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German companies take the lead in turning European
This article by Andrew Bibby, in a slightly different form, was first published in Financial Times, 2006
A second major German company, the health-care firm Fresenius, is following close on the heels of insurer Allianz in changing its legal structure to that of a European Company. Allianz has had the letters SE – short for the full Latin tag of Societas Europaea - after its name since the start of October , when its conversion into a European Company was formally completed. Fresenius, which employs 100,000 staff in a hundred countries worldwide, received formal shareholder to convert at an extraordinary shareholders' meeting on December 4th .
Two major conversions may not represent a stampede, but nevertheless Allianz and Fresenius are focusing attention on a legal form, finally agreed in 2001 after forty years of discussions, which many claimed was an unnecessary European grand projet. For Allianz, the compelling motivation was the need to find an easy way to incorporate Italian subsidiary RAS into the parent company. Allianz's CEO Michael Diekmann also stresses the advantage of being seen as a European, rather than specifically German, business: “The legal step reinforces the reality [that] Allianz is a European company at heart,” he says.
However, Allianz has also taken the opportunity, not available under German company law, to shrink the size of its Supervisory Board from twenty to twelve members. For its part Fresenius is strongly motivated to convert in order to maintain its current 12-person Supervisory Board; otherwise, German law will require the Board to increase to twenty members.
The composition of Supervisory Boards may seem a relatively minor matter. Nevertheless, one of the most intriguing aspects of both companies' conversions is the effective Europeanisation of the German model of mitbestimmung (co-determination), the principle that employees have equal representation to management appointees on these bodies. As SEs, both Allianz and Fresenius will contain employee representatives from other European countries on their Supervisory Boards.
In Allianz's case, for example, the four German worker representatives engaged in overseeing the firm's strategic management have been joined by one representative from the workforce in France and one, Geoff Hayward, from the insurer's British operation Cornhill and the union Amicus. From a UK perspective, there is a certain irony to this appointment. Leaving aside a short-lived experiment in British Steel in the 1980s, Mr Hayward is the first UK trade union representative in modern times to be appointed as a worker-director of a major company. It took a German-based company to bring this about.
Co-determination in SEs is a necessary feature only where the converting enterprise is already incorporated in a country like Germany , and companies elsewhere in Europe can become SEs without adopting this approach. Nevertheless Oliver Röthig, head of the finance sector of global union federation Union Network International, sees Allianz's adoption of the European Company model as a useful precedent. “It is a clear step forward for colleagues in other countries. From a European perspective, it is especially significant that supervisory board co-determination becomes a transnational feature,” he says.
There are implications for other aspects of industrial relations as well. European Company rules require the creation of a SE works council, equivalent to though not necessarily identical to, a standard European Works Council. The exact composition and powers of this body are subject to negotiation between the company and employee representatives. In Allianz's case the new SE Works Council has been given more than simply a consultative role, having powers over areas such as health and safety, training and data protection. It will also meet at least twice yearly. However its creation effectively downplays the responsibilities of the existing German works council, which under the old rules had a formal role in the company's structure. “In the end, the agreement on employee involvement is a compromise,” Oliver Röthig says.
Both Allianz and Fresenius have used the international legal firm Shearman and Sterling as advisors. Hans Diekmann, a partner in the firm's D ü sseldorf office, says that the European Company structure has certainly proved itself workable, though he chooses words carefully when asked to predict future trends among German companies. “I think there may be others which will consider it,” he says. “We know other companies are doing brainstorms [on the issue]”.
Outside Germany , there is currently less to report. Nordea, the Scandinavian bank, announced in 2003 its plans to convert but has since encountered a major problem in bringing together the different bank deposit guarantee regimes operating in the different Nordic countries. Peter Schütze, Nordea's head of retail banking, says that the bank remains committed in principle to the change. In France, Suez 's chief executive Gérard Mestrallet calmed Belgian anxieties last year during the takeover of Belgian energy firm Electrabel by talking of SE conversion. Now enmeshed in the problematic merger talks with Gaz de France, however, any transformation by Suez into a European Company seems a very long way off.
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