Corus announces large-scale redundancies

At the beginning of February 2000, the Anglo-Dutch steelmaking company Corus announced plans to make 6,000 of its UK employees redundant. This feature examines the context of the restructuring and the implications it raises.

On 1 February 2000, management at Corus, the Anglo-Dutch steel-maker, announced that there were to be 6,000 job losses in its UK operations over the next two years in an attempt to stem losses at the troubled group. The cuts are to fall particularly hard in South Wales where around half of the redundancies are to be made; Teeside will also be hit with the loss of at least 1,000 jobs. The announcement of further cuts continues the dramatic contraction in the numbers of people employed in the steel industry in the UK – down from 300,000 in 1970 to a forecast of 22,000 in 2003.

The announcement has caused a political storm in the UK. Since the competitiveness of Corus's UK operations has been harmed by the high value of the pound, the job cuts have been seen by some observers as further evidence of the need for the UK to join the European single currency, and to do so at a competitive exchange rate. Others have focused on the absence of any legal obligation on management in the UK to consult their workforces before announcing this course of action. John Monks, general secretary of the Trades Union Congress, argued that there was "no excuse for the way Corus has kept the workforce, their unions and the government in the dark about their plans. Its behaviour can only strengthen the case for information and consultation rights" (UK0101110F). The episode has also provoked criticism by the Prime Minister, Tony Blair, of the company for its apparent unwillingness to discuss the cuts with the government.

Background

Corus was created through the merger of British Steel and the Dutch firm Hoogovens in June 1999 in a deal valued at GBP 3.9 billion (UK9908125F). At the time, the then chief executive, John Bryant, was quoted as saying: "I am confident that this strategic merger of two strong companies will create a unique group which will be to the long-term benefit of shareholders, customers and employees." In order to demonstrate the company's strong financial position, and to convince shareholders of the attraction of the deal, a special dividend was issued to "return GBP 700 million to shareholders".

However, the merged company's first 19 months were anything but smooth. In 2000, Corus's UK operations lost GBP 350 million and the share price slumped to stand at around half of its value at the time of the merger. This led to the resignation in late 2000 of the joint chief executives, John Bryant and Hoogovens' Fokko van Duyne, who were replaced by SirBrian Moffat, a key figure in the rationalisation of British Steel in the 1980s.

Prior to the most recent announcement, around 4,000 jobs had already been cut since the merger. On the industrial relations front, tension between management and the workforce was already becoming evident as Corus's position became more problematic. This was true both in the UK, where the steel workers' union, the Iron and Steel Trades Confederation (ISTC) has repeatedly expressed concern about the failure of management to offer assurances on job security, and in the Netherlands where a wildcat strike took place at the Ijmuden plant in November 1999 over the announcement of 590 redundancies (NL0001178F).

Union response

It is clear that the unions in both the UK and the Netherlands intend to exert pressure on management to amend the rationalisation plans. In advance of the announcement, the ISTC, believed to have substantial financial reserves, let it be known that it was interested in buying the large, integrated plant in Llanwern in South Wales from Corus as a way of safeguarding jobs. This plan did not find favour with Corus management, however, and appears to have now been dropped, particularly as the plant is not to be closed entirely as had been feared.

The ISTC is switching its attention to lobbying shareholders, arguing that the closures and redundancies are a "short-termist" response to temporary factors, particularly the strength of sterling against the euro. In this context, the Amalgamated Engineering and Electrical Union, another union with members in the steel industry, has put forward proposals for the Llanwern plant to be "mothballed"; this would involve its capacity being maintained so that it is still available to restart production when the pound falls in value against the euro, making UK production profitable again. Management has indicated that these proposals will be listened to, but is refusing to commit itself. If no agreement can be reached, the unions have made clear that calling a ballot for industrial action is a distinct possibility.

There are also signs that unions in the UK and the Netherlands are looking to coordinate their response to management's plans. The Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) has written to the ISTC pledging its support and has threatened to resist plans by management to transfer production from South Wales to Ijmuden. Arguably, the Corus European Works Council has served to strengthen links between the two unions, increasing the potential for them to work together.

Commentary

The problems at Corus serve to highlight a number of wider issues. First, how can unions seek to minimise the adverse employment consequences of mergers and acquisitions? There is now some limited evidence suggesting that a number of unions are looking to coordinate their response to mergers with their counterparts in other countries. In the case of the takeover by the German-owned Allianz of the French insurance firm, Assurances générales de France (AGF), union cooperation succeeded in gaining management support in 1998 for a social dialogue group (""groupe de dialogue social) which went well beyond legal requirements on establishing a consultative body to consider the implications of the merger (FR9806118N). Transnational associations of unions also appear to be becoming more proactive in responding to mergers. For example, unions in the telecommunications sector successfully lobbied the European competition authorities recently in order to block the merger between World Com and Sprint, while finance unions have taken to targeting shareholders with information concerning the poor performance of mergers, in an attempt to persuade them not to give their acceptance to a merger.

Second, the disappointing performance of Corus in the post-merger period appears to be not untypical of merged firms. A range of sources indicate that profitability fails to live up to the predictions of management at the time of the merger (UK9807136F). Personnel and industrial relations problems are often cited as one possible cause of this: limited consultation, reorganisation of work and widespread fears about job security in merged firms are all possible contributors to poor economic performance. Yet the merger wave appears to show no sign of abating.

Third, and related to the second point, the wave of cross-border mergers and acquisitions appears to be one way in which a number of internationalised firms appear to be governed and run along "Anglo-Saxon" lines. The primacy of shareholder interests, a key feature of the UK and US financial systems, shows up very strongly in Corus. Financial analysts in London expressed delight at the scale of the cutbacks, and Corus's share price rose almost 10%. Increasingly in such situations, job security and consultation appear to be secondary to creating "shareholder value". (Tony Edwards, Kingston Business School)

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