Labour links show clout of German unions

Trade unions are a powerful force in German companies, occupying half of all supervisory board seats, which gives them a big say over questions such as who the chief executive should be.

Just how powerful they are and how important they can be to companies can be seen by examples from two of Germany’s largest groups suspected of helping unions or workers financially.

Prosecutors in Nuremberg are investigating financial links between Siemens, the industrial group embroiled in a separate €426m ($560m) bribery scandal, and companies owned by the head of a business-friendly union.

Siemens officials say prosecutors are checking whether any service was provided for €14m in consultancy contracts they gave to the companies owned by Wilhelm Schelsky, president of the AUB union and a former Siemens employee. People familiar with the probe say it is partly concerned with whether Siemens helped indirectly to support the union financially.

The AUB, which provides one of Siemens’ 10 worker representatives on its supervisory board – Hildegard Cornudet – is a strict opponent of the influential engineering union, IG Metall. The AUB says it is not under investigation, nor are its financing arrangements.

Mr Schelsky was arrested on Wednesday, while Johannes Feldmayer, a member of Siemens’ central management board who signed the contract with the head of the AUB in 2001, was questioned as a witness.

Much remains to be cleared up, with Siemens insisting some services were provided by the companies, which specialised in education and training.

But this second scandal for the group is stirring memories of events at Volkswagen, the carmaker. Peter Hartz, a former senior VW executive, was given a fine and suspended sentence last month after admitting to effectively buying the senior labour representative at the carmaker with €2.5m in illegal payments to keep him on side in negotiations.

But there are big differences between Siemens and VW. Mr Hartz paid the money to Klaus Volkert, former head of the works council and a member of IG Metall, who will stand trial soon. Mr Volkert sat on VW’s supervisory board and negotiated directly with management.

At Siemens the AUB is much less important, although its members are in a majority in the IT services division, SBS. Even so, when Siemens negotiated a restructuring plan at SBS it did so with IG Metall, not the AUB.

There is clearly no love lost between the two unions, particularly over how the AUB was financed. IG Metall said at the weekend about AUB: “In private talks, one or the other of their works councillors would say that Siemens showed it was ready to give considerable support.”

Many German non-executive directors say in private that any alleged financial support of unions is rare, but that far more worrying is how in some companies management bends to the will of the workers in order to save its own bacon.

At VW a system where unions helped “co-manage” the company was hardly checked by the Hartz affair and instead the carmaker’s chairman ganged up with workers to oust its chief executive in November. Such signs of power dismay many others in Germany: “It can be an unholy alliance of the losers on boards sometimes,” says one blue-chip chairman.

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