Firms await statute of liberty

Date: 27/02/1997

By Chris Johnstone

AFTER German reunification, there was a short-lived craze for putting Porsche, BMW and Mercedes engines into the workhorse-style Trabants of the former eastern regime and waiting for astonished stares from fellow motorists on the country's high-speed autobahn.

It was a trend which soon died away. But European companies have been living with an equivalent mismatch between their fast moving cross-border ambitions and the static company structures which have housed them for the last 20 years.

At the moment, companies gearing up for the completion of the single market and the launch of the euro have to marry high-powered European strategies with cumbersome national structures which would give top designers like Pininfarina apoplexy.

In short, there is no streamlined legal, tax or employment model which pan-European companies can use to save them from the costs and complexities of having to duplicate subsidiaries across the Union.

The Commission unveiled its solution - the European Company Statute, a sort of off-the-shelf company structure which could be adopted by businesses with operations in more than one country - in 1970. The proposal has been gathering dust ever since.

If it had been around, the statute might have solved some of the complex company engineering needed for the Anglo-French Channel tunnel; it might have eased some of the headaches associated with the creation and running of the Airbus Consortium; and it could now be lending itself to some of the Trans-European Network projects which the Commission is attempting to foster.

The bugbear of the European Company Statute has been the need to find some format for worker consultation which will almost reconcile the almost irreconcilable - answering German fears that the country's advanced regime for worker consultation will be watered down and at the same time preventing the UK government from complaining that it is being burdened by more red tape from Brussels.

At one stage, the idea was floated of splitting the company law from the worker participation aspects of the proposed statute, but this proved a step too far for some governments and most trade unions.

The Commission recently brought in Etienne Davignon, chairman of Belgium's biggest holding company Société Generale de Belgique, to head a high-level group of experts looking for a solution to the worker participation problem.

One of the main lines of the group's research has been to weigh up just how far existing national models of consultation could be threatened by circumvention via the statute.

Uncharacteristically, former European Commissioner Davignon is keeping quiet about the group's work, although its report is expected shortly, possibly as early as the end of March.

“He is not saying anything in advance because it is such a hot potato that it could be shot down,” said an observer with a penchant for mixed metaphors.

In the meantime, some MEPs are pressing for action, with Dutch Liberal Johanna Boogerd-Quaak denouncing her country's economics minister and fellow party member Hans Wijers for failing to give the issue enough prominence during the Netherlands' EU presidency.

European employers' lobby UNICE is walking a tightrope between its members' positions by taking no stand on the ideal form of worker consultation, but would like countries to be able to safeguard their own preferred structures as far as possible.

It warns that the Commission must get the statute's mix of advantages and obligations right to make it an attractive option for business. “If it is not attractive, it will just be forgotten,” said UNICE official Olivier Richard.

Meanwhile, companies are impatient for results.

Oil giant BP for example, which is currently pursuing a joint venture with Mobil in its European operations, is facing 15-times the task it would have had if a European Company Statute were already in existence.

“We have more than 30 companies in 15 countries involved in the joint venture. If you had the statute, that would have been easier,” said Juergen Cuno, BP's assistant director of government affairs.

Instead, companies like BP must cope with a complex, cumbersome and very expensive process which is putting a brake on European firms streamlining their operations and cutting out layers of management.

Some long-established firms point to the handicaps they face in trying to integrate their European operations and contrast their situation with that of Japanese and other rivals from outside the EU who enjoy streamlined structures from the start.

BP reckons it has gone a long way towards reducing duplication in its national arms by transferring activities to its core European operation - and would still like to go further if the right format could be found.

The company believes it could still save millions of ecu if the European Company Statute were agreed now, and says other less advanced companies could recoup hundreds of millions.

“The costs of the current procedures are enormous,” said Richard.

A key issue for European firms anxious to restructure - and one which has been largely overshadowed by the focus on worker participation - is that of taxation.

UNICE gives the example of one company which investigated the possibility of moving to an integrated European structure and found that it would face a 40-million-ecu cost arising from its new tax treatment and an extra 1.25-million-ecu penalty due to transfer taxes.

Another firm abandoned plans for a new European structure which would have led to 25&percent; efficiency savings because of the high tax costs associated with restructuring.

The problem for the likes of BP is that without any alternative, they are stuck with the strait-jacket of setting up national subsidiaries wherever they go in Europe.

If company B takes over firm P in another member state, it still has to keep P alive in some form as a subsidiary because the taxation costs of transferring assets across borders are prohibitive. In some cases, the picture may have to be complicated even more by the creation of a further holding company to oversee the new entity.

The current proposal for a statute steers clear of offending governments by promising that it would be tax neutral and would not hit national revenues.

But some within the business community admit that the statute is only a first bid for a European company format and one which they would like improved upon at a later stage.

“The statute may not be the best solution. If you came to a sheet of blank paper, you would probably do something different now, but that is not politically possible,” said Cuno.