European Company Statute Research Articles

The European Company Statute and the United Kingdom

The European Company Statute and the United Kingdom

Conditions for the development of employee representation in corporate governance in European countries

Background: Employee representation in corporate governance bodies already has an established position in European countries. It refers to the two-tier model of governance, with the supervisory board and management board rather than the one-tier model with a board of directors. The development of such representation is influenced by the EU authorities implementing long-term processes to harmonize solutions in member states. Such representation has also been developed in the Nordic countries under the influence of democratization processes. However, in several countries, the processes of limiting such representation can be observed, and this is related to the political conditions (the strengthening of right-wing parties) and a difficult economic situation caused by the 2008 financial crisis.
 Research purpose: The purpose of the study is to identify factors that affect changes in the scope of such representation, as well as to determine their effectiveness based on selected case studies.
 Methods: In order to achieve the research objective, a critical analysis of the subject literature and appropriate legal regulations was used. The analysis covered, among others, texts published in renowned journals concerning industrial relations (European Journal of Industrial Relations, Industrial Relations Journal), while problems from the legal perspective (Journal of Comparative Law Study) were also analyzed.
 Conclusion: It can generally be stated that conditions in recent decades have fostered the development or strengthening of employee representation in corporate governance bodies. The attempts to harmonize employee representation in governance made by the EU authorities should be assessed positively, although their formal results are relatively modest and are limited primarily to the European Company Statute. Positive changes can also be observed in the Nordic countries, where the existing conditions, including primarily the democratization processes, forced the modification of the one-tier model by creating the possibility of including employee representation on the board of directors. At the same time, pressure can be observed in many countries to limit or eliminate employee representation in governance.

Employee Representation in Corporate Governance: Part of the Economic or the Social Sphere?

Observers of the European Company legislative process identified the then-competing political projects as being driven in one case by the desire for harmonization, whereas the other focused on a flexible approach to regulating employee participation. Since the European institutions have definitively adopted the latter approach in the meantime, this reading became obsolete. This ETUI Working Paper proposes to adopt a new analytical framework that will help give better insight into what is at stake in the drafting of European legal rules on corporate governance and worker participation, such as the pending European Private Company Statute. It argues that the regulatory game at European level is revealed by the competition between the players' two different world views: (1) one in which the economic and social spheres are viewed as being independent and disembedded, like the fields of company law and labour law; and (2) another in which, on the contrary, the two spheres are seen as being embedded in such a way that a comprehensive regulation should encompass both legal fields. Applying this analytical framework to an examination of the positions of the ETUC and the European Commission on regulating board-level employee representation at transnational level reveals the extent of the competition, hence explaining recent legislative difficulties.

The European Company (SE) Statute: up against increasing competition?

Companies have been able to adopt the statute of a European Company (Societas Europaea or SE) for some six years now.1 In the meantime, a number of alternatives to the SE statute have emerged, including the cross-border merger and the proposal for a European Private Company (Societas Privata Europaea or SPE). This article shows that current SE legislation can be considered as the temporary pinnacle of employee involvement at EU level, with the main danger for employee participation rights seeming at present to come from European Court of Justice case-law on the freedom of establishment, which poses fundamental problems to participation.

Are you being served? The consultation procedure on the functioning of the European Company Statute

After a decision-making process lasting 30 years, the EU Council finally adopted the general principles for a Regulation on the Statute for a European Company (Societas Europaea, hereafter SE) and the Directive with regard to the involvement of employees in European Companies (SE Directive) in December 2000. The main purpose was to enable companies to operate their businesses on a cross-border basis in Europe under the same corporate regime. The SE legislation entered into force on 8 October 2004 and, by mid-2007, all EU countries had transposed it into national law.The SE Regulation required the European Commission to present a report on its application, including proposals for amendments where appropriate, five years after its entry into force. DG Internal Market and Services commissioned Ernst & Young to carry out this study. The study report was finalized in December 2009 and published on the Commission’s website in March 2010. In spring 2010, the Commission launched an online consultation via its website to test the results of this study (European Commission, 2010a), while at the same time organizing a conference on the SE statute. The aim of these activities was to examine the findings of the Ernst & Young study and to provide the Commission with input on issues relevant for the assessment (European Commission, 2010b). Consultation participation was modest: the Commission received 57 different responses, with two groups dominating: business consultants and academia. This article is a follow-up to an earlier critical assessment of the procedure used.

Employee participation in the EU: The long and winding road to legislation

Over recent years, the EU has managed to adopt three important measures on employee participation: the European Works Councils Directive (1994, recast in 2009), the European Company Statute (2001) and the Directive on the Information and Consultation of Employees (2002). While the emergence of forms of ‘soft’ law and ‘multilevel governance’ were preconditions for the adoption of these directives, this article draws attention to the significance of the changing rationales mobilized by the Commission to justify them. Rationales have included company law harmonization; prevention of social dumping; protection of workers’ rights; and participation as a ‘productive factor’. As the EU has widened membership and deepened economic integration, the Commission has sought to demonstrate in particular that employee participation may act as a ‘productive factor’ for companies experiencing business turbulence. Such a rationale, though generally aimed at employers, challenges unions and employee representatives to ensure that the new measures genuinely promote workers’ interests.

Perspectives of European Company Law (Prospettive Del Diritto Societario Europeo) (Italian)

The Freedom of establishment for companies introduced by the Treaty of Rome left member States the freedom to define the criteria that identify the company seat and the modalities to transfer its seat. This article describes the various solutions that have been tried in the last 50 years to allow full freedom of establishment, from the initiatives adopted at the beginning of the European Communities to the current legislative and non-legislative proposals. At first a convention was signed among the then six Member States to coordinate national legislations on conflicts of laws and international private law, that is those national provisions which disciplined the exit from and entrance in their legal systems of a company. The convention allowed companies to move their seat from one Member State to another on condition to apply the relevant provisions of both national legislations. The convention was never ratified by The Netherlands because it did not allow to move the company seat subject only to the provisions of the host Member State. At that time (1968) The Netherlands were convinced to have the most flexible company legislation and saw itself as a potential beneficiary of the migration of companies’ seat from other Member States. Since it was clear that fear of forum shopping was as an obstacle to full freedom of establishment, the European Commission then adopted an action plan aimed at harmonizing the company legislations of the Member States to reduce opportunities for forum shopping in the first place. Such a choice produced important results, leading to the adoption of several company law directives. However, the harmonization process stopped in the mid-1980s because of the fundamental differences among the Member States, in the first place in terms of the mandatory participation of employees to companies’ management and groups of companies. This is the main reason why only some of the legislative directives and regulations instrumental to full freedom of establishment have been adopted (European Company statute and directive Cross-Border Mergers) accompanied by restrictions to the regime of the seat and by mandatory requirements on employees’ participation to company management, while the 14th directive on seat transfer has not been adopted. In the last few years the European Court of Justice has adopted a series of rulings which pave an alternative way towards freedom of establishment based on mutual recognition of the national seat regimes. Finally, with the proposal for a European private company statute the European Commission has chosen to circumvent the differences among national company law provisions by allowing wide recourse to freedom of contract in the drafting of company statutes. Another obstacle to freedom of establishment is represented by the absence of a European company tax regime sufficiently harmonized to prevent that company mobility be a vehicle for fiscal forum shopping and that Member States adopt restrictive taxation provisions. The experience of company mobility in the United States indicates that full freedom of establishment is possible only in a context characterized by the absence of strong differences in the company law and taxation provisions at State level. Company mobility is accepted because it is linked to the different efficiency of the State Courts and legal systems in general and to moderate differences in company law provisions at State level. On the other hand, in the European Union the potential efficiency gains in terms of lower cost of capital that could be brought through full freedom of establishment are probably higher than in the United States because of the greater differences in the efficiency of the Courts and of the legal systems among the Member States.

The Regulation of Transnational Corporate Identity in Europe

Rules governing the corporate identity of multinational companies are national in nature, with the one exception of the European Company Statute. For the first time in the history of capitalism, this statute enables companies to jettison national rules of incorporation in favor of an international legal identity. This article explains why the statute was the most protracted legislative initiative in the history of European integration and why its final form served significantly to constrain the international market for corporate identity in Europe. Its explanations are anchored in an institutional theory of government behavior that draws on the varieties of capitalism and historical institutionalism traditions. The article concludes with suggestions for how these traditions can be extended beyond their normal purview as a means to giving analytical and substantive nuance to the study of international rule-making.

The European Company Statute: Implications for Industrial Relations in the European Union

■ This article explores the origins and development of the European Company Statute, with particular reference to its provisions for employee involvement, both through a `representative body' and through board-level participation. European companies can be seen as `hybrid' organizations in which common European-level elements are combined with supplementary features deriving from the legislation of the country in which they are registered. The article outlines the types of company that have opted so far to become European companies and analyses a variety of the issues raised, including the range of options that now confront management in setting up such a company, the position of the unions and the `Europeanization' of company boards. The principal conclusions are that the Statute represents a further step in the development of `multi-level governance' of the EU, and that it will increase regulatory competition among the member states.

Polar Approaches to Regulating Cross-Border Banking: Nordic and Antipodean Routes to Financial Stability

The growth of banks operating across national borders through branches poses problems for the regulatory and supervisory authorities, which are historically organised on a national basis, particularly in relation to their responsibility for financial stability, crisis resolution, deposit insurance and other aspects of the safety net. This article compares and contrasts two solutions to these problems that are being developed: the first by the Nordic-Baltic countries for handling Nordea, which wishes to take advantage of the European Company Statute in the legal framework of the EU/EEA, and the second by New Zealand, where most of the banks are Australian-owned. The first case reflects an attempt at a joint approach and a universalist solution that seeks greater harmonisation, while the second case reflects a territorial approach and the recognition of differences. Both show that there is already a much wider problem that needs to be addressed, even when banks operate across borders through subsidiaries. Halfway houses between internationalisation and renationalisation of responsibility seem rather less plausible routes to success, even if they are couched in terms of careful memoranda of understanding.

The European Company Statute in the Context of Freedom of Establishment

One of the key features of the new Europe-wide legal form “European Company” (“Societas Europaea” or “SE”) is the possibility of transferring the company's seat from one Member State to another without having to be wound up or to re-register. As this possibility does not exist for companies formed under national law, the formation of an SE will often present the only possibility for companies to transfer their incorporation and corporate headquarters between Member States. This is a big advantage and a milestone towards the European Internal Market. However, some doubts remain as to the practicability of the system. The mandatory linkage of the head office to the registered office within the same Member State according to Article 7 of the SE Regulation is very problematic and, in light of recent ECJ decisions such as Centros, Überseering and Inspire Art, may violate EC primary legislation. Why should companies that are formed under national law be allowed to have the head office in a Member State different from their registration state, while an SE—as an instrument of Community law and a symbol of the Internal Market—is not? Furthermore, the detailed procedural rules laid down in the Regulation are sometimes overprotective and may significantly reduce the attractiveness of the SE's mobility. It is argued that Article 7 of the SE Regulation is secondary law that itself is inconsistent with the (primary) EC Treaty. Furthermore, the Member States also tend to be overprotective when enacting safeguard measures for the benefit of creditors, minority shareholders and employees. Here again, freedom of establishment does not allow protectionist measures that contravene the gist of the SE's mobility.

Financial stability in a world of cross-border banking: Nordic and Antipodean solutions to the problem of responsibility without power1

The growth of banks operating across national borders through branches poses problems for the regulatory and supervisory authorities, who are historically organised on a national basis, particularly in their responsibility for financial stability, crisis resolution, deposit insurance and other aspects of the safety net. This paper contrasts two solutions to the problems that are being developed: the first by the Nordic–Baltic countries for handling Nordea, which wishes to take advantage of the European Company Statute in the legal framework of the European Union (EU)/European Economic Area (EEA) and the second New Zealand, most of whose banks are Australian owned. The first reflects an attempt at a joint approach and a universalist solution that seeks greater harmonisation, while the second reflects a territorial approach and the recognition of differences. Both show that there is already a much wider problem that needs to be addressed even when banks operate across borders through subsidiaries. Halfway houses between internationalisation and renationalisation of responsibility seem rather less plausible routes to success even if couched in terms of careful memoranda of understanding.

The Directive on Employee Involvement in the European Company: Its Role in European Corporate Governance and Industrial Relations

Abstract: This paper assesses the likely contribution of the European Company Statute (ECS) and accompanying Directive on employee involvement to the development of participatory workplaces in the European Union. The argument advanced is that the Directive has economic aspirations that outweigh its social objectives and that the prospects for employee participation are cosmetic rather than real. An improved mutual understanding between commercial actors and labour relations actors is required in order to appreciate more fully the interaction between corporate structures and employment rights. More effective dialogue between participants in the two fields is necessary, without which employee representatives have little choice but to pursue a stronger adversarial approach to industrial relations.

European Banking Integration: Don’t Put the Cart before the Horse

This paper reviews the progress in European banking integration over the last twenty years, and evaluates the current system of banking supervision and deposit insurance based on ‘home country’ control. The public policy implications to draw from the paper are threefold: First, after a relatively slow start, European banking integration is gaining momentum, in terms of cross‐border flows, market share of foreign banks in several domestic markets, and cross‐border M&As of significant size. If this trend continues, the issue of adequate supervision and safety nets in an integrated European banking market will become even more pressing. Second, although until recently banks have relied mostly on subsidiary structures to go cross‐border, this is changing with the recent creation of the European company statute, which facilitates cross‐border branch banking. A review of the case of the Scandinavian bank, Nordea Bank AB, helps to understand some remaining barriers to integration, and the supervisory issues raised by branch banking. Third, it is argued that the principle of ‘home country’ supervision is unlikely to be adequate in the future for large international banks. Because the closure of an international bank would be likely to have cross‐border spillovers, and because some small European countries might be unable to finance the bail‐out of their very large banks, centralization, or at least Europe‐wide coordination, of the decision to close or bail‐out international banks is needed. This raises the issue of European funding of bail‐out costs, European banking supervision, and European deposit insurance.

European Banking Integration: Don't put the Cart before the Horse

This paper reviews the progress in European banking integration over the last twenty years, and evaluates the current system of banking supervision and deposit insurance based on home country control. The public policy implications to draw from the paper are threefold: First, after a relatively slow start, European banking integration is gaining momentum, in terms of cross-border flows, market share of foreign banks in several domestic markets, and cross-border M&As of significant size. If this trend continues, the issue of adequate supervision and safety nets in an integrated European banking market will become even more pressing. Second, although until recently banks have relied mostly on subsidiary structures to go cross-border, this is changing with the recent creation of the European company statute, which facilitates cross-border branch banking. A review of the case of the Scandinavian bank, Nordea Bank AB, helps to understand some remaining barriers to integration, and the supervisory issues raised by branch banking. Third, it is argued that the principle of home country supervision is unlikely to be adequate in the future for large international banks. Because the closure of an international bank would be likely to have cross-border spillovers, and because some small European countries might be unable to finance the bail-out of their very large banks, centralization, or at least Europe-wide coordination, of the decision to close or bail-out international banks is needed. This raises the issue of European funding of bail-out costs, European banking supervision, and European deposit insurance.

Workers' involvement in the European Company — the SE Guidelines of the European Metalworkers Federation

In June 2003 the Executive Committee of the European Metalworkers' Federation (EMF) adopted guidelines for negotiations on the introduction of a European Company (SE) under the European Company Statute. These guidelines are binding on EMF-affiliated trade unions. The guidelines set out a common understanding and political decisions reached within the EMF with regard to the European Company Statute, and, more specifically, the information, consultation and participation rights of workers in an SE. These rights involve the possible participation of workers' representatives and/or trade union representatives in the boards of directors or supervisory boards of SEs. The development of these guidelines was not an easy exercise for the EMF because of national differences on this issue, in particular with regard to participation rights. However, the process was necessary in order to be able to have a common European trade union position in any future negotiations with companies seeking to become an SE.

Industrial democracy and the European traditions

This article examines the prospects and challenges for employee participation on the boards of European Companies (SEs) under the European Company Statute. The article sets the current debate in the context of European 20th century industrial relations and 21st century globalisation. The author argues that worker involvement on the boards of companies will have to be achieved by means of persuasion and cooperation rather than confrontation.

Key Problems of Company Law and Corporate Governance in Europe – Introductory Remarks on the Meeting of the Friends of the Hamburg Max Planck Institute, June 12, 2004

A decade ago, European company law was considered the ailing man of Europe. European harmonization of company law was at a deadlock, partly (but not only) because of the issue of labor co-determination in the board room, so dear to German unions and government but so unwelcome and foreign to governments, enterprises, and even trade unions in other member states. Even company law reform in the various member states progressed only one step at a time while more fundamental revisions lagged, though in some countries, in particular in the United Kingdom, a thorough company reform preparation process had begun, and in other countries similar needs were being articulated by academics. The European Commission pursued its goal through the European Company (Societas Europaea), which it fi nally reached on October 8, 2001, after many detours and incredible ob stacles and horse deals. Some of these reached the level of fantasy novels that linked the European Private Company with Gibraltar and terrorism. When the European Company Statute was finally complete and the smoke of the cannons had cleared, however, disillusionment arose as it became clear that the lack of a European solution for the tax law problem was a severe draw back for the new European company law form. For Germany in particular, the compromise on labor co-determination was a Pyrrhic victory since it amounted to a de facto guarantee for the most far-reaching German model

Does the European Company Prevent the 'Delaware-effect'?

The forces of globalization and economic integration have given a fresh impetus to company law reform in Europe. As recent judgments of the European Court of Justice encourage competitive lawmaking within the European Union, discussions about the role of the European Commission in the development of company law abound. Who is responsible for setting the agenda and controlling the legislative outcome? The further harmonization attempts and the introduction of the European Company Statute questions the necessity of EU intervention in the company laws regulated by the member states. This article analyzes the history of EU company law and locates a stable 'non-competitive equilibrium'. This equilibrium follows from member states' unwillingness to give up their lawmaking authority regarding company law issues. From the outset, member states were determined to prevent the 'Delaware-effect'. Since then, stability has ruled. The agenda-setting in EU company law has changed little during the existence of the EU. Even though the recent enactment of the European Company has triggered discussion about competitive lawmaking, it appears that competitive incentives hardly play a decisive role in the development of company law.

The European Company Statute: A Practical Working Model for the Future of European Company Law Making?

The European Company Statute: A Practical Working Model for the Future of European Company Law Making?