Board-level employee participation examined

Since 1993, Slovenia has had legislation in place on worker representation on the supervisory and management boards of companies. Notably, in larger joint stock companies, workers' representatives may make up between a third and half of the members of the supervisory board. However, it appears that, after 10 years of existence, the relevant legislation is far from being fully implemented.

The 1993 Law on the Participation of Workers in Management (LPWM) regulates employee participation (notably in the form of information, consultation and co-determination), providing for two channels of participation, similar to those found in many current EU Member States:

  • worker representation on the supervisory and management boards of companies; and
  • a representative body elected by workers - the employees' council (svet delavcev) - or a representative 'workers' trustee' in smaller companies. Employees' councils may conclude 'participative agreements' with employers, which are regarded as a further form of employee participation supplementing the two main forms, although these are not collective agreements in the traditional sense and require the existence of an employees' council.

Employees' councils were examined in a previous EIRO article (SI0311102F), and here we look at board-level employee representation only

Board-level representation

Participation through worker representation on company boards is not compulsory, but is the legal right for workers. It is possible only if an employees' council exists in the company, as it is the council that appoints the workers' representatives on the supervisory board and the 'workers' director' (see below).

Company structure

Slovenian companies may have a single-tier board structure (ie a single board of directors), a two-tier structure (ie with a supervisory board and management board) or some other structure. According to the Law on Companies, companies must take one of the following forms:

  • partnerships - general partnership, limited partnership, or 'silent' partnership; and
  • companies with share capital - limited liability company, joint stock company (dd) and limited partnership with share capital.

The Law on Companies explicitly requires a management board only for joint stock companies and a two-tier structure with a supervisory board overseeing a management board only for joint stock companies which meet certain criteria - such as having over 500 employees - and where a supervisory board is determined by the statute of the joint stock company.

Therefore one can assume that statutory board-level employee representation, especially on the supervisory board, is in practice possible in only a limited number of companies, mainly larger joint stock companies. This implies discrimination against workers in companies with other management structures, although in these companies such participation may be determined in the statutes of the company or in a participative agreement between the employees' council and employer (see 'Discriminatory regulation of the co-determination'[in Slovene], M Gostiša, in Legal practice, No. 333, 1995).

It should also be noted that workers can influence company decision-making as co-owners. One of the consequence of the Slovene model of privatisation is that in a number of companies at least one third of workers are co-owners of the firm's capital (through internal distribution of shares and internal buy-outs).

Rights of the supervisory board

In Slovenia, the legal rights of the supervisory board are as follows (see questionnaire response for Slovenia, Polonca Končar, Luka Tičar and Bogdan Kavčičtaken, Comparative study on workers’ participation at board level in accession countries, European Trade Union Institute, October 2003):

  • to appoint and to dismiss members of the management board;
  • to inspect and approve the annual financial statements;
  • to receive regular reports from management on the planned business policy and other matters of principle concerning business operation, the profitability of the company and in particular of its equity capital, the course of business and in particular the turnover and financial position, and transactions which might significantly influence the profitability or solvency of the company;
  • to request a report from the management board concerning company matters;
  • to inspect and review all company documents;
  • to decide on the remuneration of the members of the management board;
  • to approve or consent to substantial organisational changes within the company (major issues of management policy);
  • to call a shareholders’ meeting; and
  • to adopt the annual accounts.

Employee representation

Ths Slovenian legislation on board-level employee representation is influenced by the German regulations in this area. This is understandable, because Slovene company law also relies on German legislation. The participation of workers in company bodies is thus (according to Article 78 of the LPWM) exercised through:

  • workers' representatives on the supervisory board of a company or of a cooperative; and
  • a workers' representative in the management board of a company, known as a 'workers' director'.

Supervisory board

The proportion of workers' representatives on the supervisory board is determined by the statute of the company concerned, but must be at least one third of all members and not greater than one half . The president of the supervisory board is always a representative of the shareholders and holds a casting vote (Article 79, as amended by the law of 20 June 2001 amending the LPWM - see below).

Workers' representatives on the supervisory board are elected and recalled by the employees' council, which informs the assembly of the company's shareholders about the representative chosen. The method of election and of recall of workers' representatives on the supervisory board is determined by the rules of procedure of the employees' council (Article 79).

Workers' representatives on the supervisory board represent the interests of all workers within the mandate of the supervisory board, in accordance with a special law and with the statute of the company (article 80).

Workers' representatives on company boards receive the same remuneration as the other members of these bodies. There are no legal differences between the rights and duties of the workers' representatives and the other members of the supervisory board.

Workers' director

A relevant company with more than 500 employees has a 'workers' director' (similar to the 'employee director' or Arbeitsdirektor in German co-determination law - TN9809201S), who is a member of the management board of the company. A proposal for the appointment of a workers' director is submitted by the employees' council. In companies with fewer employees, a workers' director may be appointed if so determined by an agreement between the employees' council and the employer (Article 81).

As a member of the management board of the company, the workers' director is appointed by the assembly of the shareholders of the company, determined in accordance with a special law. The competent body appoints the workers' director by a majority of votes of the members present (Article 82). If the workers' director is is not appointed in accordance with this procedure, a committee - made up of the president of the shareholders' assembly and an equal number of shareholders' representatives and workers' representatives (the employees' council members) - must within one month after the vote propose a joint candidate to the assembly. Candidate are appointed as workers' director if they gain the majority of votes of the assembly members present. If no workers' director is appointed in this way, the employees' council may request that one is appointed by the competent court (Article 83).

The workers' director acts on behalf of, and represents the interests of, workers regarding personnel and social issues within the framework of the general rights and duties which appertain to all members of the company management in accordance with a special law and with the statute of the company (Article 84).

Controversy over level of workers' representation

Paragraph 1 of Article 79 of the LPWM was amended by the law of 20 June 2001 to its current formulation - ie that workers' representatives must make up at least one third but not more than one half of all supervisory board members, with the proportion to be set by the statute of the company concerned. The previous text provided that the proportion of workers' representatives on the supervisory board should be determined by the company's statute, but could not be lower than one third in companies with up to 1,000 employees, and not lower than half in companies with more than 1,000 employees.

The Constitutional Court of the Republic of Slovenia (CCRS) found (in ruling No. U-I-302/97 of 15 June 2000) that this paragraph was in conflict with the Constitution and that parliament should thus act to end this conflict. The CCRS stated that obligatory parity representation of workers and shareholders on the supervisory boards of larger companies excessively restricted the right of the owners (shareholders) to property and to free economic initiative. If the status and the competences of the supervisory board allowed the interest of employees to prevail in the board, the shareholders would lose their decisive influence on the company. Because the previous rules did not regulate decision-making in cases of parity representation, this situation could cause unnecessary difficulties and disputes or even block decision-making, the Court found. The consequence could be that supervisory boards would not be used in cases where they were not obligatory according to the law.

Experts at Studio Participatis - Study Centre for Industrial Democracy (Studio Participatis - Študijski center za industrijsko demokracijo) claim that the amendment to the law consequently made in 2001 limits excessively the right of workers to board-level participation. They state that the CCRS did not consider the obligatory parity composition of supervisory boards as unconstitutional in itself and that the Court demanded only two necessary corrections of the previous paragraph:

  • abolition of the possibility that the proportion of workers' representatives on the supervisory board could be greater than a half in companies with over 1,000 workers; and
  • rules on decision-making in cases of worker-shareholder parity on supervisory boards which would ensure the decisive influence of shareholders' representatives when taking decisions.

Practice

At present no state body is responsible for systematically monitoring board-level participation in practice, by compiling statistical data etc, so no official data are available on this issue. The only comprehensive evaluation of the implementation of the LPWM was carried out in 1996 (Analysis of the implementation of the LPWM, B Kavčič, commissioned by the Ministry for Labour, Family and Social Affairs. Ljubljana, October 1996), covering the first three years of the LPWM's implementation. The empirical findings of this study are no longer relevant, but it recommended that the Ministry for Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve, MDDS) or the Statistical Office of the Republic of Slovenia (Statistični urad Republike Slovenije) should be made responsible for the collection of data. The minimum data which it was recommended should be collected on companies with board-level participation included: the legal form of the companies; the sector of activity; workforce size; the structure of capital ownership; the existence of employees' councils and their composition; the composition of management bodies; and the costs of participation.

The Association of Employees’ Councils of Slovene Companies (Združenje svetov delavcev slovenskih podjetij, ZSDSP), which is organised within the Studio Participatis - Study Centre for Industrial Democracy, had 92 member employees’ councils at the end of 2002. It has drawn up a list of larger companies which have a workers’ director, providing the name of workers’ director, the name of the company and the address of its head office. The list does not include all relevant companies, because the data are collected unofficially and unsystematically, but it names the following 27 companies: Gorenje dd Velenje; Intereuropa dd Koper; Peko dd Tržič; Sava dd Kranj; Telekom Slovenije; Lek dd Ljubljana; Alpina dd Žiri; Merkur dd Kranj; Petrol dd Ljubljana; Krka dd Novo Mesto; Mura dd Murska Sobota; Zavarovalnica Triglav dd Ljubljana; Iskraemco dd Kranj; Tekstilna tovarna Prebold dd; Iskra Kondenzatorji dd Semič; Cinkarna dd Celje; Lip dd Bled; Luka Koper dd; Vipap Videm dd Krško; Državna založba Slovenije dd Ljubljana; Cimos dd Koper; HIT dd Nova Gorica; SCT dd Ljubljana; Slovenske železnice; and Elkroj dd.

Commentary

One of the unresolved questions of the LPWM is the role of the workers’ director on management boards, which is contradictory - are they a representative of the workers or a member of the management? If they are workers’ representatives, their activity can be contrary to the activity of the other members of the management. If they are members of the management, they are responsible to the owners and not to the workers. In this respect the LPWM and the Law on Companies are not harmonised.

After 10 years of existence the LPWM is far from being fully implemented. There is also no board-level participation in public administration and only limited participation in public services. (Stefan Skledar, Institute of Macroeconomic Analysis and Development, IMAD)

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