The Future of Codetermination after Centros: Will German Corporate Law Move Closer to the U.S. Model?
80 Pages Posted: 4 Oct 2005
U.S. corporate law focuses on the maximization of shareholder wealth. By contrast, German corporate law continues to attach considerable importance to the interests of other stakeholders. Most importantly, German corporate law is designed to serve the interests of employees as well as those of shareholders. Under German codetermination law, employees are represented on the so-called supervisory board, thereby participating in the management of the corporation.
In their present form, the rules on codetermination apply only to corporations incorporated in Germany. This did not present much of a problem as long as Germany adhered strictly to the so-called real seat doctrine. Under that doctrine, the location of the corporate headquarters determined the applicable corporate law. As a result, firms headquartered in Germany were forced to obey by the German rules on codetermination.
However, in a series of groundbreaking decisions, the Court of Justice of the European Communities has made it clear that the real seat doctrine violates the Freedom of Establishment guaranteed by the Treaty Establishing the European Community. According to the Court, once a corporation has been validly formed in any given Member State, it generally has the right to be governed by the corporate law of that Member State. Thus, the rules on codetermination can now be evaded with impunity by so-called pseudo-foreign corporations that are headquartered in Germany, but incorporated in another Member State.
This leads to an obvious question: Could Germany extend the scope of application of its codetermination law to cover pseudo-foreign corporations without violating European Community law? This note argues that the answer is yes.
This note was first published in the Fordham Journal of Corporate and Financial Law, which kindly allowed me to post a copy on SSRN.
Keywords: Centros, Inspire Art, Uberseering, Ueberseering, codetermination, german, corporate, fundamental freedoms, freedom of estabishment, imperative requirements, mandatory requirements
JEL Classification: K22
Suggested Citation: Suggested Citation