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Transposition of the SE legislation in Denmark (Report: March 2004)

Danish legislation implementing the SE Statute and the SE Directive is expected to be in place by June 2004 and to enter into force on 8 October 2004. The legislation consists of two new laws – one accompanying the introduction of the SE Statute and one transposing the SE Directive – and minor changes in three existing laws: (i) the law on public limited companies, (ii) the law on company annual accounts, and (iii) the law on auditing of accounts. All the new pieces of legislation were presented to parliament in January 2004, and the first readings of the two new laws took place on 17 and 19 February respectively.

Implementing the SE Statute

The typical Danish corporate governance structure consists of the general assembly, the company board and (the board of) directors. Since 1973 employees have been entitled to one-third of the seats on the company board. In the discussions on implementation of the SE Statute the Danish system was defined as a one-tier system. In the new laws and through the amendments of the existing laws it is determined that SEs can choose between a one-tier and a two-tier structure. The Danish Act on the SE Statute defines the obligations and competences of the supervisory board and the management board in a two-tier structure. Generally, the aim has been to grant the management board the same competences and obligations as those held by the board in the one-tier system. However, as to employee involvement this applies only to the supervisory board.

Other elements in the Act include provisions protecting shareholders and creditors when an SE is formed with its headquarters in another country. Shareholders who at the general assembly vote against a company merger or the transfer of headquarters to another country are allowed to cash in their shares. In relation to financial-sector companies, the Minister of Economy and Business has the right to object to mergers into an SE and to an SE wanting to move from Denmark to another country. Such an objection must be based on the national interest. Finally, the proposed Act determines – in accordance with national rules – that the first general assembly of a Denmark-based SE must take place no later than 18 months after its founding, and that all shareholders are entitled to put any issue on the agenda of the general assembly, provided that the proposal is made in due time.

At the first reading in parliament the Act was welcomed by representatives of all political parties, with the exception of “Enhedslisten”, a coalition on the extreme left. Their spokesperson deplored the act because it “concerns transnational companies’ ability to operate across borders more easily. In our view, there is no need for that. It is already far too easy for them to operate across borders and to wield economic power.”

The changes in the laws on public limited companies, annual accounts, and auditing aim first and foremost at ensuring that these laws make possible two-tier as well as one-tier governance systems in SEs.

Implementing the Directive on Employee Involvement in SEs

The Directive on Employee Involvement in SEs was first discussed by the so-called implementation committee. This is a joint social-partner committee which has existed as a permanent body since 1999. Its aim is to determine whether the social partners want specific EU directives on labour issues to be implemented by collective agreement. The committee operates on the basis of a parliamentary resolution of 1993 which decided that implementation through collective agreements is the preferred method in Denmark when it comes to implementing EU labour directives.

The social partners agreed that in the case of the Directive on Employee Involvement in SEs, however, they did not want it to be implemented through collective agreements. As with the Directive on European Works Councils, the opinion was that because of the transnational character of the relations in question, national collective agreements were not suitable instruments for transposition.
Subsequently, transposition was dealt with by a committee under the Ministry of Employment with representatives from the state and the social partners. Two major topics were:

1) election procedures;

2) whether the legislation should contain a clause making it possible for collective agreements to supplement the law.

On the latter issue it was agreed that the Act should not include such a clause, although the employers’ association of the agro-industry had argued for it. On the first question, it was agreed that the rules on elections to the SNB and to the representative body (as defined in the standard rules) should be similar to those laid down in the Danish law on European Works Councils. This means that trade union delegates (shop stewards) are given priority: representatives will normally be elected from among and by them. The fact that union representation is preferred – also by employers’ organisations – can be seen as supporting the Danish model of representation: union constituencies rather than the workforce as a whole form the basis of representation. However, it was also agreed that this principle should not apply to participation in the administrative or supervisory body as defined in the standard rules of the SE Directive. Here, a different set of national rules were upheld, namely those from company legislation stating that employee representation on the board/supervisory body shall be based on a direct election involving all employees. The election principles agreed upon by the committee are those found in the Act.

Between the work in the ministerial committee and the presentation of the Act to parliament in January 2004 there was a consultation round (November–December 2003) in which a number of state bodies and employers’ and employees’ organisations were asked their opinion on a draft of the Act. The SALA (agro-industry employers) took the view that there should be a provision enabling implementation through collective bargaining. The DA (Danish Employers’ Confederation) agreed in principle, but added that in this case implementation through collective agreement was not possible. The DA also “noted the opt-out provision in art. 7, para. 3 of the Directive in the case of SE companies founded by merger. The DA finds that consideration should be given to including this exception in the Act…”.
In his reply to the consultation responses the minister wrote:

"Generally, the aim has been that the Act should resemble existing rules on employee involvement as much as possible. The reasoning behind this is, on the one hand, that the law would be easier to apply, and on the other that unequal treatment of SEs and of nationally-based companies must be avoided as far as possible."

Concerning the opt-out clause the answer to the DA’s request was that “it should not be included in the Act, as this would entail unequal treatment of SEs and other companies”; the opt-out clause “is particularly intended for member states in which participation is not common”. Finally, the SALA wish for a clause enabling implementation by collective agreement was dealt with briefly: “due to the transnational character of the Directive this is not possible”.

Other responses in the consultation round came from the Confederation of Salaried Employees, the FTF. They wanted the comments to the Act to state more precisely under what circumstances the provision on confidentiality should be applied, and to what extent the supervisory or administrative body of the SE can omit to pass on information. The minister responded by adding a section to the official comments to the Act clarifying what can be regarded as confidential information; the comments to the Act also state that the administrative/supervisory body or the competent body must define clearly what information is confidential. Concerning the second part of the request the reply was: “It seems impossible to determine precisely the extent to which the dissemination of information can be omitted. It depends on a concrete assessment and the question can be subject to legal action.”

The proposed Act on Employee Involvement in SEs was presented to parliament on 28 January 2004, and the first reading took place on 19 February. Representatives of all political parties expressed support. The Minister of Employment commented as follows:

"I will be the first to admit that the Act is complicated as it stands. The many technical provisions are part of the price to be paid for employee protection and a necessary consequence of the fact that the field, which has so far been regulated very differently at national level, is now encompassed by transnational rules. It is the aim of the Act that the principles governing, among other things, election of employee representatives which are operating in the Danish labour market today shall be applied to the widest possible extent in relation to SEs. The Directive gives member states some freedom of choice in questions of this nature, and for several reasons – among other things, the wishes of labour market actors – it has been clear that the Danish model should be referred to."
The wording of the Act to a large extent repeats the wording of the Directive. In what follows, only those parts of the Act which augment the formulations of the Directive will be mentioned, together with a few issues concerning which it is debatable whether the act succeeds in fully implementing the Directive.

Art. 5 determines that the SNB must be considered established (and ready to negotiate) 10 weeks after the employees in all participating companies and establishments have received information from management on plans to establish an SE. It is argued in the official comments to the act that if such a time limit is not specified, failure to establish an SNB will hinder the establishment of an SE (see also the discussion in the Swedish country report on this issue).

Art. 9 defines how members of the SNB shall be elected in Denmark (and the same rules apply to the election of members of the representative body under the standard rules). Members are elected “by the employee representatives in the cooperation committees in participating companies, subsidiaries and establishments. Where there is no cooperation committee the members are elected by the shop stewards. If no shop stewards have been elected, or if this has been agreed between the management and the ordinary employee representatives, the members are elected by all employees”. Para. 2 adds: “If it has been demanded before the election, the cooperation committee or the group of shop stewards can be complemented by representatives of groups which are not represented by the ordinary cooperation committee members or shop stewards”.

A few comments are needed to explain these rules. First, cooperation committees, which have priority in the election procedure, are joint consultation bodies based on a collective agreement signed by the LO (the peak organisation for workers and some categories of salaried employee) and the DA (the peak employers’ organisation); the employee representatives on cooperation committees are trade union delegates (shop stewards) and in principle represent only trade union members. Second, the two minor peak employee organisations (the FTF, covering salaried employees, mainly but not exclusively in the public sector, and the AC, covering employees with a higher education, for instance engineers) are not part of the agreement on cooperation committees. The election procedure puts these groups – as well as non-union members – in an unfavourable position and therefore the abovementioned para. 2 was introduced to give them an opportunity for representation. However, their position seems weaker than that of the groups covered by the LO–DA agreement on cooperation committees. The comments to the Act contain the following further attempt to restore some sort of balance: “It is assumed that the election of the SNB will be announced in a timely fashion, making it possible for these groups to take care of their interests through a request for representation”.

Art. 13, para. 2 states that the company is obliged to pay the costs of one expert assisting the SNB.

Sanctions: Articles 45 and 46 mention a number of instances where non-compliance with the provisions of the Act may be sanctioned with fines, including (employees) passing on of confidential information and (management) dissemination of incorrect information “which is important for employee involvement in the SE”. In relation to the standard rules, fines may be issued against a company for: i) failure to meet with the representative body at least once a year; ii) failure to inform and consult in the event of “special circumstances”; iii) failure to take the necessary steps to hold elections to the administrative/supervisory board. Companies may also be held responsible in accordance with provisions in the penal code and breach of confidentiality may be punished with reference to other legislation.
Information for trade unions in relation to negotiations. The Act fails to include the following formulation contained in art. 3, para. 5 of the Directive: “the SNB may decide to inform the representatives of appropriate external organisations, including trade unions, of the start of the negotiations”. The FTF in its consultation response proposed that this formulation be included. However, the response from the Minister was that “nothing prevents the SNB from informing anyone that negotiations have been started”.

Issues in the standard rules

It is determined in art. 21, para. 5 that if the representative body consists of more than 10 persons it has the right to form an executive committee consisting of no more than three persons.
Art. 23 concerns changes in the SE and states that “the representative body must once a year determine whether as a result of changes within the SE, its subsidiaries and establishments the distribution of seats should be different. If this is the case, the representative body must reconstitute itself, so that the changes are reflected in the composition of the body”.

The Act repeats the Directive’s formulations on the employer’s obligation to finance the costs of the representative body, and adds that the Minister is authorized to formulate more precise rules.

Art. 36–40 deal with elections of employee representatives to the administrative or supervisory body of the company. The rules of Danish company legislation are applied. A joint employee–management committee organises the elections; all employees, irrespective of trade union membership, participate.

Sources: Official documents from the Danish Parliament (available at www.folketinget.dk) and interview with trade union expert.

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