Discussion Paper of the Institute for Organisational Economics 9/2011
Corporate Governance and Employee Power in the Boardroom
An Applied Game Theoretical Analysis
Benjamin Balsmeier/Andreas Bermig/Alexander Dilger/Hannah Geyer
The discussion about employee representation on supervisory boards has received much attention from scholars and politicians around the world. We provide new insights to this ongoing debate by employing power indices from game theory to examine the ‘real’ power of employees on boards and its effect on firm performance. Based on unique panel data of the largest listed companies in Germany, we find an inversely U-shaped relationship between labour power and Tobin’s Q with a value-maximising labour power of approximately 43 %. Our results are robust to different game theoretical calculations of labour power, as well as various econometric models.