Obscure Forms of Corporate Governance in a German Non-Core Industry a Historical and Comparative Institutionalist Analysis of the Retail Sector

Friday, 3 July 2015: 10:15 AM-11:45 AM
CLM.2.04 (Clement House)
Michael Wortmann, Berlin School of Economics and Law, Belin, Germany
The paper presents some first results from an ongoing larger research project on “The Institutions of the German Retail Sector – A Historical and Comparative Institutionalist Analysis of a German Non-core Industry”. Taking a historical and comparative institutionalist perspective the paper will focus on one of the institutional domains analysed in the project: corporate governance (CG). The developments of retailers’ buying cooperatives, GmbH & Co. KGs and various forms of family trusts distinguish the German non-core sector of retailing from German manufacturing core industries as well as from the retail sector of other countries – with counter-intuitive implications for comparative capitalisms analysis.

A major difference between Germany and countries like Britain, France or Italy is the early emergence of independent retailers’ buying cooperatives rooted in the broader German Mittelstand, esp. artisans’, cooperative movement of the 19th century. These cooperatives did not only improve the economic competitiveness of their members by lowering purchasing prices, they “... pursued the thought to sustain alternative and associative forms of business in the midst of a profit-oriented and self-interested capitalist market order” (Hesse 2009: 51), and they also gave their members organisations to protect their broader interests – against (socialist) consumer cooperatives as well as modern (capitalist) chain stores. The cooperatives Edeka and Rewe, owned by thousands of independent retailers, today are the biggest grocery retailers in Germany. But their CG structure has changed over time: increasing central coordination, shifting some of their activities to stock listed companies and also operating their own centrally owned (frequently acquired) stores, including the hard discount chains Netto and Penny.

The number three and four grocery retailers are Aldi and Schwarz Group (Lidl and Kaufland). Both are owned by families – regularly ranked as the richest in Germany. Their CG structure is very complicated and obscure; it includes various foundations/trusts (Stiftungen) and a large number of companies with the legal form of GmbH & Co. KG. These formally independent companies managed by formally independent self-employed managers are held together by a series of agreements and contracts.

The special CG features of these and many other leading retail companies also has an impact on co-determination: it is weak at Edeka and Rewe or completely absent at Aldi or Lidl. Closely linked to this are implications for industrial relations: works councils are absent or weak and union organisation is extremely low; a comparison with struggling, majority family owned but stock-listed Metro/Real (no. five) reveals that all this is not a simple industry effect. Further implications can be identified for supplier relationships; while coordinated relationships are a characteristic of the German coordinated market economy, the complex governance structure of Edeka and Rewe seems to hamper coordination along the value chain from production to the point of sale; supplier relationships seem to be more price focused and conflictual than e.g. those in Great Britain.