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Employees on Corporate Boards
Tom Berglund, Hanken School of Economics, Finland
Martin Holmén, University of Gothenburg, Sweden
Employees in Swedish firms have the legal right to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not exercised. This paper asks why that is the case. We use a simple framework, based on rational choice by individual employees. Our sample consists of 226 listed non-financial Swedish firms in 2001-2007. The results are in line with our predictions. Employee board representation does not impact firm performance, neither positively nor negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, employee board representation decreases with firm risk, slow growth, and internationalization. We conclude that when the law grants the right for employees to be represented on the board a simple model based on individual utility maximization provides an explanation for why the right is used in some firms and not in others.
Keywords: employee representation; board composition; dependent directors; firm performance; corporate governance
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