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Co-Determination in the Tech Sector: A (new) challenge for entrepreneurs


Tech entrepreneurs are often puzzled – if not overwhelmed – when their employees express a desire for operational co-determination. There can be many reasons causing startup employees to want to implement co-determination structures: they have adopted the ‘act like an owner’ mentality; they wish to participate in decision-making processes in an ever-growing startup; or they want to have a say in transformational periods.

The factors driving these wishes are as diverse as the possibilities for handling them from a company perspective. There is no ‘one size fits all’ approach: each company in each country is characterized by their own specific dynamic that needs to be taken into account.

Is the tech sector uncovering co-determination?

The US system of unions is vastly different from the concept of co-determination in the EU. Even the differences within the EU itself are significant – think Germany and France. What is similar, however, is the fact that co-determination and unionization are increasing in political importance, and this trend is particularly visible in the tech sector, which globally is going through an economically challenging time: slumps in demand, a very difficult fundraising climate, and widespread layoff announcements.

In Israel, for instance, the country with the highest concentration of high-tech companies in the world, unions are on the rise again after years of decline as they are successfully supporting employees in forming works councils in the tech sector. In the US, the recently adopted Inflation Reduction Act increases the acceptance of works councils as it i.a. incentivizes companies to follow labor rules to maximize the value of tax credits and offers higher subsidies to contractors who work with “registered” workers and pay higher union-set wages. At EU level, policymakers are currently discussing how to force online platforms (e.g. for food delivery and ride hailing) to improve working conditions and social security of their workers, given that unions representing those sectors have so far not been able to significantly improve the situation for employees. And in Germany, improving the conditions for co-determination in startups is a central element of the federal government’s startup strategy.

Deep dive Germany: New actors on the scene?

Let’s take Germany as an example and ask: why have employees of fast-growing tech companies thus far abstained from unionizing? Part of the answer isn’t unique to Germany: highly-skilled and well-paid software engineers are not the typical members of a works council – and given their diverse backgrounds may sometimes not even be aware of their rights in the country they are working in. However, in light of the current economic situation, this is starting to change. No sector is safe from economic downturn, and regardless of whether we are talking about traditional industries or digital economy, the typical triggers for employees to call for co-determination are similar: cost-cutting, lay-offs, lack of transparency, low wages, job insecurity.

What is specific to Germany, however, is that traditional unions are struggling to find access and the right approach towards tech sector employees. This leaves a power vacuum which new players - sometimes called ‘workers collectives’ - with no or only limited direct links to the workforce have used to drive and shape the public debate and the perception of the company, often via social media.

As a result, negotiations between employer and employees – which used to take place in private – have shifted to a semi-public arena. Frequent leaks of sensitive information or agreements, as well as escalation on social media, effectively undermine any kind of trust during the negotiations. Trust that is imperative in overcoming conflicting interests.

“How to navigate co-determination as a tech company”

Founders and CEOs of fast-growing tech companies need to develop an understanding for labor relations, as well as the mechanism and dynamics driving it, if they want to retain talent and ensure smooth operations. Identifying solutions together with your employees is key to protecting your operations, your reputation and your valuation. Simply trying to wait and drag the process out is an option which some start-ups have tried – but it can cause irreparable harm for the whole company. Instead, start-up founders and leadership need to address their employees’ demands and not dismiss them as irrelevant. Another important aspect is to understand the communicative dimension, internally and externally, in order to mitigate reputational risks, e.g. brought about by hostile campaigns.

Dealing with employees’ wish for co-determination is a task that requires a joint effort across departments such as HR, legal and communications to develop the right strategy – as well as a clear commitment by the c-level to finding a shared solution.

To gain even more insights, check out our insights from last year on “The world of tech: From Wild West to regulated industry”.