The Action Plan mainly focuses on the legal status of shareholders -- employee status and rights should be emphasized more in the future

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1 SAK/TK STATEMENT 1 (6) The European Commission MARKT-COMPLAW@cec.eu.int Reference: IP/05/16, 20/12/2005 DIRECTORATE GENERAL FOR INTERNAL MARKET AND SERVICES - CONSULTATION ON FUTURE PRIORITIES FOR THE ACTION PLAN ON MODERNISING COMPANY LAW AND ENHANCING CORPORATE GOVERNANCE IN THE EUROPEAN UNION At request, the Finnish employee confederations make the following statement: Credibility of business need to be enhanced also at EU level International incidents of widespread and systematic embezzlements and accounting frauds tend to deteriorate the prerequisites of business in many different ways. The Finnish employee organisations state that various proposals for measures put forward, as yet, at a general level in the Action Plan for Company Law, have either a direct or at least an indirect impact on the position of companies or the employees at the workplaces particularly in conditions of change related to restructuring or when companies are faced with financial difficulties. It is for this reason that we will, in this statement, of all the issues concerned in this consultation, mainly focus on ensuring the status and legal protection of the employees. The Action Plan mainly focuses on the legal status of shareholders -- employee status and rights should be emphasized more in the future The proposals for measures included in the Action Plan for Company Law are mainly targeted to improve the status and influence of shareholders. The proposals for measures are in this respect based on an understandable objective, improving the prerequisites of entrepreneurship in Europe and thereby also increasing employment. The Finnish trade union organisations do, however, call attention to the fact that increasing freedom of operation also requires consideration of the status and rights of all those involved in the

2 SAK/TK STATEMENT 2 (6) On items of Annex 1 operation of businesses. The Action Plan does not, for example, pay adequate attention to the status of the employees. The proposed measures will, without doubt, increase mobility and investment in Europe but may, at the same time, increase insecurity among the employees as to the stability of their jobs. An employee is the weaker one of the two parties in an employment relationship, and this legal and actual fact should also be taken into account in EU regulations. In practice, this means that detailed regulations to safeguard employee rights are needed. 1: The overall aim and context for future priorities An obligation, with the aim of promoting the competitiveness of European business, to systematic consultation with shareholders and other interest groups at least 12 weeks before forthcoming initiatives/measures is proposed in item 1. Employees form one of these interest groups, and their involvement and consultation should be further strengthened and emphasized also at the level of company law. It is further stated in item 1 that EU level regulation is justified when it is most effective and when legislation is the only way to proceed. It is additionally stated in item 1 that EU regulations should be as little burdening as possible and leave companies as much flexibility as possible. As regards to these objectives, the Finnish employee confederations point out that if a consistent legal position is the aim in EU area, a regulatory level obliging all Member States is, in this respect, the optimal solution. Furthermore, when deciding upon the level of regulation, attention should not only be paid to whether there are any other effective models available but also to the significance of the issues regulated, for instance from the point of view of legal protection of citizens. The latter often requires a higher level of regulation. Besides the fact that protecting the employee rights at workplace is one of the corner stones of the competitiveness of European businesses, enhancing employee well-being at work will also promote sustainable productivity and competitiveness in Europe. The Action Plan considers the possibility of legislative and optionally other than legislative measures at several points. The Finnish employee confederations point out that mere recommendations, frameworks and regulations allowing a lot of

3 SAK/TK STATEMENT 3 (6) discretion to companies, are not necessarily, in a highly competitive business environment, adequate instruments for settling disputes in the world of business but may even generate new ones Director's responsibilities / enhanced transparency of legal entities In order to prevent and check business malpractice in advance, the Action Plan proposes also other measures besides collective Director s responsibility. Concerning the proposed measures, the Finnish employee confederations state that the measures in question may, of course, contribute to responsible business management. Business management responsibility should, however, be also extended to circumstances where management have, through their own activities, given rise to damage affecting not only the shareholders but also the employees The 14th Company Law Directive on the transfer of the registered office The European Private Company The Action Plan proposes relaxing of the regulations concerning the transfer of a registered office of a company to another Member State. The Action Plan also states that regulations safeguarding employee participation are needed along with this. The present legal position, i.e. that the transfer of the registered office has been made difficult in several Member States, is stated in the Action Plan. On this issue, the Finnish employee confederations state that preserving the present legal position may, in the final analysis, be a more viable option. A more liberal course of action may tempt companies to speculate by country transfers in order to gain e.g. tax benefits. The transfer of the registered office of a company will also have an adverse effect on the employees legal position and personnel representation systems. Coinciding with the Action Plan, the EU has carried and is carrying out several programmes promoting and facilitating the process of setting up businesses and subsidiaries within the EU. As a result of this, expanding business operations is relatively easy already under the present conditions. The Action Plan includes a proposition on developing a new company form, the so-called European Private Company (EPC). The proposal is substantiated by arguments on cost savings, promotion of SMEs and increasing the mobility and credibility of businesses in the international context. Providing small companies (EPC) with an opportunity to transfer their registered

4 SAK/TK STATEMENT 4 (6) offices from one member state to another aims at promoting the SMEs efforts to expand their business operations within the European Union. Developing the ECP company form is, as such, a goal that deserves all support. The Finnish employee confederations do, however, point out that the fact that small companies get a chance to transfer their registered office to another country, would accelerate competition between the Member States in the field of labour law. When drafting the new company form, attention need to be paid to personnel issues to avoid any impairment to systems of employee participation. National legislation should be harmonised to prevent distorted competition at the expense of the employees interests. The Finnish employee confederations also emphasize that they will not approve of any deterioration in the job security and employee participation systems of the personnel working in Finland for the SMEs which might transfer their registered office from Finland to another Member State while continuing to conduct business in Finland. An EPC company form as well as the already existing legislation on European Company (SE) and the legislation on European Cooperative Societies becoming effective in the Member States in August 2006 will be putting pressure on reforming tax regulation in the Member States. In order for Finland to hold out in the tax competition between Member States, floors must be established for tax formulas related to single market operations, and tax bases need to be harmonised. More attention should also be paid to efficient fiscal supervision, adequate resourcing of supervising authorities and promotion of Member State authority cooperation. The goal of granting a company a choice of the country of taxation linked to the EPC company form will require harmonisation of taxation within the single market area. The base of corporate taxation should be harmonised, if necessary, based on the Amsterdam Treaty article on closer cooperation, enabling the cooperation of some Member States in a given area. The package to tackle harmful tax competition (the Code of Conduct for business taxation, taxation of savings directive, interest and royalty directive) must be brought to conclusion. 3. Simplification and modernisation of European Company Law The need to further simplify and modernise company law in Europe is also written into the Action Plan. Cutting down the number of regulations is often seen as the most effective way to

5 SAK/TK STATEMENT 5 (6) develop European company law (as well as other EU legislation), and this is certainly true in case of overlapping regulation. The Finnish employee confederations, however, point out that when struggling to improve and simplify company law, it is necessary to take extensive measures to make sure that there is no attempt to improve EU competitiveness at the expense of e.g. the occupational health and safety of the employees. Cutting down labour law should not be used to reduce regulation, as this would, in the long run, be a very unsustainable way to boost European competitiveness. Also businesses might, more often than not, benefit from a more detailed and covering legislation in their mutual interaction. Legislation that is easy, short and simple is not necessarily an adequate way to secure the interests of the personnel or even the company itself in the extreme competition between businesses, when each and every one of them is searching for a most costeffective line of action. Loose regulation may give rise to speculation on legal forms, depending on which one of these is the most advantageous in any given situation. This would weaken long-time planning, development and predictability of business activity in a longer perspective. On the other hand, enough attention has not, as yet, been paid to the capability and/or willingness of the different Member States to transfer EU regulations into their national legislation or to enforce them correctly. At the national level, it may probably be said, that there are considerable differences between Member States in this respect. Concerning the quality of EU regulations, it seems that all necessary steps to secure the legibility and intelligibility of the regulations have not yet been taken. This may partly be due to the fact that the regulations are drafted in a system consisting of many consecutive phases and that they are, in the end, compromises. Central Organisation of Finnish Trade Unions SAK The Finnish Confederation of Salaried Employees STTK Confederation of Unions for Academic Professionals in Finland AKAVA

6 SAK/TK STATEMENT 6 (6) Annex: For information: The statement of the Finnish employee confederations on the Commission Action Plan on Company Law (October 12, 2005) in Finnish) Ministry for Foreign of Affairs of Finland, Legal Department