Organizational Democracy

Three Characteristics

Shared residual claims, involving capital (shareholders) and labor (employees), reflect the first key element of corporate democracy. Fundamentally, this implies that financial capital is not placed above human capital. The organization's profits are equally distributed across employees (including managers) and owners according to codetermined allocation rules, and these profits can buffer the organization against nondemocratic aggression from outside parties. Hence, a democratic organization, or any of its business units, is not listed on a stock market. In Breman's case, all capital is allocated to a company-owned financial institute. The shareholders accept a fixed interest rate over their invested capital. Hence, shareholders are disconnected from the typical short horizon associated with shareholder value maximization, transforming them from disloyal share traders into committed share owners. In addition, profit sharing between shareholders and employees is done equally and annually. Half the profit is returned to the company's financial institute to finance new investments. The other half is allocated to the employees of the firm.

Democratic decision-making rules are the second key element. The organizational rules primarily aim to facilitate equal decision rights of all employees, not only managers, with regard to all the firm's policies. This element requires intensive intraorganizational communication. The scope of democratic decision making is crucial. Either directly or indirectly, employees have to be involved in operational and strategic decision-making processes. In Breman, each business unit operates an elaborate election procedure in which works councils function as employee-management linking pins. The works council appoints the management team of the business unit. The management team of each business unit is directly accountable to the employees of that business unit. Also, any decision on relevant issues needs equal approval by both the management team and the works council. This requirement safeguards equality of interests of employees and managers. The executive team of the holding company—which, again, is appointed by both employees and shareholders—initiates strategic proposals. All management teams and all works councils review all proposals independently and take a vote jointly.

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