Employee Governance and the Ownership of the Firm  - CLEO Skip to main content


A major moral criticism of the prevailing system of corporate governance is that it places control of publicly held corporations in the hands of shareholders. By law, shareholders have an exclusive right to make certain corporate decisions, and this arrangement is generally justified by the shareholder’s role as the owner of the firm. However, many thoughtful observers hold that such a privileged position for shareholders is morally objectionable, in part because it neglects the important role played by employees. Some of these critics contend that employees should also have a voice in corporate decision making and perhaps be owners themselves.

Current corporate law might be said to uphold a system of shareholder governance, in which the corporation is governed by shareholders. The main alternatives that have been advanced are employee participation in decision making and employee ownership of firms. Examples of such employee governance include works councils and employee representation on supervisory boards that are legally mandated in Germany, the more informal, nonlegal forms of collaborative decision making found in Japan, and worker cooperatives, the most prominent example of which is perhaps the Mondragon system in Spain.