The Power of Non-Controlling Stake: Below Parity Representation of Employees on Corporate Boards
2017
We discuss the potential for below-parity employee representation in the board of directors by analyzing the workers’ choice to adopt this mechanism of employee voice when employee board representation is optional and employees are granted only a minor share of board seats. Combining the stakeholder and institutional theory we reason that, under shareholder supremacy, the effectiveness of this mechanism and, consequently, the utility that the employees gain from board representation will be higher when workers hold firm-specific human capital, and in the presence of institutions that legitimize employees’ voice and consequently corroborate their influence on board. We conjecture how these factors vary with region, firm and worker characteristics. We test our propositions using the Danish employer-employee linked data for public and private firms.
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