Sustainable corporate boards with employee representation

We develop a theoretical model of board decision-making in which shareholder representatives, top executives, and employee directors form heterogeneous coalitions to choose between a safe long-term project and a risky short-term one. Board value depends on both the informational contribution of each group and the conflict structure among them. We show that employee representation enhances firm value when employee informational content exceeds a threshold that increases with outsider quality, thereby generating the empirically observed inverted-U relationship between representation and performance. When conflicts of interest arise, minority employee representation can shift the firm's investment choice only when it alters the coalition balance at the margin, and only for an intermediate range of shareholder patience. A further result shows that insider opacity is self-limiting: the maximum level of information withholding that insiders can sustain without losing board representation decreases with both outsider quality and employee representation, creating an endogenous governance discipline. These results provide analytical foundations for moderate codetermination policies and generate empirically testable predictions on the conditions under which employee directors are decisive.