THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY PROJECT FUNDED BY THE ANGLO-GERMAN FOUNDATION, 1998–1999 REPORT Political Economy Research Centre, University of Sheffield Max-Planck-Institut für Gesellschaftsforschung, Köln Report prepared by Shawn Donnelly Andrew Gamble Gregory Jackson John Parkinson Project Team PERC Max-Planck-Institut Ben Clift Gregory Jackson Shawn Donnelly Wolfgang Streeck Andrew Gamble Gavin Kelly John Parkinson Political Economy Research Centre Max-Planck-Institut für University of Sheffield Gesellschaftsforschung Sheffield Paulstrasse 3 UK 50676 Köln S10 2TY Germany June 2000 1 © Anglo-German Foundation for the Study of Industrial Society THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY The Anglo-German Foundation for the Study of Industrial Society was established by an agree- ment between the British and German governments after a state visit to Britain by the late Presi- dent Heinemann, and incorporated by Royal Charter in 1973. Funds were initially provided by the German government; since 1979 both governments have been contributing. The Foundation aims to contribute to the knowledge and understanding of industrial society in the two countries and to promote contacts between them. It funds selected research projects and conferences in the industrial, economic and social policy area, designed to be of practical use to policymakers. The views and opinions expressed in Anglo-German Foundation publications are those of their respective authors, and do not necessarily represent the views of the Foundation. Die Deutsch-Britische Stiftung für das Studium der Industriegesellschaft wurde im Jahre 1973 auf Initiative des damaligen Bundespräsidenten Dr. Heinemann durch ein Abkommen zwischen den beiden Regierungen ins Leben gerufen und durch Verleihung einer königlichen Urkunde besiegelt. Die Mittel wurden anfangs von der deutschen Regierung zur Verfügung gestellt; seit 1979 beteiligen sich beide Regierungen an der Finanzierung. Die Stiftung sucht das Verständnis für die Probleme der Industriegesellschaft in den beiden Ländern zu vertiefen und Kontakte zwischen ihnen zu fördern. Sie unterstützt ausgewählte Forschungsprojekte im industriellen, wirtschaftlichen und sozialen Bereich, hauptsächlich bilaterale Vergleiche, die für Entscheidungsträger von praktischem Wert sein können. Die Verantwortung für den Inhalt der Publikationen der Deutsch-Britischen Stiftung liegt bei den jeweiligen Autoren. © 2001 Anglo-German Foundation ISBN 1 900834 24 3 British Library Cataloguing in Publication Data. A catalogue record for this book is available from the British Library. Anglo-German Foundation for the Study of Industrial Society/ Deutsch-Britische Stiftung für das Studium der Industriegesellschaft 17 Bloomsbury Square, London WC1A 2LP 2 © Anglo-German Foundation for the Study of Industrial Society THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY CONTENTS Summary 5 Introduction 7 PART I HISTORICAL PERSPECTIVES ON THE COMPANY AND THE PUBLIC INTEREST IN BRITAIN AND GERMANY Introduction GERMANY 11 The Origins of Non-Liberal Company Law 12 Crisis and the Abandonment of Liberalism 13 Reform of 1937 16 Post-War Reforms 17 Co-Determination and the Origins of Industrial Citizenship within the Enterprise 18 The Institutional Legacies from the Coal Industry 19 World War I (1914–1918) 21 Weimar Republic (1918–1933) 22 Nazi Germany (1933–1945) 22 Post-War Democratisation and Reform 22 BRITAIN 23 The Origins of the British Company Law Approach 23 Politics of Industrial Relations 27 Conclusion 30 PART II THE PUBLIC INTEREST AND THE CONTEMPORARY FIRM Introduction GERMANY 31 (i) Companies and Investors 32 Capital Market Regulation 32 Corporate Law 34 Accounting 36 Takeover Code 37 3 © Anglo-German Foundation for the Study of Industrial Society THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY Corporate Governance Code 37 Politics and Change 38 (ii) Companies and Employees 38 (iii) Companies and the Community 40 BRITAIN 42 (i) Companies and Investors 42 (ii) Companies and Employees 47 (iii) Companies and the Community 50 Corporate Responsibility 50 Equal Opportunity and Equal Treatment 52 Environmental Protection 54 CONCLUSION 56 Appendix 1 EU Directives on Company Law: A Brief Summary 59 Appendix 2 Proposed EU Directives on Company Law 61 Appendix 3 Historical Outline of Corporate Law and Codetermination in Germany 63 Corporate law 63 Codetermination 64 References 67 Interviews Germany 74 UK 74 4 © Anglo-German Foundation for the Study of Industrial Society THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY SUMMARY · This study is principally concerned contrast the British model of the com- with public interest agendas in relation pany as a private association with the to the company and how far these dif- German model of the company as a fer in Germany and Britain. It is not constitutional association, and review concerned with the detail of external the evolution of public interest agen- corporate regulation, but with how the das in the two countries since the in- internal structures of the company are troduction of limited liability in Brit- constituted by particular political ain in the 1850s and the reform of understandings of the public interest, German corporate law in the 1870s, which become embodied in formal and how they have shaped the devel- and informal rules. opment of company law and regula- tion in response to changing economic · We examine factors which shape the and political circumstances. politics of the public interest in rela- tion to the company: firstly, the role of · Company law in Britain has tended political ideas and interests in creat- historically to favour a ‘private asso- ing political coalitions which express ciation’ model of the company. In the a particular conception of the public UK the public interest in relation to the interest; secondly, the extent to which company has historically been identi- rules and norms embodied in institu- fied with the maximisation of profits, tions and legal cases shape subsequent the protection of small private inves- expectations of how the company is tors, and the reluctance of the state to related to the public interest, and how specify particular forms of company it should behave; thirdly, how the con- structure. Hence, company law has straints and opportunities of the glo- been primarily concerned with issues bal economy shape attitudes towards such as the fiduciary duties of com- the boundaries of legitimate interfer- pany directors and the obligation im- ence in company affairs; and fourthly, posed on all companies to disclose fi- whether European integration substan- nancial information and hold share- tially shapes company law in a way holders’ meetings. Corporate law that can be distinguished from national leaves a large scope for shareholders legislation. and managers to decide procedures for making decisions by contract. Where · Historically, we show how the politics the state intervenes, the emphasis has of the public interest in Britain and been on protection of minority share- Germany has defined the public inter- holder rights and on market-making est in relation to the company differ- rules such as accounting and disclo- ently, and set different limits of legiti- sure. Other social and economic con- mate state interference in the structure cerns, such as the treatment of employ- and behaviour of the company. We ees and the impact of corporate activ- 5 © Anglo-German Foundation for the Study of Industrial Society THE PUBLIC INTEREST AND THE COMPANY IN BRITAIN AND GERMANY ity on local communities and the countries. The scope of public interest physical environment, have been obligations for Germany companies is viewed as issues external to the com- also wider than in Britain, incorporat- pany and company law. The interests ing a pluralist structure of interests of employees have traditionally been within company governance. The most protected through collective bargain- prominent example is codetermination ing, and legislation aimed at reducing (Mitbestimmung) of employees in adverse third-party effects assumed works councils and the supervisory until recently an adversarial relation- board (Aufsichtsrat) of companies. ship between the company and af- fected groups. Most perceived deficits · This report analyses the changing con- in the UK system have been addressed text for public interest agendas toward by a proliferation of voluntary Codes the company particularly in the 1990s. of Conduct in the 1980s and 1990s and This has three main aspects: the extent efforts to diffuse best practices through to which a more liberal global shareholder activism. economy creates pressures for conver- gence of institutional arrangements · By contrast, a ‘constitutional’ model of within capitalist economies; new pub- the company predominates in Ger- lic interest concerns advanced by pres- many. Constitutionalism is distin- sure groups and social movements, guished by the strong use of non-con- particularly concerning the environ- tractual rights and obligations of its ment and the rights of minorities; and members, rooted in public authority. pressure from the EU on member states Private actors are often obligated by to adopt uniform European rules and law to consider ‘public’ interests in practices. The report analyses the addition to the private interests they scope of public interest concerns. It represent. For example, works coun- shows how Germany and