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THE LEGAL FRAMEWORK OF CSR IN THE EUROPEAN UNION, GERMANY, FRANCE, UNITED KINGDOM AND HUNGARY



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THE LEGAL FRAMEWORK OF CSR IN THE EUROPEAN UNION, GERMANY, FRANCE, UNITED KINGDOM AND HUNGARY





André SOBCZAK (AUDENCIA Nantes Ecole de Management, UET)

The various case studies we have conducted fall within the scope of national contexts impregnated with the culture of labour relations and the legal framework in the four countries. In order better to evaluate the socially responsible practices we have found, it therefore seems important to provide in advance some information on these national contexts and, more particularly, on the legal framework:


  • of social responsibility

  • of restructuring

  • of subcontracting.

A. The legal framework of social responsibility


An analysis of law in the Member States of the European Union shows that social responsibility is exercised within an increasingly precise legal framework, which gives companies incentives to behave in a socially responsible fashion and to report on this in a transparent manner. These incentives may be addressed either to investment funds, which subsequently exert financial pressure on companies, or directly to companies.

A.1 An indirect incentive: the transparency obligation hanging over investment funds

Several national laws in the European Union Member States oblige investment funds to specify whether they take account, in selecting their investments, of social and environmental criteria. Given the increasing interest of savers in socially responsible management of their money, one would expect this transparency obligation to lead a number of funds to modify their investment policy. Indirectly, therefore, there is increasing financial pressure on companies seeking investors to acknowledge their social responsibility.

While there is no specific legislation in this area in Hungary, the situation is different in the other three countries involved in our report. It is worth mentioning first the British legislation applicable to pension funds, which obliges these funds, as from 3 July 2000, to make public “the extent to which social, environmental or ethical criteria are taken into consideration in the selection, retention and liquidation of investments”1.

In its recent reform of retirement pensions, the German legislature was largely inspired by the British example and in its turn obliged pension funds to specify to savers whether they take into consideration ethical, social and environmental criteria2. Moreover, this reform led the social partners to discuss the establishment by collective agreement of ethical pension funds, in particular in the metallurgical sector, whose management would be entrusted to financial professionals, imposing on them social criteria for the selection of investments3.

In France, where the legislature has for the present refused to introduce pension funds, a similar trend is believed to have been noted in the Law on savings from pay, with the possibility for the bodies for collective investment in transferable securities to report annually on the extent to which they take account of social, environmental or ethical considerations4, or the Law on reserve funds for retirement5 (cf. details in the French report). However, the final version of these two texts ultimately still lags behind the legislation in the other European union Member States.


A.2. A direct incentive: the transparency obligation hanging over companies

The public authorities may decide to promote corporate social responsibility by imposing greater transparency on corporate social and environmental practices. Without obliging companies to adopt rules on social responsibility, this transparency undoubtedly constitutes a very powerful incentive for companies to formalise their social and environmental policies, in particular by adopting codes of conduct. At EU level, the obligation to publish such a social report is proposed by the European Parliament in its response to the Commission’s Green Paper on social responsibility6.

In France, a similar obligation already exists. The Law on new economic regulations of May 2001 introduces an obligation for the administrative board or board of directors of companies quoted on the stock exchange to submit an annual report to shareholders on the way in which the company takes account of the social and environmental consequences of its activities7 (cf. details in the French report).

The other three European countries do not currently have legislation obliging companies to publish annual reports on their social and environmental impact. Nevertheless, there are transparency obligations such as information and consultation of employee representatives, particularly in the field of restructuring.


B. The legal framework of restructuring

Restructuring is the subject of a significant legal framework in the various EU Member States8. For example, if the employer intends to undertake restructuring, he must respect certain rules, particularly procedural rules, which have been laid down by labour law both at Community level and at the various national levels, to protect the interests of workers in collective redundancies or the transfer of undertakings, but it must be borne in mind that all these rules are designed only to mitigate the social consequences of financial decisions, which remain in the hands of the employer alone. Hence this shows clearly that even in this field, which has been the subject of detailed regulation, scope remains for social responsibility.

B.1. Information and consultation

Both the Community Directive on collective redundancies9 and the Directive on transfers of undertakings10 oblige the employer to inform and consult employee representatives. Moreover, the Directive establishing the European Works Council11 lays down in its subsidiary requirements that the management of the undertaking must inform and consult the members of this council in the event of exceptional circumstances “affecting the employees’ interests to a considerable extent, particularly in the event of relocations, the closure of establishments or undertakings or collective redundancies”12. The emphasis on procedural rights, confirmed by the Directive on the general framework for informing and consulting employees in the European Community13, represents a more general trend in Community labour law and is also found in national laws.

In France and Germany, even before these Directives entered into force, labour law had already accorded major rights of information and consultation to employee representatives. In the UK, on the other hand, while information and consultation were certainly not unknown, until the transposition of the Community Directives these practices were purely voluntary in nature14. Lastly, in Hungary labour law amendments entered into force in July 2001 to bring it into line with the body of Community law, particularly in the field of collective redundancies.

To be worthwhile, information and consultation of employee representatives must take place before the termination or transfer of employment contracts, for even if it is a delusion to imagine that the employer will abandon the project, nevertheless the aim of these obligations is to plan its social consequences. However, labour law in the EU Member States provides for perceptibly different periods between the time of information of employee representatives and implementation of the redundancy project. Since its amendment in 1992, the Directive on collective redundancies stipulates that consultations with workers’ representatives must take place “in good time”15.

Our case studies show that the way in which the head of the company interprets this concept of “good time” may be a very important element in assessing the socially responsible conduct of restructuring.

B.2. Reassignment

The value of the obligations to inform and consult employee representatives in the context of redundancy for economic reasons or transfer of undertaking lies in reducing the social consequences of these operations decided on by the employer. Consequently, in the hypothesis of a redundancy, employers must organise in-house or external reassignment of their employees. Globally speaking, the trend in the law on economic redundancies is characterised by strengthening of the obligation on the employer to reassign. While the 1975 Community Directive restricts itself to specifying the obligation to inform and consult employee representatives about possibilities of avoiding or reducing collective redundancies, and about the possibilities of mitigating their social consequences16, the 1992 and 1998 Directives stipulate that the employer must also inform and consult them about accompanying social measures aimed, inter alia, at aid for redeployment or retraining of workers made redundant17. The employer cannot limit himself to paying compensation to his redundant workers, but must draw up a genuine social plan, at least in France18 and Germany19.

Apart from the social plan, redundancy for economic reasons must be regarded as the solution of last resort, and consequently may take place only if it proves impossible to reassign employees. German and French labour law even tends to subordinate the validity of economic redundancy to the employer’s efforts to reassign the employee. For example, German law allows the works council to oppose economic redundancy when the employee can be reassigned to another job in the same establishment or in another of the enterprise’s establishments20. Similarly, in France the judges of the Court of Cassation assert that redundancy for economic reasons may take place only if it is not possible to reassign the person concerned in the enterprise21. The French judge has even decided that if the company is part of a group, the context for assessing the possibilities of reassignment must be extended to companies in the group permitting some or all of their staff to be moved22.

Despite this rule, efforts to reassign employees vary greatly from one company to another. Beyond application of the letter of the law, scope therefore remains for corporate social responsibility, even if it represents application of the spirit of the law.


B.3. Rules preserving the employer’s freedom of management

Both the rules on redundancy for economic reasons and those on transfers of undertaking are designed only to mitigate the social consequences of the decision taken by the employer to reorganise the company. On the other hand, neither Community labour law nor national laws modify the powers of the employer as regards economic decisions. It is true that the employer must inform and consult employee representatives before reorganising the company, but it would be an illusion to expect these procedures substantially to modify the employer’s projects, their aim being solely to mitigate the effects. This lack of influence on the part of employee representatives on the employer’s economic decisions is increased by the limited legal monitoring in the EU Member States, where a principle prevails which makes the employer the only judge of his company’s management23.

Thus much depends on the attitude of company managers and their social responsibility.
C. The legal framework of subcontracting relationships

While subcontractors are subjected to a degree of financial monitoring, the law in the EU Member States affirms the principle of their legal independence. This principle means, firstly, that the employees of an enterprise integrated into a subcontracting network may not assume legal responsibility for another enterprise in the network, even if the latter is taking financial decisions that affect them, and, secondly, that employees may not recognise the unit of the network, which leads to the break-up of the enterprise and hence the loss of protection by labour law provisions dependent on workforce thresholds or even dismissal to self-employment.

The principle of independence explains that in the field of occupational health, it is in principle the subcontractor that is legally responsible, even if many financial decisions are taken by the company employing it. In response to this problem, the Community Directive on temporary or mobile work sites24 formalises coordination between undertakings which are legally independent, but which cooperate in the context of the same economic activity on the same site. This Directive stipulates the appointment of a coordinator25 responsible for organising “cooperation and coordination of activities with a view to protecting workers and preventing accidents and occupational health hazards26. Consequently it disregards the legal autonomy of the subcontractors and the companies employing them and takes account of the close economic ties between them.

Apart from this Directive, however, a broad field remains open to companies in the four countries that can manage relationships with their subcontractors without taking account of social considerations or, on the other hand, while acknowledging a degree of social responsibility for the entire supply chain.

PART TWO

The National Reports


GERMAN REPORT
Prof. Dr.Jozef WIELAND (Universität Konstanz),

Lutz BÜCHNER, Helmut EBERBACH and Klaus WINCKLER (EIAB)

Introduction
Corporate Social Responsibility (CSR) has a longstanding tradition in Germany following the national and economic and social frame. It is of course a fundamental part of highly regulated and institutionalised industrial relations.
The core idea of this relations is that the state sets the general conditions by legislation, but does not regulate any specific working conditions. This is left to negotiations between the so called „social partners“, that means the trade unions and the employers association.
There are two basic types of collective agreements between employers and employers, wage/salary and working condition agreements (working hours, holidays, labour conditions). Therefore CSR and the question of restructuring must be seen in the context of the second type of agreements.
Labour and management can negotiate freely CSR but must abide the constitution and the statutes. The Works Constitution Act of 1972 defines the regulations for industrial relations at the place of work. In particular it defines the right of participation and co-determination of the employees‘ representative bodies like the works council and the trade unions. Co-determination at the managerial level enables employees to influence company policy with regard to all company activities through their members of the supervisory board. The supervisory board is made up of equal members of shareholders and employees (see for further details the following overview):
A. The established system of industrial relations in Germany27

Of the 36 million gainfully employed persons in the Federal Republic of Germany, 89.3 percent are wage and salary earners, i.e. employees, civil servants, and trainees or apprentices. In addition, there are 3.5 million self employed, most of whom also have others on the payroll, apart from 311,000 helping family members. Employers include private companies, federal, state and local government authorities, and other public institutions.

Employers and employees co-operate with each other, as they must, but their interests sometimes clash. They then have the right to negotiate collective agreements 1 without interference from the government. The state sets the general conditions by legislation, but it does not lay down how much workers should be paid. This, and many other matters   for example holidays   are left to the "social partners", i.e. the trade unions and employers' associations, to negotiate themselves.

A.1. Trade unions

The largest labour organisation in the Federal Republic is the “Deutscher Gewerkschaftsbund” (DGB; German Trade Union Federation, the parent organisation of almost every German trade union) with about 7,9 million members in 8 unions (at the end of 2001). DGB unions are based on the industrial association principle: This means that they enrol workers and employees of an entire industrial, commercial or other economic sector (or even several sec­tors), regardless of the kind of work they do. The biggest union is Ver.di (Vereinigte Dienstleistungsgewerkschaft – www.verdi.de) with about 2.8 million and IG Metall (Industriegewerkschaft Metall – www.igmetall.de) with about 2.7 million members.

Apart from the DGB there are a number of other union organizations. Its members are salaried staff from practically all sectors of the economy. The Deutscher Beamtenbund (DBB, German Civil Servants' Federation), with about 1.2 million members, is the main organisation of permanent civil servants which, on account of civil service law, is not involved in collective bargaining and cannot call members out on strike. Otherwise it has all the characteristics of a trade union and has considerable influence. There is also the Christlicher Gewerkschaftsbund Deutschlands (CGB; Christian Trade Union Federation of Germany), which with its affiliated unions, numbers about 305,000 members.

The German trade unions are not connected with any particular party or church. No one can be forced to join a union. The closed shop system (which, according to agreements between employers and unions, allows only union members to be employed) is alien to Germany. The degree of unionisation, i.e. the proportion of workers who are members of unions in certain industries, varies greatly but averages less than 50 percent. The unions maintain many colleges and training centres for their members.

A.2. Employers' associations

The employers have joined to form regional associations which   like the DGB unions   are based on the principle of "one industry, one association". The central organisation of the employers' associations is the Bundesvereinigung der Deutschen Arbeitgeberverb~inde (BDA, Confederation of German Employers' Associations). Like the DGB, it does not itself conclude collective agreements but instead functions as a co-ordinating body, and represents the basic interests of its members. The BDA covers all branches of business   from industry, crafts and trades, commerce, banking and insurance to agriculture and transport.


About 80 percent of entrepreneurs are members of an employers' association  a much larger proportion than in the case of employees. The BDA represents them only in their role as employers, i.e. as negotiating partners of the trade unions. All other interests   taxation or economic policy, for instance   are taken care of by other business organizations such as the Bundesverband der Deutschen Industrie (BDI., Federation of German Industries), the Zentralverband des Deutschen Handwerks (ZDH; National Federation of German Skilled Crafts and Trades) and the Bundesverband des Deutschen Gross  und Aussenhandels (Federation of German Wholesale and Foreign Trade).

A.3. Collective agreements

There are two basic types of collective agreements which the unions negotiate with the employers' associations or with individual employers. Wage and salary agreements regulate pay and in most cases are agreed for a short period of time. Framework or general agreements, which as a rule run for several years, regulate conditions of employment such as working hours, holidays, minimum notice, overtime rates, etc. There are also special collective agreements governing specific issues (such as vocational training, supplementary retirement benefits and protection against rationalisation measures).


In principle, labour and management can negotiate freely; they must, however, abide by the constitution and the statutes. The average, statutory maximum number of working hours per week is 48, for example, but practically all Germans work fewer than 40 hours a week, and some only 35. Similarly, the law prescribes a minimum Paid holiday of 24 working days, but collective agreements generally provide for a holiday of 30 working days (six weeks). Nearly all workers receive additional holiday money and a Christmas bonus on the basis of collective agreements. In many cases, actual wages, salaries and other payments are considerably above collectively agreed rates.

A.4. Industrial action

In Germany, industrial action may only be taken in connection with collective wage agreements. It is therefore restricted to those agreements. During the life of a collective agreement, the parties thereto are obligated to maintain industrial peace. This means that industrial action cannot be called on matters covered by agreements still in force. in order to prevent industrial action, in many cases provision has been made for arbitration if the two sides cannot agree. Under the unions' rules, moreover, the members have to be balloted. Only if a qualified majority are in favour may a strike be called.

The workers' right to strike is counterbalanced by the employers' right to lock them out. Within certain limits, lockouts have been upheld by the Federal Labour Court and the Federal Constitutional Court as permissible means of industrial action, but the issue is still controversial. As the state remains neutral in labor disputes, neither strikers nor locked out workers receive unemployment benefits. Union members receive strike pay from the unions' strike funds for loss of earnings, but non members get nothing. During a strike, they must either live on their savings or apply for social assistance.

A.5. Co-operation

Workers and entrepreneurs are not in opposition to one another all the time, however. They also co-operate in many ways. This is most apparent on the shop floor, but the representatives of both sides' organisations also meet on many other occasions, for example on apprentice examination committees. In the labour courts, which rule on employment disputes, there are lay judges at all levels from both sides. Within the framework of so called self government, the management boards and representative assemblies of the social insurance schemes (unemployment insurance, health insurance, accident insurance and pension insurance) are comprised half of employers' representatives and half of employees' representatives ("representatives of the insured"). Politicians also frequently seek the views of the leaders of the two sides' organisations. These, and other forms of co-operation help to foster mutual understanding without blurring the differences between their respective interests.


A.6. Works constitution and co determination

The Works Constitution Act of 1972 defines the regulations for industrial relations at the place of work. It lays down in particular the right of participation and codetermination of the employees' representative bodies, the right of the individual employee to be informed and be heard, as well as the rights of the unions within the framework of the works constitution.


A.7. The works council

The works council represents the interests of employees towards their employers, assesses suggestions put forward by employees, and passes them on to the employer. The works council shall monitor, among other things, that the laws, decrees, accident prevention regulations, collective wage agreements concluded, and works wide agreements are all observed.


Important co determination rights cover such areas as matters relating to the proper running of the establishment; working hours (including the introduction of short time or overtime); holidays., introduction and use of technical devices designed to monitor the behaviour or performance of the employees; provisions for the prevention of accidents at work, occupational diseases, and for the protection of health on the basis of legislation or safety regulations. The works council also has a considerable say in job descriptions, work processes, the working environment, personnel planning and vocational training. The employer must also consult the works council before any dismissal. Failure to do so will result in the dismissal being declared null and void.

Co determination at the managerial level enables employees to influence company policy through their members on the supervisory board. This co determination by employees in factories and corporations is a key pillar of the social order in the Federal Republic of Germany. It rests on the conviction that democratic legitimation cannot be limited only to government, but must also be effective in all areas of society. Co determination in the supervisory board extends to all company activities. Thus the supervisory board, for instance, appoints the members of the management board. It may also revoke their appointment, demand information on all company matters, and render important business decisions, e.g. with regard to major investments or rationalisation measures, subject to its approval.

The supervisory boards of companies where co determination is practised have to be made up of equal numbers of shareholder and employee representatives. All the employees' members of the supervisory board, i.e. those working in the company and the trade union representatives, are elected by direct ballot or by delegates.
In companies with more than 8,000 employees, the law prescribes elections through delegates a ballot, but employees may, by a majority vote, opt to be represented by delegates. The employees may, however, reverse this procedure; in other words, they can choose by a majority vote to have a direct ballot.
The shareholders' members of the supervisory board are elected at the firm's respective shareholders' meeting (the "HauptversammIung" or AGM in the case of stock corporations, the "Gesellschafterversammlung" or partner's meeting in the case of limited liability companies). At the inaugural meeting of the supervisory board, the members elect the chairman and the vice chairman.
B. Cultural background

B.1. CSR in Germany vs. in the US vs. in the EU

The German concept of social partnership between the internal stakeholders (management and workforce) is well established and based on a long tradition in regard to social as well as to legal aspects. The German economy is based on the concept of the “Soziale Marktwirtschaft” (social market economy) which allows the government quite expansive interventions into the business-world vs. a more “laisser-faire” approach of other governments. This is regarded as being “right” and Germany is thus used to the government setting guidelines, but also expects the government to take care of the workforce (see health-care, unemployment rules, Kündigungsschutz (dismissal laws) etc.) The German system is already established as a well organized relationship-netting between the named stakeholders and is connected with a deep moral concept in the German society.

Taking this into account one could argue, that in Germany there is no need for any further establishment of a more developed social concept such as CSR since the workers-participation (“Mitbestimmung”) is already better defined than CSR is today. Keeping up this argument there would be no need for companies to develop further social responsibilities, but if really more care-taking of the workforce is deemed necessary, it is the job of the government to fulfill those needs (“Why else do we pay taxes?”)
The situation in the U.S. where there is no such social and legal definition of the roles of the internal stakeholders a widely accepted self-regulation is already in place. Further involvement of the government to establish new social rules would be seen as unnecessary. Thus pressure to pay more attention to social values would be seen as a duty of the companies.
Within the EU the differences in the balance between the “accepted and right” amount of State regulation and company practice (Set guidelines vs. Self Regulation) between each and every country seem to be enormous and thus relevant to be pointed out. Still the EU-Greenbook tries to define CSR as one concept for all countries:


”Corporate Social Responsibility is the concept that an enterprise is accountable for its impact on all relevant stakeholders. It is the continuing commitment by business to behave fairly and responsibly and con-tribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large.

By expressing their Social Responsibility, companies are affirming their role in social and territorial cohesion, quality and environment. Through production, employment relations, and their investments, companies are able to influence employment, the quality of jobs and the quality of industrial relations, including respecting fundamental rights, equal opportunities, non-discrimination, the quality of goods and services, health and the environment.


Ultimately CSR can only be taken on by the firms themselves. However, it can also pose challenges to policy makers to develop or adapt policies and legislation, in order that they may support and promote the awareness of the business case for CSR.

Social partners also play a crucial part in the wider implementation of CSR. Any company strategy towards CSR based on an integrated and balanced approach to economic, social and environmental factors requires innovative thinking and thus new skills and closer involvement of the social partners.” (http://europa.eu.int/comm/employment_social/social/csr/csr_whatiscsr.htm)
Such a common definition for the Concept of CSR seems to be necessary for the study, but seems to disregard the status-quo in the relationship that social partners in the different countries with different cultures have already established in the past. Also the changes in this relationship over time need to be taken into account.

B.2. The challenge of change

Globalization and a new attitude to ethics and values are rapidly questioning the traditional cultural background of industrial relations and the system based upon it.



B.2.1 Globalization

Globalization suddenly shows that the own country is not the center of the world, that the rest of the world can seriously impact the life of everyone, for example by making migrate one´s own working place to a country so far unknown to the former owner of the job. Globalization confronts workers with new production schemes, unknown and unfamiliar and therefore regarded as dangerous.

In connection with horror stories of money roving around the world in dark, uncontrollable channels globalization creates a feeling of uncertainty.

B.2.2 Communications

The new possibilities of worldwide communications shows the unfair disparity of wealth and poverty around the world.


B.2.3 Revival of values

Especially in a highly developed country with all basic needs provided, people realize that money itself does not make happy and can not replace security, justice and humanity.



B.2.4 New answers

Due to this challenges a new system has to be created, overcoming the old system of profit optimizing and the restriction to the traditional three stakeholders (government, unions and employers)



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