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Summary of the CONTENT:

🏢 How do internal structures ensure ethical behavior? Internal structures like boards and employee representation safeguard ethical practices by monitoring management and guiding decisions toward shareholder and public interests.

⚖️ What’s the role of corporate boards in governance? Boards serve four key functions: executing daily operations, representing the firm externally, controlling misuse of power, and advocating for stakeholder interests.

🌍 What are the two board models?

One-Tier (Unitary): Combines executive and control functions for efficiency but risks misuse of power (e.g., Microsoft).

Two-Tier: Separates executive and supervisory boards, enhancing oversight and employee representation (e.g., Siemens).

👥 How do employees participate in governance? Employee codetermination ensures workers influence strategic decisions at the company level (board representation) and operational decisions at the plant level (works councils).

💼 What are the supervisory board's key roles? Supervisory boards appoint/dismiss executives, monitor activities, advise on strategy, and ensure organizational compliance with ethical and legal standards.

🌐 What drives board diversity? Guidelines promote diversity in gender, nationality, and expertise to minimize groupthink and enhance competence, commitment, and independence.

🏛️ What laws guide employee codetermination in Germany?

One-Third Participation Act: For firms with 500–2,000 employees, one-third of the board is worker representatives.

Codetermination Act: For firms with >2,000 employees, workers hold 50% of board seats.

🏭 What are works councils' roles at the plant level? They address work-related issues (e.g., hours, health, safety), influence HR planning, and advocate for employees through meetings and arbitration committees.

🔄 How do internal structures and external institutions interplay? Laws and norms from external bodies shape internal structures (e.g., diversity quotas, codetermination laws), ensuring alignment with societal values.

🛡️ Why are internal structures critical for long-term success? They balance shareholder goals with public legitimacy, reducing scandals and fostering ethical, sustainable business practices.

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Stories, Metaphors, Symbols, and Archetypes:

🪜 The Ethical Ladder Internal structures climb step-by-step: from shareholder monitoring to public trust-building, ensuring stability and integrity at every level.

🤝 The Dual Lens The two-tier board acts like bifocals: the executive board focuses on short-term operations, while the supervisory board oversees long-term clarity.

🛠️ The Employee Engine Codetermination ensures employees are like well-tuned gears in a machine, driving ethical and operational alignment across levels.

🌈 The Diversity Mosaic Diverse boards are like mosaics—each piece (gender, expertise, nationality) contributes to a cohesive, balanced, and resilient whole.

🌳 The Governance Tree Roots (external institutions) anchor internal structures (branches), supporting the organization’s ethical growth and adaptability.

How can internal structures help organizations to behave in an ethical way, and how is the interplay between internal structures and external institutions? This is what we will talk about in this video.

But first of all, let's have a look at our learning objectives. We want to reflect upon the relevance of internal structures for ethical organizational behavior, and we are exploring and discussing the different functions and forms of the corporate board. In the last step, we are distinguishing between company and plant-level employee codetermination.

Let's take a look at an example first of all, and we will talk about gender equality in German corporate firms and especially in their leadership. There has been a long ongoing debate on equality on boards and equality rights for both sexes. We are talking now about the law implemented in the early 2000s, here early in 2010. There was a discussion ongoing whether we need legislation that talks about corporate leadership and equality of the sexes or gender equality in corporate boards.

Before the law was implemented, there was a discussion about firms whether they do it just because there's a public opinion that there should be a change in boards and board composition. But then, after a while, after this didn't happen from alone, that we observed more equally distributed or composed boards, then legislation came in and gave a rule on board composition and how a board should look like for listed companies in Germany.

Germany's Minister for Women, Family Affairs, Senior Citizens, and Youth, Manuela Schwesig at that time, said that this was really a historic step for equal rights that we have now this legislation. As we can see here, we have rules and norms in countries, external institutions, that inform us how internal structures such as the board should look like. The board then has the internal responsibility to comply or to watch and make sure that the organization complies with corporate governance standards, the law, and so on.

So we see that the internal structures of an organization interplay with the institutions, with the external institutions, to build up corporate governance and ensure that companies behave in an ethical way following moral values in their daily business.

Let's take a deeper dive into the internal structures and the logics behind them, why we want them to be in the way they are, and why we want them to be set up in a way so that we might come up with solutions to potential misbehavior.

There's an agency logic behind. Internal structures should be there in order to secure the interest of the shareholders. Shareholders, what do they want in the end? They want to earn money based on their shares, right? To do so, it's not good if a company is part of a corporate scandal, if there is some inappropriate behavior.

Internal structures of an organization should help to monitor management behavior for shareholders. It should help them and create thereby a disincentive for inappropriate behavior. Therefore, we have some key internal structures. We have a supervisory board that monitors the organization, that monitors management, and we have internal audit units that serve as investigation departments internally. We make sure that shareholders, which are the principals of an organization, really have control about what the agents here, the managers, are doing, so that behavior of the agents follows the interest of the principal, so that we do not have something like hidden action, hidden information, or moral hazard involved here.

But there's also an entrepreneurial logic. It's not only that we want to make sure that the organization follows what the shareholders want, but we also want to ensure that the company survives, right? So that it has long-term commercial viability, and it only has such if it follows legitimate actions that the greater public is okay with. These internal structures guide management behavior and facilitate appropriate and ethical behavior.

While following the agency logic, it's more about disincentive for inappropriate behavior. From an entrepreneurial logic, it's about ethical and appropriate behavior and providing a benefit to do so. Again, the supervisory board here does this not as a monitoring board but more as mentoring. They should help management to make good decisions, good strategic decisions, so that the organization survives.

Also, other key stakeholders such as the employees get a say. They can help socially approved behavior and foster socially approved behavior inside the organization that all employees really can follow. Therefore, we also draw on their experience and expertise that they know the market environment but also know the operations of the firm. We have codetermination rights for employees.

We are talking about the board, the company board, as a key internal structure, and this board has certain functions. It has an executive function, a representative function, a control function, and a trustee function.

Let's look at the executive function first. As an executive, members of the board manage the day-to-day business. They are the ones who allocate responsibilities within the firm, so they can say who is responsible for what and which part of the business is done in which part of our organization.

The representative function, however, is more directed externally because it's about managing external affairs. The board is representing the firm towards third parties, whereas the executive function is more internally. The representative function is towards these external third parties, also with the authority to make decisions.

Then the control function is about supervising management. We want to prevent misuse of power, misuse of power of managers, as well as regarding internal decisions. It's about abuse of employees, for instance, but also externally some scandals like the emission scandal at Volkswagen. We want to really prevent that management uses its power to force decisions and do something that is not appropriate. So we set and monitor corporate goals as part of the control function.

Then the fourth function of the corporate board is the trustee function, and here it's important that the board is advocating and protecting stakeholders' interests. Stakeholders' interest is kind of also the goal, and to meet these interests is the goal of every organization. This trustee function of the corporate board is then securing that these stakeholder interests are met and protected.

Let's have a deeper look at how this board, the corporate board, is defined and also designed. There are two levels of how to distinguish between board models. There's, on the one hand, the one-tier or unitary board model, and on the other hand, the two-tier board model.

The one-tier board model or the unitary board model is exactly what it's stating: the board is in one group. There's a board of directors, like for example with a chairman, the possible CEO. There are a few inside directors or the internal management directors, and there are some outside directors, so external independent directors. This board of directors is elected by the annual general meeting of an organization.

So this one-tier unitary board model is the integration of executive and control function within one board of directors.

Contrary to this one-tier or unitary board version is the two-tier board, and the two-tier board is separating the executive and control functions between two boards. On the one hand, there's the executive board with the CEO, labor director, or other functions, and the supervisory board with a chairman, shareholders, and employee representatives, so the staff. The annual general meeting of an organization is electing the supervisory board, and this supervisory board is then controlling the executive board.

So here, again, contrary to the one-tier board, it's clearly about separating the executive and control functions between two boards.

Let's now have a deeper look at how organizations are differentiating between the one-tier or the two-tier board. We have some numbers here. We can see different countries here and a European average, and we want to have a deeper look at how many companies or what is the percentage in these countries of the unitary board and the two-tier board.

We can see here that, for example, in the UK, 100% of all UK-based organizations have the unitary board. For example, when looking at Bulgaria or Denmark, nearly all of these organizations are following this approach of the unitary board. However, in looking then at the two-tier board, we can see that, for example, in Germany or in Switzerland, 100% of all organizations are following the idea of the two-tier board. In Germany, this is due to legislation because here the two-tier board is mandatory. This is why we have this 100% here.

However, there are also countries like Romania, for example, where there's a mix between 46% of unitary board and 53% of the two-tier board. So in these countries, or also when looking at the European average, there's quite a variety between unitary board organizations and two-tier board organizations.

Of course, there are different advantages and disadvantages of these two models of board types.

Looking, for example, at the advantages of the one-tier board, it is way efficient and fast decision-making through centralization of executive and control functions. As there is just this one unity, of course this can lead to more efficiency and faster decision-making, and of course also to flexibility and quick responsiveness to changes in the environment because there is this one function, this one board that has to act and respond to change.

The disadvantage, however, is that it's potentially greater exposure to misuse of power, disloyalty, and fraud. As there is just one board, power is not differentiated between different boards but lies within one board, and there's no explicit advocacy of internal stakeholders within the board. So here, having the disadvantage of having just one board can, of course, then lead to greater exposure to misuse.

Some examples of organizations that are using the one-tier unitary board idea are, for example, Microsoft, Boeing, Intel, or IBM.

Switching now to the idea of the two-tier boards, where two boards are separately acting, there is the advantage of potentially more effective control thanks to strict separation of, as we said, the executive and control functions. Of course, also workers' representation within the board can be seen as an advantage. Because of these two boards and the separation between these two boards, also protection against misbehavior is one of the big advantages.

However, because there are two boards, this might also risk inflexibility in times of change, and supervisory board members possibly former executive board members—that they can switch between the different boards. Of course, there might be the disadvantage of threat from director interlocks.

Looking at some organizational examples here, we can see Allianz, BASF, Siemens, or Deutsche Bank, and this also aligns to what we saw in the numbers because all of the German companies or organizations have this two-tier board approach.

Let's look a little bit deeper at the supervisory board, and we see that this supervisory board mainly has four different competencies. Let's go through them one by one.

First of all, the supervisory board, especially in this model of having two separate boards—in the other one, there is no explicit supervisory board—but in the twofold one, there is one. In this one, the supervisory board has the right and the obligation to appoint and dismiss the executive board. They design the employment contracts of the executives of an organization. They also determine the maximum age—so how long can people be in their responsibility for the organization, how old may they be.

Then we also have the monitoring of the executive board as one role of the supervisory board. They are monitoring management activities, and they also can initiate audit or annual financial statements. This clearly monitoring or supervising function of the supervisory board is then something that is clearly in their role.

They also have some organizational competence. They can affect how the organization is run because they can affect and influence processes within the executive boards and thereby determine internal regulations of the organization.

A fourth competency is the advisory competence. The supervisory board is advising the executive board on difficult decisions, only with indirect management involvement.

Let's take a look at some guidelines on how the supervisory board should be composed.

Talking about the group, the group should be between 3 and 21 members—that's the range that the German law gives you, and it depends on the amount of capital of shares and capital per share that is determining your company, your organization.

It should be diverse, right? Diverse with regards to gender, nationality, expertise, experience, education. There may be at the max two former executives—two people who were on the executive boards may join the supervisory board.

By definition, shareholder representatives and employee representatives are elected to become members of the board. Shareholder representatives are elected by the annual general meeting of all shareholders, and employee representatives are elected by the employees, but not only them. Also, the executives have a voting, and certain unions like employee unions and so on do vote here.

When looking at some guidelines on the group level for the supervisory board composition, there are also some guidelines on the individual level, so about the personas that are then present in the supervisory board.

The first recommendation is that there are only natural persons with unrestricted capacity, so that there are no business personas or something like that, but natural persons present in the board.

Another guideline is no current members of the executive board. For example, when thinking about the two-tier model, of course it is for having differentiated or different responsibilities between two boards, so it wouldn't make any sense if one member is present in both boards.

Then there's a suggestion of the two years of cooling-off period, so that if one member wants to enter the board and had a previous other position that might have some implications in that role, there is a cooling-off period between that prior role and then being a member in the supervisory board.

Then there's also the idea of having maximum 10 memberships of one person in different supervisory boards. This, of course, also has something to do with the responsibilities and the time that this supervisory board is consuming, and that there is sufficient knowledge, abilities, and expertise of the person.

Then there is another idea of no personal or business links to the corporation or executives, so that there is kind of a differentiation between personal and business links, and that there is no official role or consultancy for major competitors.

These two last points are in part more recommendations for the individual considerations of the supervisory board.

The idea behind all these guidelines is to maximize the competence, the commitment, and the independence of the board so that they can fulfill their supervisory and control function as best, and at the same time minimize the homogeneity and thereby the risk of groupthink among members, so that they have diverse perspectives, diverse opinions, thereby bring something different to the table, so that in the sum they can fulfill their function as best as possible.

We have talked a lot about the corporate supervisory board so far. Let's switch to the employees and the legislation and the role of employee codetermination inside the firm, and there are two different forms.

First of all, we have the company-level codetermination of employees. Employees—there are various norms or rules as external institutions that give employees a say in firms. The idea behind it, the objective, is that they also might have an influence on important strategic company decisions because employees are also affected by these decisions, and therefore they should also have a say in this. It's not only about the shareholders, but all the employees—they make a living based on the firm, and therefore they should have a say.

How is that usually implemented? They have participation rights. They can send delegates on the supervisory board and the executive board sometimes. That's company-level codetermination.

Besides the company-level codetermination, there's also the plant-level codetermination. When thinking about the plant-level codetermination of employees, the objective is to have an influence on operational decisions, primarily with regards to the individual cases. This is then the level a little bit more narrowed down to the actual employee and his or her work environment.

The norms behind that are regulations of the Work Constitution Act, and it's really about influencing operational decisions. How could that work then at the end? It can, for example, work through works councils, plant-level arbitration committees, employee meetings, or economic committees—so really on the employee level and the work associated with the individual employee.

Let's focus on the company level for a while, and we'll take a look at the various regulations that give employees a say on the company level. Here we see these different laws, and it's German law. There is the Act on One-Third Participation, and that act says—or is valid for corporations that have 500 to 2,000 employees—and here it's stated that the supervisory board should be composed of different groups, and one-third of all supervisory board members are worker representatives. So that's the one-third participation idea, and this board is then composed of the chairman, shareholder representatives, and the worker representatives.

The Codetermination Act is one that regulates corporations with more than 2,000 employees, and here it's not only one-third of the supervisory board members who should be worker representatives; it's even half of the worker representatives.

Then, for one industry—coal and steel—there's a special codetermination act that is historically wise. It's that way, so it's valid for coal and steel companies with more than 1,000 employees, and here it's similar to the Codetermination Act for large listed corporations: it's half of the board should be constituted by worker representatives.

The German Codetermination Act gives employee representatives—or states that there should be one worker representative, one employee representative, one executive staff representative, and two company-independent union representatives on the board, and three company-independent representatives if the supervisory board has more than 20 members.

The process of election behind these employee representatives is as follows: First of all, all employees have a say. If there are more than 8,000 employees, then not everybody is voting directly the representatives, but they vote delegates who then serve as electors and do the actual voting for the representatives.

After we now deep-dived a little bit into the company level of employee codetermination, let's now deep-dive a little bit more on the plant level. As we already heard, the plant level is, for example, due to works councils or working groups or group meetings of the employees. The codetermination competencies of the works council, for example, are the right of objection on work-related issues—for example, working hours, workplaces, performance monitoring, etc. For example, during the corona crisis or the COVID-19 pandemic, workplaces have been highly under discussion, whether it's okay to have remote working, working from home, or to really be present in the company.

Then there's the right of information on HR planning and measures. The works council has the right of being informed on these HR planning procedures, and they promote employee health, safety, and environmental awareness. Also for the works councils, they can discuss health issues, safety issues, environment, and then make guidelines or suggestions based on that.

The works council also builds an arbitration committee and then calls for an employee meeting. So there are all employees—we can see that on the figure on the right-hand side—they are all employees, and then they can build this works council, and this then interacts with the corporate board. In doing so, it has a voice on raising issues and discussing issues and topics about the organization.

The works council can establish economic committees and forms and representatives' body for executive staff.

What did we learn in this video? Overall, we talked about internal structures that are essential for promoting ethical organizational behavior, and we also talked about internal structures in relation to external institutions. We also talked about internal structures as being valid for organizational ethical behavior by protecting shareholder interests and guiding management towards appropriate decisions.

Then we talked about differentiating between the two-tier board and the unitary board and these different models, and how they are applied in different contexts and countries. We furthermore also deep-dived into the two-tier board model and had a look at how it enhances control and, of course, also employee representation.

When thinking about employee representation, we talked about different levels of representation and codetermination, namely the company level and the plant level, and we also highlighted that this plays a key role in influencing both strategic and operational decisions, ensuring at the end that employee voices are integrated into corporate governance.

Hopefully, you're looking forward to our next video.

transcript

how can internal structures helporganizations to behave in an ethicalway and how is the interplay betweeninternal structures and externalinstitutions this is what we will talkabout in this video but first of alllet's have a look at our learningobjectives we want to reflect upon therelevance of internal structures forethical organizational behavior and weare exploring And discussing thedifferent functions and forms of thecorporate board and in the last step weare distinguishing between company andplant level employeecodetermination so let's take a look atan example first of all and we will talkabout gender equality in Germancorporate firms and especially in theirleadership and there has been um longongoing debate on equality on boards andequality rights for uh both uh Sexes sowe are talking now about the lawimplemented um in uh the early 2000shere early in in 20 and 2010 so thisthere was a discussion ongoing whetherwe need uh yeah a legislation that talksabout uh corporate leadership and uhequality of uh the Sexes uh or genderequality in uh corporate boards therewas a before there was then uh the lawimplemented there was was a discussionabout firms whether they do it justbecause uh there's a there's a public uhyeah not outcry but a public opinionthat there should be a change in inboards and board composition but then uhafter a while after this didn't happenfrom alone that uh we uh observed moreequally uh distributed or uh composedboards um then uh legislation came ingave uh a rule on board composition andhow a board should look like for uhlisted companies in Germany and uhGermany's Minister for women familyAffairs senior citizens the youth manshik at that time said that this wasreally a historic step for equal rightsthat we have now this legislation so aswe can see here um we have uh rules andNorms uh in countries externalinstitutions that inform us how internalstructures that such as the board shouldlook like and the board then has uh yeahthe internal responsibility to um yeahto comply or to uh watch and uh takemake sure that the organization compliesum with corporate governance standardsthe law and soon so we see that the internalstructures of an organization interplaywith the institutions with the externalinstitutions to build up corporategovernance and ensure that companiesbehave in an ethical way following umyeah moral values in their dailybusiness so um let's take a deeper diveinto the internal structures and theLogics behind them why we want them tobe yeah in the way they are and way whywe want them to be uh yeah set up in away so that we might uh come up uh withsolutions to potential misbehavior andthere's an agency logic behind right sointernal structures should be there inorder to secure the interest of theshareholders they want to uhshareholders I mean what do they want inthe end they want uh to earn money basedon their shares right and to do so it'snot good if a company is uh yeah part ofa corporate Scandal if there is some uhinappropriate behavior so internalstructures of an organization shouldhelp to monitor management behavior forshareholders they should it should helpit help them and create thereby adisincentive for inappropriate behaviorand therefore we have some key internalstructures so we have a supervisoryboard that monitors uh the organizationthat monitors uhmanagement and um we have uh uh internalaudit uh uh yeah units that serve as aninvestigation departments internally sowe make sure that uh shareholders whichare the principles of an organizationreally uh have control about about whatthe agents hear the uh the managers aredoing so that uh behavior of the agentsuh follows the interest of the principalso that we do not have something likehidden action hidden information ormoral hazard involved here but there'salso an entrepreneurial logic so it'snot only that we want to make sure thatthe organization follows what theshareholder want ons but uh we also wantto ensure that the company survivesright so that it has long-termcommercial viability and it only hassuch if it follows uh legitimate uh yeahactions that the greater public is uhyeah is okay with and thereby theseinternal structures guide managementbehavior and facilitate appropriate andethical Behavior so while um followingthe agency logic it's more aboutincentive for inappropriate behaviorfrom an entrepreneurial logic it's aboutuh yeah ethical and appropriate behaviorand providing a benefit to to do so andagain the supervisory board here uh doesthis as an uh uh not as a monitoring uhboard but more as mentoring so theyshould help management to uh yeah to tomake good decisions good strategicdecisions so that the organizationsurvives and um also other uh key keystakeholders such as the employees uhget a saying so they can uh helpsocially approved behavior and fosteringsocially approved Behavior inside theorganization um that is uh yeah thatthat all employees really can follow andtherefore uh we also draw on theirexperience and expertise uh that theyknow the uhthe the market environment but also knowum yeah the operations of the firm so wehave code determination rights foremployees so we were talk we are talkingabout the board the company board as uma key internal structure and this boardhas certain functions it has anexecutive function a representativefunction a Control Function and a trustyfunction so let's look at the executivefunction first as an executive membersof the board manage the day-to-daybusiness right they uh are the ones whoallocate responsibilities within thefirm so they can say who is responsiblefor what and which part of the businessis done in which part of ourorganization the representative functionhowever is uh more directed externallybecause uh it's about managing externalAffairs so the board is representing TheFirm towards third parties whereas theexecutive function is more internallythe representive function is towardsthese external third parties also withthe authority to make decisions then theControl Function it's about supervisingmanagement we want to prevent misuse ofpower misuse of power of managers um anduh as well as uh regarding internaldecisions so it's about abuse of uhemployees for instance but also uhexternally some scandals like theemission scandal at Volkswagen we wantto really prevent that uh managementuses its power to First decisions and dosomething that is not appropriate rightso we set and monitor corporate goals aspart as the Control Function and thenthe fourth function of the corporateboard is the trustee function and hereit's important that the board isadvocating and protecting stakeholdersinterests so stakeholders interest iskind of also the goal and to meet theseinterest just the goal of everyorganization so this like trusteefunction of the corporate board is thensecuring that these stakeholderinterests are met and protected but havelet's have a deeper look at how thisboard the corporate board is um yeahdefined and also uh designed so thereare two levels of how to distinguishbetween um board models there's on theone hand the one tier or unitary Boardmodel and on the other hand the two-tierBoard modelso the one tier Board model or theunitary Board model is exactly what it'sstating it's like the board is in oneone group and there's a board ofdirectors like for example with achairman the possibility or the possibleCEO there are a few inside directors umor the internal management directors andthere are some outside directors soexternal independent directors and thisboard of directors is elected by theannual general meeting of anorganizationso this one tier un unitary Board modelis the integration of executed andcontrolled function within one board ofdirectors contrary to this one tier onunitary um board version is the two-tierboard and the two-tier board isseparating the executive and controlfunctions between two boards so on theone hand there's the executive boardwith the CEO labor director or otherfunctions and the supervisory board witha chairman shareholders and employeeRepresentatives so the staff and theannual general meeting of anorganization is electing the supervisoryboard and this supervisory board is thencontrolling the executive board so hereagain contradictory to the one tierboard here it's clearly about separatingthe executive and control functionsbetween twoboards let's now have a deeper look athow organizations are differentiatingbetween the one tier or the um two tierboard so we have some numbers here um wecan see different um countries here andan European average and we want to havea deeper look at how many companies orwhat is the percentage in the um inthese countries of the unitarity boardand the two-tier board so we can seehere that for example in Germany or inthe uh in UK for example the unitarityboard is like majority as 100% of all umUK based organizations have theunitarity board or for example whenlooking at Bulgaria nearly or in Denmarknearly all of these organizations arefollowing this approach of the unitarityboard however in looking then at thetwo-tier board we can see that forexample in Germany or in Switzerland100% of all organizations are followingthe idea of the two-tier board inGermany this is due to leg legislationbecause here the two-tier Bo ismandatory this is why we have this 100%here however there are also countrieslike Romania for example where there's amix between 46% of uh unitarity boardand 53% of the two-tier board so inthese countries or also when looking atthe European average there's quite avariety between unitarity boardorganizations and two-tier boardorganizations of course there aredifferent advantages and disadvantagesof these two models of um board typeslooking for example at the advantages ofthe one tier board it is way efficientand fast decision making um throughcentralization of executive and ControlFunction so as there is just this oneUnity of course this can lead to moreefficiency and faster decision makingand of course also to flexibility andquick responsiveness to changes in theenvironment because there is this onefunction this one Bo that has to act andto respond tochange the disadvantage however is thatit's potentially G um greater exposureto misuse of power disloyalty and fraudas there is one this just one Board ofcourse power is not differentiatedbetween different boards but lies withinone board and there's no explicitadvocacy of internal stakeholders withinthe board so here having the uhdisadvantage of having just one boardcan of course then um yeah lead toGreater exposure tomisuse some examples of organizationsthat are using the one tier unitarity uhboard idea are from example MicrosoftBoeing Intel orIBM switching now to the idea of the twotier boards like where are two boardsseparately um yeah um acting there isthe advantage of potentially moreeffective control thanks to strictseparation of as we said the executivecontrol and um the control functions andof course also workers representationwithin the board can be seen as anadvantage so this because of these twoboards and the separation between thesetwo boards also protection againstmisbehavior is one of the bigadvantages however because there are twoboards this might also riskinflexibility in times of change andsupervisory board members possiblyformer executive board members that theycan switch between the different umdifferent boards and of course theremight be the disadvantage of threat fromdirector interlocks looking at someorganizational examples here we can seeour RVA zens Aon or the Deutsche Bankand this also aligns to what we have sawin the in the numbers because all of theGerman companies or organizations havethis two-tier boardapproach so let's look a little bitdeeper at the supervisory board and wesee thatuh this supervisory board mainly hasfour different competencies let's gothrough them B by one so first of allthe supervisory board especially in theum in this uh model of having twoseparate boards and the other one thereis no supervisor no explicit supervisoryboard but in the uh twofold one there isone in this one the supervisory boardhas the right and the obligation toappoint and dismiss the executive boardso they design the emplo employmentcontracts of the executives of anorganization um they also determine themaximum age so how long can people be inin their responsibility for theorganization uh how old may they be sothen we also have the monitoring of theexecutive board as one role of thesupervisory board they are monitoringmanagement activities and they also caninitiate audit or annual financialstatements so this clearly likemonitoring or supervising um function ofthe supervisory board is then somethingum that is clearly in their role theyalso have some organizational competenceso um they have or they can affect uhhow the organization is is run becausethey can affect and influence processeswithin the executive boards and therebydetermine uh internal regulations of theorganization and a fourth competency isThe Advisory competence so um thesupervisory board is advising executiveboard the executive board on difficultdecisions only with indirect managementinvolvement so let's take a look at someuh guidelines how the supervisory boardshould be composed so let's talk aboutthe group the group should be betweenthree and 21 members that's uh the rangethat the German law gives you uh and itdepends on the amount of uh capital ofshares and capital per share that is uhyeah uh uh determining your company yourorganization it should be diverse uhdiverse right diverse with regards togender nationality uh expertiseexperienceeducation um at there may be uh at themax two form Executives to two peoplewho were on the executive boards uhmaybe uh joining or may join may jointhe uh the supervisory board and uh bydefinition uh shareholder uhrepresentatives and employeeRepresentatives uh are uh yeah electedto uh become members of the board uhshareholder representatives are electedby the annual general meeting of allshareholders and employeerepresentatives are uh yeah elected bythe employ employees but not um onlythem also the executives have a votingand yeah certain unions like employeeunions and so on do vote here so whenlooking at some guidelines on on thegroup level for the supervisory boardcomposition there are also someguidelines on the individual level so umabout the personas that are then presentin the um supervisory board the firstrecommendation is that there are onlynatural personal with unrestrictedcapacity so um that there are like nobusiness personas or something like thatbut natural personas present in theboard one other guideline is no currentmembers of the executive board forexample when thinking about the tier topthe two-tier model of course it is forhaving um differentiated or differentresponsibilities between two boards souh it wouldn't make any sense if onemember is present in both boards um thenthere's a suggesting of the two years ofcooling off period so that uh one memberwants to enter the board had a previousother position that might have someimplications in that role that there isa cooling off period between um thatprior role and then uh being a member inthe supervisory board then there's alsothe idea of um yeah having maximum 10memberships of one person in differentsupervisory board this of course alsohas something to do with theresponsibilities and the time that thisV is consumingand that there is sufficient knowledgeabilities and expertise of the personthen there is another idea of nopersonal or business links to thecorporation are Executives so that thereis kind of a differentiation between umyeah personal and business links andthat there is no official role orconsultancy for major competitors andthese two points these two last pointsare in part more recommendations for umyeah the individual considerations ofthe supervisory board and the ideabehind all these guidelines is tomaximize the competence the commitmentand the independence of the board sothat they can fulfill their uhsupervisory and control function as bestand at the same time minimize thehomogeneity and the thereby the risk ofgroup think among members right so thatthey have diverse perspectives diverseopinions um thereby bring somethingdifferent to the table so that in thesum they can fulfill their function asbest aspossible so we have talked about a lotabout the corporate uh supervisory boardso far let's switch to uh the employeesand uh the legislation and the role ofemployee uh codetermination inside thefirm and there are two different formsso first of all we have uh the companylevel um coder to ation of employees soemployees there are various Norms sorules as external institutions that giveemployees is saying in firms and theidea behind it the objective is that uhthey also might have an influence onimportant strategic company decisionsbecause employees are also affected bythese decisions and therefore they theyshould also have a saying in this rightit's not only about the shareholders butall the employees they make a livingbased on the firm and therefore theyshould have a same how is that usuallyimplemented they have participationrights they can uh senddelegates uh on the supervisory boardand the executive board sometimes sothat's company levelcodetermination and besides the companylevel codetermination there's also theplant level uhcodetermination and when thinking aboutthe plant level um codetermination ofemployees the objective is to have aninfluence on operational decisionsprimary with regards to the individualcases so this is then the level a littlebit more narrowed down to the actualemployee and uh her or its um workenvironment so the Norms behind that aregulations um of the work ConstitutionAct and as s really about influencing umon U yeah operational decisions and howcould that work then at the end it canfor example um work through workcouncils um plant level arbitrationcommittees employee meetings or economiccommittees so really on the employeelevel and the work associated with theindividual employee so let's focus onthe company level for a while and umwe'll take a look at the variousregulations that gives employees asaying on the company level so here wesee these different uh laws and it's uhuh it's German law so there is the acton oneir participation and that act saysor is valid for corporations that have500 to 2,000 employees and here um it'sstated that the supervisory board shouldbe composed of uh different groups andonethird of all supervisory boardmembers are worker representatives sothat's the onethird participation ideaand this thenuh uh is uh uh yeah this this board isthen composed out of the chairmanshareholder representatives and theworker representatives the codedetermination Act is uh one thatregulates corporations with more than2,000 employees and here it's not only aonethird uh of the uh supervisory boardmembers uh who should be workerrepresentative it's even half of theworker representatives and then for oneindustry coal and steel there's aspecial uh uh Cod determination act thatis uh historically Wise It's that way soit's valid for Co and steel companieswith more than 1,000 employees and hereit's uh it's similar to um thecodetermination act for large listedcorporations it's half of the the boardshould be uh uh constituted by workerrepresentatives um so the German codedetermination act um gives uh employeerepresent or states that there should beone worker representatives one employeerepresent one executive staffrepresentative and two companyindependent UnionRepresentatives uh on on the board uhand three company independentRepresentatives if uh the uh or three ofthem if the supervisory board has morethan 20members um and the the process of uh uhelection Behind These employee uhRepresentatives is as a follow so firstof all all employees have a sayingum if there are more than 8,000employees then not everybody is votingdirectly the representatives but theyvote delegates who then serve aselectors and uh do the uh actual uh yeahvoting for therepresentatives so after we now deepdived a little bit in the comp companylevel of um of employeecodetermination let's now Deep dive alittle bit more on the plant level so aswe already heard the plant level is forexample do to work councils or workinggroups or group meetings of theemployees and um yeah the thecodetermination compet competencies ofthe work Council for example are forexample the right of objection on workrelated issues for example working hoursworkplaces performance monitoring Etclike for example uh during the coronacrisis or the the the covid-19 pandemicum workplaces have been highly underdiscussion whether it's okay to have RoRuh remote working um working from homeand or to really be present in thecompany then there's the right ofinformation on HR planning and measuresso the works Council they have the rightof being informed on uh these um yeah HRplanning procedures and they promoteemployee health safety and environmentalawareness so also for the work councilsthey can discuss about health isuessafety issues environmental envirmentand then um yeah make guidelines orsuggestions based on that the worksCouncil also Builds an aration committeeand then calls for an employee meetingso they are all employees we can seethat on the figure on the right handside they are all employees and thenthey can build this works Council andthis then interacts with the corporateboard and and doing so it has a voice onraising issues and discussing discussingissues and topics about theorganization the um Works Council canestablish economic in economic committeeand form representatives and forms andrepresentatives body for executivestaff so what did we learn in this videooverall we talked about internalstructures that are essential forpromoting ethical organizationalbehavior and we also talked aboutinternal structures in relation toexternal institutions and we also talkedabout inter structures as like beingvalid for organizational ethicalBehavior by protecting shareholderinterests and guiding management towardsappropriate decisions then we talkedabout the differentiating between thetop tier board and the unity board andthese different models um and how theyare applied in different contexts andcountries uh we furthermore also deepdived into the two-tier Board model andhad a look at how it enhances controland of course also employee uhrepresentation and when thinking aboutemployee representation we talked aboutdifferent levels of representation andcodetermination namely the corporate orthe um company level and the plant leveland we also highlighted that this playsa key role in influencing both strategicand operational decisions ensuring atthe end that employee voices areintegrated into corporate governancehopefully you're looking forward to ournext video

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