Survey results 69

According to our hypothesis H1, the differential in incorporation costs between the SE and national companies should have a negative impact on SE formations. The responses to our survey confirm this hypothesis. Many of our German interview partners mentioned that company registers, tax authorities and other government agencies are largely unfamiliar with the SE, making incorporation and operating the firm fairly difficult in some cases. Some respondents considered registration in the company register as a major risk factor associated with the incorporation decision.

4 5 37 39 40 0 10 20 30 40 50 Secondary Formation Holding Merger Conversion Subsidiary

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These statements underscore our intuition that there are specific costs of forming and operating a European Company and that the regulatory burden matters to SE users. Hypotheses H2, H3.1, H3.2, H4 and H5 are at the heart of our research interest in the SE as a vehicle for legal arbitrage. The survey responses regarding the motives for choosing the SE corporate form (Table 3.7) bear on all of these hypotheses. As to H2, our respondents named co-determination as a factor for 29 out of 49 SEs. Additional support for H2 comes from the fact that negotiations on employee involvement in the SE produced some very creative outcomes (see also Keller and Werner 2007): in some firms, employees acceded to a smaller ‘Representative Body’56 and a precise definition of its competences while the company promised a higher frequency of meetings with management and offered employee representatives improved access to worksites abroad. At least one firm abolished co- determination completely in exchange for a ‘social fund’ on behalf of its employees.57 At the same time, negotiations on worker co-determination were also mentioned as imposing a major risk of delay on the incorporation process. In sum, however, survey responses confirm that avoiding or reducing worker co- determination plays an important role for many SE incorporators.

Table 3.7 Survey results: motives behind German SE formations

Motive Positive response (N = 49)

Image of the SE 36 Board structure 30 Co-determination 29 Corporate mobility 26 Corporate structure 7 Planned merger 6        

56 _{As compared to the size prescribed by the default rule of SE Employee Involvement}

Directive, Annex, Part 1, lit. e,. the Representative Body is the SE equivalent of the European Works Council established by Council Directive 94/45/EC, cf., SE Employee Involvement Directive, Art. 13(1).

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Respondents representing 26 SEs brought up corporate mobility as another reason to opt for the European Company. This result seems to support both hypothesis H3.1 and H3.2. Yet, when our interview partners indicated plans to transfer the company’s registered office, most of them identified tax-related advantages as the key motive. By contrast, none of our respondents cited an intention to seek a different gap-filling company law for the SE. On the contrary, many respondents would prefer a uniform SE company law so as to avoid legal frictions in the event of a relocation. Therefore, our survey evidence supports the tax law arbitrage hypothesis (H3.1) but not the notion that firms use the SE to shop for a more favourable company law (H3.2).58

Another strong motive to opt for the SE corporate form is, according to responses for 30 German SEs, the desire to choose between the one-tier and the two-tier board structure. Taken together with our observation that SEs tend to opt out of, rather than into, the two-tier structure (section 3.5.1.5. above), this backs our hypothesis H4: SE incorporations are driven in part by the requirement in some Member States of a dual management/supervisory board for public companies.

In our survey sample of German SEs, the opportunity to consummate a cross-border merger under the SE Regulation (H5) seems to have played a role in only 6 SE incorporations. While this looks like a small number, it should not be read as evidence against H5: after all, the merger motive apparently mattered in more than 10 percent of our observations. Given how important legal certainty is in a merger, it may well have been the decisive reason in the relatively few cases for which the merger motive was mentioned.

The central results of the survey are that incorporations were mainly driven by the availability of the one-tier board system, the freezing of mandatory worker co- determination and the reduction of supervisory board members as well as the desire to transfer the registered office to another jurisdiction. For more than half of the firms, each of these reasons was a major argument for choosing the SE. In addition, three fourths of the participating German SEs considered the European image of the        

58 _{Since the unobserved fraction of German SEs consists most likely of investment or shelf}

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SE as an important motive to select the new legal form. However, this is not a legal arbitrage motive in a strict sense.

To sum up, the survey results provide support for hypotheses H1, H2, H3.1, H4 and H5 but not for H3.2. In the next paragraph we investigate whether these results hold more broadly in the EEA.