EU: European-level employee involvement agreed for MAN SE
MAN, the Germany-based vehicle-manufacturing multinational, decided in April 2009 to convert into a European Company (Societas Europaea, SE) governed by EU law, and has signed an agreement on employee involvement to accompany the change of status.
On this page:
MAN goes European
European Company
(Societas Europaea, SE) and employee involvement
Information and consultation
Board-level participation
Reactions
Wider context
High expectations for SEs.
Key points
|
MAN goes European
MAN, with its headquarters in Munich, is one of Europe's leading manufacturers of commercial vehicles, engines and mechanical engineering equipment, with annual sales of €15 billion in 2008. The MAN group of companies includes: MAN Nutzfahrzeuge, which produces lorries, buses and military vehicles and engines; MAN Diesel, which makes ship and stationary engines; MAN Turbo, which manufactures turbomachinery; RENK, which produces power transmission machinery; and MAN Latin America, which manufactures heavy trucks in Brazil. The MAN Aktiengesellschaft (AG) holding company acts as the overall "corporate centre" and headquarters, providing strategic management and financial control for the group.
In recent years, MAN has expanded both within Europe and beyond. For example, in 2008 it acquired Volkswagen's commercial vehicles operation in Latin America and opened a turbo plant in China. As a result of this strategy, more than 40% of its 51,000-strong direct workforce are now located outside Germany. MAN has some 46,000 employees in Europe, of whom more than 29,000 work in Germany. It also has significant manufacturing operations in Poland, Austria, Denmark, Turkey, the UK, France, Spain and Belgium. In the UK, MAN employs around 1,300 people, mainly at MAN Truck & Bus Ltd, which has sites in Swindon and Cheshire.
At the MAN annual general meeting on 3 April 2009, shareholders approved a management proposal to convert MAN AG into a European Company (also known as a Societas Europaea, or SE). The SE, created by EU Regulation no.2157/2001, is a form of company that operates on a Europe-wide basis and is governed by EU law directly applicable in all member states, rather than national law. SEs may be set up by two or more EU-based companies from different member states (or with operations in another member state, in some cases) by merger, or by formation of a joint holding company or subsidiary. An individual EU-based company may transform itself into an SE (as in the MAN case) if it has had a subsidiary governed by the law of another member state for at least two years.
The SE was introduced with the aim of meeting business needs in the context of the deepening integration of European and global economies. Using the SE form, companies established in more than one member state can operate throughout the EU on the basis of a single set of rules. This should, according to the European Commission, bring advantages in terms of significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems. By setting up as an SE a business can, says the Commission, restructure swiftly and easily to take the best possible advantage of the trading opportunities offered by the EU internal market. SEs with commercial interests in more than one member state can move across borders easily as the need arises in response to the changing needs of their business.
According to the MAN management board: "MAN AG's change of legal form to an SE will reflect its image as a European company with international business activities since the name of the group will emphasise its European focus. The change of legal form to an SE underscores the business activities of MAN AG, which reach beyond the borders of Germany, as well as the significance of the European market for MAN AG." MAN Diesel had already taken this step in August 2006.
European Company (Societas Europaea, SE) and employee involvement
Becoming an SE has implications for a company's employee involvement arrangements. Regulation no.2157/2001 was supplemented by Directive (2001/86/EC) setting out rules in this area. The main provisions are as follows:
- Employee involvement arrangements - information and consultation, along with board-level employee participation in some circumstances - must generally apply in all types of SE (although some aspects differ according to the way the SE was created).
- Companies participating in the formation of an SE must hold negotiations over the employee involvement arrangements with a special negotiating body (SNB) made up of employee representatives. The SNB is composed of elected or appointed members, with seats allocated in proportion to the number of employees employed in each European Economic Area (EEA) member state by the participating companies. The basic rule is that member states have one SNB seat for every 10%, or fraction thereof, of the total EU workforce of the participating companies employed there.
- The negotiations should lead to a written agreement on the employee involvement arrangements. If these arrangements involve a reduction of existing board-level participation rights which cover a certain proportion of employees - 25% of the total workforce of the participating companies in the case of SEs established by merger, and 50% in the case of SEs established by creating a holding company or subsidiary - this must be approved by a special two-thirds majority of SNB members (from at least two member states).
- The SNB may decide (again by a special two-thirds majority) not to open talks, or to terminate talks in progress - in which case existing national information and consultation rules, including those transposing the European Works Councils (EWCs) Directive (94/45/EC), will apply (this option does not apply to some SEs formed by transformation).
- Where the SNB and management reach an agreement, this should set up a "representative body" (RB) similar to an EWC, or an information and consultation procedure. If the parties so decide (and compulsorily in some cases), the agreement may also set out the rules for board-level participation. In SEs established by transformation, the agreement must provide for at least the same level of all elements of employee involvement as are existing within the company to be transformed.
- SNB negotiations must be completed within six months, which may be extended to a total of one year by agreement. If no agreement is reached, or the parties so decide, a statutory set of "standard rules" will apply, providing for a standard RB - similar to the statutory EWC laid down in the EWCs Directive's subsidiary requirements. The standard rules also provide for board-level participation in certain circumstances where this existed in the participating companies.
- The Directive lays down rules on issues such as confidentiality, protection of employee representatives, its relationship with other provisions and compliance.
In line with the Directive's provisions, prior to its final decision to convert, MAN AG initiated the process of establishing an SNB to negotiate the employee involvement arrangement to apply in the future SE in July 2008. The SNB was made up of 26 employee representatives from across Europe, with seven from Germany, two from Poland and one each from 17 other countries (including the UK), elected or appointed in accordance with national legislation. Negotiations began in October 2008 and led to an agreement on 18 February 2009.
Information and consultation
The agreement provides for the creation of an "SE works council" to provide transnational information and consultation within MAN AG. The new structure will replace the existing MAN Group EWC.
The SE works council will consist of between 24 and 31 employee representatives, depending on the size of MAN's European workforce. Each EEA country in which MAN operates is entitled to one seat per 2,500 workers employed there. The remaining seats are allocated to the countries with fewer than 2,500 employees, in order of size. Those countries left without their own seat will be represented by a single member of the council, appointed jointly by employees in these countries. This formula means that the council will initially have 26 members: 13 from Germany; two each from Austria, Denmark and Poland; one each from the Czech Republic, France, Italy, Slovakia, Spain and the UK; and one representing the remaining countries. Members are elected or appointed in accordance with national legislation.
The SE works council will elect a chair, two deputy chairs and a secretary, and will be supported by an assistant paid for by the company. It will also elect a nine-member executive committee (including the chair and the deputy chairs), which is responsible for the council's day-to-day business and meets six times a year. The company will meet the costs of necessary training for the members of the SE works council.
Full meetings of the SE works council will be held twice a year, with additional meetings where necessary. The council will be informed and consulted by MAN management on a range of issues that affect the SE and its subsidiaries, or have a transnational impact. Regular information and consultation essentially cover the business and employment issues usually dealt with by EWCs. In addition, management will inform and consult the SE works council promptly about any extraordinary developments significantly affecting the interests of employees. This especially relates to: the closure or relocation of companies, establishments or important parts thereof; mass redundancies; and substantial decreases in orders and/or revenue. If, in such extraordinary circumstances, following a meeting with management, the SE works council believes that management has not taken account of its views, the council may call a further meeting.
Board-level participation
As an AG, or joint-stock company, MAN is required by German law to have a two-tier board structure. Its management board (Vorstand), which deals with day-to-day management of the company, is appointed and overseen by a supervisory board (Aufsichtsrat). "Co-determination" legislation provides that in AGs with 2,000 or more employees, such as MAN, half of the supervisory board must be elected by the workforce, with trade union nominees guaranteed a certain number of seats alongside company employees. The supervisory board's chair is a shareholders' representative and has a casting vote in the event of a tie.
MAN SE will also have a two-tier board. The SE employee involvement Directive requires that conversion to an SE cannot entail a reduction in the degree of employee involvement, so half of the new supervisory board will also be made up of employee representatives. However, the size of the board will be reduced. The German legislation dictates the size of an AG's supervisory board, in line with the company's size, which means that the MAN AG board has 20 members. There is more flexibility in this area for SEs registered in Germany, and MAN SE will have a 16-member supervisory board.
The company sees this reduction in the size of the supervisory board as a major advantage of converting to an SE, stating that "decision-making and communication processes within the supervisory board will be simplified, accelerated and thus optimised".
The 10 elected employee representatives on the MAN AG supervisory board are all works council members and trade union officials from Germany. The eight employee representatives on the MAN SE supervisory board will include members from other European countries. The representatives will be elected by the SE works council. Two of the members will be trade union officials nominated by the European Metalworkers' Federation (EMF) in agreement with all unions represented within the MAN Group. The remaining six members will be employee representatives, allocated between countries by the SE works council in line with workforce size. These representatives will be nominated by the highest-level employee representation structures in each country.
The employee seats on the supervisory board have initially been allocated as follows:
- four employee representatives from Germany and one each from Austria and Poland; and
- two officials of the German IG Metall metalworkers' trade union, nominated by the EMF.
The involvement agreement lays down rules on issues such as the remuneration of employee supervisory board members and the confidentiality requirements applying to them.
Reactions
The company believes that opening up supervisory board membership to employees beyond Germany "sets a clear example for MAN AG's image as a European company" and will "promote the integration of the [group companies] and the employees in the various member states of the EU or EEA in the MAN Group".
The EMF describes the MAN accord as a "trendsetter for further SE agreements", stating that MAN employees across Europe "will henceforth have the opportunity to oversee management decisions through their representatives in MAN SE's supervisory board - something that previously only German employees enjoyed". Peter Scherrer, the EMF general secretary, argues that "in the light of the crisis, ignoring workers' voices and listening exclusively to profit-sucking shareholders is becoming outdated - only companies with a long-standing corporate culture based on respect and partnership relations like MAN will have a sustainable future".
Thomas Otto of IG Metall, who will be the deputy chair of the MAN SE supervisory board, commented: "At MAN, co-determination is a solid and valued part of the company culture. This is also reflected in the [SE] co-determination agreement. With the agreement, the employer and employee representatives emphasise their wish for constructive cooperation far beyond the minimum legal standards. This has made MAN AG strong and will also be an important trademark of MAN SE." IG Metall states that the agreement is stronger than previous SE involvement accords, and represents a "milestone", which will provide a model for future SEs.
Areas where trade unions believe that the MAN agreement exceeds the requirements of the SE involvement Directive include the SE works council's information and consultation rights. Further, the unions are particularly pleased with a provision that allows renegotiation of the agreement in the event of structural changes that might diminish the level of employee involvement. Such circumstances include: significant changes to the structure of the MAN Group that affect at least 20% of the employees; a change in the management system (from a two-tier to a one-tier board structure); or significant acquisitions.
Wider context
Since the EU Regulation enabling the creation of SEs came into force in October 2004, around 370 have been registered across Europe, according to data from SEEurope (external website), a research network led by the European Trade Union Institute. However, only around 20% of these SEs are what SEEurope defines as "normal", ie known to have both operations and employees. The remainder, as defined by SEEurope, are: "shell" SEs with no activity or employees, which may be activated later or sold as an "off-the-shelf" company (around a quarter of the total); "empty" SEs, which have operations but not employees (just under 10% of the total); or "UFO" SEs about which little is known apart from the fact of their existence (nearly half of the total). Only among normal SEs have employee involvement agreements been signed, with a total of around 40 such accords to date.
So far, 18 SEs have been registered in the UK (of which one has since transferred its registration abroad and another has applied to be wound up). In most cases, the registration of these SEs appears to have been a paper exercise, often involving firms - usually with no substantive presence in the UK - setting up holding or "non-trading" companies, or moving them around Europe, for legal or tax reasons. The ability of SEs to shift their official headquarters from country to country with relative ease appears to be a major attraction of the SE form. There seem to be very few "indigenous" UK-registered SEs. Examples of typical UK-registered SEs include the following:
- Betbull Holding SE, which was registered in the UK in October 2008, acts as the holding company for an Austria-based gambling services provider (and is soon to be transferred to Austria);
- Bolbu Beteiligungsgesellchaft SE and Bibo Zweite Vermögensverwaltungsgesellschaft SE are holding companies transferred to the UK from Germany; and
- Schering-Plough Clinical Trials SE was set up (with no employees) as a joint subsidiary by two subsidiaries of the US-based pharmaceuticals multinational Schering-Plough in order to comply with an EU Directive that requires a legal representative in the EU for clinical trials conducted there.
One of the few UK-registered SEs with relatively significant UK operations is Chubb Insurance Company of Europe SE, registered in January 2009. The creation of this SE appeared to involve the transfer of the headquarters of European arm of the US-based Chubb from Belgium to the UK.
None of the UK-registered SEs is known to have negotiated an employee involvement agreement, and only one (Betbull Holding SE) is classified as a "normal" SE by SEEurope.
Of all "normal" SEs, around 60% are based in Germany. The German dominance is even more pronounced among the 40 or so SEs with involvement agreements, some 70% of which are based there. About 10% are registered in Austria and 7% in France, with single representatives from Luxembourg, the Netherlands, Norway, Slovakia and Sweden. In sectoral terms, around 40% of SEs with agreements are in metalworking. Finance and chemicals each account for around one-sixth of these SEs, and there are examples from other services (such as retail and market research) and other manufacturing (such as textiles and paper).
A little over 40% of the involvement agreements provide for information and consultation only, presumably through a form of SE works council. The remaining agreements also provide for board-level representation. The great majority of SEs with board-level participation (around 70%) are registered in Germany, the country with the strongest domestic legislation in this area. There are also examples from Austria (which also has notably extensive participation legislation), France and Norway.
The largest SEs so far created are:
- Allianz (Germany, financial services), with around 155,000 employees worldwide;
- BASF (Germany, chemicals), with 97,000 employees;
- Strabag Bauholding (Austria, construction), 73,000 employees;
- Fresenius (Germany, healthcare products), 64,000 employees;
- Elcoteq (originally Finland but now registered in Luxembourg, electronics), 19,000 employees;
- Porsche Automobile Holding (Austria, automotive), 12,000 employees;
- Hager (Germany, electrical equipment), 10,500 employees;
- GfK (Germany, market research), 10,000 employees;
- Klöckner & Co (Germany, metals), 10,000 employees; and
- MAN Diesel, 7,700 employees.
Apart from Hager and Klöckner & Co, all these SEs have agreed board-level participation, alongside information and consultation. The majority of the other SEs with involvement agreements are medium-sized German companies such as Deichmann (shoe retail), HAWE Hydraulik (hydraulic engineering), Q-Cells (solar cells) and SGL Carbon (carbon and graphite products).
High expectations for SEs
The adoption of the SE Regulation and Directive in 2001 followed nearly 30 years of debate and controversy, with the employee involvement arrangements being one of the key points of contention. When the SE regime was finally agreed, it attracted enormous attention from industrial relations researchers and aroused considerable expectations among trade unions. This was mainly because it created the potential for board-level employee participation (which exists at national level in many EU member states) at European level, which was a new departure in EU law. Further, the Directive provides for transnational information and consultation processes and structures that are similar to those applying under the EWCs Directive, but with rather stronger rights for employees (although the recent revision of the EWCs Directive means that EWCs will now "catch up" to some extent).
Given the high expectations, it can be argued that the SE has so far been something of a damp squib in terms of innovation in industrial relations. More than four years after its adoption, only 70 or so "normal" SEs have been set up. The great majority of SEs exist only on paper or have essentially been created as company-law manoeuvres. These SEs have few or no employees and the employee involvement rules have not come into play.
In terms of normal SEs, the new company form has so far proved attractive mainly to German firms. There appears to be little or no interest from companies based in the UK or in most other EU countries. Only around 40 employee involvement agreements have been signed, with board-level participation agreed in a little over half of these cases. Board-level employee representation with a genuinely transnational dimension - which was arguably the SE Directive's greatest innovation - appears to exist in only the largest of SEs.
However, it is still relatively early days for SEs, and it should be noted that national transposition of the involvement Directive, due by October 2004, was delayed in many countries and was not completed until 2007. The pace of creation of SEs seems to have picked up considerably and the number registered has nearly doubled over the past year. A number of major companies are known to be considering conversion to an SE, such as Dexia (Belgium, finance) and Nordea Bank (Sweden, finance). It may be that, once a sufficient body of important firms such as MAN have taken this step, and built up experience of the new employee involvement arrangements, a "critical mass" will be achieved and many other companies will consider the SE option.
This article was written by Mark Carley, editor of European Employment Review.
European Employment Review 424 (EER 424) contents
