Board-Level Employee Representation and Firms' Responses to Crisis

We hypothesize that companies with board level employee representation (BLER) are less likely than other firms to experience crisis-induced employment reductions, since the employers and employees in BLER firms are better able to negotiate alternative labor-cost savings to preserve employment. Theoretically, we link this ability to BLER’s contribution in reducing information asymmetries and moral hazard in employee-employer contracting. We confirm our hypotheses by studying Scandinavian corporations with/without BLER during the Great Recession. In line with the hypothesized cooperative nature of employee-employer agreements, we also show that BLER firms did not underperform compared to other firms during the last crisis.