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Worker representation on corporate boards of directors

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Worker representation on corporate boards of directors, also known as board-level employee representation (BLER),[1] refers to the right of workers to vote for representatives on a board of directors in corporate law. In 2018, a majority of Organisation for Economic Co-operation and Development, and a majority of countries in the European Union, had some form of law guaranteeing the right of workers to vote for board representation. Together with a right to elect work councils, this is often called codetermination.

The first laws requiring worker voting rights include the Oxford University Act 1854 and the Port of London Act 1908 in the United Kingdom, the Act on Manufacturing Companies of 1919 in Massachusetts in the United States (although the act's provisions were completely voluntary), and the Supervisory Board Act 1922 (Aufsichtsratgesetz 1922) in Germany, which codified collective agreement from 1918 and expanded it in the 1976 Mitbestimmungsgesetz.[2]

Overview

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There are three main views as to why codetermination exists: to reduce management-labour conflict by improving and systematizing communication channels;[3] to increase bargaining power of workers at the expense of owners by means of legislation;[4] and to correct market failures by means of public policy.[5] The evidence on "efficiency" is mixed, with codetermination having either no effect or a positive but generally small effect on enterprise performance.[6]

The following is a list of 35 countries in the Organisation for Economic Co-operation and Development and their practices of worker representation on corporate boards of directors.[7]

Country Law Minimum worker representation Minimum number of employees at which law applies Notes
  Austria (private companies) Labour Constitution Act 1975[8] 33.3% 300 One-third of the supervisory board from 300 employees in private companies; no employee threshold for public limited companies.
  Austria (public limited companies) 33.3% 0
  Belgium N/A No general law, but some public companies have employee representatives.[9]
  Bulgaria 0% N/A No general law, but employees have rights to speak at shareholder general meetings.
  Croatia (limited companies) LL 2009 art 166 "One" 300 Employee representative on the supervisory board if the company has over 300 employees (limited companies); no employee threshold for public limited companies
  Croatia (public limited companies) "One" 0
  Cyprus 0% N/A No general law
  Czech Republic (private companies) 0% N/A No general law. Before 2014, private companies over 50 employees had one-third employee representation.
  Czech Republic (state-owned companies) 33.3% (may be increased up to 50% voluntarily) 1
  Denmark Companies Act 2010 s 140 ≤33.3% (two members minimum) 35 At least two members of the board, up to one-third of the board's membership.
  Estonia 0% N/A No general law
  Finland Co-operation Act 2021 s 31[10] 20% 150 From 150 employees, there must be an agreement on employee representation. If there is none, employee representation automatically defaults to one-fifth of board members.
  France (private companies) Commercial Code Art. L. 225-79 "One" or "Two" 1000
(or 5000 worldwide)		 Private companies over 1000 employees in France or 5000 worldwide must have at least one or two board members.
  France (state-owned companies) 33.3% 1
  Germany Drittelbeteiligungsgesetz 2003 (One-third Participation Act 2004),[11] Mitbestimmungsgesetz 1976 (Codetermination Act 1976),[12] Montanmitbestimmungsgesetz 1951 (Coal and Steel Codetermination Act 1951)[13] 33.3% 500 Enterprises with over 500 employees must have one-third representation on a supervisory board.
50% 2000 Enterprises with over 2000 employees must have one-half representation on a supervisory board, but the chair of the supervisory board is a shareholder representative and has a casting vote. In coal and steel companies shareholder representatives do not have a deciding vote.
  Greece (private companies) 0% N/A No general law
  Greece (state-owned companies) "One" 1
  Hungary 33.3% 200 From 200 employees, one-third of supervisory board members are employees.
  Ireland (state-owned companies) Workers Participation (State Enterprises) Act, 1977[14] 33.3% 1
  Italy 0% N/A No general law
  Latvia 0% N/A No general law
  Lithuania 0% N/A No general law
  Luxembourg (private companies) ≤33.3% ≤1000 A third of the board in companies with 1,000 or more employees, up to a third in others
33.3% 1000
  Luxembourg (state-owned companies) 33.3% 1
  Malta 0% N/A No general law
  Malta ? 1 For companies owned by unions or the Labour Party.
  Netherlands Works Constitution Act 1971, amended in 2004 ≤33.3% 100
  Norway Limited Liability Companies Act 1973 "One" 30-50 One director in companies with 30 to 50 employees; one-third of the seats in companies with more than 50, with the possibility of an extra seat in companies with more than 200
33.3% 51-200
33.3%+1 201
  Poland (private companies) Law on Workers’ Self Management of 1981 0% No general law
  Poland (state-owned companies) 33.3% 1 In state-owned companies employees have one-third of supervisory board seats, and a seat on the management board.
  Portugal 1976 Constitution, Arts. 30 and 33 and Law 46/79 No co-determination, but, in state owned companies, workers have a right to be consulted. In private companies work councils may elect representatives, but the number is determined by the employer.
  Romania 0% N/A No general law, but unions can be heard at meetings.
  Slovakia (private companies) Labour Code (Law 311/2001), Art. 233-236 33.3% (may be increased up to 50% voluntarily) 50
  Slovakia (state-owned companies) 50% 1 Half the supervisory board in state-owned companies.
  Slovenia 1991 Constitution art 75, and 1993 law. 50% - 33.3% 50 Between a third and a half of seats in companies with supervisory board plus management board member if more than 500 employees; around a third in companies with single tier board
  Spain Law 41/1962, repealed 1980 0% N/A Some state-owned companies retain two board members though it has not been compulsory since 1980 to have employee representation in private companies.
  Sweden Board Representation (Private Sector Employees) Act (1987:1245) [15] 33.3% 25 Over 25 employees, around one-third representation on boards.
   Switzerland 0% N/A Representation in postal services. No general law, but there was employee representation in railways.
  United Kingdom Cambridge University Act 1856,[16] National Health Service Act 2006 etc. 0% N/A No general law, except in universities, and in NHS foundation trusts. The Financial Reporting Council has a comply or explain rules for employee representation in the UK Corporate Governance Code
  Australia 0% N/A No general law
  Canada 0% N/A No general law
  New Zealand 0% N/A No general law
  United States 0% N/A No general law, although in Massachusetts manufacturing firms may voluntarily have employees on boards. Any collective agreement can achieve the same result.
  Chile 0% N/A No general law
  Israel (private companies) 0% N/A No general law
  Israel (state-owned companies) 1977 Law and a 1985 High Court decision, Dapey Shituf (Tel-Aviv 1985) ? 1 Worker representation in government companies
  Japan 0% N/A No general law
  South Korea 0% N/A No general law
  Turkey 0% N/A No general law

Canada

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See also: Canadian labour law

During the 2021 federal election, Conservative Party leader Erin O'Toole pledged to require that federally regulated employers with over 1,000 employees or $100 million in annual revenue include worker representation on their boards of directors should he be elected Prime Minister.[17][18]

China

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Main article: Workplace democracy § Staff and Worker Representative Congresses

In China, during the late twentieth century, worker representation on corporate boards of directors was mandated by law for state-owned enterprises and permitted in non-state-owned collectives and companies via "Staff and Worker Representative Congresses" (SWRCs), composed of workers directly elected by all workers in the workplace to represent them. As of the 1980s and 1990s, SWRCs were, in principle, broadly similar to continental European and Japanese workers' workplace councils in terms of rights and powers and consensus building. Research based on interviews in 1997 suggested that in practice, SWRCs did have some real power, including some cases of dismissing managers.[19]

Germany

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See also: German labour law, Codetermination in Germany, and Mitbestimmungsgesetz

The first codetermination plans began at companies and through collective agreements.[20] Prior to 1976, German coal and steel producers employing more than 1,000 workers already commonly maintained a board of directors composed of 11 members: five directors came from management, five were workers' representatives, with the eleventh member being neutral. (Note: Boards could be larger as long as the proportion of representation was maintained.) In 1976, the law's scope was expanded to cover all firms employing more than 2,000 workers; with some changes concerning to the board structure, which has an equal number of management and worker representatives, with no neutral members (except in the Mining-and-steel industries where the old law remained in force). The new board's head would represent the firm's owners and had the right to cast the deciding vote in instances of stalemate. (The original law comprising coal-and-steel industries thus remained unchanged in force)[21]

New Zealand

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The Companies Empowering Act 1924[22] allowed companies to issue shares for labour and have them represented by directors, but it was little used,[23] even its chief promoter, Henry Valder, being unable to get his company board to agree to it.[24] It was consolidated into the Companies Act in 1933.[25] The Law Commission recommended its abolition in 1988 for lack of use.[26] The Companies Act 1993 did not allow for labour shares.[27]

United Kingdom

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See also: United Kingdom labour law

In the UK, the earliest examples of codetermination in management were codified into the Oxford University Act 1854 and the Cambridge University Act 1856. In private enterprise, the Port of London Act 1908 was introduced under Winston Churchill's Board of Trade.[28]

While most enterprises in the UK do not have worker representation, universities there have done so since the 19th century. Generally the more successful the university, the more staff representation on governing bodies:[citation needed] Cambridge,[29] Oxford,[30] Edinburgh, Glasgow and other Scottish universities.[31]

United States

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See also: United States labor law

Massachusetts has the world's oldest codetermination law that has been continually in force since 1919, although it is voluntary and only for manufacturing companies.[32][33]

Impact

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A 2020 study in the Quarterly Journal of Economics found that codetermination in Germany had no impact on wages, the wage structure, the labor share, revenue, employment or profitability of the firm, but it increased capital investment.[34]

A 2021 study by the Bureau of Economic Research found that "the European model of codetermination is neither a panacea for all of the problems faced by 21st-century workers, nor a destructive institution that is dramatically inferior to shareholder primacy. Rather, as currently implemented, it is a moderate institution with, on net, nonexistent or small positive effects. Board-level and shop-floor worker representation cause at most small increases in wages, possibly lead to slight increases in job security and satisfaction, and have largely zero or small positive effects on firm performance."[35]

History

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Some of the first codetermination laws emerged in universities in the UK during the 19th century, such as the Oxford University Act 1854 and the Cambridge University Act 1856. Further acts included the South Metropolitan Gas Act 1896 (59 & 60 Vict. c. ccxxvi) and the Port of London Act 1908.[36] In Germany, there were experiments with worker representation through work councils over the late 19th century, after the first attempts to introduce worker voice by an ex-member of the Frankfurt Parliament named Carl Degenkolb.[37] At the end of World War I, the German trade unions made an historic collective agreement with representatives of German business for full partnership in economic management throughout the country. This was put into the Weimar Constitution article 165, and resulted in a work council law in 1920,[38] and a board representation law in 1922.[39] The fascist government abolished codetermination in 1934, but after World War II, German unions again made collective agreements to resurrect work councils and board representation. These agreements were codified in law in 1951 and 1952.[40]

In most countries around Europe, different forms board representation law spread slowly, especially from the 1970s. In the UK there were repeated experiments from iron and steel[41] to the post office,[42] with worker directors.[43] However, after the Bullock Report of 1977 failed to pass and Margaret Thatcher won the 1979 election, almost all worker participation was ended.[44] Germany recast and extended its laws in 1972 and 1976.[45] The European Commission did propose a Draft Fifth Company Law Directive, but it did not complete passage. In the United States, growing interest in worker "involvement" through Scanlon plans led to unions such as the United Steelworkers at Chrysler, or at United Airlines to negotiate board representation, although usually this was forcibly linked to employee share schemes. Notably, the share scheme at Enron failed in 2003. Almost all modern worker representation laws enable votes without any requirement to invest money. In 2013, France became the largest country to create a modern board representation law to mandate workers with equal rights to all other directors to be on boards.

See also

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Notes

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  1. ^ Gold, Michael; Waddington, Jeremy (2019-09-01). "Introduction: Board-level employee representation in Europe: State of play". European Journal of Industrial Relations. 25 (3): 205–218. doi:10.1177/0959680119830556. ISSN 0959-6801. S2CID 159358979.
  2. ^ E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  3. ^ Prominent views of codetermination have thus been "social" in nature, concerned with expanding democratic participation in new spheres as a good in itself, reducing "alienation", and smoothing management-labour relations to prevent strong conflicts. A collection of views of this nature are found in Magazin Mitbestimmun Archived 2009-08-03 at the Wayback Machine
  4. ^ A conservative economic approach views codetermination as not benign: a political means for transfer of wealth from shareholders to employees and to increase power of political and perhaps union actors; as evidence it is noted firms rarely adopt codetermination voluntarily: see Pejovich, Svetozar. The economics of property rights: towards a theory of comparative systems. Chapter 8. Dordrecht, NL: Kluwer Academic, 1990.
  5. ^ Another economist argues that codetermination in effect corrects several market failures so lack of voluntary adoption cannot be viewed as evidence that codetermination is inefficient: see Stephen C. Smith, "On the economic rationale for codetermination law", Journal of Economic Behavior and Organisation, Vol. 16 (December 1991), pp. 261-281.
  6. ^ For example see Felix R. Fitzroy and Kornelius Kraft, "Co-determination, efficiency and productivity", British Journal of Industrial Relations, Vol. 43, No. 2 (June 2005), pp. 233-247.
  7. ^ See worker-participation.eu and Z Adams, L Bishop and S Deakin, CBR Labour Regulation Index (Dataset of 117 Countries) (Cambridge: Centre for Business Research 2016))
  8. ^ "Federal Act on the Labour Constitution and freedom of association (BGBl. 1974/22). Text 9" (PDF). Rechtsinformationssystem (RIS). Retrieved 2021-03-10.
  9. ^ See I Ferreras, Firms as Political Entities: Saving Democracy through Economic Bicameralism (2017)
  10. ^ "Co-operation Act (1333/2021)" (PDF). Government of Finland. Retrieved 2024-01-14.
  11. ^ "DrittelbG - Gesetz über die Drittelbeteiligung der Arbeitnehmer im Aufsichtsrat". www.gesetze-im-internet.de. Retrieved 2021-03-25.
  12. ^ "MitbestG - Gesetz über die Mitbestimmung der Arbeitnehmer". www.gesetze-im-internet.de. Retrieved 2021-03-25.
  13. ^ "MontanMitbestG - nichtamtliches Inhaltsverzeichnis". www.gesetze-im-internet.de. Retrieved 2021-03-25.
  14. ^ "Worker Participation (State Enterprises) Act, 1977". electronic Irish Statute Book (eISB). Retrieved 2021-03-10.
  15. ^ "Board Representation (Private Sector Employees) Act". Government of Sweden. Retrieved 2024-01-14.
  16. ^ "Cambridge University Act 1856". Government of the United Kingdom. Retrieved 2021-03-30.
  17. ^ "Conservative Leader Erin O'Toole to ensure Canadian workers have their voices heard". 23 August 2021.
  18. ^ Rendell, Mark (23 August 2021). "Conservatives pledge worker representation on boards, but union leaders remain skeptical about shift in approach". The Globe and Mail.
  19. ^ Xiaoyang, Zhu; Chan, Anita (2005). "Staff and Workers' Representative Congress" (PDF). Chinese Sociology and Anthropology. 37: 6–33. doi:10.1080/21620555.2005.11038349. Archived from the original (PDF) on 2020-06-13.
  20. ^ E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135, page 22
  21. ^ "MontanMitbestG - Gesetz über die Mitbestimmung der Arbeitnehmer in den Aufsichtsräten und Vorständen der Unternehmen des Bergbaus und der Eisen und Stahl erzeugenden Industrie". Retrieved 3 December 2018.
  22. ^ "Companies Empowering Act 1924 (15 GEO V 1924 No 52)". www.nzlii.org. Retrieved 2018-03-22.
  23. ^ Parliament, New Zealand (1986). Parliamentary Debates. House of Representatives.
  24. ^ Taonga, New Zealand Ministry for Culture and Heritage Te Manatu. "Valder, Henry". teara.govt.nz. Retrieved 2018-03-22.
  25. ^ "Companies Act 1933" (PDF).
  26. ^ "Preliminary Paper No. 5 COMPANY LAW A discussion paper" (PDF). 1988.
  27. ^ "Companies Act 1993 (1993 No 105)". www.nzlii.org. Retrieved 2018-03-22.
  28. ^ E McGaughey, 'Votes at work in Britain: shareholder monopolisation and the ‘single channel’ (2018) 47(1) Industrial Law Journal 76, page 9.
  29. ^ Cambridge University Act 1856
  30. ^ Oxford University Act 1854
  31. ^ Higher Education Governance (Scotland) Act 2016 ss 10-11
  32. ^ "An Act To Enable Manufacturing Corporations To Provide For The Representation Of Their Employees On The Board Of Directors", General Acts of 1919, chapter 70, page 45, approved 3 April 1919.
  33. ^ E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
  34. ^ Jäger, Simon; Schoefer, Benjamin; Heining, Jörg (2020). "Labor in the Boardroom". The Quarterly Journal of Economics. 136 (2): 669–725. doi:10.1093/qje/qjaa038.
  35. ^ Jäger, Simon; Noy, shakked; Schoefer, Benjamin (2021). "What Does Codetermination do?". NBER Working Paper Series. doi:10.3386/w28921. S2CID 235706486. working paper 28921.
  36. ^ E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2017) 46(4) Industrial Law Journal 444. See also JS Mill, Principles of Political Economy (1870) discussing, albeit very different, Henry Briggs & Son Co, incorporated 1865, which had an employee share plan and a worker director. South Metropolitan Gas Act 1896 extract in the London Gazette, abolished by the Gas Act 1948.
  37. ^ HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69. See the Arbeitsverordnung 1890, the first law enabling worker councils, but only on a voluntary basis. The Hilfsdienstgesetz 1916 was a war time requirement for worker councils in some industries.
  38. ^ Betriebsrätegesetz 1920
  39. ^ Aufsichtsratsgesetz 1922. E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  40. ^ E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135. See the Montan-mitbestimmungsgesetz 1951, the Betriesbrätegesetz 1952 and the Mitbestimmungsergänzungsgesetz 1956.
  41. ^ Iron and Steel Act 1967 Sch 4, Part V, created a negotiation process with trade unions in British Steel Corporation to introduce workers, put into effect from 1968. For its implementation, see: Bank, John, and Jones, Ken, Worker Directors Speak: The British Steel Corporation Employee Directors (Gower Press, Farnborough, 1977)
  42. ^ Post Office Act 1977 s 1(2) created worker directors for the Post Office by amending the Post Office Act 1969.
  43. ^ The Transport Act 1968 allowed the secretary of state to appoint members of the British Railways Board. In 1997, John Prescott appointed a worker director overseeing some aspects of the now privatised industry.
  44. ^ Transport Act 1985, privatised the bus networks. Employee share ownership plans were created by Labour councils as this happened, as a way to protect workers, though shares were quickly bought up by ordinary business owners.
  45. ^ The Betriebsverfassungsgesetz 1972, standardised law for one third employees on company boards with over 500 staff. The Codetermination Act 1976 required one half in large companies, but with the upper hand for shareholders. Now, the Drittelbeteiligungsgesetz 2004, BGBl. I S. 974, in German codified again, one third worker directors in companies with over 500 staff.

References

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  • Bank, John, and Jones, Ken, Worker Directors Speak: The British Steel Corporation Employee Directors (Gower Press, Farnborough, 1977)
  • I Ferreras, Firms as Political Entities: Saving Democracy through Economic Bicameralism (2017)
  • TH Hammer, SC Currall and RN Stern, ‘Worker Representation on Boards of Directors: A Study of Competing Roles’ (1991) 44(4) Industrial and Labor Relations Review 661–680
  • LW Hunter, ‘Can Strategic Participation be Institutionalized? Union Representation on American Corporate Boards’ (1998) 51(4) Industrial and Labor Relations Review 557–578
  • E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
  • E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  • E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2017) 46(4) Industrial Law Journal 444
  • RB McKersie, ‘Union-Nominated Directors: A New Voice in Corporate Governance’ (1 April 1999) MIT Working Paper
  • RB McKersie, ‘Labor's voice at the strategic level of the firm’ (2001) 7 Transfer: European Review of Labour and Research 480
  • HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69
  • HJ Teuteberg, Geschichte der Industriellen Mitbestimmung in Deutschland (1961)
  • J Waddington (ed.), 'European board-level employee representation: national variations in influence and power' (2018), Kluwer Law international editions [1]
  • J Waddington, A Conchon, 'Board-level employee representation in Europe: priorities, power and articulation' (2016), Routledge edition [2]
  • S Webb and B Webb, Industrial Democracy (1920)
  • S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII
Articles
  • E Batstone, A Ferner and M Terry, Unions on the board: an experiment in industrial democracy (1983)
  • P Brannen, ‘Worker directors: an approach to analysis. The case of the British Steel Corporation’ in C Crouch and FA Heller, Organizational Democracy and Political Processes (Wiley 1983)
  • E Chell, ‘Worker Directors on the Board: Four Case Studies’ (1980) 2(6) Employee Relations 1
  • PL Davies and KW Wedderburn, ‘The Land of Industrial Democracy’ (1977) 6(1) ILJ 197
  • E McGaughey, 'The Codetermination Bargains: The History of German Corporate and Labour Law' (2016) 23(1) Columbia Journal of European Law 135
  • E McGaughey, 'Votes at Work in Britain: Shareholder Monopolisation and the ‘Single Channel’' (2018) 47(1) Industrial Law Journal 76
  • E McGaughey, 'Democracy in America at Work: The History of Labor's Vote in Corporate Governance' (2019) 42 Seattle University Law Review 697
  • HJ Teuteberg, ‘Zur Entstehungsgeschichte der ersten betrieblichen Arbeitervertretungen in Deutschland’ (1960) 11 Soziale Welt 69
  • S Vitols, 'Prospects for trade unions in the evolving European system of corporate governance' (2005) ETUI, summarising different economic results of codetermination
  • Lord Wedderburn, ‘Companies and employees: common law or social dimension’ (1993) 109 Law Quarterly Review 261
Books
Reports
  • Lord Donovan, Royal Commission on Trade Unions and Employers’ Associations (1968) Cmnd 3623
  • Liberal Party, The Report of the Industrial Partnership Committee: Partners at Work (1968)
  • Uday Dokras, doctoral thesis, published as a book, The Act on Codetermination at Work- An Efficacy Study, Almqvist & Wiksell International, Stockholm Sweden, 1990
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EU Draft Fifth Company Law Directive
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