This paper addresses the current discussion on links between party politics and production regimes. Why do German Social Democrats opt for more corporate governance liberalization than the CDU although, in terms of the distributional outcomes of such reforms, one would expect the situation to be reversed? I divide my analysis into three stages. First, I use the European Parliament’s crucial vote on the European takeover directive in July 2001 as a test case to show that the left-right dimension does indeed matter in corporate governance reform, beside cross-class and cross-party nation-based interests. In a second step, by analyzing the party positions in the main German corporate governance reforms in the 1990s, I show that the SPD and the CDU behave “paradoxically” in the sense that the SPD favored more corporate governance liberalization than the CDU, which protected the institutions of “Rhenish, ” “organized ” capitalism. This constellation occurred in the discussions on company disclosure, management accountability, the power of banks, network dissolution, and takeover regulation. Third, I offer two explanations for the paradoxical party behavior. The first explanation concerns the

ABSTRACT ▪ This article examines the use of variable pay in large German companies. It is shown that the implementation of contingent pay has increased, in spite of institutional constraints deriving from the German system of industrial relations. The increase can be explained by the growing internationalization of product and capital markets as it is the multinational companies with a high percentage of foreign sales and a strong orientation toward shareholder value that are most likely to use flexible pay. Unions and works councils are not excluded from, but are actively involved in, these changes. Hence, the trend toward decentralization and flexibility of remuneration schemes indicates a change toward a more Anglo-American business system, but also reveals the strong embeddedness of German companies in the German system of industrial relations.

This paper was written during my stay as a visiting scholar at the Center for European Studies, Harvard University, in the academic year 2002/2003. I would like to thank Suzanne Berger, Andreas Broscheid,

This paper addresses the current discussion on links between party politics and production regimes. Why do German Social Democrats opt for more corporate governance liberalization than the CDU although, in terms of the distributional outcomes of such reforms, one would expect the situation to be reversed? I divide my analysis into three stages. First, I use the European Parliament’s crucial vote on the European takeover directive in July 2001 as a test case to show that the left-right dimension does indeed matter in corporate governance reform, beside cross-class and cross-party nation-based interests. In a second step, by analyzing the party positions in the main German corporate governance reforms in the 1990s, I show that the SPD and the CDU behave “paradoxically” in the sense that the SPD favored more corporate governance liberalization than the CDU, which protected the institutions of “Rhenish, ” “organized ” capitalism. This constellation occurred in the discussions on company disclosure, management accountability, the power of banks, network dissolution, and takeover regulation. Third, I offer two explanations for the paradoxical party behavior. The first explanation concerns the historical conversion of ideas. I show that trade unions and Social Democrats favored a high degree of capital organization in the Weimar Republic, but this ideological position was driven in new directions at two watersheds: one in the late 1940s, the other in the late 1950s. My second explanation lies in the importance of conflicts over managerial control, in which both employees and minority shareholders oppose managers, and in which increased shareholder power strengthens the position of works councils. Zusammenfassung