evolved somewhat in the German direction. There is a world-wide tendency in company law and practice1 for companies to evolve from having two organs-the shareholders' meeting and the Board, with co-ordinate powers, each acting to some extent in its own right and not in subordination to the other-to having three, the shareholders' meeting, a full board or supervisory board with what Holden, Fish and Smith call "trusteeship" functions, and a managing director or directors, Executive Board, or Executive Committee with functions in some ways resembling those of a German executive Board. The division of functions between the three organs and the way in which they are constituted differs from country to country and from case to case. The division in Britain between a company's managing directors and the full Board is in terms of longer and shorter range decisions rather than of supervision and execution on the German pattern. There is nothing in either law or custom to prevent the full Board of a large British company from taking what German company law calls "managerial" decisions, but the decisions which it takes will commonly be of the long-range "trusteeship" kind which Seymour refers to as the "preservation of the estate". In Britain as in Germany, provision can be made within the "trusteeship" functions of a board for the representation of interests other than those of majority shareholders. American companies commonly have proportional representation for minorities by "cumulative voting". A few British and American companies have employee directors. George Goyder has proposed that in at any rate some companies one director should be elected from each of three lists proposed respectively by an employee council, a consumer advisory service, and the local authority or the State. They should have the normal duties of directors, but should be concerned particularly with employee or customer or community relations as the case might be, and be required to report to each Annual General Meeting on the company's performance in their field. 1 Van Ommeslaghe, op. cit. Gower, L. C. B., Modern Company Law, ch. 7 and 8, op. cit. Holden, Fish and Smith, Top Management Organisation and Control, McGraw-Hill, 1951, Part B.). * Goyder, George, The Responsible Company, Blackwell, 1961. the relations between executive directors and managers and the interest groups involved in each firm. It includes basic theorising such as that of R. F. Bales on the relation between “task” and "social" roles in groups of any kind:1 deliberate constitutional experiments such as those of the John Lewis Partnership or the Glacier Metal Company: studies of collective bargaining and joint consultation such as the National Institute of Industrial Psychology's Joint Consultation in British Industry: the general experience of companies as summarised by writers such as Gower or Van Ommeslaghe and elaborated and theorised from by Goyder or Mason or Eells: and the debate on the relation between Ministers and Boards in nationalised industries as seen through the eyes of Select Committees and a variety of academic and political investigators of British and American and Continental experience such as Hanson, Robson, or Byé. The problem is to draw all this together into a coherent body of principles laying down which interest groups are to have the right to intervene within what limits in the direction whether of companies or of nationalised industries, and what mechanisms will best ensure both effective intervention and the necessary freedom of executive directors and managers as professional men and entrepreneurs. In the case of companies one cannot help being struck in studies like those of Gower and Van Ommeslaghe with the lower degree of precision so far attained in defining the relation between a Board and its managing directors as compared with that between the Board and shareholders' meeting. In the nationalised industries the right relation between Ministers and Boards is still being sought. In the country, Germany, where employee representation in the top organs of both public and private firms has been carried farthest, the point where experience of it crystallises into a generally accepted theory is only now coming in sight. The problem of executives and interest groups has been posed. Much raw material is available for its solution. But definite and lasting solutions have still to be found. 1 Summarised in:-Fogarty, M. P., Rules of Work, Chapman, 1963, pp. 215-221. 'National Institute of Industrial Psychology, Joint Consultation in British Industry, Staples, 1952. GERMANY Three things follow from the two previous sections. First, the problems of company government which remain to be solved are not merely of the technical, repair and maintenance, type with which the Jenkins Committee dealt so competently. They are fundamental, raising questions of the most basic kind about company aims and company structure. The stage of discussion now reached calls, as has been said, not so much for the enunciation of wide principles as for detailed field studies of how decisions are actually made and the drawing of conclusions from a vast mass of experience, experiment, and theorising. So far as pure principles are concerned the basic re-thinking of "the broad aspects of where the modern company fits into the whole social context" to which Professor Gower refers in the quotation with which this broadsheet opens has already to a great extent taken place, quietly and without fuss. But it remains to reduce these principles to clauses of a Companies Bill and operating rules of company practice. Secondly, the problems which remain to be solved are problems not only of companies but of nationalised industries. Both sectors have a problem over the weighting and marginal assessment of the wide range of criteria which they now use, and over the precise scope of profit as the "key criterion" for day to day working. Both have a problem, differing in its detailed presentation but essentially the same, of the relation between executive direction and the controls exerted by interest groups. Thirdly, therefore, if the problems in the two sectors are both similar and fundamental, demanding not merely detailed amendment of the Companies and Nationalisation Acts but a review that goes to their roots, it looks as if the next move should be to amend and consolidate the law of the two sectors with a single Corporations Act on the lines proposed by Professor Gower; or rather this should be the next move but one, since the immediate move must be to tidy up current legislation on the lines already prepared by the Jenkins Committee. The case for consolidation in this sector is in part the case for consolidation in any other. It is confusing and a waste of effort to make two or more Acts, differing only in relative detail, do what could be done by one. But there is also of course a political and Britain have been bedevilled for most of a century by the tendency to think of private and nationalised industry as animals of two different and antagonistic kinds. When one makes the change of optic to thinking about them first and foremost as enterprises, groups of people at work under, no doubt, varying conditions, but with basically similar problems over both aims and government, there is a sudden sense of release. Understanding of the problems of direction and management involved in the two sectors becomes clearer, and the political wrangle over nationalisation is reduced to its proper, and in this context minor, perspective. It is particularly to this task of consolidating the law of corporations or enterprises that recent thinking in Germany is relevant.1 In the course of more than a century's history-the first Prussian Companies Act was passed in 1843-German company law has developed a very clear cut approach to several of the questions just discussed. The current German Companies Act directs that a company is to be managed not merely for shareholders but "as the good of the business and its staff and the common good of the nation require" (s.70). Since 1862 a distinction has been drawn between a company's Executive and Supervisory Boards, and successive Acts have defined the Supervisory Board's role more and more precisely on the lines referred to above. The Executive Board "shall manage the company on its own responsibility" (s.70). It is appointed and supervised by the Supervisory Board. But Executive Board members have the security of a five-year term of office, within which they can be removed only for gross dereliction of duty or incapacity (s.75(3)). “Managerial decisions cannot be assigned to the Supervisory Board" (s.95), and members of the Supervisory Board cannot at the same time be members of the Executive Board or of senior management (s.90). The question whether to go over to the British and American "board system" (the term used in Germany) has often been debated in Germany, but the upshot has always been to underline and strengthen the separation of the roles of the Supervisory and Executive Board. Regrettably, there does not seem to have been any equally thorough British discussion of the case for changing from the British system to the German, though the discussion by 'On German experience generally, see Fogarty, M. P., Company, Corporation, One Law?, Chapman, to be published May 1965. Lord Keynes and his colleagues in the Liberal report on Britain's Industrial Future1 is at least a partial exception. Its conclusion was that the Supervisory Board system should be adopted in Britain as a safeguard for shareholders, a more effective way of controlling and stimulating executives, and a means of opening the way to board representation for employees. Since 1920 the Boards of German companies have ceased to be exclusively controlled by owners, whether private or public. From that year all German firms above a minimal size were required to set up statutory works councils, consisting only of employees. In companies the works council could then nominate two of its members to the Supervisory Board. This provision was discontinued under the Nazis, but restored in 1952 on the basis that the whole body of employees (not simply the works council) could elect onethird of the Supervisory Board. Those elected in excess of two need not be employees of the firm. In the steel and coal industries, under a series of Acts and agreements from 1946 onwards, co-determination goes further. In medium and large coal and steel companies Supervisory Boards consist normally of five employee representatives, two elected by the Works Council and three nominated by the DGB, the German TUC; five shareholder representatives; and one mutually agreed "neutral man". The "neutral man" and one each of the DGB and the shareholder representatives must be unconnected with the firm or union. The other DGB representatives need not be and are not usually employed in the firm. The Executive Board must also include a Labour (Personnel) Director, whose appointment must be approved by a majority of the employee members of the Supervisory Board. The coal and steel pattern evidently implies a much sharper transfer of power to employees than the minority representation of employees on Supervisory Boards elsewhere in German industry. It is the shock of this additional and exceptional degree of co-determination which has touched off the current German debate on "enterprise law". There has been in the last three or four years a series of massive German studies of co-determination in coal and steel (summarised in Fogarty, op.cit.). They show that it has worked with great advantage to industrial relations, some gain to productivity, and no loss 1 Britain's Industrial Future; Report of the Liberal Industrial Enquiry, Benn, 1928, pp. 91-92. |