in Europe are unfortunately at a point where a great many decisions aren't being reached, and a standstill is the worst thing for Europe. For me it's not about the balance of power, but about an effective Europe that can reach the goals it has set itself."
On the business end the VW scandal that has been blogged about here (for past blogs on the VW scandal click the Volkswagen category on the left hand sidebar) is merely the setting for a re-examination of Germany's co-determination policy which does not mesh well in a world currently converging towards greater market liberalization. Today's business press features more articles and analysis on the VW Scandal.
The NY Times: From a Scandal Springs a Chance for an Overhaul at Volkswagen (registration required)
"If we cannot survive here at Volkswagen," he said, summing up his remarks, "then industrial Europe is going to die."
While Mr. Hartz has not been accused of any wrongdoing, he symbolized the convoluted web of ties between Volkswagen's management, union leaders, employee representatives and government officials, which critics say is rife with opportunities for graft and abuse.
The exit of Mr. Hartz and the ascendance of Mr. Bernhard, analysts say, could augur a new era at Volkswagen - one in which the management has more leverage over workers and unions, and shareholders have more say in the operation of the company, Europe's largest carmaker.
"It's a real chance," said Jürgen Pieper, an auto analyst at Metzler Bank in Frankfurt. "The biggest problem for investors has always been the enormous power of the unions. Slowly, steadily, Volkswagen may become more market-oriented, more profit-oriented."
John Gapper offers the following in German System that No Longer Works from today's Financial Times (subscription required):
You might have thought that he could live without suggestions that VW bribed members of its 67-strong works council by paying for their foreign holidays and prostitutes. But it has led to the departure of Peter Hartz, VW’s director of personnel, and given Mr Pischetsrieder a chance to crack into the company’s ossified structure of labour relations.
Looking at VW’s supervisory board, with its 50 per cent labour and union representation and seats for politicians from the state of Lower Saxony, which has an 18 per cent stake, it is not surprising that VW has problems taking tough decisions. The board is so replete with insiders and so painfully democratic it seems a wonder any cars get made at all.
As Britain’s automotive industry foundered on the rocks of strikes and low productivity in the 1970s and 1980s, we envied Germany’s way of persuading workers to co-operate. An industrial democracy movement sprung up and unions negotiated with the government and businesses in the awfully named – and awful – tripartite era. It did little good.
So it is strange to witness – as the remains of Rover are sold once again – VW’s travails. Co-determination helped VW to succeed for decades but something that used to have a living, breathing purpose has turned into a relic. In place of worker participation, there is union bureaucracy. In place of shop-floor involvement, there is expense-account shopping.
This suggests that even modest reforms of co-determination to allow more flexibility – as German employers want – would help. The shenanigans at VW are an extreme case but any company that allows itself to become co-opted by insiders runs the same risk. Twenty years ago, as Britain flirted with tripartism, Germany wrote the parity of workers and shareholders into federal law. It is time to think again.
July 10, 2005
More on Change at Volkswagen
From the Financial Times
Peter Hartz is widely seen as one of the men who helped save Volkswagen in the 1990s through a series of innovative reforms such as the four-day week. But the so-called VW system he created, under which unions and workers are far more intimately involved in strategic decisions than at other companies, has recently come in for heavy criticism for holding the company back from making the changes needed to boost profitability.
The carmaker has one of the most unionised workforces in Germany, with 97 per cent of employees belonging to IG Metall. But these workers have been shocked by allegations of senior members going on luxury holidays and visiting prostitutes with money given by the company for all employees. VW executives hope the scandal will create pressure to end the left-wing grouping that has dominated the company. Jürgen Peters, the head of IG Metall, sits on the supervisory board, while Mr Hartz is a member of the left-wing Social Democrats.
Christian Wulff, a supervisory board member and the state premier of Lower Saxony, which is VW's largest shareholder, has tried to use the scandal to put an end to the left's dominance.
July 08, 2005
Another Volkswagen Scandal Article
Wall Street Journal features another article on the scandal at Volkswagen and the implications for Germany's industrial relations system.
While much of Germany is riveted by an investigation into bribery allegations at Volkswagen AG, a strategic shake-up is brewing behind the scenes at Europe's largest car maker in terms of sales. The bribery allegations threaten to become an issue in an expected vote this fall on whether to keep Gerhard Schröder as chancellor, but the strategic changes at VW could have longer-lasting consequences for the company -- and its worker.
In trading Auburn Hills, Mich., for VW's home base in Wolfsburg, Germany, Mr. Bernhard is entering a much more difficult environment in which to joust with organized labor. Anger over Germany's unemployment rate -- 11.6% in May, a near-record in the post-World War II era -- is already fueling voter anger toward Mr. Schröder. Volkswagen's largest shareholder, the German state of Lower Saxony, also has an interest in preserving jobs. And in keeping with German law, about half of the seats on the company's board belong to worker representatives.
"The big question is whether the company has the guts to cut capacity in Germany," said Stephen Cheetham, an analyst with Sanford C. Bernstein. "VW has an iconic status as the child of the economic miracle" of West Germany during the post-World War II era, added Mr. Cheetham. As a result, any decision to cut jobs at the company "has implications for the whole of Germany and German employment."
BusinessWeek on Labor Problems at Volkswagen
"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."
July 06, 2005
More on Volkswagen and the Threat to Germany's Industrial Relations Model
Yesterday I posted on the scandal at Volkswagen (Co-Determination in Germany Under Threat as Volkswagen Dispute Worsens). Today the Financial Times and Wall Street Journal offer more information on the current scandal.
Financial Times: Scandal Could Taint A Whole Labour System: (subscription may be required)
For decades Volkswagen, Europe's largest carmaker, has enjoyed a reputation for having one of Germany's most highly-developed systems of labour/management co-operation, with managers involving employee representatives in crucial decisions on the shop-floor, on the supervisory board, and all points in between.
Now that reputation is in danger of turning sour, as details leak out of an alleged bribery and fraud scandal involving senior managers and worker representatives. Moreover, many trade unionists fear the scandal could have negative labour relations implications reaching far beyond VW.
Germany's system of Mitbestimmung, or co-determination, in which workers are by law given a role in corporate decision-making, is highly advanced at VW, says Martin Höpner, researcher at the Max Planck Institute for the Study of Societies in Cologne. "VW is really an exemplary case of co-determination, since the employees' works council is very influential and management has traditionally rejected conflict, but worked in partnership with these employee representatives."
Much, therefore, is at stake for the IG Metall engineering union, which boasts a membership rate at VW of an estimated 97 per cent. Klaus Volkert, the former works council head who resigned last week over the scandal, was an influential IG Metall leader. The scandal is "very threatening for the unions", Mr Höpner says.
Wall Street Journal: VW's Scandal Carries Fallout(subscription required)
A bribery scandal at Volkswagen AG is shining a light on corporate Germany's traditional power-sharing arrangement with organized labor.
Prosecutors in the German state of Lower Saxony are looking into whether Volkswagen officials paid bribes to some of the company's top labor leaders as a way of securing their cooperation during recent contract negotiations, an official with the prosecutor's office confirmed yesterday. The disclosure, coming less than a week after the unexpected resignation of a top labor leader at VW, has triggered a media storm in Germany, where Chancellor Gerhard Schröder and his ruling Social Democratic Party are in danger of being thrown from office by voters angry about the country's unemployment rate, which stood at 11.6% in May, a near-record in the post-World War II era.
July 05, 2005
Co-Determination In Germany Under Threat As Volkswagen Dispute Worsens
Today's Financial Times
Open warfare yesterday broke out on Volkswagen's supervisory board as right-wing politicians and union officials locked horns on attempts to score political points over the alleged bribery scandal at Europe's largest carmaker.
One particular target of the opposition Christian Democrats is likely to be the principle of co-determination under which workers are involved in strategic decision-making. Mr Peters accused Mr Wulff of trying to discredit the whole idea of co-determination. One VW executive said: "All these guys should stop using VW to fight their own political battles."
VW, which is closely watched in German industry for how it deals with labour problems, took the idea further and developed co-management, which led some people to see Klaus Volkert, the former works council head who denies any wrongdoing in the scandal, as the real boss at the carmaker.
The scandal has caused VW to put on hold negotiations to build a factory in India as well as an assembly line in Angola after allegations that the former head of personnel at Skoda, Helmuth Schuster, had asked for bribes in the two projects.