European Company Statute, October 2001

The oldest pending European Community dossier was finally concluded on 8 October 2001 when the Employment and Social Affairs Council adopted a Regulation to establish a European Company Statute (ECS) and the related Directive concerning worker involvement in European Companies. The adoption follows more than three decades of on and off negotiations since the original proposal for a European Company Statute was put forward in 1970.

Background

Over the years, reports emanating from the European Commission and European business organisations have consistently recognised the need for an ECS to ensure the realisation of the Single Market for businesses: two White Papers, one on the completion of the Single Market (COM(85) 310), and another on the Single Market and industrial co-operation in 1998 (COM(88) 320); a report on the working of the Single Market in 1995; financial services action plans and the Competitiveness Advisory Group have all promoted the need for a European Company - the latter placing it at the top of its list of priority actions for improving competitiveness in its first report in 1995.

The statute is viewed as a means for the creation and management of companies with a European dimension free from the obstacles arising from disparity and a limited application of national company law. Mario Monti, the Single Market Commissioner from 1995 until 1999, outlined the relationship between the ECS and an effective Single Market in a speech to the Kangaroo Group in Brussels in 1997, saying:

'We need to consider the Statute as both a positive symbolic signal for the Single Market and a further step towards its completion. It is an instrument perfectly in line with the objective to make the market more free, more dynamic and less subject to bureaucratic burdens'.

Moroever, reports from the European Commission have suggested that companies could collectively save thirty billion euros a year in administration costs by adopting the Statute.

The actors involved in the debate on the ECS have never really questioned the need for such a statute. It has been the role of employee participation that has proved the most controversial point and has hampered the process for over three decades.

History of the European Company Statute

• 1970s-1990s: Two decades of failed Commission proposals

The European Commission first adopted a proposal for a Council Regulation embodying a statue for the European Company (COM (1970) 600 final) on 30 June 1970. This suggested that the European Company should have a 'dualistic' board structure with a supervisory and a management board. Based on German provisions on co-determination the supervisory board would contain shareholder representatives with employee representatives forming up to half 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.

A new draft of this proposal was issued in 1975 (COM (1975)150 final), changing the composition of the supervisory board to one-third shareholder representatives, one-third employee representatives and one-third co-opted by the two sides. However, this encountered substantial opposition in the Council of Ministers and in 1982 the negotiations broke down.

The process was re-started in 1989 when the European Commission presented a new proposal for a European Parliament and Council Regulation on the statute for a European Company (COM (1989) 268-1 final) with an accompanying directive on the involvement of employees in a European Company (COM(1989)268-2 final). This effectively shifted the emphasis away from the model outlined in the original proposal towards a more flexible one with a new option to choose between a German-style two-tier board and an Anglo-Saxon one tier board system.

A third 'French/Belgian style' model was added in an amended proposal put forward by the European Commission in 1991 (COM (1991)174 final). This proposal provided the Member States with the right to provide for all three models or to prescribe only one model. So-called free negotiations between employer and employee representatives to determine the degree and nature of employee participation were also suggested in the proposal and in all cases the proposal stated that there had to be minimum standard rules on participation to apply where employer and employee representatives could not agree.

All these Commission proposals were rejected. A key factor in their failure was the question of worker involvement.

• Davignon Report Relaunches Process

In an attempt to break the 25 year deadlock on European Commission proposals a high-level expert group on worker involvement was convened in 1996. Chaired by Etienne Davignon, former Vice-president of the European Commission and President of the Société Générale de Belgique, the group presented its final report to the European Commission on 14 May 1997. The key points of the report were:

• 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 (Directive/1994/45/EC), though under the reference rules the details of the information and consultation arrangements would have been rather different.

The Davignon Report was largely met with support from Community institutions, Member States and social partners and it effectively revived the debate on a ECS proposal. However, subsequent proposals from the Luxembourg, United Kingdom, Austrian and Finnish Presidencies were all rejected when put before the Council of Ministers.

The persistent point of contention concerned worker involvement in the European Company and particularly the composition of a special negotiating body (SNB). The Member States have different traditions on worker involvement from Germany, where participation is strong, to countries such as the United Kingdom and Spain where it is more limited. The Member States have struggled to find a compromise between the two because most are keen to preserve their indigenous systems. However, the UK agreed to the statute three years ago on the grounds that no company would be forced to adopt it but Spain continued to oppose it. They claimed that proposals in the Austrian draft in 1998 concerning decisions in the SNB would have the effect of 'transposing a system of board-level participation that is inappropriate to national provisions in this area, jeopardising the preservation of a cultural model of industrial relations'.

To trace the full progress of the proposals through the policy-making process from the 1970s to the present day you can use these services.

• OEIL (Legislative Observatory) (provides a full history of the proposal with summaries of each major stage in the process)
• PreLex (provides a full and concise calendar of the proposal, bibliographical references and some hyperlinks to full text sources)

From proposal to adoption

• Political Agreement reached at Nice

In 2000, following intense efforts by the French who were the thirtieth Presidency to deal with the statute, a political agreement on the ECS was reached by agreeing a pact on worker representation which effectively allows Spain an opt-out. According to the conclusions from the European Council Summit at Nice, December 2000, 'the agreement will leave Member States the option of whether to transpose into their national law the reference provisions relating to participation applicable to European companies constituted by merger'.

UNICE, the organisation for European business, welcomed the breakthrough on the ECS but also expressed reservation at the deal. Therese de Liedekerke, employment adviser, said that there could be disruption for the internal market if the deal allowed opt-outs. In a follow up report, UNICE highlighted four key weaknesses in the agreed proposal:

• it does not include an agreement on a suitable tax regime
• it harmonises only limited aspects of company law and falls short of providing companies with a genuine Community law in instrument but rather creates fifteen different statutes.
• the complexity of the solutions found may discourage companies from opting for a European Company Statute and could put existing European companies at a competitive disadvantage vis-à-vis newcomers who will be able to create a European Company more easily and more quickly.
• since most EU Member States have no provisions for worker participation in corporate bodies, members from those countries express strong opposition to the so-called 'reference' rules which would systematically and immediately apply in the event of failure to agree. In UNICE's view, immediate and automatic application of pre-ordained 'reference' rules, which prescribe a form of co-determination alien to the majority of Member States, may have the effect of distorting the negotiating balance from the outset.

UNICE also pointed out that the compromise reached on the social aspects of SE in the context of an optional Statute would be totally unacceptable in the framework of the debate on other proposals, which are not optional, such as the proposed tenth (COM (1984) 727 final and fourteenth (not yet formally adopted) company law Directives.

Despite a mixed reaction to the contents of the proposal an extraordinary Employment and Social Policy Council was convened on 20 December 2000 to consider the political agreement reached at the European Council in Nice a few days earlier. It agreed on the redrafted text on the Council Regulation on a European Company Statute and on the redrafted text on the Council Directive supplementing the Statue for a European Company with regard to the involvement of employees. (Note that these texts are not formally published. They are available via the Council of the European Union's Register of Documents. From the Register it is also possible to note small further amendments to the text made during 2001 before adoption in October. The text of the finally adopted Regulation and Directive were not available at the time of compilation of this In Focus but will be accessible through the OEIL and PreLex links above when published).

The two texts were then forwarded to the European Parliament for an opinion, as the text had changed considerably since the Parliament had last delivered its opinion on the statute.

• European Parliament adopts proposal but recommends changes

The Committee on Legal Affairs and the Internal Market was given the responsibility of examining the texts as agreed by the Council in December 2000 . The committee adopted the report by Hans Peter Mayer (EPP-ED, D) on the 26 June 2001 and this was presented to the European Parliament on 4 September 2001 when it held its first reading on the Council text. The European Parliament adopted the proposed Resolution by Mayer, approving the regulation in principle but also suggesting several amendments. (A summary of the session on the European Company statute can be found on the European Parliament's website in the section 'The Week: 03-09-2001'). The proposed amendments focussed on three key areas:

• rights of workers: MEPs sought to secure the existing rights of workers, in particular in the event of the transfer of an SE or the merger of two SEs.
• taxation: MEPs proposed introducing some form of fiscal co-ordination to counter unfair tax discrimination by 2003.
• legal base: Parliament did not agree with the legal base laid down in the Nice agreement which provided for the Parliament only to be consulted, thus leaving the final decision with the Council. It sought to bring the regulation under the co-decision procedure.

The proposed amendment on the legal base won the most widespread support from the Parliament with an adoption of all the Committee's proposals in this area. The 1989 and 1991 European Commission proposals were based on Article 54 (now 44) TEC, which at the time provided for the co-operation procedure. Once the Maastricht Treaty came into force, proposals made under Article 54 became subject to the co-decision procedure. However, the Council subsequently decided that the correct legal basis for the proposals should be Article 308 TEC, which provides for consultation of the European Parliament. The European Parliament called for a change in the legal basis to one which provides for co-decision between the Council and the EP, and reserved the right, if it so chooses after the legislative process has been concluded, to challenge the legal basis before the European Court of Justice.

The European Parliament also called on the European Commission to report on the impact of the legislation within three years.

The amendments proposed by the European Parliament were largely brushed aside by the Internal Market Commissioner, Frits Bolkenstien, who stated that the current texts represented a delicate compromise and therefore the only realistic option at this stage was to adopt the texts as they stood. He argued that the European Commission had proposed to introduce elements relating to both taxation and qualified majority voting but both had been rejected by the Council. He also maintained that there would be a review of the legislation after the five year period which would offer the opportunity to make any changes.

• Societas Europeae - Agreed at last

The Internal Market, Consumer Affairs and Tourism Council meeting on 27 September 2001 decided not to accept the European Parliament's proposed amendments. The Employment and Social Policy Council then adopted both the Regulation on the European Company Statute and the accompanying Directive on 8 October 2001.

Internal Market Commissioner Frits Bolkestein, commenting on the achievement, said:

Adoption of the European Company Statute will give companies the option of using this efficient structure for their pan-European operations. The European Company will enable companies to expand and restructure their cross-border operations without the costly and time-consuming red tape of having to set up a network of subsidiaries. This is a practical step to encourage more companies to exploit cross-border opportunities and so to boost Europe's competitiveness in accordance with the objectives of the Lisbon Summit.
European Commission: Press Release: IP/01/1376

The adopted legislation provides that companies operating in more than one Member State will have the option of being established as a single company under community law as a Societas Europeae (SE). The Latin name has been chosen so that it will be recognised in all the Member States and the acronym SE shall precede or follow the name of an SE.

• Under the ECS Regulation, an SE can be set up in one of four ways:
• by the merger of two or more existing public limited from at least two Member States
• by the formation of a holding company by public or private limited companies from at least two member states
• by the formation of a joint subsidiary from companies from at least two member states
• or by transforming a public limited company which has, for at least two years, had a subsidiary i8n another member state.

The key features of the regulation governing the SE are: -

• the European Company will be in the form of a European public-limited liability company.
• an SE shall have legal personality.
• the capital of an SE shall be expressed in euros and its subscribed capital shall not be less than EUR 120 000. The capital will be divided into shares
• the registered office of an SE shall be located within the Community, in the same Member State as its head office.
• employee involvement in an SE shall be governed by the provisions of the accompanying directive.
• the SE shall comprise of a general meeting of shareholders and either a supervisory organ and a management organ (two-tier system) or an administrative organ ( one-tier system).
• the European Commission will forward a report on the application of the Regulation no more than five years after the entry into force of the legislation.

The accompanying Directive on worker involvement in the European Company, seeks to ensure that workers in an SE are consulted and informed about key developments in the company. It has the following key objectives:

• if management and employees fail to negotiate a mutually satisfactory consultation/participation arrangement then a standard set of principles, outlined in an annex to the Directive would apply.
• under these provisions SE managers would have to provide regular reports to a body representing the firm's employees, detailing companies' current and future business plans, production and sales levels and the implications of these for the workforce, management, mergers, divestitures, potential closures and layoffs.
• in the case of an SE created by a merger, the standard principles on participation would apply when at least 25% of the employees had the right to participate before the merger.

Further information on the European Company can be found in a useful memo, produced by the European Commission, which provides answers to some key questions concerning the European Company, for example:

• How can a European company be set up?
• What are the advantages of setting up a European company?
• Are companies obliged to become European companies?
• Will there be a central register of European companies?
• Where will a company be taxed?
• What are the provisions for worker involvement?
• Must European companies be publicly quoted?
• Does the European company statute include provisions on employment contracts and pensions?

The adoption of the ECS was met with a mixed reaction from interested stakeholders. While most welcomed the achievement after thirty years of negotiation and gridlock, many also highlighted the weaknesses in the agreed proposals.

UNICE labelled the adoption 'progress but with weaknesses'. It reiterated three of the weakness it had outlined after the political agreement reached at the Nice Summit, namely: the lack of a suitable tax regime; the idea that fifteen different statutes had been created rather than one Community law instrument; and the automatic application of 'reference rules', which it felt may distort the negotiating balance from the outset. UNICE also added that it regretted good proposals from the Parliament had not been taken on board and it questioned the attractiveness of the statute to companies as it stood.

The Confederation of British Industry echoed UNICE's stance, maintaining that UK companies would not make use of the European Company form until both the taxation regime is known and the issue of employee participation resolved in an acceptable manner. They also expressed strong opposition to the so-called 'reference' rules, which would apply in event of failure to agree and largely impose the highest form of employee involvement in any part of the company, claiming that the UK had no provisions for employee participation.

Representing the labour perspective, the Union Network also criticised the lack of a comprehensive supranational legal framework and the ETUC has since labelled the 'opt-out' rules in the event of mergers 'rather confusing provisions'.

Despite these mixed reactions, the legislation will enter into force in 2004 and so the first SEs could be operating nearly thirty-five years after the original proposal was put forward by the European Commission.

However, the success of the SEs in future is still in doubt despite the agreement on legislation. There still remain several obstacles to a truly European company: not least the issue of tax. It is thought many companies will not become SEs because of the complications over tax and the administration costs of reinventing themselves as SEs.

But the European Commission remain positive about what has been achieved. Anna Diamantopolou, the Employment and Social Affairs Commissioner, said:

We must concede that the European company statute is not yet perfect: much work remains to be done on taxation matters. But, in the Commission's view, the glass is half full, not half empty.
European Commission: Press Release: IP/01/1376

Further information within European Sources Online:

European Sources Online: Topic Guide:

• The Single Market

European Sources Online: European Voice:

	16.11.95:	Plan suggests general rules for worker consultation
	12.12.96:	Member States find the road to unity paved with good intentions
	09.10.97:	3-4 October Internal Market informal
	19.06.97:	MEPs consider new ways to fill gaps in single market
	20.11.97:	Clock ticking for single market plan
	11.12.97:	Hopes fade for new EU firm deal
	18.12.97:	Limited success for Single Market plan
	02.04.98:	Bonn still blocking 'EU firms'
	21.05.98:	18 May Internal Market Council
	18.06.98:	Call for creation of company law forum
	22.10.98:	Company statute plan still blocked
	20.05.99:	Pan-European firms plan appears doomed
	05.04.01:	Companies call for easier tax plan

Further information can be seen in these external links:
(long-term access cannot be guaranteed)

EU Institutions

Council of the European Union: Employment and Social Policy Council

	20.12.00:	Employment and Social Policy Council Meeting: Press Release
	27.11.00:	Employment and Social Policy Council Meeting: Press Release

Council of the European Union: Labour and Social Affairs Council

	25.05.99:	Labour and Social Affairs Council: Press Release
	07.04.98:	Labour and Social Affairs Council: Press Release
	O7.10.97:	Labour and Social Affairs Council: Press Release

European Commission: DG Internal Market

	Single Market News no.2, February 1996
	Single Market News no.6, January 1997
	Single Market News no.8, July 1997
	Single Market News no.13, July 1998
	Single Market News no.24, December 2000
	Single Market News no.25, March 2001

	13.05.97:	Worker Involvement: Davignon Group Final Report
	24.09.97:	Speech by Mario Monti: The European Company Statute
	20.12.00:	European Company Statute: Commission welcomes political agreement
	08.10.01:	European Company Statute: Commission welcomes formal adoption
	08.10.01:	The European Company: Frequently Asked Questions

European Commission: DG Employment and Social Affairs

	Final Report of the Group of Experts on European Systems of Workers Involvement (Davignon Report)
	20.12.00:	Employment and Social Policy Council meets in Brussels

European Parliament

	Factsheets:
	3.4.2 Company Law
	3.1.0 Principles and general completion of the Internal market
	27.06.01: News Report: A European Company Statute at long last?

European Commision: DG: Press and Communication: SCADplus

• Company Law: Statute for a European Company
• Company Law: Introduction

European Commission: EUR-OP: EUR-LEX

• Commission Proposals: Company law
• Commission Proposals: Protection of workers

European Foundation for the Improvement of Living and Working Conditions: European Industrial Relations Observatory online

	Homepage
	03.04.97:	European Parliament debates employee consultation measures
	11.06.97:	Davignon group on worker involvement publishes recommendations
	09.02.98:	Social partners deliver their opinions on the Davignon report
	15.04.98:	UK Presidency tables compromise proposal for European Company statute
	01.07.98:	German social partners react to UK Presidency's proposal for European Company Statute
	11.06.98:	ETUC response to UK Presidency's new European Company Statute proposal
	18.01.99:	European Company Statute proposal blocked by Spanish resistance
	29.11.99:	Current EU information and consultation initiatives reviewed
	19.12.00:	Nice summit agrees new treaty and reaches consensus on worker involvement in European Company Statute
	19.12.00:	Council debates participation proposals
	16.01.01:	Agreement on European Company statute
	04.09.01:	EP approves Company Statute proposals
	08.10.01:	Employment and Social Policy Council adopts European Company Statute

Business Perspective

Union of Industrial and Employers' Confederations of Europe (UNICE)

	Homepage
	24.03.98:	Employee involvement in the European Company: UNICE Position Paper
	21.05.99:	European Company Statute must serve business needs
	29.03.01:	Comments on the proposal for a Regulation on the statute for a European Company and the proposed Directive on the involvement of employees
	27.08.01:	European Company Statute: Letter to Members of the EP from UNICE's President, Baron George Jacobs
	27.08.01:	Business urges EP to smooth fiscal path to European Company Statute
	04.09.01:	UNICE welcomes EP vote on European Company Statute
	08.10.01:	European Company Statute adopted after thirty years - Progress but with weaknesses

United Kingdom: Confederation of British Industry

Homepage

Labour Perspective

European Confederation of Managers (CEC)
	Homepage
	12.12.00:	Nice Summit: Positive Points in the Social Field -Regrets for the Institutional Reform
	31.01.01:	European Company Statute (SE): The CEC wonders about the social elements of the directive and about the information and the consultation of managerial staff

Union Network International
	Homepage
	18.12.00	European Company Statute, October 2001
	19.10.01	European Company Statute adopted

Legal Perspective

Legamedia

• The European Company Statute: Frequently Asked Questions

International Law Institute:

• Developments in European Company Law

United Kingdom: The Law Society

• A Memorandum by the Law Society's standing Committee on Company Law, October 1997

News Sources

European Sources Online: Financial Times:
	05.09.01:	Brussels tries again for agreement on cross-border takeover rules
	09.10.01:	EU establishes European Company Statute

Miscellaneous Sources

European Study Group

• Homepage

Pichot, Evelyne

• The European Company Statute and employee participation, April 2001

Helen Bower
Compiled: 26 October 2001

The oldest pending European Community dossier was finally concluded on 8 October 2001 when the Employment and Social Affairs Council adopted a Regulation to establish a European Company Statute (ECS).