Business Takes All – Or Win-Win?

Wolfgang Kowalsky

The new European Commission company mobility package is unbalanced. It aims at establishing European rules for business mobility in three areas: company conversions, mergers and divisions (corporate break-ups). On one side, there is a threefold delivery to the business community in terms of replacing national by European rules to facilitate cross-border company activities. But, on the other, there is no real progress for workers, but only the temporary and limited survival of national provisions for information, consultation, and participation.

The business community has now been offered a giant step forward, while the workers do not get anything beyond what they acquired a long time ago at national level on information, consultation and participation. But why do we once more find such a one-sided approach?

There are two possible explanations: either the Commission is too business friendly in relation to company law and thinks that after the publication of the European Pillar of Social Rights it is time to improve company mobility without any progress on democracy at work. Or: the Commission ignored the latter in its first years in office before coming out with the Social Pillar that, intentionally or unintentionally, completely left out any advances for the workers’ side on the issue of democracy at work. It might even be the case that the Directorate-General for Employment, Social Affairs and Inclusion forgot about the Directorate-General for Justice and Consumers’ plan to deliver a company law package, which would be a typical example of silo thinking. It would have been more logical to adopt a dual-track approach, facilitating life for business and in parallel giving workers opportunities to make an impact on company decision-making. However, this even-handed approach – previously used for the European Company Statute (SE) in 2001 – was neglected. Does this sound fair?

The discrepancy between national and European regulations is quite striking. The legislative proposal for the business side is truly European, establishing European rules and regulations. The proposal for the workers’ side is a timid prolongation of pre-existing national rules, if any, into the European sphere, with a sunset clause. The Commission’s response is incoherent – on the one hand European, on the other leaving a scattered landscape of different national rules untouched – and the package must be corrected.

The European Commission is quite aware of the loophole. At the Company Law Conference organised by the Estonian Presidency on 4-5 September 2017 in Tallinn, one of the debates focussed on the company law package then under preparation. One of the problems of European company law – besides letterbox companies, tax and social security dumping – is the fact that it allows circumvention and evasion of national regulations.

Here and now

Let us have a look at the current state of play: in the case of the European Company Statute (SE) of 2001 there are 74 companies with board-level representation of workers (2018), but at the same time more than 100 companies switched from national company status to the SE so as to escape national obligations to have workers represented on boards. Initially, the compromise on the SE found then was agreed to protect workers’ participation, but it turned quite rapidly into a tool allowing it to be circumvented. At the 2017 conference, Professor Christoph Teichmann declared that there are two solutions to circumvention: One is to fight it and the other to have the same level of worker participation across Europe which is impossible for political and cultural reasons; therefore, the only option is to fight circumvention. I disputed the view that there could be no uniform rules or co-determination on the grounds that the rules around worker participation currently differ across Member States: “The same is true for the rules for company law…. Break-up is quite different from one country to another. The question is: Do you want a European approach? If so, why do you want to apply it only to company law and not for the rest? If we want to go forward, we have to find a European solution for board-level representation.”

New avenues must be explored. The lack of democracy at work can be remedied with proposals such as a new EU architecture: the ETUC agreed – after lengthy internal debates – on posing the demand for a horizontal framework for information, consultation, participation with an escalator for board-level representation rights. Workers’ board-level representation is not about an identical single model transplanted to all Member States. It is about unity in diversity. The escalator proposal has the charm of anchoring the negotiation principle in the “shadow of the law” but at the same time allowing for maximum flexibility.

It was no surprise that BusinessEurope welcomed the package: “For decades companies have been waiting to fully benefit from their fundamental freedom of establishment within the European Single Market. Finally, this empty space in EU law will now be filled with new legal frameworks on divisions and conversions of companies.” The euphoric statement of the business community underlines the need for a dual-track approach. It would probably be willing to accept a deal with some progress on democracy at work, but once the ‘empty space’ is filled, there will be no longer any reason to accept a compromise. The question now is whether the European Parliament will have the courage and ambition to deliver what the Commission failed to accomplish. Or is it again too late?

Rethinking internal market policy

The conceptual assumptions on which the company law package is based are the internal market theory and the idea of ‘fundamental freedom of establishment’ which are both shared by the Commission and BusinessEurope. Mainstream economic thinking on the internal market is based on notions of ‘market completion’ and ‘market failure’. However, the concept of ‘market failure’ is inadequate to apprehend the threat to the whole system and therefore not a helpful tool. The company mobility package is considered by its proponents as a key step towards ‘market completion’. However, ‘internal market completion’ is not a value nor even an objective as such, it should be a tool aimed at achieving more innovative and sustainable forms of growth, employment and prosperity.

Looking at the internal market over the past decade, it has appeared profoundly dysfunctional – the financial crash of 2008 led to the deepest and longest depression in modern history. Unemployment rose substantially, in particular in Spain, Portugal, Italy and Greece, and remained above its pre-crisis rate, but governments were forced to put taxpayers’ money into bailing out banks. Investments declined in relation to the ‘financialisation’ of the corporate sector. Labour markets became more polarised and insecure with a growing proportion of low-paid and precarious workers. Social and economic divergence has become a trend and feature of the EU. Inequality has increased to levels not seen since the 19th century – since the Belle Époque as Thomas Piketty stated. Wealth inequality has grown even more than income inequality. The share of labour in GDP has fallen, whereas the top 1% of income-earners have done exceedingly well. A more sustainable and inclusive system is possible but will require fundamental changes in how the internal market works and how public policy can create and shape a different framework for corporate governance. Policy measures are needed to reverse recent trends, including executive pay schemes modelled on the precepts of neoliberal theory. One important tool is the introduction of democracy in company boardrooms.

The mindset and concepts have to be changed. It took some effort to overcome internal trade union hesitations and to adopt a courageous and ambitious approach to board-level representation in the European Company and also all companies utilising European company law instruments. In the end, after years of discussion inside the European trade union movement, there was overall agreement and a unanimous decision.

The remaining hesitations are based on the assumption that representation in boardrooms may lead to co-management. It should be about participation in company decision-making, contribution to company strategy and influencing or even opposing decisions which might prove harmful to the workforce. It should be about control and supervision, not interfering in day-to-day management. Real seat could be a solution to protect board-level representation and to avoid letterbox companies, money laundering and regime shopping, but it was not taken up as tax and wage competition are considered as positive, as tools for more efficiency.

Beyond old corporate governance structures

A European debate on more participative corporate governance must be relaunched. Even in the USA, in April 2018, Democratic senators Elizabeth Warren, Tammy Baldwin, and Brian Schatz introduced legislation mandating that employee representatives must comprise one-third of members of boards of directors in publicly listed US corporations. UK Prime Minister Theresa May, in 2016, planned to reform board-level governance, but dropped it like a hot potato when faced with opposition from the CBI. French President Emmanuel Macron went much further in March 2017 during his election campaign, promising 50% of boardroom seats for trade unions, but never came back to the issue. It followed an appeal by some intellectuals, published in the same year in Le Monde. Is it not a shame that we see debates popping up in the UK, France, Italy and the USA, but not at European level? Commission President Juncker, during his own election campaign in 2014, did a one-off interview in which he promised to propose minimum standards for co-determination in European companies as part of the Social Pillar once he was office, but he never did. We see a long list of pledges not kept, which eventually benefit populist movements blaming the establishment for failing to keep its promises. Is damage control alone realistic? How important for the EU institutions is democracy at work really?