A piece of 1960s legislation now sits at the heart of one of Europe’s most consequential corporate governance battles.
All the eyes will be on Volkswagen CEO Oliver Blume, with the latter facing perhaps the biggest test of his leadership this week: persuading the German carmaker’s supervisory board to accept painful job cuts and factory closures as it struggles to fend off Chinese rivals.
Members of the board will meet at the company’s headquarters in Wolfsburg on July 9 to discuss what could be the most far-reaching structural overhaul in the history of the world’s second-largest automaker.
When Blume announced plans to shutter up to four German factories and expand job cuts to a staggering 100,000 workers, the initial shock quickly gave way to a more layered question. Could the company actually do it? The answer lies in a singular piece of legislation that has shaped the German automaker’s identity for more than six decades.
The “Volkswagen Law,” as it is known, is a governance architecture unlike anything else in global corporate history, one that simultaneously protects workers, complicates investors, and frustrates those who believe shareholder capitalism should be allowed to operate without political interference.
Blume’s radical organizational shake-up plan faces strong opposition from workers’ unions and key shareholders. They have the power to block it, complicating things for the CEO who is already fighting a massive battle against headwinds like intense competition from Chinese rivals, shrinking margins, and stiff import tariffs from the United States.
A make-or-break scenario of Blume
Blume’s plans include significant cost reductions, plant closures, and roughly 50,000 extra job cuts, exceeding the scale of a restructuring agreed upon around 2024. In fact, the new tally of 50,000 will add up to 50,000 that are currently planned for the whole group.
Blume, as per the analysts, has no other option but to deliver fundamental changes at Europe’s biggest automaker by sales, whose shares are trading near 16-year lows.
The 2024 Volkswagen restructuring, which included cutting 35,000 jobs by 2030, was a result of the tough negotiations between the CEO and the powerful unions, with the latter extracting massive concessions like the automaker backing off from decisions like factory closures and compulsory layoffs until the end of the decade. However, those options have made their way back again in 2026.
Volkswagen’s largest investor, Porsche, has been bruised by tens of billions of euros of writedowns on its core investment to overhaul the group’s business model, saying cost cuts alone are not enough. If the CEO again concedes to the unions, the board may not take it positively.
Unions, on the other hand, are likely to maintain the 2024-like tough stance, especially on matters like layoffs and plant closures. They hold no equity but wield significant influence on strategic matters via the supervisory board.
Blume’s predecessors Herbert Diess and Bernd Pischetsrieder had to resign from the automaker, for clashing with unions. The current CEO is a reputed consensus-seeker who has reportedly been able to balance all of Volkswagen’s stakeholders, including the Porsche and Piech families, unions, Qatar, and the German state of Lower Saxony.
Things have changed drastically at the Volkswagen board, with the sudden departure of shareholder representative Susanne Wiegand, leaving labor representatives with 10 of the board’s 19 seats. Chairman Hans Dieter Poetsch won’t be able to cast his decisive vote in case of a stalemate between the shareholder and labor representatives on the board.
Hendrik Schmidt of DWS, among the 10 biggest shareholders, called for a more critical look at the automaker’s array of brands. Throwing his support behind Blume, he said the CEO was being bogged down fighting crises rather than shaping the company’s future. In fact, as per Hendrik, a change of leadership would only cause further unrest.
Powerful Unions: Legacy Rooted in Dark History
To understand the law, one must go back further than 1960. The strong influence of workers at Volkswagen dates to the early days of the company before World War Two, when the Nazis built Volkswagen’s main factory in Wolfsburg with money that came in part from assets expropriated from trade unions, and the use of forced labor formed the financial basis of the company. After the war, the British, who were responsible for the plant at the time, decided to place trusteeship of the company in public hands.
That post-war settlement carried enormous moral weight. In 1960, when the Federal Republic of Germany decided to privatize the company and transform it into a joint-stock corporation, the so-called “Volkswagen Law” got passed, handing significant influence to Lower Saxony and workers to protect the business from outside influence.
The law changed the company to a joint stock corporation, with 20% held each by Germany and Lower Saxony, the region in which Volkswagen is still headquartered. By limiting the share of any other stockholder to 20%, regardless of how many shares owned, the law effectively protected the company from any attempt at a hostile takeover.
It was, in essence, a deliberate act of social engineering, embedding labor rights into the legal DNA of Europe’s largest car manufacturer at a time when Germany was still rebuilding its industrial and democratic institutions.
How the Law Actually Works
The Volkswagen Law operates through two principal mechanisms that together create a fortress around worker and state influence. Decisions that normally require at least a three-quarters majority at the annual general meeting must be passed by more than four-fifths of Volkswagen shareholders, giving Lower Saxony a blocking minority. Any decision to build or move a production plant also needs approval of a two-thirds majority in the 20-strong supervisory board, without specifically mentioning closures. This means the 10 members on the board representing German labor can veto any far-reaching plans that affect factories.
The ownership structure that underpins this arrangement is unusually layered. The German state of Lower Saxony owns 11.8% of shares, while Qatar holds 10%. When it comes to voting stakes, however, the picture changes, with a 53.3% voting stake, Porsche SE holding a majority; Lower Saxony has 20% of votes and Qatar 17%. This divergence between economic ownership and voting power is itself a source of persistent investor frustration.
Compounding matters further, there are two different classes of Volkswagen shares. There is one preferred stock that is listed in the German benchmark DAX index and a common stock that carries voting rights. The result is a corporation where financial exposure and decision-making authority are deliberately misaligned, by design and by law.
A Law Tested, Challenged, and Revised
The “Volkswagen Law” has not survived unchallenged. Its most consequential legal test came in 2007, when the European Commission’s long-running campaign against it finally reached the EU’s highest court. In October 2007, the European Court of Justice ruled that the VW Law was illegal because of its protectionist nature. At that time, the Porsche holding held 30.9% of VW Group shares, and there had been speculation that Porsche SE would be interested in buying all shares if the law did not stand in its way. The Court also prevented the government from appointing Volkswagen board members.
Germany did not capitulate. In 2008, the German government rewrote the Volkswagen Law, attempting to sidestep the ECJ judgment by removing restrictions on share ownership but still requiring an 80% majority for important decisions, so Lower Saxony would still be able to block major business decisions and takeovers.
Brussels took Germany back to court, seeking daily fines. In October 2013, the EU Court of Justice ruled that the redraft of the Volkswagen Law “complied in full” with Union law, bringing the matter to a close.
The episode illustrated the tenacity with which both sides held their positions. It also had an unintended consequence noted by legal scholars. Soon after the decision, which removed shareholder control from the State of Lower Saxony, the management practices leading to the Volkswagen emissions scandal began. In 2015, it was revealed that Volkswagen management had systematically deceived US, EU and other authorities about the level of toxic emissions from diesel exhaust engines.
The observation, though correlational, has since informed arguments that governance protections for non-shareholder stakeholders carry systemic value. The law’s provisions also proved decisive in the 2024 confrontation involving Blume and the unions. Labor representatives, supported by the legal structure, blocked plant closures under a 2024 deal, reflecting how governance rules continue to influence Volkswagen’s restructuring amid the 100,000 job-cut plans announced in June 2026.
The talks that produced that deal were extraordinary by any measure. The agreement came after 70 hours of negotiations, five rounds of talks, and two major strikes involving 100,000 workers, marking the largest labor action in the automaker’s history.
Under the new agreement, no site was to be closed, no one made compulsorily redundant, and the in-house wage agreement was secured in the long term, though 35,000 jobs would be cut by 2030 and production capacity in Germany reduced by more than 700,000 vehicles.
Why Investors Remain Unhappy
For institutional investors, the Volkswagen Law and the broader governance structure it anchors represent a persistent drag on value creation. The argument is that Volkswagen and unions have half the seats on the supervisory board and, with the help of politicians in its home state and shareholder Lower Saxony, a virtual veto on company policy, implying that the company remains worker-centric rather than shareholder-friendly.
The financial consequences are tangible. The resulting valuation discount has caused Volkswagen’s shares to underperform the sector over the past five years, with uncertainty over succession at the Porsche and Piech families adding to investors’ wariness. By mid-2026, Volkswagen’s shares were trading near 16-year lows, a humbling position for the world’s largest automaker by production volume.
Leading institutional voices have grown more assertive. German asset manager Deka has flagged the risk of a “gradual decline,” warning that inaction or half-measures could see the automaker lose ground to both traditional rivals and new entrants at a time when the industry is undergoing rapid consolidation and technological change. The intervention underscores how corporate governance and shareholder engagement have become more assertive at large European industrial groups, especially when long-term competitiveness is in question.
The criticism extends beyond factory closures. Volkswagen has been criticized by investors for governance shortcomings partly related to its ownership structure, which gives Porsche SE great control over the company even though it does not own a majority of all shares. CEO Oliver Blume gave up his Porsche AG post at the beginning of this year after years of criticism from some shareholders over his dual role as head of two large and related auto groups.
The investor case, put plainly, is that the law prevents Volkswagen from making hard but necessary decisions at the speed that competitive markets demand. Every restructuring negotiation becomes a prolonged political process, every factory rationalization a national drama.
A Different World Outside Germany
The Volkswagen Law looks even more exceptional when compared with how auto workers elsewhere negotiate with management. In the United States, the United Auto Workers union operates through collective bargaining that gives it significant leverage on wages, benefits, and working conditions but stops well short of structural board representation. In Germany, mass layoffs and the introduction of new technologies in a workplace require works council approval, and half the members of VW’s supervisory board are employee representatives, while in Europe, this degree of co-determination is termed “quite minimal” when compared with what exists at VW’s own German facilities.
The contrast was starkly illustrated by VW’s own American plant. The UAW attempted unsuccessfully to unionize the Chattanooga plant in 2014, defeated in a 712 versus 626 vote, even though the unionization effort was backed by Volkswagen management and IG Metall in Germany.
The irony of a company actively supporting unionization at its own facility, only for workers to vote it down amid external political pressure, underscored how fundamentally different the cultural and legal landscape for labor relations is across the Atlantic.
In Japan, enterprise-level unions at companies like Toyota maintain high density and strong management relationships but operate through cooperative consultation rather than statutory co-determination. The Japanese Automobile Workers Union has deployed its influence to support organizing efforts globally, including supporting organizing drives of the UAW at Nissan’s plant in Mississippi and Unifor’s efforts at Toyota in Canada, but Japan’s model lacks the legislative teeth that give German workers a formal veto on the corporate strategy.
China’s situation is more constrained. Independent unions in China are banned, with the All-China Federation of Trade Unions being the only permitted one. Though 80% of VW China’s 23,000 employees are unionized, the model includes a works council structure that operates within state-sanctioned limits rather than genuine independent bargaining power.
What the comparison reveals is that Germany’s co-determination model, of which the Volkswagen Law is the most extreme and legally formalised expression, sits at the far end of a global spectrum. Nowhere else do production workers hold statutory veto power over plant-level decisions at one of the world’s largest manufacturers.
Image Credit: Volkswagen