Causes and consequences of employee representation on corporate boards

This paper uses unique Swedish data to analyse reasons for, and consequences of having employee representation on corporate boards. The Swedish law, which allows employees to choose whether to be represented on the board or not, combined with the fact that there are many firms that have opted for, as well as opted against, employee representation, facilitates proper comparison of the two groups yielding insights into systematic factors behind the choice. We find that employees are less likely to be on the board if i) there are foreign board members, ii) the firm can be considered as high risk, and iii) the firm is capital intensive. We document that average salaries are lower and that the fluctuation in employment is lower in firms with employee board representation than in those without. We also find that CEO changes are less likely and CEO compensation is lower if there are employees on the board. Alternative explanations for these findings are discussed.