The European Company Statute

and employee participation

      

Introduction

This document aims at giving an overview of the European company statute project and its prospects regarding employee participation in Europe[1]. 

It discusses the following:  

      l  clauses in the framework of the European company statute and the debates that have accompanied        the development of the statute

    l  the relationship between the statute and systems of employee participation in firms' decisions and   activities 

The diverse nature of different national systems' companies and their level of employee participation is linked to history and the economic, social, and political framework in which they play a part.  Nevertheless, a convergence on the European plane is clearly evident, especially in comparison to other systems at work within the world, and the conception of the European company statute contributes to the strengthening of this European identity. 

In the midst of questioning the roles that the " financial " and " social " spheres play in firms' choices and stakeholders' responsibilities, neither developments in employee participation within firms' organizational bodies and decision-making processes, nor the governance model at the base of the future European company, can be ignored.

 

I.  The European company statute and Community clauses regarding the information, consultation, and participation of employees

 

1.  European company statute project and employee participation

    The European company, or EC, will constitute a new type of limited company, under Community law,     of optional nature created by mergers, by the establishment of a joint subsidiary or a holding      company between the companies of different countries, or by the conversion  of a national company. 

    For thirty years the project ran up against the issue of employee participation in company bodies of     management.  Given new life thanks to the current European economic and financial situation and     given momentum by European works councils, the project became the subject of new reflections and proposals with regards to this controversial issue in 1997[2].

    A draft of the statute's regulations and a Directive draft on information, consultation, and participation     (involvement) of the European company's employees have since then been under renewed discussion    at the Council, based upon negotiation between partners of constituent companies, the implementation     of reference clauses in the event that negotiations fail, and the taking into account of constituent     companies' situations in the realm of participation. 

    These drafts obtained the agreement of 14 out of 15 states at the December 1998 and May 1999     Councils, Spain being the only one to oppose the solutions proposed concerning employee     participation.  A compromise was found in Nice in December 2000 under the French Presidency,     which allowed the Member States the possibility of a choice concerning the transposition of reference     clauses on participation.  This compromise, recorded by the December 20, 2000 Council, clears the     way for the final adoption in 2001 of the regulations and the Directive on the European company,     following another consultation of the European Parliament. 

    Taking into account a delay of three years for the Directive's transposition, the European company     statute should go into effect in 2004.  The statute's clauses regarding information, consultation, and participation of employees are as follows: 

  l  Employee involvement in the EC is the subject of negotiation between a special negociation   group made up of employee representatives and the management of constituent companies during the   establishment of the EC;  these negotiations have a maximum duration of six months, which can be   increased to one year.

    l The qualified majority (2/3 of the votes representing 2/3 of the employees of 2 countries) is necessary   for an agreement calling for the reduction of participation rights (which are established in proportion to   the members of bodies designated or recommended by the workers), when participation involves 50%   of employees in an EC made as a holding or subsidiary, or 25% of employees in an EC formed by a   merger;  a qualified majority is also necessary to stop negotiations (zero option). 

    l No reduction of employee involvement rights by agreement is possible in an EC set up by conversion.

    l In the absence of agreement and the " zero option, " reference clauses about involvement are   applicable after constituent companies decide to pursue the creation of the EC and it is registered. 

    l Reference clauses provide for the installation of an European authority of employee representation   (instead of the European works council), with ability in formation and expertise, possessing the right to   be informed and consulted at annual meetings or meetings held in the event of exceptional   circumstances, possessing the option, in the latter case, to hold a new meeting of the EC committee   concerned in order to arrive at an agreement when the representation's opinion is not followed. 

   l The reference clauses concerning participation are enforced when the negotiation group so   decides and when participation involves 50% of constituent companies' employees in an EC formed as   a holding or a subsidiary, 25% of employees in an EC established by merger (in countries that have   not provided for an opting-out);  participation is copied off the most " sophisticated " system of the   constituent companies;  in an EC created by conversion, the existing method of participation continues. 

    l The creation of the EC does not attack national participation rights nor participation rights in   subsidiaries;  the Member States can make clauses to ensure the maintenance of their national   representational structures in the event of a merger and the resulting disappearance of constituent   companies; the Directive provides for preventing the misuse of procedure. 

    The question of the European company is of particular significance for Germany, because the     composition of the board of trustees of large companies is of quasi-equal representational nature,     which can be affected as large mergers in process demonstrate.  But it also concerns other countries,     whether or not they possess systems of participation, by allowing them to re-examine the modes of     governance and social relationships within firms in the context of Europeanization and the     acceleration of globalization. 

 

 

   2.  Links with other Community clauses regarding the information,    consultation, and participation of employees

    Two Directives in the Seventies, known as structural Directives, concern informing and consulting     workers in firms:

         -  Concerning mass lay-offs[3]: a preliminary consultation procedure with worker representatives is     necessary " in good time, " " with the view to an agreement ";  it provides " at least for the possibility of     avoiding or reducing mass lay-offs as well as dimishing their consequences ";  " all useful information "     must be provided " in good time " " in order to allow worker representatives to formulate constructive     proposals ";  the possibility of consulting experts is provided for. 

         -  Concerning transfers of firms  or establishments[4]:  informing worker representatives is required    " in good time before the completion of the transfer ", " in any case before the workers are directly     affected in their employment and work conditions ";  when measures regarding workers are under     consideration by the seller or buyer, consultations are required about these measures  "with the   view to an agreement ";  " the information and consultation process must occur in good time before the completion of any change in the establishment. " 

    These two Directives, concerning the harmonization of national clauses on information and     consultation in the event of mass lay-offs and transfers, have had a large impact,  particularly in     countries with the voluntarist tradition like the United Kingdom. 

    Before revision, the third " structural Directive, " discussing workers' protection in the event of the     employer's insolvency[5], does not contain clauses regarding the informing and consulting of workers. 

    Nevertheless, the Directive concerning European works councils and the proposal for a Directive on the information and consultation of workers, highlighted by questions about the social responsibility of     firms during transnational operations, have the closest links with the European company statute.

    The Directive of 1994, setting up European works councils[6], expressed the need for informing and      consulting employees within a transnational framework. 

    This Directive provides that the specific procedures of representation, information and consultation are     defined by agreement  in firms and groups that work on a Community scale.  In the event of failure of     negotiations after three years, a European works council is set up and functions according to                                " subsidiary regulations " provided for in the appendix of the Directive.  Groups that already had an     agreement on September 22, 1996 " applicable to the whole of the workers, providing for information     and transnational consultation of the workers " are not subject to any obligations arising from the     Directive until their agreements expire and they must be eventually renewed.  The greater part of     agreements existing at the end of 2000 are agreements settled in the latter configuration (agreements      "article 13"). 

    The so-called Renault Vilvoorde affair[7] has brought to light the Directive's requirements concerning     informing and consulting employees, including in the event of agreement. 

    This Directive must be revised based upon the assessment of its implementation[8] and the progress of     other Community clauses dealing with the information and consultation of workers that are under   debate.

    In 1998, the European Commission adopted a Directive proposal concerning the information and     consultation of workers[9].  This Directive proposal establishes a general framework containing, in     particular, a definition of information and consultation as well as a nonrestrictive list of areas covered    in this matter, leaving ample room for the framework to undergo national and negotiated adaptations. 

    While the French clauses already conform to this proposal for the most part, such is not the case in all     of the European countries.  The state of social relations in the United Kingdom is the farthest removed   from the proposed general framework, giving rise to an intense debate amongst Europeans players on    the advisibility of Community intervention in this matter. 

    The French Presidency of the European Union opened this proposal for discussion at the Council.      Under the Council debates of November 27 and 28 2000, the proposal: 

    l Aims " to establish a general framework fixing the minimal requirements for workers' rights to be   informed and consulted in firms located within the European Community, "

    l Expects Member States to choose firms of at least 50 workers or establishments of at least 20 workers as areas of application; 

    l Affirm two principles to adhere to in the definition and implementation of procedures regarding   informing and consulting workers, namely: " the useful aspect of procedures " and " the spirit of co-  operation " between the employer and worker representatives; 

    l Lays out that Member States " determine the conditions of exercising workers' rights to information and   consultation "; " can authorize social partners at the appropriate level, including the firm level, to define   freely and at any time, by negotiated agreement, " these conditions " respecting the principles" stated   above; include clauses protecting the confidentiality of sensitive information as well as " adequate (...)   effective, proportioned, and dissuasive sanctions " in the event of violation of the clauses; 

    l Expects that information and consultation cover, in particular, " the probable development " of activity   and employment as well as " possible advance measures " and " decisions likely to involve large   modifications in the organization of work or in employment contracts "; 

    l Expects that " information is carried out in an appropriate time and fashion, with appropriate details, in   particular open to allowing worker representatives to carry out a thorough examination and to prepare, if necessary, a consultation ";

    l Expects that " the consultation is carried in an appropriate time and fashion, with appropriate details;    that it happens at the relevant level of management and representation according to the subject at   hand;  that it is based on relevant information provided by the employer and based on the opinion that    worker representatives have the right to formulate; that it occurs in such a way to allow worker   representatives to meet with the employer and to get a detailed response to their eventual opinion ";   and that it is carried out " with the prospect of an agreement " when it is a question of   decisions likely to involve significant modifications in the organization of work or employment contracts. 

    Developments relating to the information, consultation, and participation of employees constitute a     major issue for European social law in the coming years, whose compatibility with projects concerning     developing employee shareownership must be examined.

 

Conditions of Employee Participation in Company Bodies

 

 

 

II.  National systems of employee participation in firms' decisions

 

1.  Company bodies and employee participation

    There are two types of joint stock companies in Europe:

         - those where there is a coexistence between the body of management, the Executive Committee,     and a monitoring body, the board of trustees (dualistic structure; usually is the case in Germany,      Austria, and the Netherlands    

         - those where the only body is the board of directors (monist structure), whose management     members have particular importance;  generally is the case in the other European countries. 

    Worker representation in companies' monitoring or administrational bodies (" participation") is provided   for, including in the private sector, in Germany, Austria, Luxembourg, and in the Scandinavian     countries.  Worker representatives usually have the same rights and duties as shareholder     representatives, except in cases of collective conflicts.  This representation is usually of minority     nature, maximum a third of votes, except in Germany. 

    These countries, except Luxembourg, also provide for participation at the group level.   

    There are intermediate forms  between the information-consultation of employee representative     authorities and participation in company bodies: 

         -  in the Netherlands :  recommendation on the appointment of members of the Board of     trustees     and joint meetings of the firm's Works Council - Board of trustees;

         -  in France :   works council delegation at the Board of directors. 

    In the public or  " socialized " sector: broader provisions on worker representation in company bodies,     of either equal or minority nature, are organized in France, Spain, Greece, Luxembourg, and Ireland.   

    This participation of employee representatives in a company's Board of directiors or Board of trustees     ensures that the following functions occur: 

          - control and approval of major decisions in Germany:  Germany is the only country to provide, in     certain cases, equal (mining and iron and steel sector) or quasi-equal (firms of more than 2000     employees) representation of employees and shareholders;

         - information and partnership in decision-making in Austria, the Scandinavian Countries,     Denmark, and Luxembourg,  where representation is of a minority nature:  In Norway, a mixed     assembly, which elects the Board of directors and makes decisions in investment matters, is made up   of one-third employee representatives; in Sweden, employee representatives' participation is likewise     carried out in executive committees and in decision-making and planning structures formed by the     Board of directors; in Austria, in Commissions formed by the Board of trustees.

    Participation also strengthens the information and consultation process exercised by authorities     elected by employee representatives, serves as a method of communication between the trade-union     and elected employee representatives, and serves as a method of communication in and around firms.

 

Modes of intervention of employee representatives

 

 

      

2.  Other modes of employee involvement in firms

    Information and consultation constitute, along with negotiation, the vital method of employee     representatives' involvement in firms' economic decisions:

      l     on a voluntary basis,  excepting mass lay-offs and transfers, in the United Kingdom  and  Ireland  

      l   on an obligatory or general basis in other countries. 

    In economic matters, all representatives have the possibility to be informed, even intervene, in a more    or less systematic way in 

        l   the economic and financial situation of the firm,

        l   changes in staff and the organization of work,

        l   decisions affecting the personnel in a significant way. 

    Concerning mass lay-offs and firm transfers, the national provisions about informing and consulting     staff representatives have been strongly harmonized by Community Structural Directives. 

    But there are quite considerable variations in what concerns firms' competitive, estimated, and     strategic elements.  Especially France and Belgium as well as Norway and Denmark have developed     and systematized the information process on these issues, while the Mediterranean and Anglo-Saxon     countries do so in a voluntary or irregular fashion.  Types of right of survey  strengthen procedures of     information and consultation in France  (accounting expert), Belgium  (legal auditor) and  the     Netherlands  (when there is suspicion of bad management). 

    This process of informing-consulting is supplemented by systems of codetermination in Germany,      Austria,  the Netherlands, Sweden, and Finland.   

    The German and  Austrian formulas of codetermination are based upon approval procedures, veto     right, and joint decision-making.  Codetermination steps in mainly after economic decisions have been    made, for example, in the event of planned large changes or mass lay-offs in an establishment.  An    agreement therefore must be found between management and the works council, under penalty of a     decision being made by an outside mediator.  Other " codetermination " formulas, intervening in large    changes in activity, include in the Netherlands, a pending opinion procedure with the possibility to     appeal, in Sweden and Finland, under negotiations, the obligation to put decisions on hold.

   The clauses concerning employee involvement find themselves today in the media spotlight, thanks to the increase in restructurations of firms on the European scale.

III.  Prospects for employee participation

    Not only has the last decade been that of the construction of a larger Europe, but it has also been a time of  major  changes concerning employee participation in European firms: 

    l  Firms have passed from a time of growth and crisis to that of a permanent process of     restructuration, leading to increasing demands to take into account employees' point of view, not only after, but also before economic decisions. 

    l  " Corporate governance " has become a subject of public debate throughout Europe, causing the   decision-making processes of firms, in which employees' roles still need to be developed, to be     questioned. 

    l  The debate concerning methods of combining social responsibility with the pressures of rapidly     increasing globalization started between firms' social partners, but takes on larger dimensions as an    object of concern to the whole of society.

    l  The realization of the common European market and currency has made Europe an economic,     social, even political entity, increasingly significant for both firms and social players.

    l  The national systems of social relationships are becoming interdependent, European social actions     have been born, and transnational structures of employee representation and involvement, the   European works councils, have been put into place. 

    l  Employee ownership experienced a major development in various countries. 

    l  Community social law experienced a period of very important developments, particularly in labour   rights, and projects initiated about the information, consultation, and participation of employees are   under intense discussion.

    Employee involvement in firms' decision-making bodies and processes points out two issues at play,      the combination of which may seem difficult: 

        l  a performance issue:  taking into account employees' point of view seems necessary in order to                improve the quality of decision-making, to make the decisions more comprehensible, to reduce             time needed to implement the decisions, to improve employees' attitudes in accepting and            carrying out the decisions, to strengthen the interest of employees in the firm, to better develop            the entrepreneurial resources...

        l  a redistribution of power and resources issue:  employees, as important stake-holders in firms,                demand an influence in firms' decision-making processes and in the integration of their interests                in     said decisions.

    The various studies and observations made about existing national practices reveal that these two     prospects are not incompatible with each other, but rather are incompatible with a firm's " way of life "     oriented towards short-term financial logic and confrontation. 

    In Germany, for example, the " Mitbestimmung " Commission, jointly composed of heads of firms and      owner organizations, trade unionists, researchers, and political leaders finished its work in April     1998[10]. 

    This Commission's report notes that in changes of work organization, " retroactive participation is     replaced by a permanent association of employee representatives in a shared process of information,     research, training, and decision-making, there where it seems necessary, whether or not it is required    by law. "

    The report indicates that participation corresponds to a strategic position on diversified quality     production, based on innovations in method, of which flexibility in organization and technology, the   value of the " human capital, " and co-operation within firms favored by participation constitute the     trump cards.  It deems that in the search for long-term competitiveness, participation has generally     allowed a structural change negociated and accepted by firms according to increased market     demands.

    Rather similar conclusions arise in a study analyzing the Anglo-American, German, and Dutch   models of firm management carried out by the Dutch planning center[11].

    Underlining the difficulty in distinguishing the role played by each different constituent element of a     system, this study brings up several possible results of employee participation on a firm's performance.      On the down side, there is the slowing, even hindering, of the decision-making process, the pursuit of        items of self-interest by employees, the embarrassment in external reassignments of personnel.  On   the other hand, the quality of decision-making, the creation of relationships of trust in and around the     firm, the professional quality and internal flexibility of employees, the long-term improvement of the   firm's performance...  they all result in a positive way from participation.

    However, the central question in participation, as well as employee ownership, is the reconciliation of     the " social " and " economic " points of view. 

    Strong public reactions to social plans of groups showing good economic and financial results indicate     that the debate on this question is far from being theoretical and interests the whole of society. 

    The debates between social players on a firm's role, its responsibility towards employees and towards     society are often animated and of diverging opinions.  The question is generally put in terms of     priorities.  For some, it is necessary first to guarantee the economic efficiency, then to discuss social     consequences.  For others, the social aspect is the absolute first priority.  But a meaning unto itself     regarding the confrontation between economic and social interests, local and broader interests, short-    term and long-term interests, private and public interests, shareholder and employee interests' point of     view is difficult to imagine.  

    Nevertheless, various analyses makes its conception more possible:

    l  In 1998, Professor Arie de Geus of the London Business School received the McKinsey prize for a             study devoted to this issue, showing that the lasting development of firms' competitive advantage            involves a mutual valorization of the human and financial " capital. " 

    l  A group of European experts' report on " managing change " [12] states that:  " the group is convinced             that firms are not only responsible to their shareholders but also to other stakeholders. "

    l  In Germany, the " Mitbestimmung " Commission, with all its comstituents, indicated that[13] " when            participation occurs in a spirit of co-operation, it constitutes a means of social integration as well as             an effective means of managing the firm by combining social responsibility and economic            reasoning."

    l  A report by a group of experts, under the coordination of Alain Supiot[14],  on " the future of work, "             has to say on this subject:  " the information, consultation, and participation of workers within firms            will play a starring role in collective working relationships.  Community initiatives directed at            encouraging participation within European firms that are already approved, or waiting to be, cannot         help but stimulate the importance of collective bargaining when adaptability and development of         firms' competitiveness is desired, and the importance of their decisions on employment. "

        " The multinational corporations and groups of firms are acquiring an increasing importance, and             collective     bargaining developed within these structures will also become more and more important. "

Developments concerning the transnational information, consultation, and participation of employees constitute a major issue in firms within the next years, whether or not they adopt the European company statute.  Reflections made about employee ownership are devoted to integrating the partnership of employees into the life of the firm. 

 

Evelyne Pichot, April 2001