Employee Representatives on the Boards of Directors of French Companies

This insight is a summary of the report submitted by the French Government to the Parliament on September 20, 2022^[1].

The presence of employee representatives on the boards of directors^[2] of French companies has recently been under scrutiny. The background to this topic is that, after several earlier specific laws, a mandatory legal regime of employee representation was created in 2013^[3] and its requirements were adjusted in 2019^[4]. Similarly, the employee shareholder representation scheme was generalized in 2006 for listed companies in which employees hold more than 3% of the capital.

As of late 2022, about 53 percent of SBF 120 companies and 49 percent of CAC 40 companies had employee representatives on their boards of directors. Additionally, about 29 percent of SBF 120 companies and 49 percent of CAC 40 companies had both employee representatives and employee shareholder representatives.

The purpose of the French Government’s report^[5] was to: (i) evaluate the economic and managerial effects of the presence of directors representing employees on the boards of directors or supervisory boards of the companies concerned, particularly, the appropriateness of extending this provision to three directors (from the current two) when these boards have more than twelve members, and the relevance of including in this panel a director representing the employees of subsidiaries located outside France; (ii) evaluate the economic and managerial effects of the presence of directors representing shareholder employees on the boards of directors or supervisory boards of the companies concerned; (iii) study the place of employees in the governance of commercial companies and how to involve them in the determination of corporate strategy; (iv) suggest necessary evolutions of the legal framework and public action in this general regard.

The report recommends a number of minor legal or practical adjustments such as:

1. The generalization of several good practices such as:
   1. the presence of employee representatives on certain committees of the Board of Directors or Supervisory Board, depending on their skills and expertise^[6],
   2. the appointment of the director representing the employees from among the members of the mission committee in companies that have adopted the status of a company with a mission,
   3. an allocation in line with that of the other directors^[7], and the reimbursement of certain expenses incurred by the latter when they travel within the Group to obtain information on the various subsidiaries and their social climate,
   4. the availability of French versions of documents written in English on the agenda and the financing by the company of English language courses for employee representatives who request it;
2. The generalization of certain parity rules to all designation methods^[8]; and,
3. The replacement of the ‘minimum annual quota of training hours’ with a ‘minimum average annual quota of training hours’ in order to provide flexibility for a greater concentration of training at the beginning of the term.

However, extending the number of employee representatives or the number shareholder employee representatives from two to three when boards have more than twelve directors is not recommended by the report. The report also states that it is not deemed appropriate for the legislator to provide for rules relating to specific representation of the employees of foreign subsidiaries either.

Overall, the report does not highlight major issues with the current employee and shareholder employee representatives’ regimes for French companies but still suggests some improvements to an already mature system.

Note:

^[1]Charlotte Ast, Rapporteur, Treasury Directorate General: “Evaluating the economic and managerial effects of the presence of directors representing employees on boards of directors or supervisory boards of companies” (July 18, 2022).

^[2]Or supervisory boards.

^[3]Law No. 2013-504 of June 14, 2013 on securing employment. Art. L. 225-27-1. of the French Labor Code.

^[4]Law No. 2019-486 of May 22, 2019 on the growth and transformation of businesses (the “PACTE Act”).

^[5]The writing of this report by the Government and its subsequent presentation to the Parliament was prescribed by Article 184, I, C of Law No. 2019-486 of May 22, 2019 on the growth and transformation of businesses (the “PACTE Act”).

^[6]The Afep-Medef Code (main corporate governance code in France) recommends that “at least one employee representative is a member” of the company’s remuneration committee (§18.1). According to the 2022 report of the French High Committee on Corporate Governance (HCGE), in 2021, among public companies that had employee representatives at the board, only about 75.3 percent of SBF120 companies and 70.6 percent of CAC 40 companies complied with this recommendation.

^[7] On this point, practices may vary but most companies do not allocate any remuneration to employee representatives.

^[8]There are four designation methods for employee representatives at the board:

1. Direct election by employees of the company established on the French territory,

2. Appointment by the Group’s social and economic committee,

3. Appointment by the workers’ union(s) that received the most votes in the first round of the professional elections,

4. When at least two directors are to be appointed, the appointment of one of the directors according to one of the methods set out in 1. to 3. and of the other by the European Works Council, if it exists.

Currently, only the two first designation methods require gender parity, whether the elected representatives are to be incumbent/deputy or both incumbent.