ZEW Economist Valentina Melentyeva on 70 Years of Codetermination

Exactly 70 years ago, the model of parity codetermination was introduced in Germany. On 7 June 1951, the Coal and Steel Codetermination Act came into force and ensured that female and male workers had a say in major company decisions on supervisory boards. For a long time, women were hardly represented on these boards. With the establishment of a fixed gender quota in 2015, their share in leadership positions in the companies covered by this law was increased to more than one third.

“The experience with women in leadership positions shows that they have a positive influence on corporate development. Decisions of more diverse boards on important issues such as mergers are less oriented towards empire-building and more aligned with shareholders’ interests. Using the evidence about the introduction of a gender quota for executive board positions, we may expect that the expansion of the supervisory board quota would be also beneficial from an economic point of view,” says Valentina Melentyeva, a researcher in the ZEW Research Department “Social Policy and Redistribution”.

In a recently published ZEW study on women in corporate management, the authors analysed the effects of boardroom quotas based on data from Norway, Italy, Spain, the Netherlands, Belgium and France, where legally binding quotas of between 33 and 40 per cent apply, and the UK, where a 25 per cent quota is recommended.

Findings from the study show that a higher percentage of women on the board positively affects company value. Companies with a boardroom quota are more likely to scale down inefficient assets and spend less money on so-called empire building. Empire building refers to the heightened interest of leaders in external corporate growth, such as through the formation of a group or a merger as well as the increase of assets. This can negatively affect a business if it aims solely to control resources and exert greater influence, rather than seeking optimal allocation of resources, maximising profits and acting in the interests of its shareholders. In economic research, empire building has so far been attributed predominantly to male leaders.