Does Good Corporate Governance Include Employee Representation? Evidence from German Corporate Boards

"Within the German corporate governance system, labor representation on the supervisory board is common and typically legally mandated. Because labor has detailed knowledge of firm operations, we propose that labor representation on corporate boards brings valuable first-hand operational knowledge to corporate board decision-making. We discover that labor representation, through its knowledge of operational detail, provides a powerful means of monitoring and source of information. We show that the judicious use of labor representation increases firm market value and that the greater the need for coordination within the firm, the greater the potential improvement is in governance effectiveness."


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