German social partners react to UK Presidency's proposal for European Company Statute

In April 1998, German employers' associations and trade unions published their standpoints on the recent proposals made by the UK Presidency of the European Union on the worker involvement provisions of the draft European Company Statute. The social partners' statements, as always, displayed diverging points of view on the form and scope of worker involvement in the European Company.

The creation of company law on an European scale promotes the idea of a "European Company", whereby the day-to-day difficulties experienced by companies - in areas such as cross-border mergers, differing tax and company law and other administrative problems - could be reduced. Companies would than have the choice of opting out of national company law and operating under rules governed by EU company law. These European-scale companies would lead to a genuine international market within the EU and would increase the companies' competitiveness in a global market. Over the last 20 years, the discussion around the European Company has mainly been focused on the issue of worker involvement in the new type of firm, and up until now a European Company Statute has not been achieved.

The European Commission's proposals

The first draft of a European Company Statute (ECS) was issued by the European Commission in 1970. The Statute provided for the European Company to have a "dualistic" board structure with a supervisory and a management board. Similar to the provisions on co-determination introduced in Germany in the 1950s, the supervisory board would have been contained, alongside shareholder representatives, employee representatives forming up to half of the total. In addition, the European Company was to have a "European Works Council" with a full range of information, consultation and co-determination functions, based closely on the German model.

This original proposal - and a new draft issued in 1975 which changed the composition of the supervisory board (one-third shareholder representatives, one-third employee representatives and one-third co-opted by the two sides) - met substantial opposition within the Council of Ministers and the negotiations finally broke down in 1982. In 1989, the Commission came up with a new proposal. Its proposed Directive on employee participation, accompanying the Regulation on the European Company, shifted the emphasis away from the model outlined above and took a more flexible approach. There was a new option to choose between a German-style two-tier board and an "Anglo-Saxon" one-tier board system.

A subsequent amended Commission proposal in 1991 added a "French/Belgian-style" model to the two models which had been suggested in the former draft. The EU Member States should have the right to choose between a range of options regarding the three models: they could provide for all three, or prescribe only one model. For the individual company, the location of its head office would be decisive for the model of employee participation. The new draft also provided for so-called "free negotiations" between employer and employee representatives to arrange the degree and type of employee participation. The emphasis - and one of the main problems - in all subsequent ECS proposals was to be on the question of free negotiations. The 1991 proposal also mentioned that in all cases there had to be minimum "standard rules" on participation to apply where employer and employee representatives could not agree.

Despite the various changes, all these proposals for the ECS failed, not least because of the question of worker involvement.

The Davignon report and subsequent proposals

The idea of "standard rules" and "free negotiations" appeared again in the May 1997 final report of the Davignon group of experts on "European systems of worker involvement" (EU9705128N). The group had been convened by the Commission in an attempt to break the impasse on the ECS. The Davignon report argued that "the first principle which must govern negotiations is complete freedom for the parties and the absence of any minimum requirements." If an agreement cannot be reached, "reference rules" should come into force, relating both to worker participation on the European Company board and to the transnational dimension of worker information and consultation in the Company. The group suggested that, under these reference rules, workers' representatives should "account for a fifth of the members of the management board or supervisory board, with a minimum of two members". The objectives of the Davignon report concerning worker information and consultation resembled those of the European Works Council (EWC) Directive, though under the reference rules the details of the information and consultation arrangements would have been rather different.

The Davignon report restarted debate on the ECS, with the Luxembourg EU Presidency of the second half of 1997 producing a new text. On taking over the Presidency in the first half of 1998, the UK produced its own proposals in February/March 1998 (EU9803193N). As in the Davignon report, the first priority is placed on free negotiations between management and a Special Negotiating Body (SNB) of employee representatives to reach an agreement. In contrast to previous proposals, workers' representatives would have the right to be supported by trade union representatives, who would have an advising and/or coordinating role within the SNB, and the right to be present during negotiations between management and employee representatives. If these negotiations failed, reference rules would again come into force. On information and consultation, the UK Presidency suggested that the rules be adjusted to those of the subsidiary requirements of the EWC Directive.

Like the proposal of the Davignon group, the UK Presidency holds the view that one assumption of free negotiations is that there are no "minimum standard rules" at all for the content of agreements. In the absence of an agreement, however, the employee representation on the board would be equal to the quantitatively highest level found in any of the companies participating in the European Company. This would mean, for example, a quantitatively high level of worker representation on the board if there were German involvement in the European Company, or a quantitatively low level if the European Company were founded by Belgian and Italian firms. However, the SNB would have the possibility to agree to a lower level of participation, or even not to open negotiations at all. This means that there would be the possibility of reducing workers' participation on the board to a "zero-option". However, the final structure of the reference rules is still not clear. The tendency is unmistakably towards a "before/after regulation" - ie participation arrangements in the participating companies should be taken into account in deciding on participation in the European Company.

Examining the development of the various proposals for an ECS, a considerable watering-down of the originally planned binding board-level participation rules can be noticed. The number of worker representatives on boards decreased from one-half to one-third to the possibility of one-fifth in the Davignon report's suggested reference rules. Now the UK Presidency's proposal emphasises free negotiations between management and worker representatives and, in its reference rules, the existing participation models at national level.

The new UK proposal did not succeed in achieving adoption in the Council of Ministers during the first half of 1998.

Opinions of German employers' associations

In April 1998, a joint press release was issued by the Confederation of German Industries (Bundesverband der Deutschen Industrie, BDI), the Confederation of German Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), the German Association of Chambers of Commerce (Deutscher Industrie- und Handelstag, DIHT) and the Confederation of German Assurances (Gesamtverband der Deutschen Versicherungswirtschaft, GDV). The leading employer and business organisations expressed their "surprise" about the fact that the German Federal Government seems to back the UK Presidency's proposal. Although German employers, in principle, support the creation of a ECS as an important contribution to the completion of the European Single Market, they have strongly criticised the current ECS draft because it might privilege the German co-determination system.

Since the UK proposal foresees in some circumstances the introduction of the quantitatively highest existing level of employee participation in company boards, this would mean that, with the involvement of a German company, a newly created European Company would usually have to take over the German co-determination system. According to German employers, foreign investors often see the relatively high standard of German co-determination as a significant competitive disadvantage which might prevent them from investing in Germany. The UK proposals might therefore lead to "discrimination" against German enterprises in comparison with their European competitors, because it would become more difficult for German companies to find foreign partners for the creation of a European Company. While companies from other countries could take full advantage of the new ECS, German companies would be widely excluded.

Opinions of German trade unions

In response to the employers' statement, the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) has warned the employers' associations that "due to European regulations we shall be forced to say goodbye to the German model of participation." That would be "neither in the interests of the enterprises nor the employees". On the contrary, an undermining of the German co-determination system through the ECS would help to damage the idea of European unification among German employees.

In another statement, the DGB has demanded that the ECS should at least safeguard the following points:

  • the building of a European Company should be exclusively restricted to a new transnational holding company or a new European subsidiary. There should be no easy transformation of a national to a European Company;
  • there should be no European Companies without clear provisions for employee participation;
  • the form and scope of participation should be negotiated between the employer and the employee representatives, including the trade unions responsible;
  • there should be no "zero-option" for employee participation within the European Company;
  • there must always be the possibility of nominating external trade union officers as employee representatives on supervisory or management boards;
  • in the event of negotiations regarding employee participation failing, there must be clear minimum standards for employee participation, including at least one-third of the seats on the supervisory board or two seats on the management board; and
  • in the event of a merger between a foreign and a German company there must be a guarantee that the new European Company maintains German co-determination rights.

Commentary

Since Germany has a rather unique system of co-determination, the current discussions about the ECS and its impact on employee participation are of particular interest. The reaction of the German social partners' organisations to the recent UK proposal for a ECS, however, reveals significant differences in their positions on the further development of German co-determination within an even more Europeanised framework of industrial relations. Employers' associations and trade unions regard free negotiations as the ultimate way to attain a more efficient system of worker involvement. But within their comments on the UK Presidency's proposal, the main arguments concentrate on the case where negotiations between management and worker representatives fail. It seems that the parties have only little confidence in free negotiations - and that is not surprising. Most of the previous "free negotiations" between the German social partner organisations on a larger scale, like those over the attempted "Employment Alliance" (Bündnis für Arbeit) (DE9702202F), have failed to reach a compromise due to differing basic ideas.

If the method of free negotiations is used, the quality of employee participation will depend on the power relations of labour and capital at company level. However, the position of employers in free negotiations is usually significantly better than that of the employees, due to the fact that the employees are not able to develop any kind of pressure at European level. Because it is to be one of the main principles within the ECS to negotiate "in a spirit of cooperation" in order to come to an agreement, it is rather uncertain what kind of pressure employee representatives might be able to use - whether or not, for example, they are allowed to call upon workers to strike.

Having seen that the ECS proposals had developed in favour of employers' interests, it is not hard to understand why they disapprove of the UK Presidency's text. They see this proposal as being in line with the European Commission's text of 1970, when the German model of participation was to be obligatory. However, now that almost 30 years have gone by and the German model of participation has shown itself to be a good and effective one, there is arguably no need to worry about it. The argument that the German model contains a "serious locational disadvantage that worsens the position of German enterprises on the world market" cannot be maintained any longer (DE9806267F). The latter was recently proven once again when the newly merged Daimler-Chrysler company decided to come under German company law, including its implications for co-determination (DE9805264N). (Jochen Gollbach, Carl-von-Ossietzky-University Oldenburg and currently trainee at the Institute for Economics and Social Science (WSI))

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Reactie toevoegen