If Only Matt Yglesias Actually Understood Nordic Corporate Codetermination


We’ve already been somewhat unkind about one aspect of Elizabeth Warren’s Accountable Capitalism Act on the grounds that it shows off Warren’s ignorance concerning the basics of the subject. Now it is necessary to inform another, Matt Yglesias, on how this real world thing works. It is indeed true that the Nordic model of corporate governance is admired and it most certainly seems to be efficient. But it’s not because of workers on the board, it’s not because of this codetermination. Quite the opposite in fact, the board structure is deliberately crafted in order to ensure shareholder dominance. But since when has reality stopped anyone making a political point?

And here:

Warren is proposing, essentially, that large American companies adopt an economic system known as “codetermination” in which management of the enterprise is the joint responsibility of workers and shareholders. This is not the historical practice in the United States or in other English-speaking countries, but it’s common in continental Europe and often takes forms that are quite a bit stronger than what Warren proposes.

Well, let’s see. So, is Nordic corporate management admired?

Year after year, Nordic companies outperform the global average in The Boston Consulting Group’s annual study of value creation. This impressive feat holds true whether we look at annualized returns over time periods of 5, 10, or 15 years. (See Exhibit 1.) Nordic companies’ superior performance is also evident across most industries.

OK, yes it is. So, what is that model?

The key distinctive feature of Nordic corporate governance is
the strong powers vested with a shareholder majority to effectively
control the company. This forms the basis for dominant
owners to engage in, and take long-term responsibility for their
company, but it also offers shareholders of more widely held
companies the potential to exert genuine ownership powers,
e.g. by forming ad hoc coalitions to deal with issues of common
interest. In fact, the model is highly flexible, providing a generally
shareholder-friendly governance framework that is functional
within a wide range of different ownership structures.
The underlying philosophy is that the shareholders should
be in command of the company. The board and management
are seen as the shareholders’ agents for running the company
during their mandate period under strict accountability to the
shareholders for the outcome of their work. This is manifested
through a clear-cut and strictly hierarchical governance structure
based on four pillars

Err, no, that’s not codetermination, is it? In fact it’s a rather more extreme insistence upon shareholder interests than the UK or US models. For it clears out of that level of the ultimate direction of the company the problems of management’s own self-interest and thus the agency problem concerning them.

Hands up everyone who thinks that Liz Warren wants that shareholder interest to be even more powerful in American firms? Quite, then she’s not proposing the Nordic model of corporate governance, is she?

But then, you know, since when did Matt Yglesias allow reality, or even knowledge of it, to ruin a good Democratic Party talking point?

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