Corporate Eye

Employee participation, European Companies and CSR

Last month I was reviewing the latest events in EU corporate reform when I came across the concept of a European Company, or SE, and how it embraces employee participation in management decision making.

Making a mental note to come back and investigate I moved on.

So here we are .. investigating.

One of the principal commercial drivers of the European Union is to create an open market where national borders dissolve as barriers to the free trade of goods and services.

There is, though, one big problem with this: company law.  Company law requires that a business must have a registered office in one particular country and conduct operations from there.

However if a business wants to move its base between countries, open a subsidiary in another country or merge with a business in another country, it has to jump through all the different legal hoops and regulations each country demands.

This flies in the face of “free movement of capital, goods and services”, so the concept of an SE was created.

What are SEs, SCEs and SPEs ?

In keeping with the EU’s adoption of Latin as its official language, there are three acronyms which decode as follows:

  • SE = Societas Europaea = European Company
  • SCE = Societas Cooperativa Europaea = European Co-operative Society
  • SPE = Societas Privata Europaea = European Private Company

SEs and SCEs have been around since 2001 and 2006 respectively.  SPEs don’t exist at present but are well on their way to delivery.  For the purposes of this post I’ll concentrate on SEs alone.

The key aspect to an SE is that it can move its base, open subsidiaries and merge with other businesses all according to a single set of pan-European rules.  Furthermore a non-EU company can open up an SE subsidiary for all its European business, rather than having to have one in each separate country.

So, in essence there are 3 ways an SE can be established: through transformation of a single company, through a merger or joint venture of two or more companies across national borders, and through the establishment of a holding or subsidiary company.

This makes life a whole bundle easier and will save business an estimated €30 billion per year.  However it doesn’t affect the company and its subsidiaries’ tax arrangements.

What do SEs have to do with CSR then?

In essence, if you want to be an SE you have to open negotiations about allowing worker participation in management decisions, and if no settled agreement is reached there is a default position stated within the Directive on Employee Participation.

Key points in employee participation include:

  • a body is established to represent the employees’ views;
  • the body may appoint, elect or recommend people to sit on the company board (or similar) with full access and voting rights;
  • in exceptional circumstances the body may call an extraordinary meeting of the shareholders;
  • the business is responsible for paying the costs of the body along with any experts it may decide to consult with from time to time;
  • management has to share all board level documents and agendas with the body.

Implementing employee participation is not 100 percent mandatory throughout the EU (see “boring detail” below), although opening negotiations about it is.  Once agreed the employee participation framework can remain in place (or not) for four years before it has to be reviewed.

Boring detail: If an SE is established as the transformation of a single company within a single country which does not have employee representation regulations (around half of EU countries), then the new SE is not required to implement employee representation.  In all other cases the newly formed SE has to allow workplace participation a) if the country in which it will reside requires it; b) if 25 percent of a merged/joint venture workforce already have it; or c) if 50 percent of a newly created holding company/subsidiary’s workforce already have it.  In all cases an SE is allowed to implement employee participation if an agreement to do so is reached with the workforce.

It seems likely that the spread of employee participation will now start to speed up.  Although the SE directive was passed in 2001 the supporting Cross Border Merger directive only came into force in 2007.  At that time there were 137 registered SE, which had grown to 500 by 2010.  2013 opened with over 1600 SEs registered and the number is climbing by over 40 a month.

Well known names to have converted to SE status include Allianz, Eurotunnel, BASF and Innovartis but there are plenty of smaller businesses seizing the opportunity.  Excluding shell companies, 40 percent of SEs have been set up in the services sector with over 80 percent domiciled in Germany, the Czech Republic, the Netherlands, France and Austria.

Perhaps unsurprisingly all of these countries already allow worker representation.  However, there would be no point in setting up as an SE unless your ambition was to take advantage of the freedom to set up in any EU country, taking employee participation along with you.

Picture Credit: blue amusement business / Angelika Bentin / photoXpress license

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A former CTO, Chris has a broad and varied background. He’s been involved with blue chips, consultancies & SMEs across a wide variety of sectors and has worked in Europe, the Middle East and Australia. In 2007 he decided to combine his knowledge of business and IT with his passion for all things sustainable and has been busy writing ever since. However, his greatest ambition remains to brew the perfect cup of coffee.