|
|
|
|
By and large, Hungarian corporate law takes the relevant German legislation as model, and thus the customary form of corporate governance for domestic undertakings is the two-tier system. A supervisory board must be established at all joint-stock companies and at limited liability companies above a certain size, regardless of whether they are state-owned or private.
By default, however, the powers of Hungarian supervisory boards are rather weak. They may monitor managers’ actions and act as a body on behalf of the shareholders, but they tend to meet fairly infrequently. It is up to the shareholders’ meeting whether it extends the competences of the supervisory board. The usual business of supervisory boards is limited to holding meetings once or twice a year for the approval of all important reports put on the agenda of the shareholders’ meeting (including the annual financial report) and business plans, and exercising some control over the organisation by requiring information and inspections or reviewing the books and company documents. The main entitlement of the supervisory board is to call a shareholders’ meeting if it views the management’s actions as contravening the law, the company statutes or a decision of the shareholders’ meeting, or if it considers them harmful to the interests of the company or the shareholders.
In companies with at least 200 full-time employees one-third of the supervisory board must be employee representatives. Such board-level participation is obligatory in both state-owned and private companie, regardless of whether the business operates as a joint stock company or a limited liability company. Employee representatives are nominated by the company’s works council or central works council, but prior to nomination the works council is obliged “to listen to the opinion” of company trade unions. The shareholders’ meeting is obliged to appoint the works council’s nominees if they meet the legal criteria.
In practice, employee representatives on the supervisory board are local trade union leaders and/or the chair of the (central) works council, or their deputies. The personal overlap between board representation and other company-level channels of employee representation provides representatives with a certain legal security (against dismissal, discrimination, and so on), which is otherwise not guaranteed by company law.
The rights and duties of employee delegates are basically the same as those of other non-employee supervisory board members elected by the shareholders. There is, however, one extra entitlement for employee representatives: should the supervisory board fail to reach a consensus, the shareholders’ meeting must be informed about the minority position of the workers’ representatives. In turn, the employee representatives are obliged to inform the “community of employees” through the works council about all issues, with the exception of those restricted by business confidentiality.
Remuneration of board members is not regulated by the law, but the relevant decision of the shareholders’ meeting is usually guided by the principle of member equality. Nonetheless, remuneration practices vary widely across companies.
The appointment procedure and everyday functioning of employee representatives is in line with Hungary’s dualistic system of workplace industrial relations. In 1992 statutory works councils were introduced. Originally they were strongly opposed by the trade unions because they feared a weakening of their position. Several changes in the Labour Code since then have led to a situation in which the responsibilities of works councils and workplace trade unions have become rather confused in Hungarian labour law. In the course of the 1990s, unions developed a controversial relationship with works councils: at the majority of companies unions made a successful bid to dominate works councils or render them largely redundant. Recent surveys show that works councils operate only in larger companies where workplace trade union organisations are in place, and they do not function as an institutionalised channel of employee representation at non-unionised firms.
In practice, personal overlap prevails, not only between trade union leaders and works council members, but also between board members and other channels of employee representation. On the other hand, if neither a union nor a works council exists at a company, there is nobody to oversee effective implementation of the law. While in theory the establishment of board-level participation is automatic, in practical terms no state agency (labour inspectorate, court of registration) is in a position to monitor company practices in this regard.
Although board-level participation is not a key element of Hungarian industrial relations it represents an additional channel of representation which may support the functioning of company trade unions and works councils.
Source: The European Company - Prospects for worker board-level participation in the enlarged EU (edited by Norbert Kluge and Michael Stollt). Brussels 2006.
The country reports on board-level participation in the new member states are available in several languages.
Documents- Report: Employee board representation in Hungary’s new company law (October 2006)by Laszlo Neumann
Contrary to its previous drafts, the law ultimately did not make board representation voluntary and the major regulations on employee representation remained intact. However, a sort of deregulation is emerging both in the one-tier system and in mandatory board-level representation. Instead of prescribing detailed procedures, the general trend for legislation seems to be to refer to the ‘articles of association’; in other words, the shareholders’ meeting, the supreme body of the company, is increasingly in a position to establish (or, in the case of a Supervisory Board, approve) rules, deadlines and ways of implementing the law. Another sign of deregulation is that, instead of laying down concrete regulations, the law relies on agreements in which – as in the case of the Supervisory Board – employee representatives may voluntarily waive their mandatory rights. Trade unions were too weak to successfully fight the above-mentioned amendments of the company law, and apparently were not aware of the problems regarding the regulation of employee representation in the one-tier system at all. Download full report as pdf.
- Country and practitioner reports Hungary(by László Neumann and László Kanizslai) in Worker board-level representation in the new EU Member States - Country reports on the national systems and practices (edited by Social Development Agency asbl and ETUI-REHS, 2005)
< top
|
|
|
|
(3) Transposition process
|
(Dowload report / Documents)
Hungary transposed both Regulation 2157/2001/EC and Directive 2001/86/EC by means of Act XLV of 2004 by unanimous vote in Parliament on 24 May 2004. The Act was promulgated on 28 May 2004 and will come into effect on 8 October 2004. Hungary seems to have chosen the legislative mode of transposing the Directive on employee involvement in the SE rather than via an agreement between the social partners.
Prior to being submitted to the Parliament, however, the draft bill was discussed by the plenary meeting of the tripartite National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) on 27 February 2004. The plenary meeting’s decision sent the proposal back to the joint session of the Economic and Legal Committees of the Council, which then held a second round of debates on the bill.
This relatively early adoption can be explained by the fact that the Hungarian legislature usually has a long summer break, and inclusion of the debates in the Parliament’s autumn agenda would have jeopardised appropriate preparations, first of all by the courts of registration, by 8 October 2004. This is the first time EU regulations have been transposed at the same time as the “old” member states: previously, legal harmonisation had meant the en masse transposition of existing EU legislation.
Basically, the government’s approach was to create a favourable business climate, establishing the simplest possible rules for setting up and running companies, in particular the headquarters of SEs, in Hungary. As the political state secretary at the justice ministry stressed in his Parliamentary speech, “in this case national rules constitute an issue of competitiveness”, as effective and flexible rules may have a favourable impact on incoming foreign investment and thus on job creation in the context of the Single European Market. He also stressed that transposition of the European Company Statute would be a useful experience in view of future development of Hungarian company law.
As far as the directive on employee involvement is concerned, the government’s draft bill relied heavily on the rules established by the earlier transposition of the European Works Council directive, and also made reference to those sections of the Labour Code of 1992 which regulate the functioning of works councils, as well as certain aspects of trade union functioning within companies, and to existing board-level employee representation laid down in company law (CXLIV Act of 1997 on Business Companies).
[...]
COMMENTARY:
The Hungarian legislation considered the company law considerations of transposition a competitiveness issue, and so adopted a minimalist approach. The Hungarian Act supplementing the EC regulation on the SE Statute is as concise as possible, although it had to introduce the one-tier corporate governance system, a brand-new feature in Hungarian company law. The Act invented the Audit Committee, similar to the Supervisory Board of the two-tier system, in order to ensure compatibility with other laws and institutions.
Obviously, the government wants to make use of the experience obtained while working on transposition, and in March 2004 the expert group of the Ministry of Justice issued a paper on the new concept of company law and procedures of courts of registration for debate. By and large, it outlines future legislation on deregulation and makes it possible for company statutes to opt for new tools to meet various needs. Among other things, it proposed the optional one-tier system and the possibility of setting up a German-style Supervisory Board with strong decision-making powers. The paper also questions the very existence of board-level employee representation and proposes the revision of its rules. (Legislation on new company rules is expected in the second half of 2005.)
As for employee involvement, the Hungarian transposition practically copied the wording of the transposed European Works Council Directive. Therefore similar to the transposition of the EWC directive, the most controversial issue of the Act transposing Council Directive 2001/86 EC is the total neglect of workplace-level unions, either in the setting up or in the operation of SNBs and of the employee representative body defined by the standard rules. As with European Works Councils, this Act too authorises works councils (central works councils) to delegate representatives for Hungarian employees, or in the absence of a works council it calls for direct elections. Although union confederations realised this shortcoming of the bill and tried to oppose it in the draft, in the end they failed to turn the tide. Employer and government representatives successfully argued that there were similar provisions in the transposition of the EWC directive which had been approved by the trade union confederations the previous year, when they seemed not to be aware of the importance of the European representation structures.
Another interesting feature of the Act is that it avoids repeating the provisions of Hungarian company law on employee board-level representation; nonetheless, in line with the Directive, it requires at least the same level of involvement as in predecessor companies. Yet, in the merger of smaller companies it may happen that the board of a European Company employing more than 200 persons does not include employee delegates at all. Hungarian unions and works councils have to understand this and undertake the responsibility to fight for the level and quality of employee involvement in the negotiations between the SNB and the company management. On the other hand, this legal solution, offered by the Directive itself, may signal a possible deregulatory approach for the future development of Hungarian labour legislation, which will rely on a negotiated way of shaping the new employee representative body rather than on defining mandatory bodies and/or board delegates.
In the context of a negotiated way of shaping institutions, assurance of the genuine representation of workers and the presence of the trade union federations is a crucial issue. It is regrettable that in the course of transposition the national trade union federations were not given the possibility to have their experts in the SNB, and the presence of the trade union representatives was regulated in a restrictive way. At the same time, the Hungarian transposition was a genuine effort to achieve a good solution and sometimes came up with innovative solutions in order to guarantee genuine employee representation. In this respect, the detailed rules of information and consultation, as well as of judicial remedies in case of breaches of the law, are of paramount importance.
by Laszlo Neumann (September 2004)
Download complete report on the transposition process in Hungary (pdf, 125 KB)
DOCUMENTS: |
|
|
|
(5) Other relevant information (Info-Box)
|
< top
|
|
|
