Restructuring For Corporate Success

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Restructuring for corporate success
A socially sensitive approach
Restructuring for
corporate success
A socially sensitive approach
Nikolai Rogovsky
Patrick Ozoux
Daniel Esser
Tory Marpe
Andrea Broughton
INTERNATIONAL LABOUR OFFICE • GENEVA
Copyright © International Labour Organization 2005
First published 2005
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N. Rogovsky, P. Ozoux, D. Esser, T. Marpe, A. Broughton
Restructuring for corporate success: A socially sensitive approach
Geneva, International Labour Office, 2005
ISBN 92-2-115430-0
Enterprise restructuring, redundancy, social plan, social dialogue, corporate
responsibility, management strategy, developed countries, developing countries.
03.04.5
ILO Cataloguing in Publication Data
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The European experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1 Ideas and principles behind socially sensitive enterprise
restructuring (SSER) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Workforce reduction as a management task . . . . . . . . . . . . . . . . . . . . . . . 18
Clarification of the term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Reasons for workforce reduction . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Impact of workforce reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Hidden costs and the vicious circle . . . . . . . . . . . . . . . . . . . . . . . . . 19
How not to do it . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Good practice in the workforce reduction process . . . . . . . . . . . . . . . . . 25
International labour standards (ILS) . . . . . . . . . . . . . . . . . . . . . . . 26
The Termination of Employment Convention, 1982 (No.158) . . 26
Business framework for the process of restructuring . . . . . . . . . . . . . . . . 31
Determining factors for the development of an individual strategy . . . . 33
The four phases of the workforce reduction process . . . . . . . . . . . . . . . . 35
Phase 1. Study and action planning . . . . . . . . . . . . . . . . . . . . . . . . . 37
Phase 2. Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Phase 3. Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Phase 4. Evaluation and implications for future
HR management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CONTENTS
v
2 Minimizing social and personal costs: The tools that can help . . . . . . 49
Counselling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Skills assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Training/employability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Internal job search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
External job search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Creation of small and medium-sized enterprises (SMEs) . . . . . . . . . . . . 53
Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Early/partial retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Alternative work schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Severance package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3 Case studies on SSER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Case 1. Deutsche Bank, Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Case 2. Agilent Technologies, Germany . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Case 3. Carrefour, France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Case 4. Volkswagen, Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Case 5. ZEIM Group, Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . 79
Case 6. Michelin United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Case 7. Floreal Knitwear, Mauritius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Case 8. Dunaferr, Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Case 9. Svenska Posten, Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Case 10. Vauxhall Motors Ltd, United Kingdom . . . . . . . . . . . . . . . . . . . 90
Case 11. Cable and Wireless, Barbados . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Case 12. South African Breweries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Case 13. Levi Strauss, United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4 The role of social dialogue in mitigating the negative effects of
restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
International guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
The EU legislative framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
The Directive on collective redundancies . . . . . . . . . . . . . . . . . . . 101
The Directive on transfers of undertakings . . . . . . . . . . . . . . . . . 102
The European Works Councils Directive . . . . . . . . . . . . . . . . . . . 103
The Directive on national information and consultation rules . 104
National legal frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Social dialogue at EU level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Principles of SSER in the European Union . . . . . . . . . . . . . . . . . . . . . . . 109
Restructuring for corporate success
vi
Examples of managing restructuring in a socially sensitive way . . . . . . 110
The experience of the United Kingdom . . . . . . . . . . . . . . . . . . . . 110
Restructuring in Germany: Cutting working time to save
jobs in the car industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Experiences in Italy: Reducing redundancy levels through
negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Restructuring in France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Managing restructuring through partnership . . . . . . . . . . . . . . . . 118
Lessons to be learned from the EU experience . . . . . . . . . . . . . . . . . . . 121
The legal framework as a safety net . . . . . . . . . . . . . . . . . . . . . . . 121
Going beyond statutory requirements . . . . . . . . . . . . . . . . . . . . . 122
The mixed blessings of early retirement . . . . . . . . . . . . . . . . . . . . 122
The problems associated with regions dependent on large
employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Can dialogue influence the outcome? . . . . . . . . . . . . . . . . . . . . . . 124
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Enterprise-level strategy, policies and practices . . . . . . . . . . . . . . . . . . . 127
Policy assistance in facilitating the restructuring process . . . . . . . . . . . 128
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Tables
1 Workforce reduction strategy and size of enterprise . . . . . . . . . . . . . . . . 34
2 The four phases of restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3 Old and new expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Figures
1 The downward spiral of displacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2 The general business framework for the workforce reduction process . 32
3 The Mosaic for Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
4 The magic cone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5 The system of lay-offs at Dunaferr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Boxes
1 Workforce reduction – popping the balloon? . . . . . . . . . . . . . . . . . . . . . . 23
2 Mature labour-management relations help to find solutions . . . . . . . . . . 25
3 Deutsche Bank values and corporate objectives . . . . . . . . . . . . . . . . . . . . 61
4 Agilent Technologies values and corporate objectives . . . . . . . . . . . . . . . 69
5 The Carrefour Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Contents
vii
EXECUTIVE SUMMARY
How can an enterprise restructure in the spirit of social partnership with
maximum economic benefits and minimum costs to workers, the community
and society at large?
Growing competition and globalization along with tightened fiscal
policies are causing both private and public sector organizations to strive for
greater efficiency and higher cost-effectiveness. In many cases the desired
results cannot be achieved without subjecting the corporate strategy and
structure to some transformation. In this context, restructuring is no longer
just an option; it is a necessity for survival and growth. However, it is in the
interest of all the stakeholders that restructuring be carried out in such a way
as not to jeopardize the high value of the human capital of the enterprise.
This book explores the issue of socially sensitive enterprise restructuring
(SSER). By providing a number of examples from different countries, it
describes how good management practices, social partnership, communication
and healthy industrial relations can be beneficial throughout the change
process.
The major findings are as follows:
• It is often believed that downsizing has a positive impact on the
performance of the company and the so-called “survivors”. However,
this is not always true in practice.
• In order to achieve desirable economic and social results in the process
of downsizing, management should always have a plan of action if
restructuring becomes inevitable, starting with the company’s human
resources. The creation of a system of functional flexibility could be an
important component of this approach.
• Restructuring goes smoothly if it is based on a joint agreement between
employers and workers and, in some cases, the government.
1
• Alternative options to downsizing should be considered, with priority
given to those options least painful to workers.
• Restructuring is a process and should not be commenced without due
consideration. Steps should include:
— examining the different options involved in restructuring before
starting the process;
— preparing the company and employees for restructuring through
consultations and communication, and carrying out restructuring
only after this has been done, as well as during the actual
restructuring process;
— evaluating how effective restructuring has been after it has been
carried out.
• If downsizing is necessary, it should be carried out in a socially sensitive
way, using tools proved to have global success. Various tools are discussed
at length in this book, including, among others:
— counselling
— skills assessment
— training
— internal job search
— external job search
— small and medium-sized enterprise (SME) creation
— mobility assistance
— early retirement
— alternative work schedules (part-time, subcontracting, flexible leave)
— severance packages
• It is critical to evaluate not only the costs of restructuring, but also the
benefits of SSER. In other words, a company should not only be able to
say how much it has cost to carry out restructuring in a socially sensitive
way, but also to estimate what it has gained by being a responsible
restructurer.
• Labour-management relations can be an extremely powerful factor
contributing to both economic and social success in restructuring.
Restructuring for corporate success
2
At the same time, enterprises should not be left alone to carry out
restructuring; governments too often feel the impact of the restructuring of
enterprises, especially in situations where whole sectors or regions are
affected. What can enterprises and other policy makers do to tackle the
restructuring challenge? The following policy measures can support SSER:
• Defining the legal and macroeconomic environment. Governments, in
consultation with employers’ and workers’ organizations, have a very
important role in defining the legal and regulatory environment within
which managers decide whether and how to restructure.
• Creation of labour market institutions. This book describes some of the
tools available to enterprises so as to minimize the negative impact of
restructuring on people. However, a negative employment impact cannot
be avoided without an active labour market policy of the government.
The government should create or further improve systems of vocational
training, registration and advice services for the unemployed, and so on.
• Communication. There is no such thing as over-communication when it
comes to restructuring. Workers should know their rights, their options,
their choices. They should know how to get another job or acquire new
skills, or how to start a business. Communication and education of this
sort should be one of the most important components of the
government’s active labour market policy. The government should also
provide those enterprises affected by restructuring with guidelines
focusing on what they can do to minimize the social cost of the process.
This book will be of interest to managers, employers, workers and
government representatives. It can be also used for educational purposes in
undergraduate, graduate and executive education programmes.
Executive summary
3
In today’s business world enterprises must face the following trends that force
them to restructure continually:
• globalization
• technological change
• changes in corporate ownership (the global trend of mergers and
acquisitions, management buy-outs, privatization programmes, etc.)
• replacement of the industrial society by the information society
• demographic shifts
• growth of foreign direct investment (FDI)
Perhaps most important, however, is the shift in the demands and
expectations of civil society regarding the new role of business.
In general, business plays a much more important role in society today
than ever before. Trust in political parties, religious organizations, govern-
ments and other institutions is diminishing and business is becoming a more
dominant force, further increasing the level of responsibility expected from it
by the public. However, the business world has traditionally been exempt
from many social obligations, focusing instead on economic fulfilment; it is
still growing into its new role.
The International Labour Organization (ILO) is trying to help
businesses define and detail this role.
In his report to the 87th Session (1999) of the International Labour
Conference (ILO) Director-General Juan Somavia stated:
The focus on the enterprise will be a key element in the ILO approach to job
creation, an important aspect of which would concern enterprise restructuring.
INTRODUCTION
5
In many countries structural adjustment and changing competitive advantage
seem to be driving a continual process of restructuring of larger enterprises,
which generally means downsizing. This has affected millions of employees,
particularly in North America and Europe, but also in many middle-income
countries. However, studies now show that the way this occurs often adversely
affects organizational performance and results in repeated downsizing. Senior
managers report that downsizing has not just eroded morale and trust, but also
reduced productivity. All this suggests that there is both employer and worker
interest – and hence prospects for partnership – in developing restructuring
strategies that maintain the human resources and energies of the enterprise by
giving adequate attention to the human and social side of restructuring
(ILO, 1999, p.24).
Today many companies are marketing themselves as socially responsible
enterprises. It has become commonplace for a company to state: “For us,
employees are not costs, they are assets.” However, whether or not a company
is indeed socially responsible (i.e. whether or not it takes into account not
only its shareholders and the tax authorities, but also its employees, the local
community and other stakeholders) can be determined best during times of
economic slowdown when the risk levels escalate. This brings us to the issue
of SSER.
What is restructuring? Restructuring is a profound change in the way a
company operates, involving changes in its strategy, in its structure, and so on.
The term is also used when it comes to downsizing, though restructuring has
more far-reaching implications than just a decrease in the workforce.
1
Very
often, the purpose of restructuring is not only the financial and economic
improvement of the company’s performance, but its very survival.
This is not to say that companies should not go through restructuring. In
many cases, restructuring is the only solution. However, numerous workers,
governments, and employers share the belief that restructuring is best carried
out in a socially sensitive manner. In other words, companies should try to
maximize economic benefits while attempting to minimize the social costs
associated with restructuring.
This position is grounded in the ILO’s international labour standards
(ILS), known as Conventions and Recommendations. In particular, the
Termination of Employment Convention (No. 158), and Recommendation
(No. 166), 1982, should be mentioned here. Both instruments were adopted
by the International Labour Conference in 1982, and are still very relevant.
Restructuring for corporate success
6
1
Many different terms are used in the literature to describe the restructuring process: downsizing, workforce
reduction, rightsizing, rebalancing, reorganization, lay-offs, termination of employment. Very often these terms are
used interchangeably. In this book our main focus is on such organizational restructuring as can and/or does affect the
workforce.
These documents highlight the ILO’s recognition that termination of
employment may take place for economic reasons and that such decisions are
to be made by the enterprise management. At the same time, the ILO stresses
the necessity of a long-term approach to human resource planning, the
importance of creating and maintaining a multifunctional workforce, and
continuous training and development. It also emphasizes the importance of:
2
• consultations between workers and employers before, during, and after
the period of restructuring;
• creation of the most preferential conditions for the workers affected, so
that they are able to continue their professional careers;
• non-discriminatory policies and practices in restructuring, based on such
characteristics as age, gender, union membership, and so on.
There are other instruments of international law regulating the
restructuring process, such as those of the European Commission.
3
In many
countries national law also regulates restructuring and calls for a socially
sensitive approach (Alpha Conseil, et al., 2003, p. 494.).
However, a socially sensitive approach to restructuring does not always
occur in practice. On the contrary, the following trends have emerged:
• Downsizing is often the first action taken by a company when the
economic situation deteriorates.
• Downsizing often occurs during mergers and acquisitions.
• There is usually little social dialogue or consideration of an affected
employee’s interests during the downsizing process.
Good examples of SSER do exist, and the job of the ILO Management
and Corporate Citizenship (MCC) Programme is to promote and advocate
these practices. Some examples have been provided by the contributors to this
book. However, before going into specifics, it may be useful to consider the
following:
• Loss of one’s job is more than just a loss of income. It may also bring
about loss of self-respect, of the respect of others, of the structure of
one’s day, or even a loss of raison d’être.
Introduction
7
2
See Chapter 1 for more on the international labour standards on restructuring. Here we should mention that any ILO
member State that ratifies an ILO Convention has a binding obligation to incorporate the major provisions into its
national legislation. The list of countries that have ratified Convention No. 158 may be found on the ILO web site
www.ilo.org.
3
See Chapter 4 for more on the instruments adopted at the European level.
• It is often believed that downsizing has a positive impact on the
performance of the company and the so-called “survivors”. However, in
practice this is not always true. Professor Wayne Cascio of the University
of Colorado, known for his research on SSER, has shown that:
— Downsizing the number of employees does not lead to long-term
improvements in the quality of products or services. In its 1996 survey
on corporate downsizing, job elimination and job creation, the
American Management Association (AMA) reported that over the
long term only 35 per cent of responding organizations increased the
quality of their products and services after laying off employees
(AMA, 1996).
— For the majority of companies, downsizing has had adverse effects on the
morale, workload, and commitment of “survivors”. Seventy per cent of
senior managers in the United States who remained in downsized firms
reported that morale and trust declined (AMA, loc. cit.). A recent
national survey in the United States found the following consequences
of downsizing among the “survivors”: 54 per cent felt overworked,
55 per cent felt overwhelmed by their workload, 59 per cent lacked time
for reflection, and 56 per cent did not have time to complete tasks
(Business Week, 2001). After downsizing in a major Australian bank,
49 per cent of “survivors” felt a decreased sense of commitment to the
organization, 64 per cent experienced decreased job satisfaction, and
83 per cent reported increased stress (Gittings, 2001).
— Profitability does not necessarily follow downsizing. Data from the
S&P 500 Index for 1982-2000 show clearly that profitability, as
measured by the return on assets, does not necessarily follow
downsizing, even as long as two years later (Cascio and Young, 2003).
Survey data provide support for such a conclusion. For example, the
“2001 Layoffs and Job Security Survey” conducted by the Society for
Human Resource Management in the United States, reported that
only 32 per cent of respondents indicated that lay-offs led to higher
profits (Cascio, 2002, p.29).
— Productivity does not necessarily increase as a result of downsizing. The
AMA surveyed 700 companies that had downsized in the 1990s.
Productivity rose in 34 per cent of cases, but fell in 30 per cent
(Cravotta and Kleiner, 2001, pp.90–93).
The ILO Project on Socially Sensitive Enterprise Restructuring (SSER)
is involved in a number of training, promotional, research and policy-related
Restructuring for corporate success
8
activities.
4
All these activities involve cooperation with the ILO partners –
governments, employers’ and workers’ organizations – as well as with
individual enterprises. Action-oriented research and interactive seminars have
always been an extremely important component of ILO activities. We help
people learn from each other, and we are constantly learning from their
experience. A major question that we ask ourselves and our partners is how
an enterprise can go through restructuring in the most efficient way from
both the economic and social points of view. Our experience in more than
20 countries has shown that the following steps are advisable:
• If restructuring becomes inevitable, company management should always
have a plan of action, starting with the company’s human resources.
• Restructuring goes smoothly if it is based on a joint agreement between
employers and workers and, in some cases, the government.
5
• Alternative options to downsizing should be considered, with priority
given to the least “painful” options.
• If downsizing is necessary, it should be carried it out in a socially sensitive
way, using tools proven to have global success. Various tools are
discussed at length in Chapters 2 and 3, including among others:
— counselling
— skills assessment
— training
— internal job search
— external job search
— small and medium-sized enterprise (SME) creation
— mobility assistance
— early retirement
— alternative work schedules (part-time, subcontracting, flexible leave)
— severance packages
Introduction
9
4
ILO activities in the area of SSER are carried out along with other ILO projects aimed at the generation of more and
better jobs, such as the global projects helping entrepreneurs, including those displaced through restructuring, to start,
improve and expand their business.
5
See Chapter 4 for more on social dialogue and restructuring.
• Restructuring is a process that should not be commenced without
significant consideration. Steps should include:
— examining the different options involved in restructuring before
starting the process;
— preparing the company and employees for restructuring through
consultations and communication, and carrying out restructuring
only after this has been done, continuing the dialogue during the
actual restructuring process;
— evaluating how effective restructuring has been after it has been
carried out.
• It is critical to evaluate not only the costs of restructuring, but also the
benefits of SSER. In other words, a company should not only be able to
say how much it has cost to carry out restructuring in a socially sensitive
way, but also to estimate what it has gained by being a responsible
restructurer.
6
The European experience
While these lessons are universal, it makes sense to summarize more
specifically the lessons that the ILO has learnt by working jointly with the
European Commission in Europe, arguably the most advanced part of the
world when it comes to SSER.
7
In general, there are at least four generic,
Europe-specific lessons learnt, based on the presentations of a number of
European companies:
• Costs are known, benefits are not. Companies know that SSER costs
money, and in most cases this financial cost is possible to measure,
8
but
no one really knows how to measure the economic and social benefits of
restructuring carried out in a socially sensitive way.
• Social dialogue is becoming a reality. In most western European countries
this is in compliance with existing legislation.
Restructuring for corporate success
10
6
Our analysis shows that it is much more difficult to evaluate the benefits than the costs. This is true even in case of
the most responsible companies.
7
In April 2003 the ILO organized, jointly with the European Commission, a High-Level Conference on Socially
Responsible Enterprise Restructuring, held in Greece. This Conference brought together – for the first time – over 200
representatives of businesses, governments, employers and trade unions from 28 European Union and accession
countries to share experiences in the area of SSER. The event was held literally days before the most recent ten States
signed the Treaty of Accession to join the EU. Over 20 case studies on SSER at enterprise, regional and sector levels
were presented. Some of them are described in detail in Chapter 2.
8
At the same time, companies often have difficulty measuring the social and human costs of restructuring.
• Tools of SSER now present a more or less standard package. The good news
is that companies facing restructuring are aware of their options. The bad
news is that some companies are blindly copying what others are doing,
without considering whether the tools would be relevant and effective in
their company.
• Links between long-term strategy and restructuring are still rare. Quite
a number of companies are still thinking short term. For them,
restructuring is a quick response to economic/sector/market changes.
The lesson related to the links between long-term strategy and
restructuring is perhaps the most important one. In order for restructuring
to be successful, it should be linked to the long-term strategy of the
development of the company, country, or region. At the enterprise level, this
means that restructuring should not be viewed as a fire-fighting exercise.
According to Peter Cappelli, Director of Wharton’s Center for Human
Resources:
Frequent reorganizations are like doctors treating patients with antibiotics.
The medication might work short-term, but long-term it can be harmful.
The constant churning caused by these reorganizations generates costs and
develops long-term cynicism about why they are done and what they mean
(Knowledge@Wharton, 2003).
This view is echoed by John Paul MacDuffie, another Wharton professor:
Deciding on the right strategy for the company is key. Strategy-making
processes done hastily and based on the wrong assumptions can mean moving
the boxes around on the org chart without thinking through all the
consequences. How you get to the right place depends on your perspective.
The resource capabilities view of strategy says it ought to grow organically out
of a clear-eyed perception of what the company’s capabilities are and how
readily they can be developed as opposed to strategy-making occurring in a
vacuum or from an externally focused competitive analysis that is naïve about
how malleable the organization is to change (ibid.).
The importance of linking restructuring to the long-term enterprise
strategy is becoming a major issue in the context of SSER. One may cite a
number of cases where the human costs of restructuring were ignored.
Managers, for example, did not take time to explain why a restructuring effort
was taking place, what the goal was, and how it would affect the jobs of the
people involved, including the survivors.
A huge part of the trauma associated with restructuring stems from
a change over the past decade in the relationship between employers and
Introduction
11
workers. According to Peter Cappelli, IBM in the 1980s
. . . used to reorganize all the time. But the company also offered employment
security, which meant that an employee might be asked to change locations or
move to a different part of the organization, but he kept his job and his salary.
Consequently employees tended not to resist their changes. Now, however,
companies reorganize in ways that threaten people. Employees might not just
be assigned to some other job, they might lose that job or be demoted. There
are all kinds of negative consequences. It reflects a change in the way companies
do business and the fact that they are not particularly inclined to protect
employees (ibid.).
Long-term strategic thinking requires careful human resources planning.
But, most importantly, it is linked to the management philosophy that calls for
treating employees as an asset, rather than a cost. Professor Wayne Cascio
came to the following conclusion:
As I investigated the approaches that various companies, large and small, public
and private, adopted in their efforts to restructure, what became obvious to me
was that companies differed in terms of how they viewed their employees.
Indeed, they almost seemed to separate themselves logically into two groups.
One group, by far the larger of the two, saw employees as costs to be cut. The
other, much smaller group saw employees as assets to be developed. Therein lay
a major difference in the approaches they took to restructure their
organizations.
• Employees as costs to be cut. These are the downsizers. They constantly ask
themselves, “What is the minimum number of employees we need to run
this company? What is the irreducible core number of employees the
business requires?”
• Employees as assets to be developed. These are the responsible restructurers.
They constantly ask themselves, “How can we change the way we do
business, so that we can use the people we currently have more effectively?”
The downsizers see employees as commodities – like microchips or lightbulbs,
interchangeable, substitutable, and disposable, if necessary. In contrast,
responsible restructurers see employees as sources of innovation and renewal
(Cascio, 2002, p.5).
Companies that treat employees as assets are most likely to be known for
socially sensitive restructuring. These companies do not jump straight into the
downsizing option, but carefully consider other options that do not involve
cutting labour costs. An extreme version of this approach is a no-lay-off policy
Restructuring for corporate success
12
used by some companies, such as Southwest Airlines (Rogovsky and Sims,
2002, pp. 68–70). While a no-lay-off policy is clearly a solution that allows a
company to minimize the social costs of restructuring, it is not always possible
from an economic point of view. However, if lay-offs and downsizing seem to
be inevitable, companies may use a number of tools that aid in combining two
important enterprise functions: the maximization of economic output and the
minimization of social costs. These tools are defined in Chapter 2 and
illustrated with a number of examples in Chapter 3.
9
These two chapters
follow an overall discussion of the ideas and principles of SSER contained
in Chapter 1.
One of the major lessons learnt throughout the work on SSER is that its
success is largely determined by the quality of labour-management relations,
which can provide a beneficial environment for restructuring. The issue of
social dialogue and restructuring, particularly in the European context, is
covered in Chapter 4 written by Andrea Broughton.
In the Conclusion the major points brought forth in this publication are
summarized and the implications for policy makers – governments,
employers’ and workers’ organizations – are examined.
We hope that this book will be of interest to policy makers all over the
world, as well as to academics and students of business and industrial relations.
Introduction
13
9
We would like to emphasize that these examples are taken from all over the world, not only from western Europe and
North America.
As the Swiss writer Max Frisch said, “We asked for workers, and we got
people.”
1
This statement carries clear implications for management. Indeed,
since most management tasks are related to the human capital of the
enterprise, managing the process of workforce reduction in a socially sensitive
manner is probably the most demanding challenge managers have. Losing a job
has a profound impact on career prospects and on the individual and family
planning of those affected; it also has substantial negative effects on self-
esteem, life structure and perceived employability.
In addition, the impact reaches beyond the dismissed workers
themselves; “survivors” are affected as well. The community suffers from
increased unemployment rates, lower income and purchasing power, and
decreasing morale; the enterprise may then be confronted with criticism and a
waning reputation.
Therefore, even though the decision to downsize should be based on a
sound qualitative and quantitative analysis, the actual process of reducing the
workforce should not be numbers-driven only. It is wise to put people at the
centre of the action. Intense dialogue with workers, community and other
stakeholders, resulting in a shared strategy, careful preparation, sound
communication and respect for all those concerned, is possibly a crucial factor
in a successful plan.
2
Furthermore, several tools are available to minimize
social costs. Internal and external job research units, facilitation of the creation
of SMEs, promotion of mobility, early retirement programmes and other
options are discussed in Chapter 2.
The main objective of the present chapter is to give readers an idea of
the four main elements involved in the setting up of a strategy of worker
IDEAS AND PRINCIPLES BEHIND
SOCIALLY SENSITIVE ENTERPRISE
RESTRUCTURING (SSER)
15
1
1
While Frisch was commenting on the labour immigration challenge in the 1970s, his aphorism is applicable in the
wider context of industrial relations and management.
2
Of course, the evidence suggests that such dialogue does not always take place.
retention and worker displacement that is socially compatible with the
international labour standards (ILS) adopted by the International Labour
Conference representing governments, employers and workers from all over
the world:
1. Reflection (thinking before acting)
This allows the economic and decision-making partners to think about the
current opportunity to downsize, and to suggest alternative ways of dealing
with the problem. The questions to answer include: Is this the best way to
do it? Is there any other way of achieving the goal? What will be the real
social impact?
2. Decision-making
The chapter suggests that the decision, to be made in full knowledge of the
facts, needs to take into account all the economic aspects. These are identified
through a complete survey, including an overview of actual and hidden costs
(examples are provided), as well as of the impact on the social environment
outside the enterprise, the duration of the process and its cost, and costs of the
social impact.
3. Establishing the process
Practical advice is provided on setting up means and procedures to minimize
negative social impact and to fully respect ILS. These may be implemented
through social dialogue between the different stakeholders, individual and
personalized follow-up by a specially dedicated structure, and taking into
account the environment in which the enterprise operates.
4. Reconciliation
Finally, this chapter will also outline ways of reconciling an enterprise’s
economic performance with the minimum social impact on workers, the
community and their environment, and in respect to ILS.
The real question is how downsizing is done, rather than whether to downsize.
Companies that downsize through buy-outs and attrition, that help their workers
get new jobs, and that provide outplacement services, end up much better
positioned than companies which simply wield the axe. They have a better chance
in retaining the loyalty of the surviving workers. This [loyalty] is one of the most
valuable yet brittle assets in any enterprise. So over the long term, it’s far better
for companies to downsize in a humane way (Reich, 1996).
In a globalized and increasingly competitive economic environment,
enterprises throughout the world have to respond ever more rapidly to new
Restructuring for corporate success
16
technologies, new competitors and turbulent markets. They must constantly
adjust and restructure to survive and grow, while their capacity to sustain
productive and quality jobs depends on their ability to meet competitive
challenges and to take advantage of emerging opportunities.
At the same time, however, restructuring involves dislocations and
human costs. It affects not just the owners and workers of the enterprise but
other stakeholders as well. The challenge is to remain competitive and viable
while minimizing the social costs of enterprise restructuring. When radical
restructuring is required, as in the case of countries in transition from
command to market economies, in countries undergoing economic
downturns, and even in developed economies where turnaround of distressed
enterprises, mergers and acquisitions are a constant occurrence, there is an
even greater need to adopt approaches that will minimize the social costs
(ILO, 2002; Boillot, 2002; Simon, 2002).
Restructuring that helps achieve both long-term competitiveness and
minimizes social costs at all levels (enterprise, industry, and nation) is an issue
whose importance is emphasized by all constituents of the ILO: governments,
employers and workers. In Decent work, the ILO Director-General Juan
Somavia states:
There is both employer and worker interest – and hence prospects for
partnership – in developing restructuring strategies that maintain the human
resources and energies of the enterprise by giving adequate attention to the
human and social side of restructuring . . . The ILO has a comparative
advantage in developing and promoting approaches that build consensus on
restructuring and maintaining employee commitment and participation. The
Organization must be ready with information and advice, showing how jobs
can be saved without prejudice to economic goals and how new jobs can be
created. (ILO, 1999, p. 1).
In the broader scope of enterprise restructuring, workforce reduction is
certainly one of the most drastic actions. But when the economic framework
pressures a company to react, reducing the corporate workforce may be the
only viable answer. Downsizing, dislocation, rightsizing and displacement
include the same challenge (Starcher, 1999).
All action, however, must begin with checking existing mindsets. What
are the expectations of the stakeholders involved? How does the restructuring
exercise fit into the company’s overall strategy? Is a clear focus on people
issues possible? What support do employees need? In the context of these
questions, this chapter is geared towards providing suggestions and recom-
mendations for every manager who is interested and willing to contribute to a
smooth running of this extremely difficult endeavour.
Ideas and principles behind socially sensitive enterprise restructuring
17
Workforce reduction as a management task
Clarification of the term
Workforce reduction may be understood as a downsizing strategy that has a
direct effect on the number of workers and employees of an enterprise by
cutting down a substantial percentage or number of employees. Traditionally,
it occurred due to a slump in demand, but today job cuts may also be part of
an effort to improve operating efficiency. Workforce reduction is only one way
to do this, however, and should always be accompanied by general
restructuring efforts. A workforce decreases from 0.5 to 5 per cent per year in
natural attrition. Workers leave because of retirement or voluntary resignation,
while other causes such as death also reduce the numbers. Any plan to
downsize should therefore take this into account.
According to Peter Cappelli, downsizing can be understood as part of
a “generalized corporate response to heightened competition, changing
markets, [ . . .] and gaps in employment legislations. Firms reacted to these
changes by increasingly relying on subcontracting, contingent work, and
introducing more autonomous and individualized decision-making for
managers and work groups.” A general shift towards market mechanisms
inside the firm can be observed. “[T]hese changes (due to downsizing) tend
toward the absence of a system of formal rules for managing employees and
a heavy reliance instead on markets and individual contracting” (Cappelli,
1995, p. 564). Although written a decade ago, this statement is still very
much valid.
While downsizing leads to a need to restructure, it can also be a result of
restructuring (e.g. discontinuing activities and tasks, post-merger
rationalization, elimination of hierarchical levels, re-engineering process).
When facing a crisis, enterprises should be aware that cost-cutting will most
probably not be a miracle solution, as the time lag between the cost-cutting
exercise and effectiveness may be longer than the crisis itself, and the risk is
high that the company may not become as competitive as necessary due to a
delay in market reactions.
Reasons for workforce reduction
Concrete reasons for workforce reduction are numerous. Heightening
competitive pressure can force enterprises to fight for their position in the
market, or even in extreme cases for survival. Immediate cash-flow improve-
ment may be necessary to ensure liquidity. Shareholder expectations may also
put pressure on management, which can lead to a redefinition of strategy in
Restructuring for corporate success
18
favour of short-term gains in profit and market value. Overcapacity or even
poor management can force an enterprise into a situation in which lay-offs are
unavoidable. Last but not least, privatization and other macro-level-induced
changes may call for substantial reductions (Cappelli, 1995).
Impact of workforce reduction
In addition to the aforementioned impact on dismissed individuals, the effects
on survivors are similarly negative. The AMA reports that according to a study
conducted in the mid-1990s, one year after the displacement of some parts of
the overall workforce 69 per cent of all participating companies reported a
decline in employee morale, 42 per cent experienced an increase in resignations
and voluntary departures, 36 per cent reported an increase in employee
turnover, and 13 per cent were dealing with an increase in disability claims
(AMA, 1997).
Furthermore, displacement changes both conditions and social relations
at work. It creates competition among both individuals and teams, and
contributes to the structural transformation of labour markets. It results in
jobs with substantially different task assignments, hours and pay, and may
lead to a deterioration of job quality and a loss of social cohesion at work and
in the community. In countries with no safety net for displaced workers,
mass lay-offs may even lead to social unrest. Additionally, displacement
changes expectations about relationships among workers and between
workers and employers, about the security and stability of employment,
about the relationship between jobs and family, jobs and community, and
education and jobs. Even when job loss does not result in material hardship,
it does in fact change the way people think about work and their careers
(Koeber, 2002, pp. 219–20).
Hidden costs and the vicious circle
Workforce reduction is usually undertaken to improve productivity and
reduce costs. Yet surveys show that the expected benefits are not realized in
over half the cases studied (for example, see AMA, 1995). The source of
hidden costs that frequently escapes management’s attention is the poor
morale of survivors, caused by increased stress and its effect on work
behaviour and attitudes.
3
Misplaced energy and erosion of trust can have a
staggering effect on overall profitability. Reduced productivity, decline in
quality, higher staff turnover, increased absenteeism and sick leave, loss of key
Ideas and principles behind socially sensitive enterprise restructuring
19
3
See also Grunberg, et al., 1999; Elmuti and Kathawala, 1993; Brockner, 1992.
talent, decreased creativity, decreased entrepreneurship and risk taking, poor
external image, and increased legal and administrative costs are some factors
that need to be mentioned.
Reduced productivity. More than half of 1,468 downsized companies
surveyed by the Society for Human Resource Management in the United
States reported that employee productivity either stayed the same or
deteriorated after the lay-offs. In another poll, 74 per cent of senior managers
at recently downsized companies said their workers had lower morale, feared
future cutbacks and distrusted management (Starcher, 1999, p.35).
Decline in quality. When lay-offs take place without reorganization of
the work and proper training, quality suffers. As survivors try to learn the
jobs of the displaced employees while still doing their own jobs, they become
increasingly stressed and overworked. One case involved an automobile
company worker in charge of ordering steel who accepted a generous early
retirement package. After he left, an order was placed for the wrong kind of
steel. This resulted in a US$2-million loss for the company in down time,
rework and repair. Furthermore, organizational memory and expertise were
lost when the purchasing agent left because no one had been trained to
replace him.
Loss of key talent, higher staff turnover, increased absenteeism and sick
leave. These are all direct consequences of a drop in morale, lower
commitment, and a lack of trust and loyalty. One study estimated that the cost
attributable to staff turnover was 1.5 to 2.5 times the annual salary and
benefits cost for each employee leaving. Companies often find that key
employees and top performers leave during displacement, stripping it of
valuable human capital, critical skills and institutional memory. For example,
The Economist (27 Apr. 1996) reported on an insurance company whose cost
of claim settlements rose sharply (and whose profits fell) following staff cuts
in the claims department. An investigation found that long-serving employees
who had been made redundant had created an informal but effective way to
screen claims, but this was forgotten during the displacement effort (Starcher,
1999, p. 6).
Decreased creativity, entrepreneurship and risk taking. A 1995 study by
McGill University and the Wharton School found that downsizing interfered
with the networks of informal relationships that innovators use to win
support and resources for new products.
Poor external image. Many companies show little concern for the impact
of displacement on potential consumers and potential recruits. Experience has
shown that it takes a lot of time and money to rebuild a public reputation and
brand image. Poorly planned displacement can hit minority groups, reducing
the diversity that companies may have built over time. The media may also
Restructuring for corporate success
20
play a role in dramatizing the news broadcast about displacement, which can
severely affect company image.
Increased legal and administrative costs. Workers whose jobs have been
made redundant may try to sue their former employer or may even commit
sabotage to express their discontent.
Moreover, displacement may lead to a vicious circle known as the
“downward spiral of displacement” (see figure 1). This occurs when the
abilities needed for cost reduction are easier to acquire than those required for
growth and renewal. Performance problems due to declining margins and
profits, falling market share, stagnant growth, poor customer service and poor
quality lead to an organizational response of portfolio rebalancing,
outsourcing, lay-offs and downsizing. In the worst case top management turns
repeatedly to displacement to fill performance gaps. As a result the company
continues to shrink, with performance deteriorating still further (Starcher,
1999, p. 6; Pfeffer, 1998).
Ideas and principles behind socially sensitive enterprise restructuring
21
Performance problems
Declining margins and profits
Falling market share
Stagnant growth
Poor customer service
Poor quality
Organizational response
Portfolio rebalancing
Outsourcing
Lay-offs
Downsizing
Individual behaviour
Stress
Decreased motivation
Lower productivity
Erosion of trust
Figure 1 The downward spiral of displacement
How not to do it
4
Some real-world approaches to displacement are actually quite shocking. Here
are two worst-case scenarios:
A media company
In light of the recent recession, the CEO of a Berlin-based media
company offered the following option to his employees: Everyone asked to
annul their employment contract in return for a self-defined redundancy
payment. The CEO then decided whose offer he would accept and let go, and
whom he would retain (ManagerMagazin, 2001, pp. 251–2).
An internet company
The employees of a German internet company were asked to meet with
all colleagues in a conference room. There, a flipchart provided the names of
those who had been dismissed, a total of 12 out of 32. Returning to their
desks, employees found their files blocked, their e-mail accounts cancelled,
and their phones disconnected (ibid.).
Management options
There are often alternative options to laying off workers; lay-offs should be
regarded as the last resort. It is not philanthropy that drives this notion, but
the enormous costs (time, resources, social) and frictions related to workforce
reduction. As Fred Langhammer, CEO of Estée Lauder cosmetics, puts it: “So
far, I haven’t seen a single company which produces great ideas while people
fear for their future or their job.” (ManagerMagazin, 2002, p.75).
According to S. Watson (Starcher, 1999) there are four downsizing strategies:
• arbitrary, across-the-board percentage reductions in personnel in order
to eliminate jobs quickly (with heavy hidden costs and social damage);
• plant or site closings, which can be conducted in conjunction with more
responsible practices supported by top management and presence,
including site rehabilitation;
• a systematic strategy of “continuous downsizing” with a no-lay-off
policy and a lean management philosophy and culture; there is usually a
higher pay-off in the long run than periodic downsizing exercises with
massive lay-offs;
Restructuring for corporate success
22
4
See also Downs, 1995.
Ideas and principles behind socially sensitive enterprise restructuring
23
Box 1 Workforce reduction – popping the balloon?
When the economy is shrinking and market pressure is getting tough, managers often
find themselves in a dilemma. Heightened competition calls for cost reductions, but how
do you let air out of a vacuum? After decades of streamlining, rightsizing and
restructuring, not much is left for corporate executives to trim. With efficiency now being
the landmark for most performance assessments, the corporate belt is already pulled
tight. Of course, no one would doubt the importance of efficiency to an organization, but
what if high efficiency has already been achieved and further cost reductions strike
directly at the firm’s backbone, harming its prospects for future success?
Facing a crisis, managers should keep in mind that cost-cutting through workforce
reduction alone will most probably not be the miracle cure, as the time lag until
effectiveness may actually be longer than the crisis itself. However, with labour costs
eating up most of corporate earnings, the temptation is to let people go. But, as Boston
Consulting Group restructuring expert Uwe Reinert explains, “In many cases, a year is
needed until workforce reduction, including a social plan, has any positive financial
effects.”
Even under economic pressure, other CEOs add a flavour of corporate social
responsibility, such as Akio Morito, founder and long-time chairman of Sony: “If we face
a recession, we should not lay off employees; the company should sacrifice a profit. It’s
management’s risk and management’s responsibility. Employees are not guilty – why
should they suffer?” Last but not least, cutting expenses now may paradoxically lead to
higher costs in the long run. Laid-off employees can become ambassadors of ill will;
insensitive restructuring may result in bridge burning, and restoring a company’s
functionality and reputation is a costly endeavour. It is in management’s interest to avoid
these scenarios – but what options are out there?
When it comes to labour cost reduction, there is no such thing as a “stay-or-leave”
paradigm. The toolbox that management can use provides a multitude of solutions. But
why does it pay to avoid lay-offs? The answer is simple. Perception of work security will
undoubtedly rise among the workforce. This will most probably lead to a higher level of
commitment towards the company’s goals. Higher commitment will, in turn, foster a
willingness to demand more responsibility and involvement, thereby triggering
performance improvement and an increased level of innovation and invention.
Innovation and invention of products, strategies, and markets may not provide short-term
relief, but as possible solutions they are undoubtedly more creative than popping the
balloon. Quality improvement, reconfiguration of supply chains and distribution channels,
and increased subcontracting and contingent work are other levers to pull. As a result,
the company will see its competitiveness improved and its position in the market
strengthened. Approaches, therefore, need not be limited to dismissals.
The message is clear. Particularly in times of economic crisis, prudent management
decisions can lay the foundation for a soaring business. Apart from social costs, work-
force reduction is an option that may prevent the company from ascending to new heights
in the future – and therefore the one to consider most carefully. Vacuums don’t fly.
• a process that focuses on streamlining and eliminating work as a basis for
reducing the number of jobs (investment in labour-saving technology,
reengineering business processes, restructuring of logistics systems, or out-
sourcing).
In order to avoid such measures and increase competitiveness, certain
short-term measures can be taken:
• voluntary decreases in salary, with payback conditionality for better
times. This option is still better than no salary at all. This system consists
of negotiating a new and lower salary for a limited period, with a possible
bonus in the future if the company’s economic situation allows it. Here,
national legislation should be considered carefully because in some
countries, such as France, decreasing the salary is generally not allowed
without modification of the employment contract;
• part-time work for a fixed or flexible period. For non-essential jobs, or
jobs planned to be eliminated, a fixed period (or flexible period linked to
economic indicators) of part-time jobs can be designated, allowing
workers to partially maintain their jobs (and related income) and the
company to decrease the workforce cost;
• cancellation of future fringe benefits after negotiation, with consider-
ation given to national legislation;
• transformation of monetary benefits into non-monetary benefits
(ManagerMagazin, 2001, pp.256–9).
An additional option for times of economic turndown relates back to
economic theory. A declining economy normally triggers increasing price
elasticity for some products. Therefore, it might pay to lower certain prices
when the economy is slowing down – instead of considering it as a defensive
reaction only. In such a macro-level environment, price reductions may
increase sales volume significantly more than in boom times (ibid.).
Another main issue when it comes to management options is that of
flexibility. Companies sometimes lay off people in a recession and hire them
(or others) back during boom times (numerical flexibility). In this case, the
workforce is considered a numerical factor that can be altered. It would be
useful to consider other kinds of flexibility.
In today’s world enterprises need to be constantly ready for challenges.
Instead of a traditional, reactive approach to restructuring, i.e. reacting when
the situation gets worse and then restructuring, today’s corporate champions
are adjusting their management systems in such a way as to be always prepared
Restructuring for corporate success
24
for an economic slowdown or any other external challenge. In other words,
they create a model of functional flexibility, in contrast to numerical flexibility.
Functional flexibility is a proactive model, based on a long-term approach. It
implies continual improvements in the skills and knowledge of the workforce,
carried out through on-the-job training aimed at multi-skilling (through job
rotation, job enrichment, job enlargement, introduction of semi-autonomous
work teams, quality circles and so on), or more traditional vocational training.
Functional flexibility thus allows people to respond to change and move
quickly between tasks (multi-skilling). It also includes internal labour
markets, the facilitation of innovation, and flexible promotion. Functional
flexibility should both be pushed by the management and pulled by the
workforce, for both groups have an interest in implementing this concept. It
helps management increase the adaptability of the workforce and helps
employees increase their skills and employability.
Good practice in the workforce reduction process
Managing necessary workforce reductions in a socially sensitive manner does
pay off. Apart from minimizing social costs at all levels, there is strong
statistical evidence that employee satisfaction and corporate reputation have a
Ideas and principles behind socially sensitive enterprise restructuring
25
Box 2 Mature labour-management relations help to find solutions
In industrial undertakings (restructuring included) it is important to reflect upon the
thinking and the position of the important actors in the system. Management is not
always right, nor is the union. They will be more right if they work together on issues
and concerns of common interest – such as the issue of restructuring, since such
exercises will in most instances inevitably involve enterprise rights and responsibilities
as well as worker rights and interests.
In the case of a major port in south-east Asia the port management decided to
modernize the entire port facility by implementing full containerization capabilities in
response to increasing demand. This management decision ultimately meant
eliminating almost 80 per cent of the stevedore jobs. The union realized that rejecting
the imminent restructuring would have meant that ships would avoid using the port
because of inadequate facilities. As a representative institution of the port workers,
the union viewed this restructuring as literally a matter of life and death. The issues
involved were not covered by the collective bargaining contract negotiated by the
union and management because restructuring had not been anticipated during the
negotiation process. When the restructuring issue was brought to the attention of the
union, the members decided to engage the services of a reputed consulting firm to
help formulate and design its response to the serious problem at hand. Because of
the mature labour-management relations in the port, a mutually-agreed-upon
approach and a viable solution were reached.
positive impact on productivity and financial performance (Chauvin and
Guthrie, 1994; Koys, 2001; Khatri, 2000; O’Reilly and Pfeffer, 2000). Now, in
an effort to identify and implement good labour practice, how can managers
benchmark their business practices to ensure that they are in line with
stakeholders’ expectations?
International labour standards (ILS)
5
International labour standards can be used as an important source of guidance.
Adopted by governments, and workers’ and employers’ representatives of the
member States of the International Labour Organization (ILO), they represent
international consensus on good labour practice in society. Ratifying the ILS
and adjusting national legislation (which is the responsibility of governments)
is not the only way of putting ILS into effect: many other constituents among
the employers and workers observe the ILS in their labour relations. In many
countries ILS have already been incorporated into national legislation, which is
why managers should turn to national law and practice first.
However, the knowledge of some particular ILS may further increase
managers’ understanding of broadly accepted international labour standards.
Indeed, non-governmental organizations (NGOs) and other interested parties
often use ILS as their benchmark in assessing business performance. This
makes ILS a useful tool for business people around the globe. With their clear
provisions, ILS can be used voluntarily as benchmarks for good labour
practice, helping to achieve important improvements in both working
conditions and business performance.
We refer here to the Termination of Employment Convention, 1982
(No.158), as described in the next section, and also the Equal Remuneration
Convention, 1951 (No. 100), the Discrimination (Employment and
Occupation) Convention, 1958 (No. 111) and their related Recommendations,
Nos. 90 (1952) and 111 (1958).
The Termination of Employment Convention, 1982 (No. 158)
6
Historically, termination of employment was characterized by symmetry of
rights between the employer and worker. Either could end the employment
relationship simply by giving notice, without any requirement to give a reason,
any restrictions, or any procedural requirements. Although treating both
parties equally may seem fair at first glance, the impact of termination of
Restructuring for corporate success
26
5
Sources: Esser, 2002; Rogovsky and Sims, 2002.
6
This section is mainly written by Emily Sims, ILO Geneva.
employment is not the same for both parties. Workers generally suffer more
due to loss of employment than employers do through the departure of an
employee. Furthermore, employers often have more bargaining strength and
can negotiate provisions to protect their interests, such as a minimum period
of notice. Workers are less well placed to negotiate similar protection. The
Convention seeks to redress this imbalance of impact and bargaining power.
ILS are not by themselves binding; they are internationally agreed-upon norms
to be observed by ILO constituents. Individually, the workers are not as
strong as when they act in concert through their freely chosen representatives.
Like the employers, their actions and their considered positions on issues are
guided by agreed upon international norms.
According to the Convention, termination of employment at will is no
longer acceptable; however, employers must be able to respond to change.
Therefore, a worker may be fired, but only when there is a valid reason.
7
Valid
reasons for termination of employment are limited to cases where:
• the worker can no longer carry out the work needed or behaves in a
manner that is incompatible with the workplace; or
• conditions (economic, technological, etc.) have changed which
necessitate eliminating the worker’s post.
In the case of dismissal related to the capacity or conduct of the worker, he
or she has the right to defend him/herself against allegations that he/she is either
incapable of doing the job, or has behaved in a manner which justifies dismissal.
It is important that this occur before dismissal, to minimize both the damage done
to the relationship and the negative consequences suffered by the individual in cases
where the accusations prove unfounded. However, there may be exceptional
circumstances where the employer cannot provide the opportunity for the worker
to be heard prior to dismissal. For example, allegations of assault or theft may
involve the arrest of the worker, in which case it would be reasonable to let the
employer rely on the outcome of a public trial without a separate internal hearing.
The Convention contains a list of the prohibited grounds for termination
of employment, in cases of individual or collective dismissal. These include:
• union membership or participation in union activities outside of working
hours or, with the consent of the employer, within working hours;
• seeking office as, or acting or having acted in the capacity of, a workers’
representative;
Ideas and principles behind socially sensitive enterprise restructuring
27
7
It must be clarified here that an ILO Convention is translated into national legislation only if it is ratified by a member
State of the ILO.
• the filing of a complaint or the participation in proceedings against an
employer involving alleged violation of laws or regulations or recourse to
competent administrative authorities;
• race, colour, sex, marital status, family responsibilities, pregnancy,
religion, political opinion, national extraction or social origin;
• absence from work during maternity leave.
Temporary absence from work because of illness or injury also must not
constitute a valid reason for termination. The government may determine
what constitutes temporary absence, preferably in consultation with workers’
and employers’ organizations. In countries with accident and illness insurance
schemes, the definition of temporary absence is often linked to the period for
which an insured person would be entitled to sickness benefit (typically 26
weeks). The idea is that it is better for the sick or injured worker to be able to
recuperate without the anxiety of job loss, which may drive him/her back to
work before a full recovery. Limits may be set due to the cost to employers of
keeping a post open for an indefinite period.
The Convention also establishes a constructive approach to restructuring or
closure of an operation. In a country where the Convention has been ratified and
translated into law, the employer is required to consult in a genuine fashion with
the workers before taking action. Although the employer may feel strongly about
what measures must be taken in light of the current situation, he or she must also
give serious consideration to any alternative measures proposed by the workers.
If none of the workers’ proposals appear feasible, the employer and workers should
attempt to work out some other alternative together. However, the ultimate deci-
sion on what course of action should be taken remains with the employer.
The employer is expected to provide workers with all the information they
need to understand the current financial or other conditions motivating the firm
to downsize, and to be able to protect their interests while bearing in mind the
issues facing the firm. The information should be provided well enough in
advance so that the workers’ representatives have time to formulate an
alternative strategy, or to propose ways of minimizing the negative impact of the
restructuring on workers.
In the case of mergers or acquisitions, new management is under the
same obligation to cooperate with the workers’ representatives to the fullest
extent possible. Although this is a legal obligation which stems from acquiring
all the outstanding liabilities of the enterprise, it is also an important business
strategy. Empirical evidence clearly demonstrates the vital importance of
working with existing staff during a merger or acquisition to ensure that
shareholder value is added rather than destroyed.
Restructuring for corporate success
28
The government may establish in advance, and preferably in consultation
with workers’ and employers’ organizations, a minimum anticipated number or
percentage of workers to be affected before the consultation procedures must
be adhered to. Government intervention should be resorted to only when both
labour and management decide to use government mediation or arbitration
when negotiations become deadlocked. Although the Convention certainly
allows for consultation when even one person is made redundant, it also takes
into account that consultations, which hinder the employer’s ability to react
quickly to a situation, can be very costly to the enterprise, and may aggravate
an already serious financial situation. Therefore, requiring the employer to go
through a potentially lengthy consultation process each time a worker is made
redundant would ultimately be in no one’s best interest. However, the
employer may wish to consider setting up a less formal consultation mechanism
in cases where smaller numbers of workers are affected, which would require
less time but would still protect the interests of the worker(s).
The Convention establishes a mechanism to ensure that the competent
authorities are notified of a potential restructuring so that they may take one
or more of the following steps.
• Mediate the discussions between workers and the employer.
• Take possible preventive measures (e.g. a temporary cash injection for an
otherwise healthy company which has been hit by a bad external shock).
• Prepare for the possibility of a substantial increase in unemployment and
take appropriate mitigating measures (e.g. temporarily increase investment
in infrastructure to create jobs, set up training or retraining programmes,
or establish revolving loan funds to support micro-enterprises).
Although employers should try to be impartial during the pre-dismissal
right to be heard, the situation can be emotionally charged. Therefore,
principles of natural justice require that the worker be allowed to bring his or
her case before an independent body if the dispute cannot be resolved
internally to everyone’s satisfaction. However, the appeals procedure is costly
to the enterprise when it delays filling a vacant post. Therefore, the worker’s
right is subject to a time limit (a statute of limitations), which the government
should determine in consultation with workers’ and employers’ organizations
when possible.
In cases of collective dismissal, workers should be allowed to challenge
the decision when there is substantial prima facie evidence to support the view
that no such necessity exists (e.g. the hiring of a substantial number of new
workers shortly after the redundancies have been carried out), or to contest
the manner in which the dismissals have been carried out.
Ideas and principles behind socially sensitive enterprise restructuring
29
In collective dismissals, the impartial body should be empowered to
overturn a decision to downsize, particularly in egregious cases. However,
there are risks inherent in second-guessing the business strategies of firms and
of requiring the firm to disclose financial, technological and other sensitive
information. Therefore, the government may determine the limits of the
adjudicating body’s authority to review the decision of the firm and the
conditions under which information is disclosed.
Although the preferred remedy is reinstatement, there will be cases in
which reinstatement would serve the interests of neither the employer nor the
worker(s). Therefore, other remedies are possible, such as payment of
compensation. The remedy should seek to restore the loss to the worker,
including reputation damage if appropriate; but it should not be punitive in
nature, except perhaps in patently abusive cases.
Workers should be given adequate notice to prepare their job search. It is
often easier to find employment when employed rather than unemployed, and
advance notice may help to reduce the period of unemployment. The worker
should be given time off work during the period of notice to conduct a job search.
If notice is not possible, the employer should pay compensation (usually equal
to the wages the worker would have received during the period of notice).
However, in cases of serious misconduct it would be unfair to the employer to
require that a period of notice, or payment in lieu of notice, be given because it
would in essence penalize the employer for the grave fault of the worker. Serious
misconduct should be narrowly defined to ensure that it applies only in cases
where the requirement of notice would be truly unjust to the employer.
A worker facing the reality of losing his or her source of income should
be entitled to either a severance benefit or a social security benefit. If
severance benefits are paid, they should take into account how long the
worker has been with the firm. Workers who have been with a firm for a long
period of time generally are older and have much more firm-specific skills.
This may make them less competitive in the labour market, potentially
lengthening the unemployment period, and as a result they may be more in
need of income replacement. Severance payments should also take into
account the previous wage of the worker, to ensure continuity of income.
Firms may pay severance benefits in addition to any social security
benefits the worker may be entitled to, particularly given that the level of
social security benefit provided may be quite low. The justification for
severance benefits is income replacement, and therefore to the extent that a
worker is entitled to income from social security, additional income
replacement becomes more discretionary.
The Convention does not require (but certainly would permit) firms to
pay severance benefits in cases where a worker does not qualify for social
Restructuring for corporate success
30
security benefits (e.g. the employee has not worked for long enough, has failed
to pay contributions, or is not conducting an active job search). The idea is
that the employer should not be held financially liable for the fact that the
worker does not qualify, if he or she would qualify under normal circum-
stances. Of course, if the fault disqualifying the worker lies with the employer
(e.g. failing to pay contributions and stealing the worker’s contribution) then
the employer should be required to pay severance benefits.
To the extent that it is feasible in a country, unemployment insurance is
highly desirable for both employers and workers. For employers, unemployment
insurance smoothens the cost of terminations; for workers it provides guaranteed
income for a longer period of time (albeit at a lower level) and is often more gen-
erous than severance payments for people facing longer periods of unemployment.
It should be noted that payment in lieu of notice is a separate entitlement
from severance allowances. A payment made in lieu of notice should not be
deducted from the amount owed to the worker as a severance allowance.
The Convention permits, but does not require, the exclusion of workers on
fixed-term contracts, probation, casual workers, and workers on other types of
non-permanent contracts. However, it is important to note that the government
must take steps to ensure that these exceptions do not constitute a giant loophole
undermining the purpose of safeguards against arbitrary dismissal.
Some categories of workers may not be in need of general protection,
given the nature of their work and their level of compensation (e.g. senior
management). Some categories of workers may need protection, but the
nature of the enterprise or industry makes such action difficult (e.g. a micro-
enterprise where the worker also lives with the employer). However, the
government must consult with the social partners concerned before excluding
these categories, and must attempt to gradually overcome the difficulties in
protecting any excluded category, to the extent possible.
We should also add that grievance procedures should be considered in
the collective agreement, and that mediation or arbitration (voluntary or
otherwise) should also be promoted and encouraged as often as possible.
This said, it is now up to management and corporate stakeholders to incor-
porate the aforementioned provisions into the workforce reduction process.
Business framework for the process of restructuring
Companies and their internal processes do not exist in a vacuum. There are
numerous linkages to outsiders such as suppliers, customers, shareholders and
other financial stakeholders, the labour market and the community, including
the government and other (legal) authorities. Furthermore, the values and
expectations held and respected by an enterprise’s environment will inevitably
Ideas and principles behind socially sensitive enterprise restructuring
31
influence the way the enterprise conducts business. Figure 2 illustrates the
general business framework for the workforce reduction process.
Viability
Every corporate restructuring exercise must be aimed at improving
efficiency and overall business prospects. Therefore, ensuring the viability of
the downsizing strategy is paramount.
Feasibility
Goals that cannot be achieved are not plausible and will unavoidably lead
to frustration and failure. Keeping in mind the limited resources and options
of the enterprise, it is vital to ensure that all objectives are attainable and that
the overall strategy is feasible.
Cooperation
Cooperation with internal and external partners (workers, unions,
employers’ representatives, government) is another key method of ensuring
the success of restructuring and minimizing the social costs of a workforce
Restructuring for corporate success
32
Feasibility
Cooperation
Non-discrimination
Opportunity creation
Legality
Viability
Workforce reduction process
Figure 2 The general business framework for the workforce reduction process
reduction. Cooperation helps create an understanding of the different
concerns of those involved and affected.
Non-discrimination
Any distinction, exclusion or preference made on the basis of race,
colour, sex, religion, age, political opinion, national extraction or social origin
which has the effect of nullifying or impairing equality of opportunity or
treatment in employment and occupation (in our case displacement) is
discriminatory. Therefore, displacement decisions should not be made on the
basis of these criteria, but through business analysis only. Additional
discriminatory practices may exist at national level (e.g. HIV/AIDS). Here
again, guidance can be drawn from ILS.
Opportunity creation
In parallel with the reduction itself, a focus should be set on creating
opportunities for those who have to bear the social costs. Laid-off employees might
wish to start their own company, survivors will have a certain interest in assuming
additional responsibility, and the community could probably be interested in assist-
ing with the development of job cells or similar employment centres. Opportunity
creation does not automatically lead to additional expense; rather, it is a mindset
that aims at maximizing the yield for everyone involved in this difficult situation,
while taking into account all given necessities and limitations.
Legality
Workforce reduction is a very complex issue in labour legislation, and
companies should make sure they start from a secure legal basis. Furthermore,
legal provisions differ substantially among countries, with important
implications for multinational enterprises. For example, countries such as the
United States and some of the Asian economies have greater flexibility for
workforce reduction than most of the western European countries. Even
within a region, different national laws allow and require different actions, and
domestic shifts in legislation can take place as well.
Determining factors for the development of an
individual strategy
Before entering the actual workforce reduction process, managers should note
some other factors that are crucial to identifying a suitable strategy. Company
size, the industry in which it operates, its location, and the value systems of
both the company and the business environment all deserve further attention.
Ideas and principles behind socially sensitive enterprise restructuring
33
Size
Table 1 provides an overview of the implications that the size of the firm
has for the formulation of a suitable strategy for the workforce reduction process.
In SMEs, where resources are extremely limited, a highly formalized
process will undoubtedly be at the expense of flexibility. However, flexibility
is not only an issue in terms of SMEs’ long-term survival despite constantly
changing markets. It is also vital for the management of a specific situation
such as downsizing. SMEs cannot just draw resources from other business
units or subsidiaries in other countries (cross-financing), nor do they have any
direct influence on prices, as industry leaders do. Therefore, they often find
themselves in a dilemma between the need to change quickly and the need to
devote substantial resources (time, finances and capacity) to the process.
In large enterprises and in particular in multinational enterprises
(MNEs), limitation of resources is certainly a crucial point as well. Still, due
to the comparably larger size of the enterprise, the management can at least
explore some alternative resources within the company. Here the complexity
of the task, due to different legislations and management styles and an
increased need for thorough communication with both internal and external
stakeholders, is probably the most critical issue.
Industry
The knowledge ratio
8
in the respective industry can function as an
important guideline in determining the two extremes of a continuum. At one
extreme, an enterprise with mainly unskilled workers will not have to pay
Restructuring for corporate success
34
Table 1 Workforce reduction strategy and size of enterprise
Small and medium-sized Multinational Large
enterprises (SMEs) enterprises (MNEs) enterprises
Resources available Minimal Limited Limited
Flexibility needed Maximum Medium Medium
Managerial and legal complexity High Maximum High
Formal process necessary Low High High
Internal communication required High High High
External communication required Limited Maximum High
Impact on enterprise as a whole Maximum Medium–high Medium–high
Source: ILO.
8
This is the percentage of skilled workers as a total of the workforce (skilled and unskilled).
much attention to issues such as loss of key talent or intrinsic knowledge.
9
At
the other extreme, companies with mainly skilled or highly skilled workers
should take a very cautious approach if they are not to significantly diminish
or even lose their competitive advantage.
Location
The location of the enterprise, subsidiary or site where the workforce
reduction takes place plays an important role with regard to the legal
framework. Additionally, the ability to absorb those workers who have been
laid off and to help minimize the social costs and frictions depends heavily on
the particular social system and the respective country or community.
Value systems
Value systems exist both inside and outside the enterprise. The corporate
culture is one defining element of the “ enterprise social system”.
10
Even small
family businesses can have a corporate culture, such as being quality driven,
facilitating the inclusion of disabled family members, valuing customer service,
and so on. The surrounding culture has important implications for the
management of the workforce reduction process, in particular regarding
interviews and communication (Hofstede, 1984). Some cultures value clear
hierarchies and greater distribution of power among individuals, groups and
entities more than others.
The four phases of the workforce reduction process
The management process must start with a study phase which ends with the
choice of a target form of organization. This is followed by the preparation
phase which ends with the setting up of appropriate tools. Next the action
phase begins, leading to the evaluation phase. The following pages and table 2
describe the process in detail.
Ideas and principles behind socially sensitive enterprise restructuring
35
9
Intrinsic knowledge is kept in the minds and experience of employees, as opposed to extrinsic knowledge, which is
documented in manuals, books, videos, and so on.
10
See also Luhmann, 1984; Trompenaars, 1997.
Restructuring for corporate success
36
Table 2 The four phases of restructuring
Phase Processes
1. Study and planning Clear long-term strategy (> 5 years) or at least clear vision
involving social partners
Time frame
short
medium
long
Legal advice
Consultation with social partners about options and costs
economic
environmental
social
hidden
Scenarios
plant closure
headquarters repositioning
outsourcing
outcontracting
sale
closure
Budgeting for relevant options, including ROI
Achieve agreement: choice of new form of organization with budget and time frame
2. Preparation Appoint displacement committee
advice and ownership
Choice of tools
counselling at every stage
skills assessment
training for employability
inplacement
outplacement
SME creation
mobility
early/partial retirement
alternative work schedule
severance package
/cont’d.
Phase 1. Study and action planning
Ideas and principles behind socially sensitive enterprise restructuring
37
Phase Processes
Set up schedule agreed by all stakeholders
3. Action Creation of tools
Training of internal process team
Announcement
Interviews
psychological impact (reactions and advice)
listening
appointments (with tools)
Follow-up
Prepare for final evaluation
4. Evaluation Final evaluation
financial
organizational
strategic
social impact
compliance with time frame
Future HR management, anticipatory and proactive
mobility
employability
training
internal case development for organizational
learning
salary/wage survey
The study phase must begin with the statement of a clear long-term strategy, which is
followed by the creation of a time frame for the whole operation, and, together with legal
advice and consultation of the stakeholders, the clarification of several scenarios.
Then, the scenarios must be budgeted, enabling decision-making for the most
feasible scenario. The chosen scenario must then be budgeted more precisely, without
forgetting or underestimating the hidden costs.
Clear long-term strategy
The first step is to define the objective and how best to achieve it. A clear
long-term strategy is the point of reference for every future management
decision. It requires reflection and dialogue and should involve the social
partners. In addition, a strategy should always be:
• announced in a comprehensive way to every employee of the enterprise,
from top to bottom;
• understood by everyone (expressed in simple words, explained to
prevent misunderstandings);
• agreed upon and shared by everyone in the company.
Communication about the long-term strategy must be carefully prepared
and well organized in order to mobilize the whole company towards the
chosen strategy. If a long-term strategy cannot be formulated, at least a clear
vision should be defined.
Time frame
The time frame is critical for planning, preparation and budgeting.
Depending on the situation, it can be:
• short (e.g., cut 10 per cent of labour costs within the next four weeks)
• medium (e.g., cut 10 per cent of labour costs within the forthcoming
year), or
• long term (e.g., reduce the workforce by 25 per cent during the next
three years, starting with 5 per cent this year and 10 per cent in the two
following years)
The time frame has to be operationalized and circulated to everyone involved
in the preparation phase. It has to be feasible and motivating at the same time.
Legal framework
Without legal advice, every downsizing exercise runs the risk of
triggering dramatic mistakes. It is therefore indispensable to check, research
or seek advice on national laws regarding:
• grievance procedures
• consultation (social dialogue)
• social plan
Restructuring for corporate success
38
• delays
• redundancy payments
Consultation with social partners
It is advisable to start consultations with social partners early on in the
process. Only then can different views, questions and important concerns
can be heard, understood and addressed. Intense dialogue and a shared
consensus help achieve a better and quicker solution! Consultations should
therefore include a discussion both on options (efficiency improvements,
financial effects/impact on future earnings, and effects on market position
and business prospects) and on costs (economic, environmental, social,
hidden). These consultations should be kept confidential during the early
stages and social partners should accept to commit themselves to a
confidentiality clause.
Scenarios
Possible scenarios to be budgeted include:
• plant or site closure
• headquarter repositioning
• outcontracting (to create an external independent company including the
workers to do a job previously done inside the company, e.g. a call centre
or photocopying business)
• outsourcing (to find existing subcontractors to do the job previously
done by the company, and then to eliminate the relevant positions inside
the company)
• sale of the company
• mergers
• combination of different scenarios
• complete closure
Budgeting for relevant options
Anticipated costs, return on investment (ROI) and accuracies of
prediction should be included in the budgeting. If technically feasible, a
ranking based on quantitative analysis may be developed.
Ideas and principles behind socially sensitive enterprise restructuring
39
Achieve shared agreement
The common agreement on how to plan, prepare, manage and measure
the displacement process should:
• address all internal stakeholders’ concerns
• be understood and agreed upon
• be shared by all partners involved
• contain specific but achievable targets
• be as complete as possible
• be as measurable and controllable as possible
The choice
At this stage, the relevant options have been listed, examined, supported
by figures, and compared (a good decision tool is the SWOT analysis).
11
They
are the result of team efforts and a dialogue-based agreement in which the
social impact and estimated hidden costs have been taken into account. On
that basis, the decision should be made about the specific modalities.
Phase 2. Preparation
Restructuring for corporate success
40
11
SWOT = analysis which consists of noting strengths, weaknesses, opportunities and threats as a basis for comparison
and decision-making.
The preparation phase consists of:
• choosing and appointing a committee of experts responsible for the process
management, consisting of a team leader, some involved specialists (communication,
organization, cost accountant), stakeholder representatives (workers, HR,
management), and other involved department representatives (production, M&S,
finance, supply chain, R&D);
• choosing the appropriate tools necessary to assist redundant workers. Then, the
tools have to be developed by dedicated employees who will work in ‘units’ created
according to identified needs.
Planned organization
Next, the decision should be codified. A chart for the new organization
must describe as precisely as possible:
• the target form of organization with expected outcomes and objectives
(= what)
• the cost and the amount of intended investment (= how much)
• the time allowed to reach this point, with a detailed time frame (= when)
Before going further, it is important to check (now and at every major
stage of the process) whether the procedure is in line with the long-term
strategy. If not, the disparity should be reviewed – without omitting to
recalculate both the economics and the feasibility.
It is important not to overestimate the expected advantages, and to
remember that it is about dealing with people. Realistic and achievable targets
should be set to enhance commitment and avoid possible frustration. In a
complex succession of targets, the objective will never be achieved if the initial
targets are too difficult.
Displacement committee
In order to begin with the displacement process, it is advisable to appoint
(or elect) an executive downsizing committee that:
• is responsible for keeping the project on course
• helps to avoid deviance from the process
• makes necessary decisions to ensure that all steps of the project are
executed at the correct time
• is a team which employees trust and would not hesitate to consult
• centralizes the demands of the project
• coordinates communication
• reports regularly to management
• checks whether expected profits have been reached
• presents final conclusions
The team should ideally be composed of:
• a team leader, reporting to management, providing communication and
leadership qualities
Ideas and principles behind socially sensitive enterprise restructuring
41
• specialists (for communication and external relations, organization,
financial control, etc.)
• stakeholder representatives (workers’ representatives, human resource
department, etc.)
• department representatives, at least for departments involved (e.g.,
production, marketing and sales, finance, supply chain)
Ideally, members have worked on the feasibility study of the project and
have the capacity and authority to make decisions in their respective fields.
This helps to prevent conflicts and misunderstandings in the hierarchy.
The tools
The tools are aimed at helping those employees leaving the enterprise to
find decent work, at minimizing social costs, motivating survivors, preventing
a negative atmosphere and increasing efficiency. Both technical and
psychological support should be provided, and logistical support may be
required to help set up and run the tools.
Some tools need a permanent structure with people assigned to it (either
internally from the human resource department, subcontracted, or jointly
with internal and external resources). Financial resources for the tool creation
and application should be provided for in the financial plan, and be a part of
the operational profitability calculation. Tool creation merely for marketing or
PR reasons should be avoided.
The tools outlined in Chapter 2 are:
• counselling
• skills assessment
• training/employability
• internal job search
• external job search
• creation of SMEs
• mobility
• early/partial retirement
• alternative work schedule
• severance package
Restructuring for corporate success
42
These tools will be further detailed along with several case studies to
provide relevant real-life examples of how each tool can be implemented.
Phase 3. Action
Based on the tools chosen, and to allow reasonable preparation for
action, a time schedule has to be set up that is shared by all stakeholders and
communicated within the company.
Announcement
When the units have been created, the displacement team should
communicate three key factors:
• when exactly lay-offs will take place
• how many people will be affected, either directly or indirectly
• the tools offered
These measures help prevent negative interpretations or unnecessary
stress. It is assumed that reasons for the downsizing decision are known from
previous communications, and that internal communication can therefore
concentrate on explanations of tools and not reasons. Furthermore, the
company’s best employees should be reassured as early as possible to avoid
loss of key talent.
Interviews
12
Ideally, every employee affected by the lay-off will be addressed in person.
Until they are, they tend to avoid believing that they are affected. Stress will be
at the maximum level on the day when affected employees are asked to attend
the interviews. It is, however, an inescapable stage of the process.
Ideas and principles behind socially sensitive enterprise restructuring
43
In the action phase, affected workers have to be informed. This includes both those who
are going to stay and those who will have to leave. In this context, the tools developed
to help them should be publicized. Attention must be paid to every individual case, if
possible. At the end of a successful action phase, the target form of organization should
be operational.
12
See also Fieldan and Davidson, 1999.
Some recommendations are listed below:
• Ideally, the employee’s superior should hold the interview, as this person
knows the employee best.
• Only two interviewers should be present so as not to create unnecessary
pressure on the employee.
• If the employee asks to be accompanied by another person, the total
should be brought to four (to prevent any imbalance of power).
• Remove any potentially dangerous or harmful objects from the desk.
Such situations can quickly become unstable.
• Have on hand a phone number for medical assistance in case of fainting,
in order to ensure that help arrives quickly.
• Keep a person within earshot who could be of assistance.
• Make sure affected employees understand the importance of the
situation.
• Make it clear that the decision is irrevocable in order to prevent any false
hopes of negotiating. Give facts.
• Maintain calm regardless of the situation.
• Always remember that being laid off is a trauma. In such a severe
situation, affected people are often not able to listen to what is being said.
In general, three typical reactions have been observed:
— a dazed appearance, as if the employee has switched off, characterized
by apathy and staring into space;
— a violent reaction, accompanied by shouting, denying, or trying to
bargain;
— crying, fainting, or even collapse.
• List the tools that have been established to help, explain them, and
determine which ones are suitable in that particular case. Provide a list of
all suitable tools with accurate explanations and contacts (names of
people responsible and phone numbers of the units).
• Make appointments with the units. Insist on the importance of this
meeting, as some people reject any help from the enterprise at that
stage.
• Try to be as positive and supportive as possible.
Restructuring for corporate success
44
The following advice on communication skills may be helpful:
• Listening to affected employees is paramount. They need to express their
feelings, and will need someone to listen to them.
• Take your time to be open and receptive, but do not allow the meeting to be
too long. Forty-five minutes to one hour should be the maximum duration.
• Demonstrate a willingness to help, and that the enterprise has established
tools to do so.
Follow-up
Following up those involved can last for months; furthermore, cases
should be followed up individually if possible. Job unit activity leaders must
also be encouraged and motivated by the frequent updating of the ratio of the
number of cases solved to the total number of cases.
13
Phase 4. Evaluation and implications for future HR management
At the end of the process, it is up to the displacement committee to
evaluate what has been done, what has been achieved, and what proportion of
the resources have been used for each step. These findings have to be reported
to management and require careful evaluation of financial, organizational,
strategic, social and time indicators. The results of this analysis should also be
shared with all stakeholders involved.
The following questions may provide guidelines:
Financial:
• Has the expected cost reduction been reached?
• Has the company’s financial situation improved?
• Has the budget been followed? If not, why?
Ideas and principles behind socially sensitive enterprise restructuring
45
13
At the beginning these ratios normally grow fast, which makes the process seem easy. But since many simple cases
are solved rather quickly, growth will most probably slow down as time goes on.
The final, evaluation phase, aims at a complete evaluation of the process, including the
time frame, and lays the foundation for a new HR management strategy. Throughout the
process, successful communication is key to success. Communication should be
divided into internal (within the company) and external/financial communication (with
outside stakeholders).
Organizational:
• Does the new form of organization match the initial target?
• Has operational efficiency increased?
Strategic:
• Has the business environment changed as expected?
• Does the new organization respond to the new business environment? If
not, what measures should be taken?
Social impact:
• Have the targeted ratios for placing people been reached?
• In terms of tool development and implementation, what can be learned
for the future?
• What happened to the unsolved cases?
Time frame:
• Has the time frame been followed?
• Which bottlenecks had to be dealt with?
Answering these questions is crucial if the company is to capitalize fully
on the restructuring experience. In this context, internal case development for
organizational learning should be encouraged as well. In addition, a survey of
salaries and wages may help to ensure that payment levels are in line with the
market, which will in turn facilitate the placement of employees affected by
possible future restructuring exercises.
Based on a sound process evaluation, human resource management will
be even more anticipatory and proactive.
Conclusion
The time when companies were announcing lay-offs just to improve the share
value is gone. The words “Socially Sensitive (Responsible) Enterprise
Restructuring (SSER)” are now part of management literature and practice,
but establishing and realizing a well-managed restructuring plan still remains a
very difficult exercise. Most downsizing exercises in recent years have failed to
produce the improvements expected, mainly because the long-term costs were
often higher than the short-term savings.
Restructuring for corporate success
46
Workforce reduction can only improve performance in productivity and
profits in a sustainable manner if it is well planned and implemented, and if it
goes hand in hand with general restructuring exercises. Only if anticipated
profits outweigh the global costs of reducing the workforce is it economically
viable.
14
However, within the challenging framework of limited resources,
legal requirements, time pressure and a clear need for viability and feasibility,
reducing the workforce is about managing human beings – probably more
than any other management decision or function. Therefore, putting people
first in all phases of the process must be regarded as the key success factor.
Many tools that can achieve improved efficiency and minimize social costs are
already in the hands of managers. Even though their implementation requires
substantial efforts, these tools can make an important contribution to reacting
to competitive pressure in a socially sensitive manner.
Downsizing should be implemented only after all other alternatives to
lay-offs have been considered and ruled out, and should be carried out in
accordance with the following principles:
• Carry out dialogue with the stakeholders.
• Achieve an agreement.
• Carefully prepare the process.
• Provide the process with the necessary means for success (human and
financial).
• Enhance internal and external communication.
• Respect the human beings involved, treating them fairly and helping
them to find other jobs.
• Avoid discrimination.
However, the best way to avoid downsizing is to adopt a long-term
policy that anticipates crisis, and to develop human resource management in
order to contribute to the employability of workers.
By acting according to these recommendations, relations between the
enterprise and its environment will become a win-win scenario focused on
long-term success. This will generate a better social climate, favourable to
economic growth and peaceful labour relations, to the advantage of both the
enterprise and its environment.
Ideas and principles behind socially sensitive enterprise restructuring
47
14
See also Hermalin, 1996.
MINIMIZING SOCIAL AND
PERSONAL COSTS: THE TOOLS
THAT CAN HELP
2
Less than two decades ago employees expected to join a large company, do
their job, and be provided for by the company on a long-term basis.
Technological shifts as well as the movement towards a global economy have
changed all this. Employment is no longer guaranteed, doing just enough is no
longer good enough; at the same time though, employees are becoming more
demanding of the company in terms of opportunities for development,
advancement, work–life balance and so on.
Table 3 presents some of the shifts in expectations currently being
experienced in the workplace.
In keeping with this shift in philosophy, lifelong job security is becoming
a thing of the past. Companies are under more pressure to adapt to the changing
environment quickly and efficiently, making sure the bottom line satisfies the
shareholders. As a result, downsizing is no longer just a means to reduce costs
in times of dire need, but a way of keeping a company lean and profitable.
Although the benefits of this type of strategy are arguable, once the
decision has been made that downsizing is a necessary part of the
restructuring effort the company has several tools at its disposal to minimize
49
Table 3 Old and new expectations
Old expectations New expectations
Big budget and large staff New challenges and exciting business
Traditional corporate hierarchy Flat, fluid, flexible organization
Thirty-year horizon, good salary Five-year horizon, wealth linked to value
and retirement package created
Steadily up the corporate ladder Jumping from one rock face to another
Source: Michaels et al., 2001.
the social impact on employees (both those affected and the survivors), as well
as on the community around it.
In addition to helping the employees, the company also benefits from
enhancing its reputation as a socially sensitive enterprise. This can have a long-
term impact in terms of brand equity and of making the company a more
attractive future employer for top-quality candidates.
As mentioned in Chapter 1, certain tools should have a permanent
physical presence with people assigned to them, and the financial injections
necessary to ensure a smooth rollout should be discussed during the
preparation phase.
The tools outlined in this chapter are as follows:
• counselling
• skills assessment
• training/employability
• internal job search
• external job search
• creation of SMEs
• mobility
• early/partial retirement
• alternative work schedule
• severance package
Counselling
Being made redundant is a trauma. People’s reactions to a broken work
relationship are similar to those experienced in breaking up a private
relationship. They are characterized by denial, fear of the future, anger and
depression. While management’s decision must be binding and irrevocable,
members of the management team should always be ready to listen to those
workers who are affected, to allow them to address and express their concerns,
or simply to let them talk. Additionally, management needs to remember that
it is not just those employees being let go who are affected; survivors also
experience emotional distress during this time, either because friends have been
let go or because they fear for the future of their own job. Communicating with
both these groups is critical to the success of the restructuring effort, as well as
putting in place counselling sessions to help employees get through the ordeal.
Restructuring for corporate success
50
The counselling sessions should be a tool to assist employees who have
been made redundant with the emotions stemming from the ending of the
work relationship, and help them focus on their strengths and regain self-
confidence and a positive outlook. For surviving employees, the counselling
session should focus on the feelings they have regarding the company, their
future, and any other issues that may arise. It is important to reinforce security
and comfort for those employees who will continue to be responsible for the
functioning of the company. This counselling effort could even be extended to
the families of affected workers.
Skills assessment
A change in job, whether within the company or externally, will often require a
shift in skill requirements. A company can help its employees become aware both
of their strengths and their areas for improvement by providing a skills assessment
before the change takes place. This will not only provide employees with a realistic
idea of where synergies may exist, but also, by highlighting the gaps between
labour market expectations and their personal skills, help them understand what
level of commitment is required for them to advance to a different job.
Gone are the days of the lifelong career with a large company and steady
move up the corporate ladder. In the expanding European Union as well as in
other parts of the world, people are increasingly realizing that job security is being
based more on skills than on time with the company. Companies are no longer
guaranteeing lifelong employment in the same job in the same place. Under-
standing the skills necessary and the skills one has is increasing in importance,
for the skill portfolio of an employee is becoming a critical factor in retention.
Based on the results of the assessment, decisions can be made by the employee
and the company as to what training or education would prove beneficial.
Training/employability
In today’s uncertain job market employees have realized that, ultimately, the
more skills they have the more valuable they are to the company. As a result,
many people are seeking potential employers who will encourage training and
skill development. Some workers, especially young ones, may want to improve
their education or to change or expand their specialization. In many countries
educational programmes for younger, highly skilled employees, linked with
financial aid schemes, are responding to this demand. It is important to
provide an overview of what is available and appropriate. The enterprise might
additionally consider creating further incentives – for example, by adding a
certain amount of money to the public financial assistance available.
Minimizing social and personal costs: The tools that can help
51
Some companies engage in a practice of continuous improvement and
training, increasing the employability of their employees so that if the time
comes, moving to a new job may not prove as traumatic or difficult. This type
of lifelong learning gives employees greater flexibility and independence and
can improve their self-reliance and confidence when it comes to confronting
new challenges and opportunities. This can benefit the company too, in having
a multi-skilled employee base that can shift with the demands of the company,
providing a continuous flow of qualified internal candidates to handle the
demands of any current market situation.
Training should not be limited to job-skill training alone, however, but
should also include job-search skill training. This includes how to create a CV,
how to interview effectively, how to answer questions, how to dress for an
interview, how to present one’s strengths, and how to react in stressful
situations. Both the company and the employee can only gain from this: the
employee will find new employment faster, and the company will not only
benefit from a positive image resulting from the aid it has offered, but will also
find solutions for redundant employees in a more timely manner.
Internal job search
Internal jobs (whether within the company itself, in another plant or service, or
in a subsidiary) are the first areas to consider for redeployment. The HR
department can provide guidance on availability and skill requirements.
Depending on the size of the company, there may already be tools in place to aid
this process, such as a company intranet site that lists vacancies, or bulletin boards
that post upcoming openings. This overview should then be compared with a list
of suitable candidates according to mobility, skills and individual wishes.
The HR department should encourage internal hiring among depart-
ments, even if this involves some retraining. Even if retraining is needed, the
financial benefits of not having to search externally, orient a new person to the
company, risk the person not adjusting, and deal with the administrative
paperwork, may be more attractive than the costs and time associated with the
development of a new employee.
External job search
If employees have to leave the enterprise, they should be prepared both
psychologically and technically through counselling and skills assessment and
training, and be able to choose a job according to their skills, either locally or
in another region. In preparing the employee, there are a number of important
points to be considered at the outset:
Restructuring for corporate success
52
Minimizing social and personal costs: The tools that can help
53
• Provide outplacement counselling, skills assessment and training.
• Compile and classify job advertisements (newspapers, magazines,
journals, internet, intranet, etc.) every day; prepare an overview in an
easy-to-use format.
• Contact other companies to learn about their vacancies. This is usually
common practice between large enterprises dealing in different domains.
Do not limit it to large companies. Hundreds of contacts are generally
necessary.
• Contact professional organizations to identify industry needs.
• Keep in permanent contact with employment organizations (both public
and private).
• Contact recruitment agencies and propose candidates to them.
Particularly effective in this area are outplacement consultancy firms,
which specialize in helping redundant managers find employment. They deal
with every customer individually and use their network to identify suitable
employment opportunities, often achieving higher efficiency than a single job
cell. They are usually expensive but render excellent results, and can reduce the
overall cost of the job unit by taking care of a certain category (generally high
level) of employees.
Another practice used to encourage employees to be proactive in their
job search is the “speed bonus”. This is a monetary sum awarded in addition
to the severance package to employees who find a job within four months,
with or without the help of the job-search unit.
Another trend is to offer a higher severance package to employees who
accept the help of the job-search unit. This prevents employees from taking
their severance money and waiting until the last moment to look for a new job
without any help or advice – and facing financial difficulties as a result. Some
companies offer only the legal amount of severance pay if an employee refuses
help, but much more in the case that he or she accepts.
Lastly, some companies maintain the previous work contract until the
end of the new job trial period. This helps employees to feel safe and secure,
allowing them to test a new job with little risk.
Creation of small and medium-sized enterprises (SMEs)
Within any group of workers made redundant there may be some people who
have entrepreneurial aspirations and who, given the opportunity and support,
would like to try to launch their own company. This could be anything from a
photocopying service to bicycle repairs. The idea will perhaps not be new to
them, but the current situation now creates the need to be more independent.
Examples are numerous and depend to some extent on the local economic
environment. However, bringing such a project to fruition presents many
difficulties, mainly concerning the financing of the activity, but also the
management of it, compliance with regulations (starting with becoming aware
of them), and so forth. Given these factors, it could be useful to establish a
task force to promote SME creation that would:
• help the employee identify opportunities and prepare a feasible project
plan – for example, moving from an idea to a business overview, time line,
financial framework, and so on;
• assist with the development of the skills and culture necessary to achieve
success;
• provide financial resources and advice on issues such as bank loans or
capital raising;
• provide legal and administrative support and advice (how to create an
enterprise, best practices, what to avoid, accounting standards,
regulations, etc.);
• help by outcontracting certain non-core activities to provide employees
with new ideas or opportunities.
In the context of SME creation, outcontracting provides an interesting
option. Some activities traditionally carried out within the enterprise can be out-
contracted to the former workforce. Examples include travel services, transport,
and administrative support. In this case, either the activity is being subcontracted
to an existing company, or former employees create a new company (with or
without temporary capital sharing, and possibly with a decreasing subcontractor
agreement to encourage the new company to look for other customers).
Similar to SME creation, MBO (management buy-out) and MBI
(management buy-in) are other options that may be considered. In an MBO,
employees buy the plant or subsidiary that was about to be closed. In the case
of an MBI, employees buy another plant or subsidiary outside the company
(in the same field or a completely different domain), while the former
employer may provide financial and technical support.
Mobility
Workforce mobility undoubtedly increases opportunities to minimize
social costs for a community, as dismissed workers are willing and able to
Restructuring for corporate success
54
move to another location in order to find employment. Mobility therefore
means both:
• accepting a change in job (job mobility); and
• accepting a change in the place of work, and even of residence
(geographic mobility).
Job mobility can be handled mostly through skills assessment and
training. Geographic mobility is more complex, for it often requires uprooting
the entire family and thus making the emotional and financial impact even
more significant.
Geographic mobility can be encouraged by offering attractive relocation
packages which would include:
• financial resources to cover removal expenses;
• paid days off to conduct the move;
• home-search assistance and perhaps a housing allowance;
• a salary increase to bridge potential gaps in the cost of living in a more
expensive area;
• an orientation course on the new area including information on local
schools, facilities and other areas of interest to the family. In the case of
relocation to an area where the language is different, financial allowances
for language training for the entire family could be provided;
• administrative support in registrations, service installations, under-
standing local regulations, and so forth.
Early/partial retirement
In accordance with local legislation, a system of early/partial retirement may
be a solution. It also offers the advantage of readjusting the company’s age
pyramid. However, losing the most skilled and experienced employees can
pose a serious threat to the company’s human resources in terms of skills and
historical knowledge, and should therefore be examined in detail before any
major action is taken.
Early retirement can take several forms (depending on the company and
local regulations) but often includes the extension of full benefits until the
actual retirement age and a monetary sum awarded for each year of
employment, in addition to a certain percentage of salary. The age at which
early retirement becomes an option, as well as the level of financial incentives,
Minimizing social and personal costs: The tools that can help
55
are usually up to the company; however, it makes sense for a company that
considers this a viable solution to ensure that the financial benefits will be
considered attractive enough for people to take advantage of the offer.
Part-time retirement (or partial retirement) might also provide a
solution, allowing employees to work less (for instance 50 per cent) while
being paid relatively more (for instance, net 70 per cent). This strategy can
help to avoid any potential negative psychological impacts while at the same
time assist in organizing a knowledge transfer.
Alternative work schedule
“Alternative work schedule” is a general term encompassing any type of
schedule that deviates from the traditional norms of the area. It includes, for
example, part-time employment, flexible leave and subcontracting. One of the
most significant benefits of an alternative work schedule is that it often allows
a company to retain its employees while better managing the workflow shifts
– thus achieving greater efficiency.
Part-time employment
Part-time workers can do many jobs effectively, even though it must be
noted that two part-timers will probably cost an employer more than one full-
time worker because of administrative costs, office space needed and so forth.
However, if the goal is to reduce production capacity, part-time work may
provide an alternative to lay-offs. Again, transitional financial solutions may
be employed. In addition, in those countries where agriculture comprises a
large sector, it may be easy for workers to obtain part-time work and thereby
facilitate a complementary activity in this field. In some cases, parents may
choose this system in order to be with their children one day a week.
Subcontracted workers
Detaching workers to other companies for a limited time period
(subcontracting) is another possible solution to temporary overcapacity. The
workers still belong to the enterprise – they are paid by it and will have the
same employment conditions as before – but they work for another company
that can be invoiced at a level previously agreed. The difference between
labour cost (i.e. the actual cost of the worker) and the amount invoiced will be
the cost of this operation. At the end of the contract workers return to their
enterprise, unless they receive offers from the company where they have been
working and their original employer agrees to let them go. However, this
measure is quite difficult to set up due to legal constraints, and generally
workers are rather reluctant.
Restructuring for corporate success
56
The advantages of subcontracting are numerous:
• for the worker: experiencing a new work environment without risk;
• for the company that is hiring workers: a quickly operational workforce
with useful knowledge, bringing in a new way of thinking, as well as a
temporary solution to their needs;
• for the lending enterprise: decrease of labour costs while retaining
talents; no social impact.
Flexible leave
Another temporary solution focuses on allowing a limited leave, agreed
upon between the employee and the company. Cornerstones of this type of
solution include:
• partial salary during the leave;
• maintaining the office telephone number, car, email, and so on, as fringe
benefits;
• security in finding a similar job in the company when returning from
leave.
Severance package
The financial implications of redundancy are understandably a major concern
for employees. Losing one’s job often means losing one’s ability to provide for
oneself and one’s family: this is almost bound to create an exponential level of
stress and anxiety. Though severance regulations vary by country, a company
can help offset the stress by offering above and beyond the amounts required
by law. Some companies choose to offer a partial salary for an extended period
of time, or financial packages that reward those who have been with the
company for a long time. Others even allow employees to keep certain fringe
benefits, or to use the company’s facilities for a period of time after severance
takes place.
1
Minimizing social and personal costs: The tools that can help
57
1
A recent study of the effects of downsizing practices on the performance of hospitals in the United States (Chadwick
et al., 2004) showed that consideration for employees’ welfare during downsizing related positively both to the
perceived success of the downsizing exercise and to financial performance following lay-offs.
59
This chapter provides real-life examples of businesses that during a process of
restructuring have employed the practices outlined in Chapters 1 and 2, with
varying levels of success and completion. From the comprehensive programme
put in place by Deutsche Bank that addresses essentially every restructuring
tool, to the smaller, more targeted efforts made by companies like Floreal,
each case has experience that other companies can draw on and perhaps use as
a basis for creating a turnkey restructuring plan for themselves.
Although the majority of the cases that follow are focused on the
European market, restructuring has arrived on a global scale and can be
expected to span the globe as the face of business becomes less country-
specific and more universal. As organizational structures continue to move
into this global view, new market factors are likely to further entrench
restructuring; the changing needs of the business world will demand these
tools as a basis for the modification of anticipatory planning for restructuring
in the business model of most companies.
Case 1. Deutsche Bank, Germany
1
CASE STUDIES ON SSER
3
Key tools utilized
Counselling ? Skills assessment ? Training/employability ?
Internal job search ? External job search ? SME creation ?
Mobility ? Early/partial retirement ? Alternative work schedules ?
Severance package ?
1
Source: Fischer, 2003.
The statute of Deutsche Bank was adopted on 22 January 1870. The objective
of the company was to “transact banking business of all kinds, in particular to
promote and facilitate trade relations between Germany, other European
countries and overseas markets”. From the outset, international business was
built up steadily, and between 1871 and 1873 Deutsche Bank opened branches
in Yokogawa, Shanghai and London.
In the very year of its foundation, Deutsche Bank accepted deposits in
cash which helped its deposit-taking business become firmly established in
Germany. It also played a major part in the development of electrical
engineering and iron/steel industries.
Very early on, Deutsche Bank formed alliances with large regional banks.
It merged in 1920 with its largest competitor, Disconto-Gesellschaft, to
become Germany’s largest bank. But in 1945 Deutsche Bank stood on the
brink of ruin. The postwar period proved to be the toughest in its history. The
occupying forces either nationalized banks or allowed them, on a very modest
scale, to remain operational at the regional level. Deutsche Bank was broken
up into ten banks, which in 1957 were reunited under the original name.
In 1959 Deutsche Bank entered retail banking and over the next 40 years
moved into internationalization with the acquisition of Morgan Grenfell and
Bankers Trust.
Today, Deutsche Bank is one of the leading international financial service
providers. It serves more than 12 million customers in 75 countries and is
organized around eight core businesses:
• global markets
• global equities
• global corporate finance
• global transaction banking
• private and business clients
• private wealth management
• asset management
• corporate investments
The values and corporate objectives of Deutsche Bank are stated in Box 3.
Deutsche Bank in the 21st century
In June 2001 Deutsche Bank ranked third in terms of revenues behind
CitiGroup and JPMChase. By 2002, the economic downturn had caused a
Restructuring for corporate success
60
Case studies on SSER
61
Box 3 Deutsche Bank values and corporate objectives
The goal of Deutsche Bank is to be among the three leading providers in its chosen core
businesses and to generate an appropriate return on capital employed.
Deutsche Bank aspires to be a leading global provider of integrated financial solutions
for demanding clients and the pre-eminent bank in Germany generating exceptional
value for its shareholders and people.
Several key values are an integral part of the corporate structure:
Innovation. We are constantly challenging conventional wisdom and developing new
solutions to meet customer requirements.
Performance. We are committed to a results-oriented culture.
Trust. We behave reliably, honestly and fairly.
Customer focus. We place customers at the centre of our activities as the driving force
in all we do.
Teamwork. We benefit from the diversity of our business and our people by working
together to achieve success.
Customer satisfaction is the basis of our business success. This is how we fulfil our
shareholders’ demands for a consistent increase in the value of their holdings in our bank.
What we need to achieve both of these goals are motivated employees. Achieving this
allows us to make a fair contribution to society in all those countries where we do business.
Our actions are dedicated to customers. Our customers are the focus of everything we do.
To help promote the success of our customers’ business, we approach them with
competence, openness and courtesy. Their satisfaction is the measure of our performance.
Motivation is demonstrated by using drive and creativity to achieve innovative results. Our
management teams promote employee motivation through leadership and the delegation
of challenging tasks, and by taking responsibility and recognizing performance. We want
to create conditions in which staff can sustain their personal and professional
development, acquire knowledge and align their personal values with our corporate values.
Personal dedication is stimulated by equitable performance-oriented remuneration.
Our shareholders’ right to obtain a consistent long-term increase in the value of their
investment is the principle on which our decisions are based. That return is the most
important measure of our business decisions and activities.
Within the framework of our corporate goals, we share in responsibility for the economy and
society as a whole. We want to be a responsible member of the community and contribute
to the economy and society not only in a purely monetary way. Whenever and wherever
appropriate, we want to contribute towards a better understanding between nations.
Source: Fischer, 2003.
reduction in assets, with a major negative impact on its results. Deutsche Bank
announced a restructuring, cutting 14,500 jobs – 4,500 of them in Germany –
by 2003.
The HR response to restructuring
The Human Resources Department anticipated the risk of restructuring as
early as 1997. It has implemented an impressive range of solutions in Germany,
not only to cope with the situation but to mitigate the impact of downsizing.
The overall package is referred to as the Mosaic for Employment (see figure 3).
It represents an impressive suite of products developed in partnership with the
works council. The objectives are to:
• promote employability
• make the internal job market more flexible
Restructuring for corporate success
62
Deutsche Bank Mosaic
for employment
Bankpower Extrajob
Intrajob
Job bits
Trainee
transfers
Regloforce
Bankforce
Telework
Old age
part-time
Fit for life Fit for job
Re-
education
Starting a
business
On the job
training
Individual
flex time
Job
coaching
Placement
Berlin
model
Collective
part-time
DB
Jobcentre
DB
Management
Support
Figure 3 The Mosaic for Employment
Note: The products are colour-coded. The blue products represent internal options; the grey, external options.
Source: Deutsche Bank.
Case studies on SSER
63
• provide individual professional perspectives (especially for employees
who are directly affected by restructuring)
Employability
Deutsche Bank considers that it is a responsibility of employees to be
employable at all times. At the same time, it also aspires to support its
employees in their endeavours to stay at the height of their capabilities.
Furthermore, it realizes that it has a social obligation to create a working
environment with interesting development opportunities. Such opportunities
increase the possibility for employees whose jobs have been made redundant
to find new positions either within or outside the company. Remaining
employable during one’s active life implies breaking away from old habits and
committing oneself to lifelong learning flexibility and openness to change.
The magic cone (figure 4) links job security to the guarantee of a
particular job or “work”. However much this may have been the case in the
past, it is no longer offered in private companies.
W
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k
O
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p
o
r
t
u
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i
t
i
e
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Figure 4 The magic cone
Source: Deutsche Bank.
The second level of the cone represents employment security, which
leads to the concept of creating and helping employees find opportunities
within their company. This possibility only exists when employment is
increasing, or at best, stable.
The outside circle relates to employability, which means independence
for the employee. This independence is not without its limits. Deutsche Bank
recognizes its responsibility at two levels:
• First-line managers guide and develop their people and explain their
strengths and weaknesses.
• Human Resources develops processes, products, tools and consults on
development matters.
Internal options
Intrajobs. Intrajobs organizes the internal job market for Deutsche Bank
worldwide. With the exception of executive positions, all openings are posted
in a programme accessible to all employees. A subscription to this programme
gives automatic information on new job listings.
Applications and enquiries are submitted by email on an anonymous
basis. If the manager shows interest in the application, then the employee’s
identity is disclosed.
Intrajobs has several positive aspects including:
• more self-responsibility for career development
• greater visibility of the internal job market
• better utilization of internal personnel resources
• optimization of the internal recruiting process.
Bankforce. Bankforce is an in-house temporary agency created in 1997,
under which employee volunteers carry out projects, support work or
substitution duties throughout the entire group in Germany. In order to
qualify for Bankforce, employees need to meet at least the minimum
qualifications of a bank clerk, be geographically mobile, have a good appraisal
record, and receive the green light from the immediate supervisor.
Acceptance depends on the fundamental demand for the specific
qualifications. Candidates are typically young people who wish to discover
new horizons, are looking for challenges, and want to enhance their
qualifications through job rotations, or who want to reorient themselves
because of change to or loss of job.
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Tasks generally last between two weeks and six months, but employees
may perform a succession of mandates and remain within Bankforce much
longer. Bankforce employees receive free housing when assigned outside their
home location, and regular home leave.
The logistics of this programme are managed by two people in the HR
department, who identify openings, interview candidates and organize
customer billings.
Job bits. Job bits establishes a market place for experienced workers
such as:
• mothers on maternity leave
• students who have finished their apprenticeship with Deutsche Bank
• former employees
• spouses of transferred employees
• who have time available to work short assignments, typically special projects
rather than regular work. Work can usually be conducted from home.
Competency development. A set of competencies has been developed for
each job in the businesses. Every second year, employees are able to assess
their competencies through an online tool (CDO) and with their immediate
manager establish their development plan.
Life crisis counselling. In cases of exceptional stress occurring in the area
of family, work or health, including addiction and financial problems,
Deutsche Bank provides information on psychosocial topics and how to deal
with conflict. Complete networks of consultants are available both internally
and externally.
Old age part-time. Increased compensation for individuals close to
retirement age, who elect to work part time.
Telework. Whenever possible, jobs are moved to the employee’s home.
Individual flex time. Every conceivable form of part-time work in all
areas and functions and at all levels. Flexible hours can be organized on an
annual basis, with the possibility of returning to full-time status.
Collective part-time. Collective reduction of working hours with a view
to providing job security for all team members, based upon solidarity.
Trainee transfers. Trainees who have completed their apprenticeship may
apply to work in a different group or a different region.
Re-education. Further training in marketable professions where
qualifications are insufficient, especially in IT-related fields.
Placement. Internal and external advisers are available to provide
assistance in the area of professional reorientation.
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External options
Job coaching. Job coaching is designed for those employees who will lose
their job because of reorganization or downsizing. The three-day workshop
attracted 300 participants in 2002 and the attendance of 700 more participants
in 2003.
The first day consists of a self-assessment by individuals of their personal
situation, personal/professional skills and goals; the individual then meets
with an internal Human Resource consultant. The second day takes place
three weeks later and deals with job markets and job application strategy.
During the third day, the application is completed, participants practise
interviews and HR gives individual advice.
Job coaching has been greatly appreciated by participants. Experience
shows that it is highly effective: 90 per cent of participants have been able to
find jobs after termination of their contracts.
Bankpower. Bankpower GmbH Personnel Services, a joint venture
between Deutsche Bank and Manpower Deutschland, is a legally inde-
pendent temporary work agency designed especially for financial service
providers.
Employees who decide to join Bankpower receive severance pay from
Deutsche Bank reduced by two-thirds in accordance with the Social Plan.
They have an unlimited contract with Bankpower with no probation period,
and a guaranteed no dismissal for operational reasons for 24 months. Their
previous gross salary is guaranteed by Deutsche Bank for a period between 12
to 30 months. They are assigned, according to their skills, to temporary
missions in companies within the financial sector.
Experience shows that in less than a year, the great majority of volunteers
have found a permanent position.
The Berlin model. The Berlin model consists of retraining employees
whose jobs are in danger. Training may be organized internally or externally in
coordination with chambers of commerce. It leads to diplomas or
qualifications recognized by the profession in areas such as information
technology, insurance and foreign trading. Such programmes may last as long
as two years, during which time Deutsche Bank increases the training
remuneration up to the individual’s previous net income.
Support of new business creation. Employees who wish to start an
independent business receive professional assistance from the bank’s business
start-up experts. A start-up kit has been developed, and financing may be
provided at preferential conditions.
A network of external consultants and specialists may be recommended
and volunteers may attend seminars on a cost- and time-sharing basis.
To the extent possible, Deutsche Bank may become a customer during
the start-up phase.
The severance payment may be tax optimized.
Management Support. DB Management Support has been created as a
subsidiary of Deutsche Bank. It is an employment alternative for specialists
and executives who leave the company after the age of 55. Employees become
partners in a consulting company that provides services both to Deutsche
Bank and the outside world.
This ensures a smooth transition from professional life to full
retirement. Partners receive a basic salary plus fees related to their projects.
They are called on internally for representative assignments, project
management, task force leadership and coaching of junior executives.
Externally, they are involved in consulting for small to medium or start-up
firms in the following areas:
• liquidity
• income
• balance sheet analysis
• human resource management
• advisory councils
• support with international projects aimed at modernizing banking and
financial management systems in eastern Europe or other emerging
countries.
Case 2. Agilent Technologies, Germany
2
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Key tools utilized
Counselling Skills assessment Training/employability
Internal job search External job search SME creation
Mobility Early/partial retirement ? Alternative work schedules ?
Severance package ?
2
Source: Danthony, 2003.
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Who are Agilent Technologies?
When Hewlett Packard (HP) decided to spin off its electronics, tele-
communications and life sciences activities in 1999, Agilent Technologies
became an independent company.
The company is organized around three business groups:
Test and measurement. This group provides products and solutions used
in the design, development, manufacturing, installation, deployment and
operation of electronic equipment/systems and communication network/
services. Solutions include test and measurement instruments; automated test
systems and equipment; communications network monitoring; management
optimization tools and software design tools with associate services.
Semiconductor products. This sector includes semiconductor
components, modules and assemblies for high-performance communications
systems, and products for the networking of personal systems.
Life sciences and chemical analysis. This group includes instruments,
software, consumables and services. These identify, quantify, and analyse
physical and biological properties of product substances.
Upon becoming independent in 1999, the new company reached US$8.3
billion in revenues with a headcount of 40,000 people serving customers in
more than 110 countries. More than 50 per cent of these revenues were
generated outside the United States.
Innovation in technology
The company which became Agilent Technologies in 1999 began in 1938 with
the creation of the Hewlett-Packard Company by William (Bill) Hewlett and
David (Dave) Packard following their graduation in electrical engineering
from Stanford University, California.
They sold their first product, an audio oscillator, to Walt Disney, for use
in the production of the movie Fantasia. The company grew steadily during
the 1940s and 1950s around electronic test and measurement products. During
the 1960s, it entered new fields in medical instrumentation and chemical
analysis. It also introduced the first programmable scientific desktop
calculator designed as a controller for the test and measurement instrument.
This innovation was followed by a series of computers for business
applications at the turn of the 1980s. By 2002 HP held 17,000 patents world-
wide, the majority of them in the name of their employees. As box 4 shows,
Agilent Technologies has continued to work by the same values as its parent
company.
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Box 4 Agilent Technologies values and corporate objectives
Innovation and contribution
• Invent and discover technology that creates new fields of interest, new markets
and new businesses.
• Seek great ideas from anywhere and reward sharing, adopting and applying them
to solutions everywhere.
Trust, respect and teamwork
• Believe that people want to do a good job and will if given proper tools and support.
• Create an inclusive work environment that fosters respect for individuals, their
ideas and contributions.
• Realize the full power of our diverse and global teams, working without
boundaries to fulfil the expectations of our constituents.
Uncompromising integrity
• Adhere to the highest standards of business ethics and acknowledge anything
less as unacceptable.
Corporate objectives
The human resource philosophy known as the “HP way” was formalized in 1957 when
HP’s management formulated the company’s corporate objectives. The new
philosophies, radically different from the top-down management style then in vogue,
were the first steps towards management by objectives, which has prevailed within the
company ever since.
Profit. To achieve sufficient profit to finance our company growth and to provide the
resources we need to achieve our other corporate objectives.
Customers. To provide products and services of the highest quality and the greatest
possible value to our customers, thereby gaining and holding their respect.
Fields of interest. To participate in those fields of interest that build upon our
technologies, competencies and customer interests, that offer opportunities for
continued growth, and that enable us to make a needed and profitable contribution.
Growth. To let our growth be limited only by our profits and our ability to develop and
produce innovative products that satisfy real customer needs.
Our people. To help our people share in the company’s success which they make
possible; to provide them with employment security based upon performance; to
create with them an injury-free, pleasant and inclusive work environment that values
/cont’d.
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their diversity and recognizes individual contributions, and to help them gain a sense
of satisfaction and accomplishment from their work.
Management. To foster initiative and creativity by allowing the individual great freedom
of action in attaining well-defined objectives.
Citizenship. To honour our obligations to society by being an economic,intellectual and
social asset to each nation and each community in which we operate.
Mission/vision
The mission or vision of Agilent Technologies is to save lives and help people
communicate, and to revolutionize the way people live and work through technology.
“We make tools for the people who make dreams real.” This mission drives certain
behaviours at Agilent Technologies.
Focus
• Prioritize and simplify; decide what is really important and say “no” to the rest.
• Set the few high-impact customer-centred objectives and align the organization
to reach them.
• Focus with a passion on anticipating and satisfying customers’ needs.
• Focus our investments on the right opportunities for maximum growth impact.
Speed
• Capitalize on change with an intense sense of urgency.
• Move quickly and adapt as conditions warrant; be agile.
• Act decisively, stamping out bureaucracy and the wasted energy that comes
with it.
Accountability
• Make straightforward commitments, then do what we say.
• Manage by ambitious but realistic performance objectives; reward those who
meet them and prize those who exceed them.
• Address poor performance directly and specifically.
These key principles inspire the business strategy, and the objective setting.
Performance is determined both by the level of achievement and by the way those
goals have been reached.
Source: Danthony, 2003.
Box 4 Agilent Technologies values and corporate objectives /cont’d.
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Innovation in human resources
Hewlett Packard was the first company to implement a profit-sharing scheme.
It began in the 1940s when the company granted a Christmas bonus, which
later became a production bonus and eventually a profit-sharing plan.
Another important management decision was made at the same time. The
company adopted a pay-as-you-go method of financing growth, deciding for
the sake of employment stability not to take on large contracts that could lead
to a “hire and fire” operation.
The following letter from Bill Hewlett to all employees is self-explanatory:
During the early part of this year, it became evident that our ability to
produce exceeded our incoming order rate. With the hope that the condition
was temporary, we delayed taking any action at that time and allowed a
substantial increase in inventory and reduction of backlog to occur. By July it
became clear that there were no prospects for an increase in the order rate and
that it was obviously necessary to bring production more into line with the
current order rate. In general, this gap represented about 10% of production.
The alternative courses of action were to either have a 10% lay off or to work
out some method whereby the work reduction could be shared on a more
equitable basis among all employees. The latter course of action seemed far
more in keeping with our company’s tradition and it represented a much more
understanding way to resolve what appeared to be a relatively temporary
problem. It was for these reasons that the plan of taking every other Friday
off without pay was instituted.
This is to express my appreciation to all of you who so willingly shared this
work reduction program so that one in ten of your fellow employees might
continue to work rather than enter the job market during a period of high
unemployment . . . (Bill Hewlett, internal communication).
In 1967 Hewlett-Packard was the first American company to institute
flexible working hours. The programme allowed employees to arrive any time
within a three-hour window as long as they worked a standard number of
hours. This programme was initiated at the Boeblingen manufacturing facility
in Germany and spread rapidly across the company.
In the words of Dave Packard:
To my mind, flextime is the essence of respect for and trust in people. It says
that we both appreciate that our people have busy personal lives and that we
trust them to devise with their supervisors and work groups a schedule
that is personally convenient, yet fair to others (Dave Packard, internal
communication).
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Working time models and Time Accounts
In 1995 further innovation took place in Germany when it became
apparent that working times in the metal industry were to be reduced below
the weekly standard of 40 hours. There was a clear perception that time was
highly valued and that it was necessary to move a step beyond flexible working
hours. New legal obligations could be turned from a constraint into a highly
appreciated benefit. A breakthrough was needed in employment conditions if
HP wished to remain an employer of choice
A design team was put together including human resource specialists,
workers’ council members and line managers.
The company continued to work 40 hours when working hours were
reduced. Employees accrue two hours per week and can then move these
hours into a “Time Account” or receive the equivalent in cash. This Time
Account can be used to:
• shorten the work-week
• extend vacation
• compensate for loss of income in the case of part-time work
• finance education
• allow for sabbatical leave or a leave of absence
• facilitate early retirement
In cases of overtime, employees have the option of receiving cash or
moving the hours worked into their Time Account. Whichever they choose,
the overtime premium is still paid in cash. Employees who find them-
selves in financial difficulties owing to illness, accident, death of a spouse, or
other similar problems can choose to have some of the accrued time paid
in cash.
The Time Account may be used when the company declares short-term
closure on “bridge days” or during the Christmas holiday season. Employees
who have used up all their Time Account may receive a “time advance”.
Terminated employees receive their unused Time Account in cash upon
leaving the company. In case of retirement or involuntary termination,
employees remain on the payroll until the Time Account is exhausted.
An employee who has not used any Time Account hours over a ten-year
period is deemed to have accrued the equivalent of six months salary.
A new scheme has been added recently which allows people to reduce
their salary by 20 per cent while continuing to work full time. The salary
reduction allows them to increase the accrual in their Time Account by eight
hours per week. This scheme is highly appreciated by people who wish to
accelerate their early retirement or engage in higher education.
Pension plans and risk coverage
A supplementary pension scheme created in 1984 consists of a basic
pension plan and a coverage of risk entirely subsidized by the company. This
is in addition to state social security. The contributions amount to 1.5 per
cent of basic salary up to the social security ceiling and 4.5 per cent of the
portion exceeding that ceiling.
In addition, employees may invest the whole or part of their vacation,
Christmas bonus (1.2 months’ salary) and their profit-sharing scheme. These
additional contributions are matched one-third by the company, and are not
subject to social contributions or income tax.
Contributions can be used to increase retirement pensions (disability
pension as well as survivor benefits); it is entirely the employee’s choice.
The pension is payable in full at the age of 62 but employees have the
option to retire from the age of 50 with a 6 per cent reduction per year before
the age of 62. The payment rate is 88 per cent at 60, 58 per cent at 55 and 28
per cent at 50 years of age.
Flexible benefits across Europe
Although flexible benefits were first developed in Germany, most
European countries have adopted a similar approach in terms of Time
Accounts, additional pension plans or flexible benefits in general.
The need for flexibility
When the decision was made in 1999 to spin off Agilent Technologies
from Hewlett Packard, its revenues amounted to US$8.3 billion with a
headcount of around 40,000 people. Revenues increased by 30 per cent in the
year 2000 and reached US$10.8 billion. Business forecasting was extremely
difficult during the years 2000 and 2001. However, people-management
practices were inspired and guided by Agilent Technologies values and
corporate objectives (see box 4). With the business downturn, revenues
declined by 22 per cent in 2001 and 27 per cent the following year to reach
US$6 billion with a headcount of 37,000 employees. The following steps
were taken in order to drastically reduce fixed expenses:
• Every unnecessary expense was eliminated, especially travel not directly
related to customer visits.
• Overtime was controlled and temporary contracts were not renewed.
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• Variable pay based upon overall company results went to zero for all
staff.
• External hiring was strictly controlled and limited to those positions
essential to the organization and the skill sets that were not available
within the company.
• Salary increases were cancelled.
• A 10 per cent voluntary pay reduction was accepted by around 90 per
cent of European employees. This lasted for a year.
Employees were encouraged to take vacation during summer and
entities were closed during holidays at the end of the year. Some non-core
activities were outsourced. The organization of many businesses and central
functions was rethought.
Unfortunately, the lack of business recovery forced Agilent to reduce
its headcount by 8,000 people. This was accomplished both on a voluntary
basis including early retirement and through involuntary termination.
Another 2,500 people were asked to leave in 2002.
The need for stability
Downsizing any organization is a most difficult challenge; especially for
a company with employment security values and no history of lay-offs.
With the pay reduction programme implementation, employees were
hopeful that their sacrifice would save jobs. Unfortunately, the business
situation left no alternative; jobs had to be cut.
When the announcement to close activities during the holiday season
was made, Time Accounts could be used to preserve the annual vacation
allotment. Likewise, Time Accounts could be depleted during the pay
reduction period. The programme design prevented any impact on expense
levels.
People whose jobs were eliminated were able to extend their notice
period by the amount of credit in their Time Account, hence having more
time to identify a job while remaining on the payroll. Furthermore, early
retirement was made easier for those long-term employees who had
accumulated significant time credit and contributed to the supplemental
pension plan. A large number of people were able to retire from the age of
55 without significant loss of pension.
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Case 3. Carrefour, France
3
Carrefour, specializing in hypermarkets and supermarkets, was created in 1959
by the Fournier and Defforey families and opened their first store in 1960 in
Annecy, Haute-Savoie in France. In 1963 Carrefour launched the hypermarché
concept with a 2,500m2 store with 12 checkouts and 400 parking places.
Carrefour has over 140,000 employees in France alone and close to
400,000 worldwide. The company is also involved in financial services,
insurance, vacation packages, ticket sales and so on. Though most business
comes from France, Carrefour also has a strong presence throughout Europe,
Asia and the Americas. The company has over 86 billion euros in consolidated
sales (including VAT) and over 31 billion euros in market capitalization.
The principles of the company, which are today called the Carrefour
Commitments, are presented in box 5.
In 1999, Carrefour announced that it would be merging with Promodes,
making it the largest distributor in Europe and the second largest globally. The
strategic platforms that Carrefour focused on were a single brand for a single
format, one offer for one brand, the merging of the buying function and
synergies from the common back office operations.
During this restructuring, Carrefour’s goal was to not lose one cent, one
client or one employee. A key element of this was the creation of a task force
with the participation of employees’ representatives. Carrefour worked
intensively with this task force to agree upon a method to facilitate the
functional and geographical mobility of affected employees, as well as the
communication platform and the means for communicating. It developed the
field of negotiation and a time line for all this to take effect.
The restructuring programme included the formation of a Liaison Group
that was charged with evaluating the specific and temporary conditions; a plan
to help the mobility of employees including first priority given to internal
Key tools utilized
Counselling ? Skills assessment ? Training/employability ?
Internal job search ? External job search ? SME creation
Mobility ? Early/partial retirement Alternative work schedules
Severance package
3
Source: Delenne, 2003.
candidates; a personalized plan for all affected; a work-exchange programme
(bourse de l’emploi); an eight-month time period to find a place within the
organization; a miniguide on geographic mobility; a skill centre (espace
compétence); and outplacement measures that involved training, refresher IT
courses and the guarantee not to terminate an employee’s current work
contract until after the trial period of a new job outside the company.
The main objectives of the skill centre were to manage geographic and
functional mobility so as to be able to keep within the group talented
employees affected by the restructuring measures; to allow employees to take
stock of their skills and aspirations, become aware of and evaluate their
personal potential and define their career path; and to give employees the best
possible visibility in terms of internal opportunities.
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Box 5 The Carrefour Commitments
Respecting the environment
Carrefour is continuously developing more environmentally sensitive products by
focusing on the reduction of packaging weight, recyclability and the elimination of
potentially environmentally-harmful elements in their brands. Additionally, the company
tries to buy locally in an effort to decrease the length of the supply chain, minimizing
environmental impact.
The company is committed to reducing the impact of its stores’ activities by operating
a waste management programme. A water and energy consumption reduction policy
was enacted in 1994.
Guaranteeing food safety
Carrefour ensures the highest level of food safety by ensuring product traceability and
product bacteriological quality and offering an alternative to GMOs (genetically
modified organisms).
Playing an active ethical and social role
Carrefour guarantees satisfactory working conditions for teams and encourages
internal promotion. The company strives to develop durable and equitable
relationships with SME suppliers and guarantees appropriate working conditions for
the supplier’s workforce.
Fostering solidarity around the world
Carrefour considers itself a socially responsible partner to the community and
encourages education, healthcare, the fight against exclusion, human rights and
emergency disaster relief through various company programmes and partnerships with
charitable organizations.
Source: Delenne, 2003.
The tools used to accomplish these goals included a personal interview
and plan of action, access to the work exchange (bourse de l’emploi), seminars
on how to succeed in the internal job search (interviewing, defining skills,
career highlights and so forth) as well as career charting advice. This
information was communicated via a newsletter.
The bourse de l’emploi was originally created by Promodes in 1994, but
integrated into the Carrefour group in 2000 via the company intranet. This
exchange posted national- and regional-level jobs in real time and each week a
paper copy of postings was sent out. Offers were listed by post, level,
professional group and location. If an employee took advantage of one of
these jobs, the company guaranteed their work contract would not be
terminated for professional reasons and that the employee would keep all
social benefits even if the position did not work out in the adaptation period.
Through this restructuring programme Carrefour posted over 800 jobs in
2001 and 2002. Forty per cent of employees affected stayed within the group,
while about 60 per cent found employment externally. The programme,
though not perfect, was considered a success, with employees approving of the
measures taken and no battle with the unions.
Case 4. Volkswagen, Germany
4
In 1993 Volkswagen (VW) faced a dilemma: either fire 30 per cent of its
workforce – that is, 30,000 out of 103,000 employees – or lose competitive-
ness and market share. Through concerted efforts and cooperation between
employees, management and unions, VW adopted a downsizing approach
that protected employment in exchange for workers’ agreement to reduce
working time by 20 per cent by working only a four-day week. In fact, 10,000
workers accepted early retirement packages while the remaining 20,000
stayed with the company. VW devised a pay system that permitted workers
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Key tools utilized
Counselling ? Skills assessment Training/employability ?
Internal job search ? External job search SME creation ?
Mobility Early/partial retirement ? Alternative work schedules ?
Severance package
4
Source: Starcher, 1999.
to have the same monthly salary as before while forgoing bonuses. This
solution was implemented at the beginning of 1994. It was made possible by
a number of systemic changes that ensured mutual benefits for the company
and the workers. A change in vision, mission and strategy underlying work
processes was implemented as part of VW’s downsizing effort. Six ways of
continuously developing employment were found for manufacturing
locations in Germany:
• insourcing through integration or setting up new manufacturing capacity
• growth by extending the product range into niche markets
• increasing sales of components and units that are in high demand and
reinvesting profits to extend existing technological leads
• using every opportunity to expand business volume by developing VW
into a “company that breathes”
• enhancing the competitiveness of in-company expertise and services and
developing new strategic businesses
• creating VW works councils
The following elements summarize the major paradigm shift represented
by the experience of VW.
1. Create partnerships: a common determination to act for the good of the
employees and the company (collective bargaining with unions and
workers).
2. Trade performance for security: employees need to perform in order to
have job security.
3. Train for employability: workers are allowed to take time off (up to six
months at a time) for training on full salary, to improve skills, health and
managerial levels; coaching is also available.
4. Encourage entrepreneurship in all employees in “everything they do”.
5. Consider the workforce as a competitive advantage: four dimensions define
the new VW typology: multi-skilled, flexible, creative and people-oriented.
6. Introduce teamwork: employees and moderators held 14,000 workshops
between 1993 and 1998. Since the programme was launched, some 86,000
measures to improve performance and quality in products and working
conditions have been defined by teams, and about 64,000 have been
implemented.
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7. Promote women workers: since the 1980s VW’s policy has been to
increase women’s participation in its technical workforce (now over 15
per cent), in its international training programmes (now 30 per cent) and
in senior management positions (up from the current 3 per cent level).
8. Offer flexible time, including leave of absence and other variable forms
of employment.
9. Encourage participation in international training and transfers within the
global organization.
10. Create a centre to help current and retired employees take part in social
projects.
11. Promote new values and new relationships within the company, and
changing patterns of commitment (including pride, trust, scope for
involvement and joint decision making).
12. Draw up a new corporate manifesto for everyone in the company.
The strategy employed by VW clearly illustrates a socially responsible
approach to downsizing to avoid retrenchment – with an optimal outcome.
The company has succeeded in minimizing the social impact while improving
its competitiveness for the global market – an experience to learn from.
Case 5. ZEIM Group, Russian Federation
5
ZEIM Group is one of a few survivors of the Russian instrument-building
industry. With the economic transformation and the break-up of the Soviet
Union, together with the general economic slowdown in the region, the
limited product specialization of the company at that time resulted in loss of
Key tools utilized
Counselling Skills assessment Training/employability ?
Internal job search External job search ? SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package ?
5
Source: Louzine, 2001.
its traditional clients and markets. To survive, the company had to radically
restructure, choosing to pursue two strategic objectives: diversification of the
product lines and improvement of productivity. To this end, at the beginning
of the 1990s the company was one of the first in the Russian Federation to
start dismantling its old vertically integrated production structure. Through
judicious spin-offs and business development, the company is now converted
into a flexible semi-horizontal business system including 37 semi- and fully
independent successful business units.
A distinctive feature of ZEIM restructuring was the fact that it was
conducted in a socially responsible manner. Some of the features of the
restructuring process were:
1. Early in the restructuring process, the minimization of negative impact
to the employees and their families was made a major concern. The
diversification strategy and the building of networks of autonomous/
independent businesses through spin-offs reflected this concern.
2. The employees were consulted and involved in the restructuring process
with management working closely with the enterprise’s trade union.
3. As with the traditional Soviet enterprises, the company was providing
social services to its employees, their families and the community. The
company was very careful with respect to the cutting down of these
social services (e.g. health and medical care, education, housing, heating)
during the restructuring process.
4. The restructuring from a fully vertically integrated production structure
into a network of independent business units was done gradually, allowing
the units to be spun off with sufficient time to develop competencies and
decide how the spin-off would be done. (For example, after consultation
and deliberation, the employees of the welding unit decided to buy out the
unit themselves and spin it off as an independent company. This business
is now one of the most successful welding equipment manufacturers in
the Russian Federation.) Even after the spin-off, the mother company
maintained constant dialogue and provided business support to the
“offspring” companies.
5. The company invested heavily in training and reskilling managers and
workers. Based on the philosophy that each production centre must be a
business unit, the managers and workers were trained in business
management, entrepreneurship and business development.
6. For employees who would be displaced and separated from the company,
ZEIM, with the methodological support of the ILO, set up a so-called
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“Personnel Service Centre”. The main task of the Centre was to assist
individuals or groups of displaced workers to find new employment or to
start private businesses, making use of the facilities and credits provided
by the mother company.
The main visible result was that the company managed to completely
avoid major lay-offs. As a result, the total number of employees remained the
same and has recently started to grow. The ZEIM experience of socially
responsible restructuring has become familiar to many enterprises within the
former Soviet Union and beyond due to the successful elements of its strategy,
which included a video film, benchmark packages, publications, and seminars
prepared and conducted by the company management with ILO support.
Case 6. Michelin United Kingdom
6
During the year 2000 the tyre market became severely depressed because of a
decreasing trend in original equipment (i.e. sales to the car and truck
manufacturers for new vehicles), replacement market (i.e. sales to the dealers’
network), and export. This decreasing tyre market trend was expected to
continue, not only in the United Kingdom but in the world market as well.
Michelin therefore faced a real prospect of excess production capacity in its
global operations starting in 2002.
To adapt industrial capacity to market demand, the decision to close two
industrial plants (Burnley and Stoke-on-Trent) was taken early in 2001. These
closures would involve 1,716 employees. To assist these employees, Michelin
United Kingdom (UK) created a “Jobshop” whose main functions were to
assist affected employees in their job search, in acquiring new vocational skills,
and by providing advice on various options such as transfers, early retirement,
self-employment and management of personal finances.
Key tools utilized
Counselling ? Skills assessment ? Training/employability ?
Internal job search External job search ? SME creation ?
Mobility Early/partial retirement ? Alternative work schedules
Severance package ?
6
Source: Ozoux, 2003.
The Jobshop conducted individual interviews of all affected employees.
Individual training was provided in effective job search, for instance in writing
an appropriate résumé (CV), filling job application documents, answering job
advertisements, and practising job research techniques (telephone, interviews
and so on.). The Jobshop maintained permanent contact with the national
employment agencies. Two representatives of the agencies were on the factory
site five days a week, directly connected to their database. The Jobshop also
contacted other companies for possible placements.
In addition to this assistance, Michelin UK provided redundancy premiums
which were five times the basic national norms, and help in SME creation with
special loans at attractive rates and without coverage. The results, measured in
April 2003, were encouraging. Out of the 1,716 affected, employees:
• found employment (66%)
• retired (12%)
• accepted an internal transfer (11%)
• chose self-employment (6%)
• took full-time education or training (2%)
• claimed state assistance (0.4%)
• were still unemployed (2%)
Case 7. Floreal Knitwear, Mauritius
7
Floreal Knitwear Ltd, operating in Mauritius since 1971, is a company of the
CIEL Group specialized in knitwear. CIEL Group is a vertically integrated group
with specialized business units for weaving, dyeing, spinning, knitting, clothing
production and retail. The group has a production capacity of 35 million units
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Key tools utilized
Counselling Skills assessment ? Training/employability ?
Internal job search External job search SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package
7
Source: ILO research.
per year, 30 production plants in Mauritius and Madagascar, and employs 20,000
workers of which 15,000 are in Mauritius and 5,000 are in Madagascar. The
consolidated turnover is about US$150 million and the group has permanent
marketing offices in Paris, London, New York and Hong Kong, China.
Floreal Knitwear is the premier knitwear manufacturer in the African
sub-Saharan region and the second largest Woolmark knitwear supplier in the
world after Benetton. Floreal offers men’s, women’s and children’s wear in
different styles over various knitting gauges and has acquired a worldwide
reputation for producing machine-washable and dryable garments.
Floreal’s in-house design team develops seasonal collections for
customers and has a tailor-made design service working directly with clients’
designers. The company’s main customers include La Redoute, Marks and
Spencer, Célio and Next and it also ships merchandise to Argentina, Australia,
Canada, Chile and Japan. Floreal Knitwear operates 12 production units in
Mauritius and one in Madagascar with a turnover of US$61 million.
The Asian crisis in 1997 had a significant impact on Floreal. In April 2000
several factors continued to impact on the industry, and specifically Floreal.
Among these were the decrease in the price of sweaters in the United States and
Europe (10 per cent in three years); the appreciation of the Mauritian rupee vis-
à-vis the euro by 20 per cent in five months, the increase in labour costs by 27
per cent in the garment sector, and the increase in production overhead by 31
per cent per piece between June 1997 and April 2000. The cumulative effect of
all these factors was to drive the profit of Rs. 43 million (€1.4 million) in June
1997 down to a loss of Rs. 175 million (€5.8 million) in July 2000.
Under such circumstances, Floreal was forced to completely re-engineer
its activities in order to drastically improve productivity. This re-engineering
effort implied :
• reviewing structures and systems in all departments
• looking carefully at all non-value-added jobs
• outsourcing certain tasks
• identifying poor performers
When all other restructuring options had been exhausted, Floreal
Knitwear was forced to reduce the workforce from 6,150 to 5,500. The
company established a redundancy plan that affected approximately 11 per
cent of the labour force.
In the preparation stage of the plan, all heads of departments and managers
were apprised of the situation and came up with a weighted rating method to
evaluate the employees. The criteria were weighted according to the nature of the
job; all employees were evaluated on the basis of performance, years of service,
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disciplinary records and attitude at work. The rating for each employee was
conducted by a panel of at least three managers in an effort to reduce bias as much
as possible. The final rating of each employee, as well as the list of all redundant
employees, was computed and validated by the head of department/managers.
In April 2000 union representatives were informed about the need for a
downsizing effort. In the same month the Ministry of Labour and Industrial
Relations was officially informed in writing. The Industrial and Vocational
Training Board (IVTB) and the Mauritius Employers Federation (MEF) were
contacted for a reskilling and reorientation programme. The Union was
officially informed about the exact number and names of workers affected
during meetings on 30 May and 1 June. A briefing was set up for managers and
assistants to guide them on how to proceed, what to say, how to react and how
to explain the details of the severance package and the training programme.
In an effort to not lose employees with good potential, the company
found other areas of redeployment within the company. Additionally, early
retirement options were also given to those who were eligible.
On 2 June, 376 employees in 20 different units were laid off.
Floreal and the IVTB jointly financed the training programme at a cost
of €22,000 and all employees were invited to benefit from further training.
Human Resources also created a direct hot-line service in order to be able to
answer any questions. Over 130 people expressed interest in improving their
skills in the areas of hotel business and management, entrepreneurship, IT and
maintenance. To date, over 90 people have completed the courses and,
interestingly, some employees asked to transfer their opportunity to one of
their children, to which the company agreed.
The company’s motto in the process of restructuring was:
“COMMUNICATE, COMMUNICATE and COMMUNICATE.” Commun-
ication activities included the following:
• On 2 June, early in the morning, all the employees received a letter to
explain the situation and what was going to take place that day.
• Those laid off were told orally and in writing why they had been chosen.
• All managers and assistant managers had been briefed several times.
• The company hired an expert in communication to deal with the media.
• Those laid off had the opportunity of meeting representatives from HR
afterwards.
• A hot-line service was available to answer queries after the redundancy.
• A meeting with all employees who were retained was organized after the
event. All these employees were reassured by management.
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The restructuring process received positive feedback, especially on issues
such as children of employees being able to take advantage of the training
programme (which was much appreciated), the usefulness of the hotline, the
spirit of organizational commitment and understanding, the strong team spirit
that developed among managers, the smooth unfolding of the process due to
planning and organization and, finally, the absence of violence.
At the same time, some room for improvement still exists. For example,
after the event it was recognized that the process had been carried out in such
a way that the employees affected were taken by surprise, and that this had
increased the level of stress for all those involved.
Floreal had to go through further restructuring in 2004, and has learned
from its experiences. It feels that the lessons learned may be useful to other
companies going through similar situations:
• Remember: downsizing is an extremely painful experience! Do your best
to avoid it.
• Continually review your organization.
• Focus on being lean.
• Plan human resources properly.
• Encourage voluntary retirement against compensation.
• Regularly remove inefficient employees.
• Put emphasis on continuous improvement in all spheres.
Case 8. Dunaferr, Hungary
8
Key tools utilized
Counselling Skills assessment ? Training/employability ?
Internal job search ? External job search SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package
8
Source: Keszi, 2003.
The building of Dunai Vasmu, the legal predecessor of the Hungarian company
group, began in 1950, and in 1983 the company name was changed to Dunaferr.
Today Dunaferr has consolidated sales revenues of over HUF152 billion and its
headquarters in Dunaújváros is a major player in the Hungarian steel industry.
Metallurgy, steel processing and steel commerce are the company’s main focus;
however, they are supplemented by additional branches of business (energy
supply, maintenance, logistics, mechanical engineering, production of structural
elements, industrial contracting and others). In 2001 domestic sales of its main
products was 649 kilotons, with export sales of 884 kilotons.
Dunaferr thus has a significant export market as well as a major domestic
role in the distribution of its main products. Over 70 per cent of the company’s
export turnover is realized in the EU member countries, especially Germany
and Italy. The company is an associated member of the European Iron and Steel
Industrial Association (EUROFER) and has a wide range of professional
relations such as with the European Iron and Steel Institute (IISI).
Current issues facing Dunaferr include the admission of Hungary into the
EU, which requires an adaptation of the Hungarian economy and steel industry
in addition to integration into European commercial practice. Dunaferr had
already become an active participant in European steel commerce in previous
years. However, unfavourable changes in market processes, the significant
decrease in market prices, the steel industrial overproduction emerging in the
world, the dumping procedure of EUROFER and the inadequate technical
condition of the coking plant all contributed to the company closing its
accounts with a loss in 2001.
Dunaújváros and the region around the city are highly influenced by the
economic activity, productivity and employment policy of the company and
its role in public life in every respect as one of the area’s main employers. One
of the company’s main strategic goals is to regard labour as capital and
effectively manage human resources. The overall health, mental and physical
state of the company’s employees are critical to the company. Lifelong
employability is an important aspect of its employment policy and can prove
instrumental during restructuring efforts.
In 1994 Dunaferr created the Dunaferr Steel Foundation “for
Employment”, the main goal of which is to support employees who have been
made redundant for economic or industrial structural reasons. Key reasons
why Dunaferr needed to reduce the headcount included a dramatic decrease in
the role of state paternalism, the transformation of a formerly “socialist”
company, technological advancements and rapid fluctuations in the steel and
iron industry.
The main objective of the programme is to reduce the time between jobs.
The programme accomplishes this through an analysis of the employee’s
Restructuring for corporate success
86
skills; advice to the employee about possible opportunities; educational and
training programmes to help improve the employee’s employability; and
advice on starting an entrepreneurial effort. The service will attempt an
internal job search and pending the employee’s decision will then place him or
her within the company with training services, or provide compensation for
dismissal. Figure 5 presents the finer points of the system.
The results of this programme are for the most part positive, with 66 per
cent of employees finding a new job, 4 per cent starting an SME and 6 per cent
having another job offered.
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Employer’s decision: lay-off Staff
Workforce Coordination Office:
attempt at internal job search
New job within
the company
Compensation
for dismissal
Leaving the company
Employee’s decision
Yes
Cease employment
in the former branch
Agreement between the employee
and the steel foundation
Training and development New job in the company
Individual advice to the employee
about possibilities
No
Figure 5 The system of lay-offs at Dunaferr
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Case 9. Svenska Posten, Sweden
9
Svenska Posten has been delivering letters, parcels and packages to the people
of Sweden for over 367 years, and serves over four million homes and 500,000
businesses every day.
Over 40,000 employees and 2.5 billion euros in sales make Svenska
Posten one of the largest companies in Sweden. Svenska Posten’s service
record of 95 per cent of deliveries on time puts it in the top tier of postal
companies worldwide. The company is well thought of by the public, as the
expression “safe as a letter at Posten” clearly exemplifies.
Owned by the Swedish State, Svenska Posten has a clearly defined vision:
“To be the natural choice for customers wanting to distribute messages and
merchandise to, from and within the Nordic and Baltic regions”
(www.posten.se).
Several industry trends have impacted Svenska Posten since the
breakdown of the postal monopoly in 1993, including increased competition
and technology. These factors have forced the company to evaluate critical
elements to success such as the cost-efficiency of its operations. Shifts in
information technology as well as customer behaviour made Posten realize
that to stay a leader in the industry, especially since joining the EU, changes
needed to be made. Though the traffic of parcels and freight would continue,
the company realized that for many communications the standard letter
service was being replaced by electronic methods.
In light of these changing circumstances, Svenska Posten was given a
mission by the Swedish State:
• to guarantee the provision of letter, parcel and cashier services
throughout Sweden, and
• to grow the value of the owner’s shareholding.
Key tools utilized
Counselling ? Skills assessment ? Training/employability ?
Internal job search External job search ? SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package ?
9
Source: von Schedvin, 2003.
By concentrating on its core business, Svenska Posten planned to become
an up-to-date messaging and logistics company. It would enhance the value of
its services by integrating the relevance of hard-copy mail with the ease of
electronic services for customers. It would serve as a means of connecting
people promptly, reliably and cost-effectively.
One means of bringing this idea to fruition was the development of
postal services in non-traditional venues such as convenience stores, gas
stations and supermarkets, increasing the number of points of service and the
business hours, and thus making it easier for customers to use the services.
This was accompanied by a marketing campaign in which Posten’s image was
upgraded via signs, collection boxes, mail trucks and other visual images.
The evolution intended was a shift of the established brand. No longer
would Posten be thought of as a company that provides postal services but
instead, a company offering a wide range of communication services, both
physical and electronically. The exploration of international alliances would
help increase Posten’s visibility as an international player.
Through these changes, and most specifically the decision to abandon the
financial business of the post offices, Svenska Posten found itself in a position
where the headcount was significantly higher than what was needed to do the
job cost-effectively. A difficult decision to reduce the headcount was taken in
2000, and through negotiations with the trade unions a programme to aid
redundant workers was created. The trade unions had been pushing for just
such a programme and therefore considered it “their baby too”, resulting in
their full support.
Svenska Posten Futurum – an opportunity for new development
The key objective of the Futurum programme was to provide an outplacement
solution that would guard the socially sensitive reputation that Posten had
earned, while allowing the company to focus on core business with the ability
to adapt quickly.
The goals set for the programme were aggressive, including an 18-month
time frame in which 100 per cent of participants would have found a new job.
Within 10 months 70 per cent would have a new job and all participants should
have a positive picture of Svenska Posten as a responsible employer that
provides professional support.
Futurum became the tool provided by Posten to redundant employees
that would act as an advocate locally to facilitate their job search and allow
them to secure different employment. The programme offered redundant
employees security through a guarantee to retain their pay and conditions as
before, for up to 18 months, while being fully released from the workplace to
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search for another job. The company provided an additional financial incentive
to motivate employees to search actively by offering a bonus of SEK50,000 to
anyone who found an external job within four months.
In a series of consultations employees who were at risk of becoming
redundant were given information as to what their options were. For employees
whose contracts were terminated, a contract with Futurum was offered.
During an employee’s time with Futurum, he or she was given several
tools to aid in the job search. Each employee had an individual action plan, and
received a survey of personal competences, advice, individual coaching and
skills training where needed. For those who were interested, Futurum also
provided support for entrepreneurial efforts via a consultant who helped to
evaluate their business plan.
To date, there have been over 2,600 participants in the programme, 1,750
of whom have found new jobs or started their own business. Ninety per cent
found solutions within the 18-month proposed time period and 98 per cent
have responded that they were satisfied with the support from Futurum.
Key learning regarding the success factors of the Futurum programme
includes the following points:
• realizing the need for active engagement from participants from the start;
• full engagement by the coaches;
• focusing on tailor-made plans, not a one-size-fits-all solution;
• the voluntary nature of the programme;
• being honest with and respectful towards all the participants.
Case 10. Vauxhall Motors Ltd, United Kingdom
10
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90
Key tools utilized
Counselling ? Skills assessment ? Training/employability ?
Internal job search ? External job search SME creation
Mobility ? Early/partial retirement Alternative work schedules
Severance package
10
BSI Management Systems, United Kingdom.
Vauxhall Motors Limited, founded in 1857 by Scottish engineer Alexander
Wilson under the name Alexander Wilson and Co, was first known for the
manufacturing of machinery from pumps to steam-powered marine engines.
Soon after his departure in 1894, the company changed its name to The
Vauxhall Ironworks Company and turned its attention to developing a petrol
engine used to propel a small river launch called the Jabberwock, today
considered the precursor and inspiration for the company’s first car in 1903.
As production grew, additional space was needed and this, tied with
problems with the lease in London, made the move to Luton a reality. In 1907
Vauxhall Motors Ltd was created to focus energy on the further development
of cars. In the years that followed Vauxhall experienced great success,
eventually building up their product range to include racing and family cars. In
1925 General Motors (GM) bought Vauxhall, further cementing the
company’s future.
In the 1960s and 1970s, Vauxhall continued to be an industry leader,
introducing several new models such as the Viscount which was voted “British
Car of the Year” by The Sunday Times in 1966. Despite this growing success,
competition was on the rise and economic factors were pointing towards a
decline. General Motors began an investment plan that would take the better
part of a decade to realize and involved a £100 million production facility
improvement programme, specifically targeting the plants in Luton and
Ellesmere Port. The following decade saw further investment in the Luton
plant with a £136-million modernization plan that included the installation of
several robotic production systems.
In 1996 Vauxhall and General Motors formed a partnership with Renault
and IBC Vehicles. IBC Vehicles is a GM subsidiary located near the Luton
plant. A new, medium-range van was the result of this partnership, creating
over 900 new jobs.
Change is a major factor in the motor industry as models are introduced
and finally withdrawn, and in 2000, in response to GM’s European-wide
restructuring, the decision was taken to stop car production in the Luton plant
by 2002 and transfer some production to the Ellesmere Port plant.
Vauxhall’s employees obviously are of great importance, but even more
so when the future of a plant is suddenly in the balance. There were therefore
keen concerns for some 3,000 jobs at the plant and the impact that would have
on the local community.
As a result, a multi-agency partnership was formed – the Luton Vauxhall
Partnership – to mitigate the effects and to support those employees who were
currently employed at the plant. A wide range of organizations was involved
in this project, representing local, regional and national government, learning
bodies, trade unions and others. Key players were the East of England
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91
Development Agency (EEDA), the Employment Service and Vauxhall.
Although Vauxhall had an ongoing relationship with most if not all of these
organizations, many of them had not worked together before.
Work began immediately on reducing impacts and enhancing the
positive:
Motivation. It was vital that during the run-out period those at the plant
remained focused and motivated to produce the Vectra at volumes and quality
levels necessary to meet customer demand across Europe. Measurements were
made using existing balanced scorecard techniques and reported back to
employees, particularly by means of a weekly update newsletter.
Skills audit. A comprehensive skills audit took place at an early stage,
coordinated by the Employment Service which established an office within the
plant. Stress management and decision-making sessions were arranged.
Amongst other things, these helped identify those wishing to transfer to other
GM operations in the United Kingdom.
Skills accreditation. At the suggestion of the trade union, a programme
of accreditation of existing skills was coordinated by the EEDA and Luton
University. Over 850 registered for assessment.
Training. To enable employees to obtain other secure and quality jobs, a
range of reskilling and training courses were identified and operated through
a number of local colleges and the university. Over 500 participated in
reskilling. Nearly £1.5 million was obtained from a range of sources including
the EU. Fridays were devoted to training, not production.
Job fair. For those remaining at the plant until the end of production, a
job fair was organized in January where some 26 employers were present.
Over 1,000 Vauxhall workers attended and smaller specific events were held
subsequently.
Internal communications. Internal communications at the plant
contributed generally to improvements within Vauxhall. A plant information
news-sheet was published by the plant Director – initially daily and
subsequently weekly.
Environmental management. The Luton plant had achieved ISO 14001
and EMAS in 1996 and took care to maintain both through to plant
decommissioning and after. An environmental impact study was carried out
prior to asset disposal.
Internal job search. Developments at the neighbouring GM plant enabled
1,000 Vauxhall employees to be transferred to IBC Vehicles. A number of
others transferred to Vauxhall’s Ellesmere Port plant.
The Luton Vauxhall Partnership was a very successful partnership that
was quickly formed from a wide range of organizations. It brought together a
Restructuring for corporate success
92
wide range of individual skills and a high degree of communication and
transparency overall, but respecting confidentiality when individuals were
concerned.
Given the rapid change of plans at Luton and the reallocation movement
of many workers, the effects on production could have been very adverse. IBC
Vehicles now had to plan for the introduction of the new Vivaro van, while not
retaining the off-road Frontera. One thousand employees transferred from
Vauxhall to IBC. Without such a workforce of experienced car builders
transferring, IBC would have had a much bigger challenge in the start-up of
the new van. In fact, the successful launch of the Vivaro was crowned with it
being awarded the title International Van of the Year in 2002.
The impact of reducing the Vectra production line could have been much
greater. The reverse was actually the case, and attendance levels and
production quality both remained extremely high until the very end of
production.
Four main factors can be identified as contributing to the success of the
restructuring:
Clear objectives. Obviously very relevant and of high and immediate
priority, these focused on close relationships with the desired aim of
minimizing the impacts of production restructuring for the numerous groups.
Attention to stakeholder needs. The process was very accessible, with the
various organizations working directly within the Vauxhall site. There was also
a high level of receptivity to the need to achieve a positive outcome. The
EEDA was a leading actor in much of the interaction.
Organizational–stakeholder relationships. Vauxhall had worked with
many of the organizations, although they had not all worked with each other.
Interaction and communication had to be free and transparent. A wide range
of skills and expertise was involved.
Issues of dialogue. The issue was not a new one to the industry, but its
nature was often one of confidentiality. Although a wide range of
organizations was directly involved, other important stakeholders such as
customers were not part of the partnership.
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94
Case 11. Cable and Wireless, Barbados
11
The merger of Barbados External Telecommunications (BET) and the
Barbados Telephone Company (BARTEL) into one single brand (Cable and
Wireless) was part of a strategy for dealing with increased competition and
with expected changes in the regulatory and operating environment, and
involved the integration of the management teams of the different entities.
Part of the challenge was the need to reduce costs in order to ensure the sus-
tainability of the company in an environment where the external communications
services effectively subsidized the rates charged for local services. As the United
States and other countries had begun insisting that accounting rates for overseas
services be equalized, the company was less able to charge local customers
premium rates for such services. Conversely, with the removal of the premium on
overseas calls, the domestic service could no longer be subsidized by the overseas
service. The company therefore had to manage its costs in such a manner that
it could operate on the basis of a cost-oriented pricing structure while not
placing domestic services out of the reach of the average customer.
One of the fundamental elements of the strategy to achieve this was the
reduction of the cost of labour, which was the major cost component. In
addition, the company also pursued a total quality management programme as
well as a process re-engineering.
Challenges
The company faced a number of strategic challenges that would significantly
affect its operations, including the following:
• the merger, and as a consequence the integration of the cultures and
operations;
Key tools utilized
Counselling ? Skills assessment Training/employability ?
Internal job search External job search SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package
11
Source: ILO Programme for the Promotion of Labour–Management Cooperation (PROMALCO).
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• the stated intent of the Government to terminate the monopoly enjoyed
by BARTEL, thereby intensifying the competition that the company
faced in the domestic telephony market;
• the more general consideration of competition in the newer markets,
such as mobile telephony and international long-distance services;
• changes in the regulatory environment that included the creation of a
new supervisory authority, as well as the de-monopolization and
liberalization proposals.
Strategic human resource management
The principal challenge for the company in this regard was the management of
the redundancy programme. The cornerstone of this strategy was a voluntary
separation plan. This plan was integrated with a change management approach
and contained a number of features.
A steering team, comprised of representatives from the management, the
Board and the union, and supported by work group teams comprised of staff
members and union representatives in each of the departments, formed the
nucleus of the approach to the management of the programme. In addition, a
number of joint staff meetings were held explaining the rationale for the
strategy and for the selection of candidates for retrenchment or voluntary
separation.
An outsourcing strategy was developed and adopted by the company in
certain operational areas that had previously been performed by some of the
same employees who had volunteered for the separation plan. Outsourcing
opportunities were developed in areas such as transport, wiring and cable
work, messenger services and facility maintenance services.
Volunteers were enrolled in a series of training sessions and seminars in
order to prepare them for leaving the employ of the company and for
establishing and managing their own businesses to which the company could
outsource. Included in the training sessions, some of which were conducted
by an industrial psychologist, were sessions on financial management
and planning, on the management of funds and on setting up and
operating businesses.
Groups of separated employees were provided with critical facilities such
as office space and equipment, computer support and, very importantly, service
contracts in order to kick-start their independent operations.
The remaining workforce was trained in a number of processes to help
deal with the adjustment, and to be able to operate in newly re-engineered
processes that were heavily supported by the automation of operations.
Restructuring for corporate success
96
Company culture
The company also conducted a number of change management sessions in
order to facilitate the creation of a new culture. Some of the cultural issues
arose from the partially public-service orientation of one company, BARTEL,
with a majority of the company’s 1,130 employees, as compared to the older,
more conservative and cash-rich BET that had always been part of the Cable
and Wireless family.
Customer focus. As part of this, the company created a new customer
care centre incorporating operations, customer care and a help desk that
provided customers access to customer service solutions with a single call to
the office.
Social capital. In addition to the change management activities, the
company encouraged and supported intra-company social activities such as
the sports club and family day outings.
Results
The strategy was therefore to reduce employment, restructure operational
processes and facilitate the adjustment to a new culture by which the company
expected to successfully become market driven, customer centred and service
oriented.
The company has acknowledged very satisfactory results from this
approach, even though it is still in the early stages of the process. It is possible
even at this stage to identify a number of positive indicators:
• Since April 2001, some 250 employees or approximately 23 per cent of
the workforce have accepted the voluntary separation plan.
• Several groups have already started service contracts with the company.
• The entire programme was implemented without any industrial action,
disturbance or disruption. There was also no public outcry about the
significant reduction in the workforce.
Case studies on SSER
97
Case 12. South African Breweries
12
South African Breweries (SAB) is a conglomerate of interests in beer,
beverages, hotels and gaming. The company’s shares are listed in the FTSE
100. South African Breweries has subsidiaries in 21 countries and exports to 45
countries. It is one of the top five breweries in the world.
A tight market and increased competitive pressure forced SAB to lay off
workers. While looking for employment alternatives for its retrenched
workers, SAB found a partner in the Food and Allied Workers’ Union
(FAWU). Together with FAWU, SAB attended a workshop organized by the
ILO in 1996 and, in the aftermath, founded the “Noah project”.
The concept of Noah is to develop small, new enterprises for former SAB
workers. Essentially, Noah establishes centres in cities or towns in South
Africa where dismissed SAB workers receive administrative, business and
psychological support. Participation is on a voluntary basis. So far, more than
160 new companies have evolved out of these centres. Moreover, SAB has
recently founded a business incubator, which will nurture 20 businesses. Other
incubators, together with government and labour organizations, have been
established and have already given birth to more than 100 new companies.
Key tools utilized
Counselling ? Skills assessment Training/employability ?
Internal job search External job search SME creation ?
Mobility Early/partial retirement Alternative work schedules
Severance package
12
Source: O’Reilly amd Pfeffer, 2000.
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Case 13. Levi Strauss, United States
13
In the late 1920s, the American clothes manufacturer Levi Strauss established
a tradition of not laying off any worker if possible. In times of weaker demand
workers were, for example, even sent to lay new floors in the plant’s
neighbourhood. A former Levi Strauss CEO said the company’s values and
culture were “the glue that unites” the company.
However, despite a very successful year in 1996, Levi Strauss had to close
11 plants and dismiss 6,400 workers in 1997. What was the company’s
reaction?
• It created a US$200 million severance package.
• It established even closer cooperation with union representatives to
develop the package.
• Laid-off workers received up to three weeks’ severance pay for each year
of service, eight months’ pay from the day of announcement, and career-
counselling services, as well as health-care benefits, and up to US$6,000
for education, job training, and moving expenses.
This positive mutual experience paved the way for the introduction of a
more participatory management style and helped the management to steer the
company through the crisis in a socially sensitive manner.
Key tools utilized
Counselling ? Skills assessment Training/employability ?
Internal job search External job search SME creation
Mobility ? Early/partial retirement Alternative work schedules
Severance package ?
13
Source: O’Reilly amd Pfeffer, 2000.
THE ROLE OF SOCIAL DIALOGUE IN
MITIGATING THE NEGATIVE
EFFECTS OF RESTRUCTURING
4
Managing restructuring in a socially sensitive way has been a key focus for
policy-makers and social actors in the European Union (EU) over the past
decade. Most recently, this issue has been pushed to the forefront of debate
owing to the large number of restructuring exercises witnessed across the EU
over the past few years. The constant drive on the part of organizations to
remain competitive in an increasingly globalized world is resulting in a
continuous stream of mergers, takeovers, plant closures, workforce reduction
exercises and transfers of production from EU Member States to countries
with cheaper production and labour costs.
Recent figures from the European Monitoring Centre on Change
(EMCC, 2004) show that over the first quarter of 2004 (1 January to 31
March), there were 156 cases of companies restructuring in the EU, resulting
in the announcement of 81,129 job losses. The actual number of cases of
restructuring recorded was only slightly higher than the 151 recorded during
the previous quarter. However, the number of jobs threatened increased
substantially from the 67,058 recorded in the fourth quarter of 2003. France
and the United Kingdom appeared to be bearing the brunt of the threatened
job losses: the total number of announced job reductions due to restructuring
was 10.14 per 10,000 people employed in France and 9.39 per 10,000 people
employed in the United Kingdom. On a sectoral basis, the number of planned
job losses and restructuring cases was highest in the transport and
telecommunications sector and the manufacturing sector.
While not questioning the right of organizations to manage their
business in a way that ensures that it remains competitive, debate in the EU
has focused on how to ensure that restructuring has as little negative impact
as possible on an organization’s key stakeholders and surroundings. These are
principally its employees, its subcontractors and suppliers, its shareholders,
the region in which it operates, and the environment.
99
International guidance
Looking specifically at the impact on an organization’s workforce,
restructuring is often synonymous with job losses and a lack of employment
security. One way in which this insecurity can be relieved is to ensure that an
organization’s workforce is involved in the restructuring plans. Ideally, if the
workforce – usually through the channel of employee representatives – is
involved in its organization’s restructuring plans from the outset, and
preferably before a final decision is taken, the negative impact on employment
levels and on the employees themselves can often be at least partially
mitigated. This approach is reflected in a range of international instruments,
including the Organisation for Economic Co-operation and Development’s
Guidelines for multinational enterprises, most recently updated in June 2000
(OECD, 2000). These guidelines are recommendations addressed to
multinationals, providing voluntary principles and standards for responsible
business conduct. Under the heading Employment and industrial relations, the
guidelines state that enterprises should:
. . . in considering changes in their operations which would have major effects upon
the livelihood of their employees, in particular in the case of the closure of an entity
involving collective lay-offs or dismissals, provide reasonable notice of such
changes to representatives of their employees, and, where appropriate, to the
relevant governmental authorities, and co-operate with the employee
representatives and appropriate governmental authorities so as to mitigate to the
maximum extent practicable adverse effects. In light of the specific circumstances
of each case, it would be appropriate if management were able to give such notice
prior to the final decision being taken. Other means may also be employed to
provide meaningful co-operation to mitigate the effects of such decisions.
The International Labour Organization (ILO) itself has been active in
this area for a considerable length of time. Most recently, in February 2002, it
established a World Commission on the Social Dimension of Globalization.
The Commission looked at ways of combining the social, economic and
environmental objectives of globalization and in February 2004 issued a report
containing a range of recommendations. It argued that strong representation
of employers and employees at national level is vital if social dialogue is to be
fruitful. Looking at the impact of globalization on employment, the report
states that there must be a commitment to social dialogue in the formulation
of economic and social policies and to “take the ‘high road’ of business–labour
collaboration to achieve efficiency gains, and to eschew the ‘low road’ of cost-
cutting and downsizing” (World Commission on the Social Dimension of
Globalization, 2004, p. 65).
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The EU legislative framework
There is a substantial body of legislation formulated at European Union
level, aimed at ensuring that employees are informed and consulted about
corporate restructuring plans that are likely to affect them. This legislation
usually takes the form of European Directives, which are drafted and adopted
at EU level and subsequently transposed into the national legislation of all
EU Member States. The body of existing Directives spans three decades,
dealing with the rights of workers to be informed and consulted in the case
of events such as plans to make collective redundancies, plans to transfer
businesses or parts of businesses or any other proposals that may have an
effect on the workforce.
The Directive on collective redundancies
The management of collective redundancies is governed by Council Directive
98/59/EC of 20 July 1998 on the approximation of the laws of the Member
States relating to collective redundancies (this Directive updates Council
Directive 75/129/EEC of 17 February 1975). It defines collective redun-
dancies as follows:
(i) either, over a period of 30 days:
— at least 10 in establishments normally employing more than 20 and less than
100 workers,
— at least 10 %of the number of workers in establishments normally employing
at least 100 but less than 300 workers,
— at least 30 in establishments normally employing 300 workers or more,
(ii) or, over a period of 90 days, at least 20, whatever the number of workers
normally employed in the establishments in question.
The Directive states that, where an employer is contemplating collective
redundancies, it should begin consultations with workers’ representatives in
good time with a view to reaching an agreement (author’s emphasis). The
consultations should cover ways and means of avoiding collective
redundancies or reducing the number of workers affected, and of mitigating
the consequences by recourse to accompanying social measures aimed, among
other things, at aid for redeploying or retraining workers made redundant.
This Directive also permits Member States to include in their transposing
legislation a provision allowing workers’ representatives to call on the services
of experts in accordance with national legislation and/or practice.
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In order to enable workers’ representatives to make constructive
proposals, the Directive states that employers should, in good time during the
course of the consultations, supply them with all relevant information and in
any event notify them in writing of:
• the reasons for the projected redundancies;
• the number and categories of workers to be made redundant;
• the number and categories of workers normally employed;
• the period over which the projected redundancies are to be effected;
• the criteria proposed for the selection of the workers to be made
redundant in so far as national legislation and/or practice confers the
power for this upon the employer;
• the method for calculating any redundancy payments other than those
arising out of national legislation and/or practice.
The Directive contains a requirement for employers to notify the competent
public authority in writing of any projected collective redundancies and a require-
ment to wait 30 days from notification before making the redundancies.
The Directive on transfers of undertakings
Council Directive 2001/23/EC of 12 March 2001 on the approximation of the
laws of the Member States relating to the safeguarding of employees’ rights in
the event of transfers of undertakings, businesses or parts of undertakings or
businesses, which updates Directive 77/187/EEC, aims to protect employees’
employment rights in the event of such transfers. It provides that the transferor’s
rights and obligations arising from a contract of employment or from an
employment relationship existing on the date of a transfer shall, by reason of such
transfer, be transferred to the transferee. It also states that, after the date of
transfer, the transferor and the transferee shall be jointly and severally liable in
respect of obligations which arose before the date of transfer from a contract of
employment or an employment relationship existing on the date of the transfer.
The third chapter of the Directive is devoted to the issue of information
and consultation. It states that both the transferor and the transferee are
required to inform the representatives of their respective employees affected
by the transfer of the following:
• the date or proposed date of the transfer;
• the reasons for the transfer;
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• the legal, economic and social implications of the transfer for the
employees; and
• any measures envisaged in relation to the employees.
If there are no employee representatives, the employees themselves must
be given this information.
The transferor must give such information to the representatives of the
employees in good time, before the transfer is carried out. The transferee must
also give such information to the representatives of their employees in good
time, and in any event before employees are directly affected by the transfer as
regards their conditions of work and employment.
The Directive also states that where the transferor or the transferee
envisages measures in relation to employees, they shall consult the
representatives of these employees in good time on such measures with a view
to reaching an agreement. The information and consultation shall cover at
least the measures envisaged in relation to the employees. It also states
explicitly that the information must be provided and consultations take place
in good time before the envisaged change in the business is effected.
The European Works Councils Directive
Council Directive 94/45/EC of 22 September 1994 on the establishment of a
European Works Council (EWC) or a procedure in Community-scale
undertakings and Community-scale groups of undertakings for the purposes
of informing and consulting employees applies to companies of 1,000 or more
employees with at least 150 employees in each of two Member States. It gives
the EWC the right to be informed and consulted about transnational
questions that significantly affect workers’ interests. More specific guidance
about what this could cover is given in the subsidiary requirements annexed to
the Directive, which apply if no EWC agreement is concluded. The issues to
be discussed in EWC meetings are listed as: “the structure, economic and
financial situation, the probable development of the business and of
production and sales, the situation and probable trend of employment,
investments, and substantial changes concerning organization, introduction of
new working methods or production processes, transfers of production,
mergers, cut-backs or closures of undertakings, establishments or important
parts thereof, and collective redundancies”.
The Directive also states that, where there are exceptional circumstances
affecting employees’ interests to a considerable extent, particularly in the event
of relocations, the closure of establishments or undertakings, or collective
redundancies, the select committee of an EWC or, where no such committee
The role of social dialogue in mitigating the negative effects of restructuring
103
exists, the European Works Council, has the right to be informed. It also has
the right to meet, at its request, the central management, or any other more
appropriate level of management within the Community-scale undertaking or
group of undertakings having its own powers of decision, so as to be informed
and consulted on measures significantly affecting employees’ interests.
This Directive is currently under review. The European Commission
issued on 20 April 2004 a first-stage consultation to the EU-level social
partners on its possible revision (European Commission, 2004). In this, it asks
for their views on how best to ensure that the potential of European works
councils to promote constructive and fruitful transnational social dialogue at
the level of the undertaking, which will benefit both companies and their
employees, is fully realized in the years ahead. It also asks them for their views
on the possible direction of Community action and whether this should entail
a revision of the Directive, and about the role that the social partners envisage
that they should play in this.
The Directive on national information and consultation rules
Directive 2002/14/EC of the European Parliament and of the Council of
11 March 2002 establishing a general framework for informing and consulting
employees in the European Community aims to set out minimum requirements
for the right to information and consultation of employees in undertakings or
establishments within the Community. It states that the practical arrangements
for information and consultation shall be defined and implemented in accordance
with national law and industrial relations practices in individual Member States.
However, when defining or implementing these practical arrangements for
information and consultation, the employer and the employee representatives
shall work in a spirit of cooperation. It requires undertakings with at least 50
employees, or establishments with at least 20 employees to:
(a) inform on the recent and probable development of the undertaking’s or
the establishment’s activities and economic situation;
(b) inform and consult on the situation, structure and probable development
of employment within the undertaking or establishment and on any
anticipatory measures envisaged, in particular where there is a threat to
employment; and
(c) inform and consult on decisions likely to lead to substantial changes in
work organization or in contractual relations, including those covered by
the Community provisions relating to transfers of undertakings and
collective redundancies.
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The Directive also states that information shall be given at such time, in
such fashion and with such content as are appropriate to enable employees’
representatives to conduct an adequate study and, where necessary, prepare for
consultation.
Consultation should take place:
(a) while ensuring that the timing, method and content are appropriate;
(b) at the relevant level of management and representation, depending on the
subject under discussion;
(c) on the basis of information supplied by the employer and of the opinion
which the employees’ representatives are entitled to formulate;
(d) in such a way as to enable employee representatives to meet the employer
and obtain a response, and the reasons for that response, to any opinion
they might formulate;
(e) with a view to reaching an agreement on decisions within the scope of the
employer’s powers relating to decisions likely to lead to substantial
changes in work organization or in contractual relations.
The Directive also allows Member States to entrust management and
labour at the appropriate level, including at undertaking or establishment level,
with defining through a negotiated agreement the practical arrangements for
informing and consulting employees.
This Directive must be transposed by EU Member States by 23 March
2005, although those countries with no general, permanent and statutory
system of information and consultation of employees, nor a general,
permanent and statutory system of employee representation at the workplace
may implement the Directive on a phased basis, according to company size.
National legal frameworks
As seen above, there is a firm EU-level legislative basis governing timely
information and consultation rights of the workforce in a restructuring
situation and the duties of the employer to engage in negotiations with
employee representatives in good faith. It should be emphasized, however,
that this EU legislative framework represents the minimum standards of
compliance in these areas.
National legislation in many countries goes beyond the minimum
requirements of these Directives, giving employee representatives and trade
unions enhanced rights in a restructuring situation. For example, in France,
The role of social dialogue in mitigating the negative effects of restructuring
105
the general issue of restructuring has been under discussion for a number of
years following a range of high-profile company closures, such as the decision
of the UK retailer Marks & Spencer in 2001 to close its French stores as part
of a restructuring plan involving the closure of its operations in most
continental European countries. In this case, the organization was forced to
halt its restructuring plans and restart the process, as it had not complied fully
with French law governing the information and consultation of employee
representative bodies (Liaisons Sociales, 2001).
In 2002 new French legislation came into force making redundancy an
action of last resort (social modernization law (loi de modernisation sociale) of
17 January 2002), improving redundancy payments and increasing employee
involvement in the redundancy process. However, this legislation has proved to
be controversial, with employers stating that it has resulted in unacceptable delays
in the redundancy process. Thus, the Government suspended these provisions
from 4 January 2003 for 18 months on the condition that the social partners use
this time to negotiate an agreement on the procedures to be followed in a
redundancy situation. At the time of writing, negotiations were still ongoing.
In some Scandinavian countries such as Sweden and Finland, employers
are obliged to enter into negotiations on redundancies with employee
representatives. However, there is no legal obligation to come to an agree-
ment, although the procedure may not be initiated until these negotiations
have been concluded.
In Sweden, the Employment Protection Act (lagen om anställningsskydd,
LAS) gives employees with longer service more protection against
redundancy, obliging employers to give priority, in terms of employment
protection, to those with longer service. In practice, however, employers and
employee representatives tend to negotiate around this, allowing the employer
to retain some key staff with relatively little seniority if they agree to reduce
the overall number of redundancies (IRS, 2004c).
France also provides a good example of legislative obligations in the area
of helping employees find alternative employment. Under French legislation
(Labour Code Art. L321-4), employers are legally obliged to draw up a job-
saving plan if they employ at least 50 people and are planning to make at least
10 redundancies during a period of 30 days, or if the employer is planning
significant changes to the employment contracts of at least 10 employees for
economic reasons. This plan must contain all measures offered by the
employer to avoid or limit planned redundancies and help those who will be
made redundant. This means that before the employer can proceed to making
redundancies as part of a restructuring exercise, a clear strategy detailing how
the restructuring will be dealt with, in terms of effects on employment, must
be established.
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Despite the existence of this legislative framework, there have been
instances where organizations have flouted minimum provisions. The most
notable case in recent years involves the French-owned motor manufacturer
Renault, which decided in February 1997 to close its plant at Vilvoorde,
Belgium, entailing the loss of a substantial number of jobs, without prior
information and consultation of the workforce. What subsequently become
known as the “Renault affair” (IRS, 1997) was directly responsible for a
substantial overhaul of Belgian legislation on the information and consultation
rights of the workforce in a restructuring situation (law of 13 February, 1998).
This event also had major repercussions at EU level, leading the
European Commission to consult the EU-level social partners (at cross-sector
level, these are the European Trade Union Confederation (ETUC), the Union
of Industrial and Employers Confederations of Europe (UNICE),
representing private sector employers, the European Association of Craft and
Small and Medium-sized Enterprises (UEAPME), representing small and
medium-sized enterprises in the private sector, and the European Centre of
Enterprises with Public Participation and of Enterprises of General Economic
Interest (CEEP), representing enterprises in the public sector) on the
formulation of Community legislation on national-level information and
consultation rules (see below). This eventually led to the adoption of the
above-mentioned Directive 2002/14/EC on national information and
consultation rules.
Social dialogue at EU level
The EU-level cross-sector social partners have been active in recent years in
trying to devise ways to mitigate the negative effects of restructuring and
ensure that employees are consulted about restructuring plans in good time –
meaning that they have time to influence the outcome. The focus has been on
avoiding a situation in which workforce representatives are presented with a
fait accompli and thus have little or no influence on the final decision.
The above-mentioned consultation of the EU-level social partners,
initiated by the European Commission and launched in June 1997 only
months after the Renault affair, resulted in heated debates. The ETUC and
CEEP were willing to enter into negotiations on an EU-level agreement on
this issue but UNICE was uncertain (IRS, 1998). Under the terms of the
Treaty establishing the European Community (TEC), if the EU-level social
partners reach agreement on an issue as a result of a European Commission
consultation exercise, this agreement may then be given legal underpinning, at
the joint request of the signatory parties, by a Council decision on a proposal
from the Commission (TEC, Article 139).
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107
This procedure has been used in respect of the social partners’
agreements on parental leave, part-time work and fixed-term working, each of
which was given legal force by means of a Directive (Council Directive
96/34/EC of 3 June 1996 on the framework agreement on parental leave
concluded by UNICE, CEEP and the ETUC; Council Directive 97/81/EC of
15 December 1997 concerning the framework agreement on part-time work
concluded by UNICE, CEEP and the ETUC; and Council Directive
1999/70/EC of 28 June 1999 concerning the framework agreement on fixed-
term work concluded by ETUC, UNICE and CEEP).
However, in the case of information and consultation, UNICE finally
decided in 1998 that it was not willing to enter into negotiations on this issue.
In November of that year, the Commission therefore issued a proposal for a
Directive, which was adopted in March 2002 as Directive 2002/14/EC.
In January 2002 the Commission issued another consultation to the
EU-level cross-sector social partners (European Commission, 2002). This
time, it wished to stimulate dialogue on the broader issue of establishing the
principles governing “socially intelligent restructuring”. Between October
2002 and July 2003 the social partners organized three joint seminars, at which
they discussed the lessons that could be learned from a total of 10 case studies
of how restructuring exercises were handled.
These discussions resulted in the conclusion in June 2003 of a joint text
entitled Orientations for reference in managing change and its social
consequences (UNICE/UEAPME et al., 2003). This is not an agreement with
binding legal force, but it sets out guidelines to be followed to ensure
successful change management, based on the lessons learned from the 10 case
studies examined by the social partners in their seminars. Emphasis is placed
on issues such as: explaining and giving the reasons for change “in good time”
to workers and/or their representatives; holding an open discussion on
management’s intentions; allowing workers to make their views known;
meeting all legal and contractual obligations in the area of information and
consultation; maintaining and developing workers’ competences and
qualifications in order to foster internal and external mobility; fostering
coordination between employers, trade unions and territorial public
authorities in order to mitigate the effect on an organization’s surrounding
region or territory; taking into account the specific situation of small and
medium-sized enterprises (SMEs); and exploring all possible alternatives
to dismissals, such as reassignment, training, reconversion, support for
business creation, diversification of forms of work, suspension or adaptation
of some benefits on a temporary basis, personalized worker support
and natural departures, notably through retirement or, “as a last resort”, early
retirement.
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It also emphasizes that if restructuring is to be managed well, time is an
important factor for all concerned: “the difficulty is organising quality
information and consultation without creating undue delays and uncertainties”.
It also places great emphasis on building “a positive attitude to change, together
with the existence of a climate of confidence between management and workers
and/or their representatives”.
Given that the text is intended as guidance only, without constituting a
code of practice, its practical impact is potentially limited. However, it should
be remembered that this is a politically sensitive topic and that any joint text
between employer and trade union representatives at EU level needs to be
acceptable to all signatory parties.
Principles of SSER in the European Union
As seen above, the EU is governed by a legislative framework which sets out
the basic duties of employers to inform and consult the workforce prior to
finalizing restructuring plans, to allow workers to voice their opinions and, in
an ideal scenario, to exert some influence on the final outcome. Further,
attempts have been made by the EU-level cross-sector social partners to define
more closely what is needed to ensure that restructuring is handled in a
socially sensitive way. The elements contained in the social partners’ 2003
agreement, outlined above, go beyond the minimum requirements of EU
Directives and focus on the building up of trust and a good relationship
between management and the workforce and/or their representatives.
Much debate has been held about what should constitute socially
sensitive restructuring. In general, the basic elements required include the
following non-exhaustive list.
• Inform and consult with workforce representatives on restructuring
plans that are likely to have an impact on employment. The information
and consultation process should be carried out in good time, before a
final decision is made, in order to allow employee representatives to
formulate an opinion and receive a response on it from the organization.
• Hold meaningful negotiations with workforce representatives on how to
prevent or mitigate negative effects of restructuring on the workforce.
• Establish a commitment to the principle that compulsory redundancies
should be the last resort.
• Avoid compulsory redundancies, using a range of means including
working time reduction, flexible working patterns, pay freezes and cuts
in pay and premiums.
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109
• Where redundancies are inevitable, make efforts to mitigate their effects
in a number of ways, such as reducing workforces across plants and
countries rather than closing down entire plants, and looking for
voluntary redundancies and early retirements.
• Put into place a range of “social cushioning” measures to help those who
are losing their jobs. These include redeployment, either within or outside
the company; training and other measures aimed at increasing
employability; outplacement services tailored to the needs of the individual;
guaranteeing priority of rehire for redundant workers; and investment in the
local economy in order to encourage new employers to move to the region
and create jobs to replace those lost.
Examples of managing restructuring in a socially
sensitive way
There are many examples to be found in western Europe of management and
workforce representatives working together in a positive way to ensure that
restructuring has as little negative impact as possible on the workforce. The
examples set out below come from a range of countries and types of
companies, providing a taste of what has been achieved to limit the effects of
restructuring, and what is needed to ensure a successful outcome.
The experience of the United Kingdom
The United Kingdom has experienced and continues to experience many
large-scale restructuring exercises. Recent research, published by Industrial
Relations Services in February 2004 (IRS, 2004a), sheds some light on how
restructuring is being managed. It looked at 94 companies, together
employing around 165,000 staff, and examined the role of human resources
in managing the process of restructuring and the effect of restructuring on
employees.
The survey found that more than one in seven organizations had
undergone restructuring over the previous year and another one in five had
been through the experience at some time in the previous three years. In
most cases, the restructuring had been prompted by several reasons, among
the most prominent being a need to reduce the workforce and a desire to
focus more on the customer. Takeovers and mergers and the need to enter
new markets were also important motivators, as was the need to streamline
management, increase efficiency and reduce costs.
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The objectives of the restructuring often included reducing costs,
improving efficiency and increasing effectiveness. There was also a strong
emphasis on the reorganization of management structures and performance.
In 43 of the organizations surveyed at least half the staff were affected by
restructuring, and in 17 of them all staff were affected. Internal relocation was
the most common outcome for staff, cited by 51 companies. This was
followed by: redeployment, cited by 48; compulsory redundancy, cited by 45;
voluntary redundancy, cited by 40; the introduction of new pay/grading
structures, cited by 28; early retirement, cited by 27; significant changes in
working practices, cited by 24; and retraining, also cited by 24.
In 56 per cent of cases organizations recognized trade unions and, in just
over half the cases studied, the staff affected had some influence over the
exercise. However, this means that in principle there were some organizations
where trade unions were recognized but did not have an influence over the
restructuring exercise.
Six in 10 employers encouraged staff to have an input into new working
practices and, of this group, two-thirds (67 per cent) used individual
consultation, half (50 per cent) used collective consultation and 30 per cent
used negotiations with trade unions.
Of the 87 organizations answering the question examining to what extent
the organization had met its original objectives, more than seven in 10
reported a good deal of success.
Restructuring in the ceramic tile manufacturing industry
This case study (IRS, 2004b) looks at the experience of a manufacturing
company that has undergone successive waves of restructuring over the past
15 years, resulting in drastic employment reductions and far-reaching changes
in working practices.
H & R Johnson Tiles is the UK’s largest ceramic tile manufacturer,
producing wall tiles which it sells worldwide. Due to changes in the market
which took place during the late 1980s, the company found that it needed to
alter its products, equipment, technology and working practices. It also
needed to address the fact that its production processes were spread around
seven sites, described by the company as “ramshackle Victorian sites, with
working practices to match”.
The company recognizes three unions: the ceramics workers’ union
CATU (shop-floor and staff sections), Amicus and the Trades and General
Workers Union (TGWU).
The first major round of restructuring took place in 1990, followed by
another in 1998 (although minor restructuring activity had been taking place
between 1990 and 1998). The company moved to a new single site in November
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111
2001, which was such an upheaval that a number of new working practices were
temporarily halted. In the summer of 2003 there was a substantial restructuring
of the indirect workforce, which included redundancies across the company.
The restructuring affected all staff and all functions.
Previous working practices had been based on piecework, which enabled
shop-floor workers to complete their week’s production target in about three
full days and a few hours on Thursday and Friday. They would then perform
overtime on Saturdays. The company’s manufacturing and technical director
noted that, in 1990, these working practices led to a situation where “it was the
workforce that managed the plant, not management”. The objective of the
restructuring was to enable managers to manage, so that the organization
could respond to outside pressures.
Management was keen to work alongside the unions rather than in
opposition to them, and this led to a partnership approach to change which
has stood the company in good stead, as the workforce has cooperated with
the various waves of restructuring undergone by the company. The following
has been achieved:
• Working time. The working week was reduced from 39 to 37 hours, but
productivity was increased by maintaining the same output. In 2000, a
move to annualized hours was agreed, alongside the introduction of a job
evaluation system, the introduction of teamworking and the
modification of craft demarcations, allowing trained employees to
undertake simple maintenance tasks.
• Pay. Following a two-year deal that introduced single-table bargaining, a
three-year pay deal agreed in 1992 introduced a simplified pay structure,
reducing several hundred shop-floor pay rates to ten. These were further
reduced to six by 2003, although the company envisaged creating a new
technician grade.
• Workforce reductions. Overall, the workforce has been reduced from 2,300
in 1990 to the 2004 level of 469, although over that time few employees were
made compulsorily redundant. Many people took voluntary redundancy,
although most of those who left were over the age of 50 and had 20 years’
service. For these people, the voluntary redundancy package offered by the
company was attractive. Many staff also took early retirement.
Redeployment was a more contentious issue, however. There were some
people who wanted to be made redundant, but whom the company wished
to retain, due to the need for particular skills, but also to save on redundancy
costs. Discussions over this became heated, but were eventually resolved
amicably. Retraining has been extensive, as people have had to learn how to
operate new equipment and work in new ways.
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The company believes that good communication with employees is a top
priority and one that is vital in drawing up restructuring plans. Staff are briefed
directly by senior managers on major restructuring plans and invited to
contribute ideas. All new initiatives are presented to staff on all shifts, by
means of workforce meetings. If necessary, managers run the kilns, which
cannot be shut down, to allow production workers to attend.
Formal consultations take place through the company’s Joint Review
Committee (JRC), which consists of eight union representatives and three
senior managers. The JRC meets monthly and has been responsible for several
long-term pay and restructuring deals.
Restructuring in the oil industry
This case study (IRS, 2002) is an example of how a company managed the
major restructuring of one site in a socially responsible way and how it
implemented specific programmes to look after the survivors of the process,
for whom the exercise was also stressful.
The UK oil and petrochemical group BP announced significant
restructuring at its Grangemouth site in 2001. It wanted to reduce the work-
force at the site from 2,400 to 1,700 in order to stem financial losses.
The HR department arranged for managers to hold meetings with their
teams over a two-week period. It also wrote to all staff, explaining the changes,
and opened a website with information on the restructuring.
Selection for redundancy was made on the basis of a scoring process and
selection mechanism (a competency-based matrix) which identified the skills,
knowledge and experience needed by the site. This process was drawn up in
consultation with the site’s staff council, made up of management, union and
non-union representatives.
First of all, staff were asked whether they wanted to take voluntary
redundancy. This resulted in a number of people being able to leave voluntarily,
provided that they did not have skills that were deemed by the company to be
essential for the site. In addition, staff aged over 50 were offered early retirement.
A dedicated off-site resource centre was set up to house an outplacement
firm to help redundant staff to look for jobs, develop interview techniques and
obtain guidance on CVs and application forms. Local firms were also invited
to hold recruitment fairs on the BP site.
In addition, BP wanted to establish a link between redundant staff and
the survivors as this sends a positive message to survivors. It therefore relayed
information about the number of workers who found alternative employment
(around 80 per cent almost a year later).
BP recognized that the situation was also stressful for those who were
not made redundant. It therefore organized training courses about the
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113
restructuring. It helped prepare line managers for one-to-one conversations
with their staff and for managing teams through transition. The courses
looked at issues such as understanding and working with the tensions
associated with uncertain futures, and understanding low morale and
motivation. They also worked on how to increase focus and motivation.
The site’s occupational health department also ran a session for line
managers, showing them the various ways in which employees might react to
the process of change, how to recognize stress in their staff and how to try to
reduce it. Courses were also run for individuals.
Finally, the staff felt that they would like the process speeded up in order
to reduce uncertainty, so it was brought forward by six months, from
December 2002 to June 2002.
The exercise would appear to have been a success. The key objectives of
increasing plant availability and cutting costs have been met. It is reported
that the site now has a long-term future and the number of site accidents has
fallen.
Restructuring in Germany: Cutting working time to save jobs in
the car industry
Germany is also undergoing significant levels of corporate restructuring, often
resulting in large-scale job losses and adding to the country’s unemployment
problem. Recent studies show that almost half of German companies are
planning to move all or part of their production processes abroad within the
next three years in order to save money on labour costs (Handelsblatt, 2004,
p.10). However, there is a view that this is not necessarily a negative develop-
ment, with economists arguing that it is better for German companies to do
this and so be able to compete in the globalized marketplace rather than go
under, which would threaten many more jobs in Germany.
In terms of statutory information and consultation rights, works councils
at enterprise level have a right to be informed and consulted on plans that are
likely to have an effect on employment. Although they can delay the process, they
do not ultimately have a right of veto over management restructuring plans.
Volkswagen: Innovative four-day week accord
The strength of industrial trade unions such as the metalworking union
IG Metall and the tradition of cooperation between management and works
councils at establishment level have resulted in a range of innovative agree-
ments designed to safeguard jobs. One of the most well-known of these was
the 1993 accord at the motor manufacturer Volkswagen, under which a four-
day week of 28.8 hours was introduced (IRS, 1993).
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Pay was cut accordingly, although the 14th-month salary and two-thirds
of additional holiday pay were divided by 12 and paid out every month in order
to compensate for this loss. This meant that around 30,000 jobs could be saved.
Opel: Weekly working time cut
At the beginning of November 2003 the works council and management
at the Opel plant in Rüsselsheim agreed to cut the working week for 5,500
production workers from 35 to 30 hours (IG Metall, 2003).
The working-time cut was financed jointly by the employer and the
employee: the employer paid for 2.6 hours a week while the employee paid for
2.4 hours a week. In practice, this amounted to an average loss of €85 a month
for workers. This loss was made as unobtrusive as possible by using holiday
pay to supplement monthly pay packets, thus bringing them back up to
normal levels.
All other employees at the plant, of which there were more than 15,000,
allowed three hours a month (10 minutes a day) of their working time to be
placed in the working-time accounts of the production workers. Middle
managers contributed two holiday days a year, plus holiday pay, while the 2004
bonus was cancelled for senior management.
The accord secured some 1,200 jobs that were under threat due to
difficult economic circumstances. It covered all 21,000 employees at the plant
and ran from 10 November 2003 to 31 December 2004.
Experiences in Italy: Reducing redundancy levels through
negotiation
Trade unions can have a considerable amount of success in reducing the
number of redundancies originally planned by an organization and ensuring
that the redundancies that do take place are carried out in a non-traumatic way.
This was the case at the Italian operations of the UK-headquartered
multinational Marconi in 2003 (Edwards, 2003). The organization employs
around 2,310 workers in Italy in total, at its research laboratories at Genoa,
Rome, Latina, Milan, Pisa and Ivrea. It also has production facilities at
Marcianise (Caserta). The organization had been through a restructuring plan
in 2002, when 800 redundancies were made. In addition, management
announced a fresh wave of redundancies at the end of 2002, in which it planned
to make 1,100 job cuts.
A dispute with the trade unions at the organization followed, after which,
in March 2003, management and the trade unions reached an agreement on
cutting the number of redundancies from 1,100 to 430. The organization also
agreed to manage the redundancies it planned to make in a non-traumatic way.
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In order to facilitate this, the parties agreed to make use of the extraordinary
wages guarantee fund (cassa integrazione guadagni, CIG), a scheme which pays
a state benefit to workers whose employment is suspended by organizations
undergoing restructuring as a result of severe difficulties. Thus, it was agreed
that employees would take it in turns to be suspended from work and receive
CIG benefits for a period of 12 months. Vocational training courses were to
be organized for those people placed on the CIG scheme in order to help them
return to work once their 12 months on the scheme came to an end.
In addition, it was agreed that working time would be reduced and
voluntary redundancies would be sought. Incentive payments would be
offered to those taking voluntary redundancy: 15 months’ pay for those aged
at least 40, 18 months for those aged between 41 and 55 and 12 months for
those aged 56 or over.
It was also agreed that 110 workers would be placed in a “mobility”
scheme, which is a state scheme providing benefits to redundant workers and
help in finding alternative employment. Those placed in this scheme would be
workers who had paid the necessary contributions to be entitled to a seniority
or old-age pension.
Outplacement services would be provided to those workers being made
redundant, although if workers took up this option their severance payments
would be reduced.
Restructuring in France
The topic of socially sensitive restructuring is a particular focus of debate in
France. As mentioned above, in reaction to a continuing wave of restructuring
exercises and redundancies in a context of relatively high unemployment, the
social partners at national level are currently engaged in discussions on how to
avoid, limit and mitigate the effects of redundancies. There are many examples
where employee representatives have engaged in negotiations with the
management of an organization and achieved agreement on how to manage a
specific case of restructuring.
EADS: Establishing a framework agreement on dealing with
restructuring
At the European Aeronautic Defence and Space Company (EADS), a
framework agreement on how to manage employment reductions was signed
on 9 May 2003 between management and the Confédération française
démocratique du travail (CFDT), Confédération française des travailleurs
chrétiens-CGC (CFE-CGC), CFTC and Force Ouvrière (FO) trade union
confederations (Liaisons Sociales, 2003). It is aimed at “setting out collective
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and individual ways of managing industrial change and limiting its social
consequences” and applies to all French operations of the group once they
have endorsed it formally and obtained the approval of workplace trade
unions. This accord was preceded by an agreement concluded on 2 May 2003,
setting out a group-wide framework for dealing with dismissals in the context
of a job-saving plan. Any of the companies within the EADS group in France
may have recourse to this framework when making redundancies.
The EADS agreement sets out a range of principles to be respected in a
restructuring situation. These are: the anticipation and management of
employment and competences in the group; the putting into place of training
which enables employees to develop and update their competences; the drawing
up of an employment policy which has the short- and medium-term interests
of the company at heart and which also takes heed of studies relating to the
industrial and social effects of sub-contracting; “strong and constructive”
concertation between the social partners; as much forward planning as possible
when devising social measures accompanying restructuring; solidarity between
the various divisions of EADS, in the industrial as well as the social field; and a
will to support economic activity and develop employment in a company’s
geographical area.
The agreement reinforces the principle of concertation between manage-
ment and employee representatives and, in particular, sets out to make
information and consultation procedures run as smoothly as possible. This
concertation comprises two separate periods.
The first is a period of prior concertation, launched when the company is
starting to deal with difficulties which may have an impact on employment. It
permits employee representatives to gain an insight into the difficulties being
experienced by the company and to propose measures aimed at helping
safeguard employment. Employee representatives may make use of an external
expert of their choice for up to three weeks. Management will respond to any
alternatives suggested by employee representatives within a period of 15 to 25
working days if external experts are used, or within a period of five to
10 working days if external experts are not used.
The second is a period of information and consultation, carried out if the
phase of prior concertation has not been successful in avoiding redundancies.
These procedures will be carried out in accordance with the French Labour
Code, adapted slightly so as to take account of the prior concertation phase.
The information and consultation procedure takes place over two meetings,
whether or not external experts are used by the employee representatives. The
second meeting should not take place later than eight working days after the
first meeting (or 10 days if it involves 100 or more redundancies).
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The agreement makes finding redundant employees a new job within the
EADS group a priority. Thus, retraining and reclassification measures are initiated
alongside the prior concertation procedure and continue during the information
and consultation phase. The accord provides for employer/employee monitoring
commissions to be set up at enterprise level so as to ensure that the process of
reclassification and redeployment goes smoothly.
Wärtsilä: Extending statutory rights
Most recently, the French operations of the Finnish engineering group
Wärtsilä decided to close parts of its engine manufacturing operations. In March
2004, management agreed upon a restructuring plan and an accompanying job-
saving plan (required by law) with the company’s works council (Liaisons Sociales,
2004). This plan involved the loss of 305 jobs, of which 257 were to be cut from
one site – the company’s operations at Mulhouse. However, by using a range of
alternative measures, the number of overall redundancies was cut to around 60.
Some 43 employees were offered early retirement, 41 people were redeployed
and it was hoped that 157 people could be transferred to a different company.
The most innovative part of the EADS agreement relates to retraining
leave. By law, employees being made redundant are entitled to a nine-month
period of retraining leave (congé de reclassement), during which the employ-
ment contract is maintained, but employees are free to devote their time to
finding another job. Pay during this leave is 65 per cent of gross former pay,
or 75 per cent for low-paid workers. Employers are exempt from social
charges on remuneration for these employees during this time.
At Wärtsilä, management and trade unions made a joint application to
the labour authorities to extend this period of leave from nine to 18 months.
The authorities allowed the company to extend the leave period, but did not
allow it to continue to be exempt from paying social charges on pay for the
second nine-month term.
Managing restructuring through partnership
The above examples concern joint initiatives between management and
workforce representatives to deal with a specific crisis or an impending
restructuring exercise. However, there are examples, notably in the United
Kingdom, of the conclusion of “partnership agreements” between manage-
ment and trade unions. In the context of these agreements, the parties make a
commitment to work together when dealing with a range of issues and to take
a joint approach to problematic situations such as restructuring.
From a management perspective, this helps to secure employee buy-in to
the process, calms industrial relations (often replacing an adversarial culture)
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and can sometimes create a fresh start, drawing a line under past conflicts and
confrontations.
From a trade union point of view, partnership can mean that unions are
more involved in the process of change and that they can have influence over
a wider range of matters than before, rather than the annual row over pay.
They can also benefit from a better relationship with the company.
However, that is not to say that there are not problems with the partner-
ship process, both from a management and a trade union point of view. Some
managers may view partnership as the removal of management’s right to
manage. It can also take longer than making unilateral management decisions.
For unions, there may be a fear that the union has “sold out” and is too
involved in management’s objectives rather than the union’s own goals. Unions
often suspect that management wants to undermine union influence by setting
up an alternative process. Further, from the union point of view, there is a risk
that they may become tainted by getting involved in the decision-making process,
even if they argued against certain decisions. Finally, some union officials express
the view that the partnership process can run out of steam – after the initial burst
of enthusiasm, there may be a danger that the union representatives involved in
the process may become too closely associated with management aims and goals.
In general, partnership is also often dependent on particular individuals
and can break down if those individuals leave. It can also be severely tested by
large-scale restructuring exercises, where the partnership arrangement has to
get involved in negotiating and managing job losses.
Partnership at BorgWarner
Despite these reservations, partnership can be successful. The following
case study is an example of a partnership agreement at the UK subsidiary of an
American multinational (IRS, 2000).
The US BorgWarner Automotive Inc has a UK operation in Margam,
South Wales, which supplies four-wheel-drive transmissions and components
for vehicles such as the Range Rover. Partnership at this organization dates
back to the mid-1980s, when the plant was faced with possible closure and
employment relations were very difficult. The unions were very strong and
relations were adversarial. Closure of the plant was avoided in 1983, but it was
recognized that changes had to be made to the way in which the plant worked
and so the company approached the unions (which had 98 per cent member-
ship at the plant) with the idea of setting up a partnership agreement aimed at
establishing a joint approach to dealing with future problems.
Recognition arrangements at the plant were changed to a single union
presence – the engineering union AEEU (now part of the union Amicus) –
which made the partnership process more straightforward.
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Union representatives were initially sceptical, but sat down with manage-
ment to lay the foundations for partnership arrangements based on values such as
working together and honesty. Managers said that their style became more open
as a result, and they were more willing to listen to other people’s ideas. A mixture
of small group meetings and mass meetings was held. It was a slow process, but
by the early 1990s the groundwork had been laid for cross-functional teams to be
established across the company. These teams are made up of between six and 10
employees at all levels and across all company sectors. They research and report
on a range of issues, including pay and rewards, apprenticeships and team work-
ing. They have in the past looked at issues such as a wave of redundancies in 1993.
There are four distinct areas of focus for the partnership process at
BorgWarner:
• Communication and consultation. Employee involvement is key to the
company and managers seek the views of their employees on issues such as
improvements to the production process, HR policies and practices, and
recruitment and selection decisions. Trade union representatives often form
part of interview panels. In terms of communication, all financial and
business information is open to scrutiny by any employee. Union represen-
tatives work closely with management on these areas and information
on company performance is regularly distributed to the workforce.
• Teamworking. Teamworking is viewed as essential as it reduces
supervision and empowers teams to improve performance. The
organization of the workforce into teams meant that middle management
was virtually eliminated. Teams take responsibility for improving a
defined part of the manufacturing process.
• Employee development. All employees have a development review at
least once a year in order to draw up training plans to improve job
performance and meet personal and company objectives. Courses should
be work-related. There is also a system of job rotation, which enhances
employees’ skills and also increases flexibility within the organization.
Multiskilling is also encouraged.
• Pay and reward. A new pay and grading system was developed and
implemented by a cross-functional team in 1996. The current reward
package includes a general pay increase, bargained between management
and employee representatives, a self-financing reward scheme and an
attendance bonus.
As a result of this process, turnover increased from £20 million in 1993
to £35 million in 1998, employee turnover is less than 0.5 per cent, employee
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attendance is 98 per cent and accidents at the site have been reduced by 60 per
cent. A trade union representative says that the plant is “a brighter, cleaner and
happier place to work in. The changes have created many benefits at
BorgWarner such as increased attendance and increased productivity but most
of all people are just happy to come to work.”
One of the interesting aspects of this case study is the fact that the company’s
parent in the United States does not recognize trade unions and was at the time
reportedly not particularly happy about its UK operation’s agreement with the
AEEU, but was reported to be prepared to go with it as long as it brought results.
Lessons to be learned from the EU experience
Much can be learned from the experience of the social partners in western Europe
in trying to manage restructuring in a socially sensitive way. As noted above, there
are many examples of how to engage in social dialogue at a range of levels –
international, national, sectoral and enterprise level – in order to make a difference
to the outcome of restructuring plans. This social dialogue process is underpinned
by an EU-level statutory framework guaranteeing a range of employee rights and
also by national legislation which, in some countries, goes further than legal
regulation at EU level.
The legal framework as a safety net
In general, the existence of a basic framework of regulation, at both EU and
national level, providing for the right of employee representatives to be
informed and consulted about restructuring exercises that will affect
employment, has been a great help to the social partners. It has provided a
solid basis of rights and enabled employee representatives to engage in
meaningful negotiations with organizations on restructuring plans. This body
of law has now been extended to the 10 new EU Member States, which have
been obliged to transpose the whole body of EU law into their national
legislation before they joined the EU on 1 May 2004.
In countries such as France, the legal obligation to provide redundant
employees with a range of measures to help them find alternative work leads to
a situation where the management of redundancies and the mitigation of any
negative impact upon employees are taken very seriously. This means that
discussions on how to mitigate the impact of restructuring on an organization’s
workforce are an integral part of the whole restructuring process in this country.
However, this legal framework is not infallible and situations still arise
where employee representatives are not involved in any meaningful way in
restructuring exercises. Real and meaningful social dialogue can only really
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121
take place if the structures are already in place and there is a will on both sides
– supported by the law – to engage. On the employee representative side in
particular, it is a great help if there is strong organization and support by trade
unions, which can offer their experience and expertise to employee
representatives at enterprise level.
Going beyond statutory requirements
As we have seen in this chapter, there are many examples of agreements and
provisions that go beyond what is required by the legislative framework. This
can have benefits for both the organization and the workforce. For the
workforce, the benefits are clear – involvement in and dialogue around the
process of restructuring mean that individuals are more likely to retain their
jobs or find an alternative job in the organization. If they are to lose their jobs,
they will have a greater chance of finding another if they can be supported by
the various means contained in many of the agreements set out above.
For the organization, the benefits are less immediate, but just as valid.
Entering into a meaningful dialogue with employee representatives is likely to
build up a relationship of trust which will stand the organization in good stead
when it needs support with any future plans or proposals. One of the potential
flashpoints in a redundancy situation is the selection for redundancy. As noted
in the H & R Johnson Tiles case study above, disputes can arise if the organization
wishes to keep specific workers. A good relationship with employee repre-
sentatives can help resolve such conflicts, resulting in negotiated solutions, as is
often the case in Sweden. Finally, building a profile as a socially responsible
employer can also help the organization in the wider community and avoid bad
publicity, including damaging consumer boycotts and trade union campaigns.
If an organization is serious about carrying out a restructuring exercise in a
socially sensitive way, involving the workforce at an early stage is key. This means
that employee representatives can have the opportunity to put forward their views,
a discussion can be carried between management and the employee representa-
tives, and management has a chance to respond to the concerns of the employee
representatives, ideally ultimately finding a solution that is acceptable to all par-
ties. In this way, employee representatives are actively involved in the process rather
than being obliged simply to cope with the consequences of an employer decision.
The mixed blessings of early retirement
One of the issues that has come very much to the fore in the western
European debate in recent years is that of early retirement. When an
organization is in a restructuring situation involving large-scale job losses, one
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of the ways to mitigate the effects of this is to offer early retirement to
workers over a certain age, sometimes as low as age 50. Employee
representatives are often in agreement with this, viewing it as a non-traumatic
way of achieving the departures sought by management and allowing people to
cease work on a percentage of their former salary. Indeed, many of the case
studies outlined above include early retirement as one of the measures on offer
to redundant workers.
However, early retirement also has negative consequences, which are now
beginning to make themselves felt. Firstly, shedding most of an organization’s
older workers can have a negative effect on the organization itself, which loses
its experience and expertise. Secondly, although early retirement may seem like
a good idea for the workers themselves at first, it is beginning to result in a
whole generation of workers in western Europe who are no longer
participating actively in the labour market. This is particularly grave when the
link is made to demographic trends. The population of western Europe is
ageing and birth rates are falling. This is putting pressure on the state welfare
systems in many EU countries, which are based on pay-as-you-go systems and
consequently beginning to suffer financially from the burden of ever fewer
people in work and ever more people either out of work or retired.
The EU is aware of this difficulty, and therefore one of the key targets of
the European Employment Strategy and the linked Lisbon strategy is to achieve
an average EU labour market participation for older workers (aged 55-64) of
50 per cent by 2010. According to the Commission’s most recent assessment
of the progress of this strategy (European Commission, 2002), there is a real
danger that this target will not be met: the current average participation rate for
older workers in the EU is 40.1 per cent. It is therefore advising national
governments to discourage the use of early retirement. Many countries are
therefore now working towards reforming existing incentives to take early
retirement.
The problems associated with regions dependent on large
employers
Many countries outside western Europe are faced with the particular
difficulties related to closing down large operations in a single area. The
existence of so-called mono-towns, in which the majority of the inhabitants of
a particular area are dependent on one employer, means that if that employer
decides to embark upon a large-scale restructuring exercise, this can be
devastating for a whole region. This has been the experience to a certain extent
in the former German Democratic Republic, but is much more of a problem
in many countries in central and eastern Europe.
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123
Based on the experience of some western European organizations, the
effects of this can be mitigated by the establishment of strong incentives for
other companies to invest in a region. This can be achieved with the help of
local, regional and national authorities, offering incentives such as lower
taxation rates and reductions in tax on labour. In France, the public authorities
at all levels are active in encouraging investment into particular regions
following a site closure.
Can dialogue influence the outcome?
The question of whether social dialogue at national or sectoral level, or, more
specifically, dialogue between management and employee representatives at
local level, can play a role in influencing decisions to restructure is difficult to
answer. It is clear that where employee representatives are involved in the
process and the procedure works well, some difference can be made to the final
outcome. This usually involves agreements on reducing the final number of job
losses, allowing people to depart voluntarily and receive adequate severance
packages, and helping people to update skills or gain additional competences in
order to be in a better position to find alternative employment. This works best
where there is a strong state support system in place. As seen above, trade
unions in Italy were able to reduce the number of originally planned
redundancies at Marconi in 2003 by almost a third, using measures such as
working time reductions, voluntary departures, the state wages guarantee fund
and the state “mobility” scheme. In the absence of these state support schemes,
which pay benefits to workers for a set period or ease workers’ transition from
one job to another, it is doubtful whether the unions would have been able to
reduce the number of planned redundancies by as much.
Negotiating working-time cuts as a means of preserving employment is
also a popular option in many countries, particularly Germany. However, this
measure is likely to be economically painful for the workforce if the cut in pay
is not made up in some other way. In Germany, it has been relatively easy to
do this, as a wide range of additional bonus payments, such as the very
commonplace 13th-month payment, the Christmas bonus and additional
holiday pay, can be divided up into 12 annual payments to make up the pay
packet. It would be more difficult to achieve this if these types of bonuses
were not already in place.
In France, the restructuring activities of the food multinational Danone
are the most well known. The organization’s restructuring of its biscuits
division, announced in 2001, caused uproar among trade unions. Danone’s final
plans were scaled down considerably in terms of overall job losses following
consultations with employee representatives, and net job losses were much
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smaller as a result. In Hungary, the company backtracked on its original
decision to close an entire factory at Györ in the face of intense pressure from
the Hungarian Government (IRS, 2001, p.24). It should, however, be noted
that in its progressive social practices Danone is something of an anomaly and
is keen to preserve its reputation as a socially responsible employer.
In countries such as Sweden, negotiations at enterprise level regularly
succeed in reducing the number of planned redundancies as a trade-off against
allowing employers to retain staff with relatively short length of service with
the company. However, it is extremely difficult and rare for social dialogue or
negotiations between employers and employee representatives at enterprise
level to reverse an employer decision to embark upon a cost-cutting exercise.
Many of the activities that take place in this area in western Europe are the
result of a long-standing relationship and interaction between the relevant
parties, acting within the framework of legislation or agreements. Such
practices are in theory transferable to other countries. However, it will take
time and experience to build up a relationship of trust between the actors within
an organization and to develop a network of interaction between company-level
actors and other organizations such as national-level social partners, state
bodies and other relevant organizations such as national-level tripartite bodies.
There has to be commitment and a certain amount of willingness to build up a
relationship of trust. Experience has shown that this can be possible however –
there are examples of adversarial company cultures, characterized by conflicts
between the union and management, being transformed into a more
cooperative relationship, as typified here by the BorgWarner case study.
Partnership arrangements, as outlined in the BorgWarner case, can be extremely
valuable in managing restructuring situations. However, reservations about this
process on the part of both management and trade unions need to be overcome
before it can be put into place.
Although building up good working relationships between management
and employee representatives or trade unions may be a long process, it is
surely worth making the effort, in light of the fact that the years ahead will
doubtless see many more large-scale restructuring exercises as the economies
of central and eastern Europe and the developing countries restructure in the
context of globalization. Enabling organizations and their workforces to work
together to ensure the best possible outcome in a restructuring situation can,
as we have seen, bring significant benefits for all concerned.
The role of social dialogue in mitigating the negative effects of restructuring
125
Enterprises in most countries today are facing similar external pressures,
leading to continuous turbulence and change in markets, and increasing
intensity of competition. There are some convincing reasons to expect such
turbulence, among them globalization of markets, commerce and financial
flows; deregulation and trade liberalization; rapid technological changes; the
shift from an industrial to a knowledge- and information-based economy; the
threats to environmental sustainability; changing expectations and value
systems. As a result, enterprises need to be ready for new challenges and to
address them in such a way as to maximize economic benefits and minimize
social costs. At the same time, enterprises are not alone in facing these
challenges; governments can also feel the impact of business restructuring,
especially in situations when whole sectors or regions are affected. What can
enterprises and other policy-makers do to tackle the restructuring challenge?
Enterprise-level strategy, policies and practices
• Before considering downsizing, explore other restructuring options.
Businesses operate increasingly in a highly interdependent ecosystem in
which management must balance the interests of various stakeholders. This
is particularly true in decisions on restructuring. Frequently, employees are
the first victims of restructuring when management decides to implement
short-term cost reduction measures, often without really diagnosing the
problems or studying the underlying reasons for the need to change and
restructure. Experience suggests that successful restructuring takes place
when other options are explored before the decisions to downsize or reduce
personnel costs are taken. Such options are changes in strategy, ownership,
financial structures, organization, production, outsourcing and non-
personnel cost reduction.
CONCLUSION
127
• If downsizing is the only option, carry it out in the most socially sensitive
way. Unfortunately, in some cases downsizing seems to be inevitable.
But even then international experience has accumulated a number of
socially responsible approaches to it. Often these measures will suffice
to achieve the needed results without redundancies or lay-offs. If not, a
great deal can be done to facilitate re-employment and to reassure the
remaining employees.
• Create a system of functional flexibility. Enterprises today need to be
constantly ready for challenges. Instead of simply reacting when the
situation gets worse and then restructuring, today’s corporate champions
are adjusting their management systems in such a way as to be always
prepared for another economic slowdown or any other external
challenge. Functional flexibility is a proactive model, based on the long-
term approach. It implies continual improvement in the skills and
knowledge of the workforce. In turn, such improvements, carried out
through on-the-job training aimed at multi-skilling (through job
rotation, job enrichment, job enlargement, introduction of semi-
autonomous work teams, quality circles and so on), or more traditional
vocational training, should be linked to changes in other aspects of
human resource management systems. These changes should affect
policies and practices of performance management, compensation and
benefits, recruitment and dismissal procedures. They should lead to the
development of internal labour market policies, giving employees an
opportunity to pursue multiple career tracks, opportunities for
professional growth, and encouragement of cost-cutting innovative
suggestions and recommendations.
Policy assistance in facilitating the restructuring
process
• Legal and macroeconomic role. Governments, in consultation with
employers’ and workers’ organizations, play an important part in
defining the legal and regulatory environment within which managers
decide on whether and how to restructure. For example, one of the
lessons that the Russian Government has learnt while pursuing economic
restructuring is that it has to modify the legal provisions to facilitate a
free flow of workers between the enterprises and the regions. Another
example is a government policy of support to SMEs through legal and
fiscal provisions, as seen in Denmark and the Netherlands.
Restructuring for corporate success
128
• Creation of labour market institutions. This book has described some of
the tools that enterprises may use to minimize the negative impact of
restructuring on people. However, a negative employment impact
cannot be avoided without an active labour market policy of the
government. The government should create or further improve systems
of vocational training, registration and advice services for the
unemployed.
• Communication. There is no such thing as over-communication when it
comes to restructuring. The workers should know their rights, their
options and their choices. They should know how to get another job or
new skills, or how to start a business. Communication and education of
this sort should be one of the most important components of a
government’s active labour market policy. The government should also
provide enterprises affected by restructuring with guidelines focusing on
what they can do to minimize the social cost of the process.
SSER is increasingly becoming a part of the long-term strategy of
enterprises and the focus of attention of governments, as well as of employers’
and workers’ representatives.
We hope that if enterprises and policy-makers choose to act in
accordance with the ILO recommendations presented in this book, a win-win
relationship between enterprises and their environment will result, focused on
long-term success and generating a better social climate favourable to
economic growth and peaceful social relations to the advantage of all.
Conclusion
129
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Restructuring for corporate success
134
INDEX
Agilent Technologies (Germany) case
study 67, 68–75
flexibility 73–4
innovation in human resources 71
innovation in technology 68
pension plans 73
stability 74
Time Accounts 72–3
values and corporate objectives 69–70
working time models 72
“alternative work schedule” 56–7
American Management Association
(AMA) 8, 19
Amicus trade union (UK) 111, 119
Barbados see Cable and Wireless
benefits
long-term 49
reduction in 24
severance 30–1, 53, 57
BorgWarner Automotive Inc, UK
operation 119–21, 125
BP (British Petroleum) 113–14
business
diversification 80
enterprise-level strategy 127–8
expansion 78
linkages 31–2
outsourcing 95
role in society 5
size of 34, 34
see also management
Cable and Wireless (Barbados) case study
94–6
company culture 96
human resource management 95
results 96
strategic challenges 94–5
Carrefour (France) case study 75–7
bourse d’emploi 77
commitments 76
restructuring programme 75–6
cash-flow 18
CATU (ceramics workers’ union, UK) 111
CIEL Group see Floreal Knitwear
civil society
and role of business 5
and value systems 35
communication 3, 10, 129
about long-term strategy 38, 120
during restructuring process 84–5, 113
and evaluation phase 45
Confédération française démocratique du
travail (CFDT) 116
Confédération française des travailleurs
chrétiens-CGC (CFE-CGC) 116
135
Note: Italic page numbers refer to figures; bold page numbers refer to boxes and tables; footnotes
are shown by superscript numbers.
consultation
on collective redundancies 101–2
EC Directive on rules of 104–5
France 117
national legal frameworks 105–7
with social partners 39, 118–19, 120
on transfers of undertakings 102–3
cooperation 32–3, 32
corporate ownership 5
costs and benefits 10
legal and administrative 21
for relevant options 39
see also tools
counselling 50–1, 65, 114
creativity 20
Danone (France) 124–5
Hungarian factory 125
decision-making 16
SWOT analysis for 40, 40
11
demographic trends 5
and early retirement 123
Denmark 128
Deutsche Bank (Germany) case study
59–67
employability (the magic cone) 63–4, 63
external job options 66–7
HR response to restructuring 62–3
internal job options 64–5
Mosaic for Employment 62
origins and background 60, 62
values and corporate objectives 61
dismissal, collective 27, 29–30
displacement
downward spiral of 21, 21
follow-up 45
interviews for 43–5, 45
13
displacement committee 41–2
announcement of plans 43
downsizing 1, 16, 128
alternative terms 6
1
alternatives to 2, 9, 15, 22, 24
continuous 22
effects of 8
and need to restructure 18
and no-lay-off policy 12–13, 22
strategies 22, 24
trends in 7
see also termination of employment;
workforce reduction
Dunaferr (Hungary) case study 85–7
employment policy 86
system of lay-offs 87, 87
East of England Development Agency
91–2, 93
employability 51–2, 63–4
employees
as assets 12
as costs 12
expectations 49, 51
morale of 19
see also workers
employers
changing relationship with workers
11–12
see also management
Employment Service (UK) 92
European Aeronautic Defence and Space
Company (EADS) (France) 116–18
European Association of Craft and Small
and Medium-sized Enterprises
(UEAPME) 107, 108
European Centre of Enterprises with
Public Participation and of Enterprises
of General Economic Interest (CEEP)
107, 108
European Commission (EC)
High-Level Conference on Socially
Sensitive Enterprise Restructuring
(Greece 2003) 10
7
Orientations for reference in managing
change and its social consequences
(2003) 108
procedure on consultation exercises
107–8
regulations on restructuring process 7,
101–5
see also European Commission (EC)
Directives
European Commission (EC) Directives
collective redundancies (98/59/EC)
101–2
Restructuring for corporate success
136
European Works Council (94/45/EC)
103–4
fixed-time work (99/70/EC) 108
national information and consultation
rules (2002/14/EC) 104–5, 108
parental leave (96/34/EC) 108
part-time work (97/81/EC) 108
transfers of undertakings (2001/23/EC)
102–3
European Employment Strategy 123
European Iron and Steel Industrial
Association (EUROFER) 86
European Monitoring Centre on Change 99
European Trade Union Confederation
(ETUC) 107, 108
European Union (EU)
examples of socially sensitive
restructuring 110–21
experience of SSER 10–13, 99
legislative framework 101–5, 121–2
lessons from social partners experience
121–5
principles of SSER 109–10
social dialogue 107–9
European Works Council (EWC) 103–4
evaluation 37, 45–6
financial 45
organizational 46
social impact 46
of SSER 2, 10
strategic 46
time frame 46
feasibility 32, 32
Finland, employment laws 106
flexibility 34, 34
functional 25, 128
numerical 24
flexible working hours 56–7, 65, 71, 79
and Time Accounts 72–3
Floreal Knitwear (Mauritius) case study
82–5
effect of 1997 Asian crisis 83
Food and Allied Workers’ Union (South
Africa) 97
Force Ouvrière (FO) 116
foreign direct investment (FDI) 5
France
job losses 99
Labour Code 106, 117
legal framework for SSER 105–7, 121
regional investment 124
restructuring experience 116–18
see also Carrefour; European Aeronautic
Defence and Space Company
(EADS); Wärtsilä
functional flexibility 25
as pro-active policy 128
General Motors see Vauxhall Motors
Germany 22
pay and bonuses 78, 124
restructuring experience 114–15
restructuring of large enterprises in
former GDR 123
see also Agilent; Deutsche Bank; Opel;
Volkswagen
globalization 5, 100
government
active labour market policy 129
legal and regulatory environment 3, 29,
105–7
role in restructuring 29, 128–9
support for restructuring 3
H & R Johnson Tiles (UK) 111–13, 122
Hewlett Packard
flexible working hours 71
profit-sharing scheme 71
see also Agilent Technologies
Hungary
Danone factory 125
see also Dunaferr
IBC Vehicles 92, 93
image see reputation
Industrial Relations Services (UK) 110
industrial society 5
Industrial and Vocational Training Board
(Mauritius) 84
information society 5
International Labour Organization (ILO)
87th Session (1999) 5–6
Decent Work (1999) 17
Index
137
Discrimination (Employment and
Occupation) Convention, 1958
(No. 111) 26
Recommendation, 1958 (No. 111) 26
Equal Remuneration Convention, 1951
(No. 100) 26
Recommendation, 1952 (No. 90) 26
High-Level Conference on Socially
Sensitive Enterprise Restructuring
(Greece 2003) 10
7
international labour standards (ILS) 6,
15, 26
Management and Corporate Citizenship
(MCC) Programme 7
obligations on member states 7
2
, 26, 27
7
Programme for the Promotion of
Labour-Management Cooperation
(PROMALCO) 94
11
Project on Socially Sensitive Enterprise
Restructuring (SSER) 8–9
4
support for ZEIM (Russian Federation)
80–1
Termination of Employment
Convention, 1982 (No. 158) 6, 26–31
Recommendation, 1982 (No. 166) 6
World Commission on the Social
Dimension of Globalization 100
international law, on restructuring process 7
interviews 43–5, 77
Italy
extraordinary wages guarantee fund
(cassa integrazione guadagni, CIG) 116
restructuring experience 115–16
job creation 5–6
job searches
external 52–3, 66, 77, 89–90, 92, 113
Futurum (Sweden) 89–90
internal 52, 64–5, 87, 92, 111
Jobshop (UK) 81–2
job security 49
knowledge ratio (proportion of skilled
workers) 34–5
labour force participation, older workers
123
labour market institutions 3, 129
labour-management relations 2, 13
good practice 25
see also management; trade unions
Langhammer, Fred, CEO of Estée Lauder 22
large enterprises 34, 34
regional dependence on 123–4
leave, flexible 57
legality 32, 33, 34, 35
EU legal framework 101–5, 121–2
legal framework for workforce
reduction 38–9
national frameworks 105–7, 121–2
Levi Strauss (United States) case study 98
severance package 98
location 35
long-term strategy 11, 17, 38, 127
management
future HR strategy 45
and need for workforce reduction
18–21, 23
options available 22, 23, 24–5
plan for restructuring 1, 9, 41
Manpower Deutschland 66
Marconi (Italy) 115, 124
Marks & Spencer, in France 106
Mauritius see Floreal Knitwear
Mauritius Employers Federation (MEF) 84
mergers and acquisitions 102–3
employers’ obligations 28
Michelin (United Kingdom) case study 81–2
Jobshop 81–2
mobility 54–5, 75–6
geographic 55, 64–5, 92
Morito, Akio, chairman of Sony 23
multinational enterprises (MNEs) 34, 34,
100
Netherlands 128
non-discrimination 32, 33
Opel (Germany), working hours cut 115
opportunity creation 32, 33
Organisation for Economic Co-operation
and Development (OECD), Guidelines
for multinational enterprises (2000) 100
Restructuring for corporate success
138
outplacement consultancy firms 53
over-capacity 19
and sub-contracting 56–7
parental leave 108
part-time working 24, 56, 65, 72
EU directive on 108
privatization 19
product quality, effect of downsizing on 8, 20
productivity
effect of downsizing on 8, 19, 20
improvement in 47
profit-sharing 71
profitability, effect of downsizing on 8
reconciliation 16
reflection (thinking before acting) 16
Reinert, Uwe, Boston Consulting Group 23
Renault (France), closure of Belgian plant 107
reputation 122
negative effect on 20–1
restructuring 6, 16–17
business framework 31–3
employers’ obligations 28
European figures 99
government support for 3
as joint agreement 1, 9
and long-term strategy 11, 17, 38, 127
management plan for 1, 9, 41
options 10, 17, 22, 23, 24–5
process of 2, 10, 16
time as factor in 109
tools for 2, 9, 40, 42–3, 49–57
in UK 110–14
see also socially sensitive enterprise
restructuring (SSER); workforce
reduction
retirement
early/partial 55–6, 122–3
pension schemes 73
Russian Federation
government policies 128
see also ZEIM Group
salaries
and bonuses 78, 120, 124
pay structure simplification 112
voluntary cuts 24, 74, 115
severance packages 30–1, 53, 57, 112
Levi Strauss 98
tax optimization 67
shareholders 18
skills assessment 51, 83–4, 86–7, 92, 113
small and medium-sized businesses (SMEs)
34, 34
creation of 53–4, 66, 82, 95, 97
government support for 128
social dialogue 10, 15, 30–1
EU Directives 101–2
at EU level 107–9
influence of 124–5
social partners, consultation with 39,
118–19
socially sensitive enterprise restructuring
(SSER)
EU legislative framework 101–5, 121–2
EU principles of 109–10
European experience 10–13, 99, 110–21
evaluation of 2, 10
government role in 29, 128–9
ILO labour standards and 6–7, 129
ILO project on 8–9
international guidance 100
lessons from EU experience 121–5
national legal frameworks 105–7, 121–2
outline 1–3
principles of 46–7
in UK 110–14
see also restructuring; tools
socially sensitive enterprise restructuring
(SSER), case studies
Agilent Technologies 67–75
Cable and Wireless 94–6
Carrefour 75–7
Deutsche Bank 59–67
Dunaferr 85–7
Floreal Knitwear 82–5
Levi Strauss 98
Michelin UK 81–2
South African Breweries 97
Svenska Posten 88–90
Vauxhall Motors 90–3
Volkswagen 77–9
ZEIM Group 79–81
Index
139
Society for Human Resource Management
(US), “2001 Layoffs and Job Security
Survey” 8
Somavia, Juan, Director-General of ILO
5–6, 17
South African Breweries case study 97
staff turnover 19, 20
sub-contracted employment 56–7
Svenska Posten (Sweden) case study 88–90
Futurum programme 89–90
vision and mission 88–9
Sweden 122, 125
Employment Protection Act 106
see also Svenska Posten
SWOT analysis, for decision-making 40,
40
11
technological change 5
termination of employment 7, 26–7
ILO Convention 6, 26–31
and no-lay-off policy 12–13
prohibited grounds 27–8
reactions to 44, 50
social consequences of 7, 15
valid reasons 27
time frame 38
evaluation 46
tools
alternative work schedule 56–7
counselling 50–1
creation of SMEs 53–4
early/partial retirement 55–6
external job search 52–3
internal job search 52, 64–5
management buy-in (MBI) 54
management buy-out (MBO) 54, 80
mobility 54–5, 64–5
skills assessment 51
training and employability 51–2, 63–4
see also severance packages; socially
sensitive enterprise restructuring
(SSER), case studies
trade unions
France 116
Italy 115
partnership with 78, 97, 118–19, 122, 125
UK 111, 119–21
Trades and General Workers Union
(TGWU) (UK) 111
training
and employability 51–2, 63–4, 65, 78,
84, 92
for functional flexibility 128
retraining 112
retraining leave 118
for worker development 120
transfers of undertakings 102–3
trust, erosion of 19
unemployment insurance 31
Union of Industrial and Employers
Confederations of Europe (UNICE)
107, 108
United Kingdom
ceramic tile manufacturing industry
111–13
experience of restructuring 110–11
job losses 99
oil industry 113–14
partnership agreements 118, 119–21, 125
see also BorgWarner; BP; Michelin;
Vauxhall Motors
United States, research on downsizing 8,
57
1
value systems 35
Vauxhall Motors Ltd (United Kingdom)
case study 90–3
Luton Vauxhall Partnership 91–2
origins 91
restructuring process and principles
92–3
viability 32, 32
Volkswagen (Germany) case study 77–9
change in strategy 78–9
downsizing 77–8, 114–15
four-day week 114
Wärtsilä (France) 118
Wharton Center for Human Resources 11
women, in technical workforce 79
workers
changing relationship with employers
11–12
Restructuring for corporate success
140
collective dismissal 27, 29–30
consultation with 7, 10, 15, 28
creation of preferential conditions 7
displacement interviews 43–5
impact of workforce reduction on 19
mobility 54–5, 64–5
non-discriminatory policies 7
reaction to redundancy 44, 50–1
severance benefits 30–1, 53, 57
social security benefits 30
teamwork schemes 78, 120
unemployment insurance 31
see also tools
workforce reduction
action phase 37, 43–5
alternatives to 23
business framework 31–3, 32
clarification of term 18
evaluation phase 37, 45–6
good practice 25–31
hidden costs 19–20, 23
impact of 19
as management task 18–21, 23
preparation phase 36, 40–3
reasons for 18–19
strategy 33–5, 34, 37, 38
study phase 36, 37–40
worst-case examples 22
see also downsizing; severance packages
working hours
reduced 77, 112, 114, 115, 116
see also flexible working hours; part-
time working
workload (of “survivors”), effect of
downsizing on 8, 113
World Commission on the Social
Dimension of Globalization (ILO) 100
ZEIM Group (Russian Federation) case
study 79–81
socially responsible restructuring
process 80–1
Index
141

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