EMCC dossier on industrial restructuring
Industrial restructuring is a striking feature of Europe's economic landscape today. There is wide agreement among employees, social partner organisations and policymakers at all levels that the way industrial restructuring is managed can, and must be improved. A rich body of policy initiatives, conceptual material and practical experience is available, identifying the main issues and challenges governing industrial restructuring. This EMCC dossier aims at presenting a selection of relevant data sources in a systematic way. It reveals the principles of, and various approaches to, corporate restructuring. A series of links provide access to a wide variety of relevant information sources.
Economic and social renewal is at the heart of the Lisbon strategy agreed in 2001. Strengthening competitiveness and social cohesion are its dual guiding principles. The successful management of necessary change processes is the prerequisite for achieving the goal of making the European Union 'the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth, with more jobs and greater social cohesion.'
The restructuring of companies is part of this process. The need to restructure stems from a number of forces: recessionary pressures, economic uncertainty, overcapacity. In short the need to stay competitive. Businesses have to identify the drivers of change shaping tomorrow's economy and adapt. These driving forces include major changes in transportation and communication technology, which have led to the internationalisation of markets and a fierce increase in competition.
The decision to restructure or to ‘reorganise activities’, is taken with the aim of improving economic performance. However, social and environmental issues are also part of the equation. And the impact on employment, both quantity and quality, is significant. It affects employees' careers and their family lives. It changes economic and social structures on a local, regional and sometimes even national level.
Even if patterns of restructuring vary from one country to another, downsizing, outsourcing and layoffs are still part of the traditional response to the fragile economic climate and the uncertainties it brings. The surge in merger activities across Europe and beyond, is seen as a response to the need for increased competitiveness. The economic viability of many of these activities has repeatedly been questioned.
In recent times, however, more imaginative approaches to deal with the social effects of industrial restructuring have been developed. Training breaks, sabbaticals, job-sharing, remote working and reduced working hours, as well as encouraging the take-up of maternity and parental leave are part of what is called ‘reflective restructuring’. ‘Reflective restructuring’ takes into account the existing overlap between economic, social and environmental issues in every restructuring case.
The Foundation offers a rich source of online information on the subject of industrial restructuring. A fact sheet (also available as pdf), first published for the European Parliament public hearing on industrial restructuring on 17 June, 2003, links to the large body of relevant Foundation work on this important issue.
The European Restructuring Monitor (ERM) which is part of the emcc portal provides up-to-date news and analysis on company restructuring in Europe. Each case is presented in a fact sheet facilitating statistical comparisons across countries, sectors and types of restructuring.
The following is a collection of links providing further information on industrial restructuring and its main issues and challenges. It also presents some relevant case studies to highlight the different practices adopted in tackling restructuring situations.
In February 2001, the European Parliament adopted a resolution on the social consequences of industrial restructuring (available in all EU languages). The resolution makes a number of requests to various bodies, including a call for a revision of the European Works Councils (EWC) Directive and adoption of the draft Directive on national-level information and consultation of employees. The resolution also calls for a reform of the legislative framework relating to the industrial relations and employment consequences of restructuring.
The social partners
The social partners consultation paper on Anticipating and managing change: a dynamic approach to the social aspects of company restructuring (available as pdf) was adopted by the Commission in January 2002. This document identifies and outlines:
- a number of principles for action, which would support business good practice in restructuring situations;
- appropriate initiatives at community cross-industry and sectoral level to develop a positive approach to corporate restructuring in order to facilitate the exchange of good practice at all levels;
- community policies, which contribute to anticipating change and managing its consequences for employment.
The consultation paper is also available in French and German, which can be accessed through the labour, law and work organisation publications page of DG Employment and Social Affairs.
French interministerial task force
The French government has set up an interministerial task force to coordinate government action addressing company restructuring and its impact on employees. The task force, directed by Claude Viet, the former general at the post office ( La Poste ), works in close cooperation with the social partners and others involved at regional and local level.
In January 2003, the task force published a first synthesis report Rapport de synthèse de la mission exploratoire sur l’accompagnement des mutations économiques (available as pdf in French only) advocating 'a shared culture of change'. The report takes stock of the restructuring process in France where company restructuring is encountered, for the most part, as a totally unforeseen event. This throws the company into crisis management rather than a planned and thought through process for economic change.
Studies on restructuring: approaches, challenges and case studies
Anticipating and managing change: a dynamic approach to the social aspects of corporate restructuring
Following the consultation paper from the social partners, the Commission has asked a group of experts to carry out a comparative analysis on the rules, and in particular, the legislative framework governing the anticipation and management of corporate restructuring in the 15 EU Member States.
The corporate restructuring report (available as pdf in English only), which is published under the same title as the consultation paper, focuses on the legislative framework and collective agreements. It also examines corporate practices regarding collective redundancies, employability, external and territorial responsibility, worker involvement and competition procedures. Relevant case studies help to illustrate each of the topics analysed.
Management of collective redundancies in seven EU countries
Against the background of the criticism regarding the French legal framework in the case of collective redundancies, the French Ministry for Labour and Solidarity ( Ministère de l’Emploi et de la Solidarité ) initiated a study comparing the rules governing collective redundancies in seven EU countries. The countries covered are Belgium, France, Germany, Italy, Spain, Sweden and the United Kingdom (UK). The final report of the comparison, Les conditions du licenciement collectif pour raisons économiques - Comparaison entre sept pays d'Europe (available as pdf in French only), tackles the following issues for each country:
- the regulatory system as currently laid down by law;
- the way consultation of the works council or workforce delegates and the social partners is put in place;
- how public authorities are brought in;
- the timeframe foreseen by law or collective agreements, excluding legal contentious cases;
- in the case of a contentious legal situation and the resultant effects on the whole procedure;
- the provision of accompanying measures.
Handling restructuring: collective agreements on employment and competitiveness
This Foundation report based on 43 case studies carried out in 11 EU Member States, explores the key features of PECS (pacts for employment and competitiveness). It shows how these agreements can contribute to employment creation, a more flexible working environment and a partnership approach to industrial relations. Thirty of these case studies, including the Telia case study, are available in an online casebook , which can be searched by sector and by country.
The Telia case study puts the spotlight on the Swedish state-controlled telecom company, which began an innovative three-year reorganisation project in 1995, considering alternative solutions to compulsory redundancies.
Managing local industrial crises in Europe
In September 2000 the Bernhard Brunhes Consultancy in France published an online dossier (available in French only) on how to manage local industrial crises in Europe, resulting from a study carried out for the European Commission. It gives access to:
- the final report, Études de cas sur le traitement des conséquences sociales des grandes restructurations d'entreprises , which analyses restructuring induced by competitiveness, social measures orientated towards employment, partnership initiatives towards a local economic redevelopment and new practices. The report concludes with recommendations addressing aspects of the social and local consequences of restructuring and stressing the necessity of anticipation in order to cope with continuous change.
- 20 case studies from various sectors such as steel including the restructuring of Falck in Sesto San Giovanni (Italy); automotive; banking and financial services; information technology, electrical; energy; petrochemical; and textile and leather.
Corporate social responsibility (CSR) in France, Germany and the UK
These twelve case studies look at how European companies are developing models of best practice in the field of working and employment conditions and CSR. The companies selected are from four countries - France, Germany, Hungary and the United Kingdom - and cover sectors as diverse as the automotive, chemical, financial services, post and telecommunications, petrochemical and steel sectors. Restructuring and subcontracting were two specific issues highlighted in all case studies.
The April issue of Managing Best Practice , which is the Work Foundation's (formerly the Industrial Society, UK) monthly research digest, tackles the subject of ' Managing Redundancy ' including surveys on post-redundancy strategy and strategy approaches, management training, impact on survivors and support for survivors as well as several case studies from multinational companies. It also showed that managers in the UK are ill-equipped to handle job cuts, which were likely to have a negative effect on the remaining employees.
Reflective restructuring: Downsizing and economic uncertainty
This policy perspective paper (available as pdf in English only) published in January 2002 by the Work Foundation analyses imaginative and more reflective approaches to restructuring, avoiding layoffs and retaining valued human capital to deal with the social effects of restructuring. Examples from different companies in the UK and the United States illustrate how businesses deal with losses without resorting to redundancies by offering a range of other options, such as training breaks, sabbaticals, job sharing, encouraging the take-up of maternity / parental leave, remote working or reduced hour working.
Mergers, acquisitions and takeover bids
The proposed EU takeover directive
This proposal for an EU takeover directive (available as pdf), which is part of the Financial Services Action Plan (FSA) sets out to offer European firms greater legal certainty for cross-border takeover bids in the interest of all concerned, including their employees. It also aims to to protect minority shareholders where the control of a company changes hands. So far, Member States remain split over agreement on Article 9 which aims at ensuring shareholders can vote on defensive measures to be taken after a bid has been publicised, and on Article 11 which neutralises measures that could be interpreted as pre-bid defences, including voting right restrictions.
In this current revised proposal, the Commission followed the recommendations made by the High Level Group of legal experts headed by Jaap de Winter. The experts’ report on A modern regulatory framework for company law in Europe (available as pdf in English) , states that any proposal aimed at creating a level playing field for takeover bids in the EU should be guided by two main principles:
- the ultimate decision should lie with the shareholders, not with the company board;
- there needs to be a proportionality between risk-bearing capital and control.
The authors of the report also believe that the American example of takeover regulation should not be followed in Europe.
The takeover directive proposal is available in all EU languages, which can be accessed through the meeting documents page of the European Parliament's Committee on Economic and Monetary Affairs.
Mergers in Europe (DOME) database
A reliable resource for information on more than a thousand merger cases under examination by the European Commission since 1990, is the database of mergers in Europe, DOME . It was created at the Kiel Institute of World Economics in order to improve the data source for empirical research on mergers in Europe.
Online information on mergers and acquisitions, international public offerings, joint ventures and private equity deals
Zephyr is an online information resource covering various types of deals worldwide: mergers and acquisition activities, international public offerings (IPOs), joint ventures and private equity deals. The database, accessible for subscribers only, provides a search facility to access deals and advisors, and to compare deals against each other. A comparative presentation in tables and graphs can also be generated.
Currently still freely accessible, a quarterly synopsis (available as pdf in English only) reviews M&A activities, private equity deals and IPOs including comparative global figures from American and Asian transactions. The synopsis also includes a country and sector focus as well as an analysis of the most important deal of the quarter and an advisor analysis.
Employment effects of mergers and acquisitions in two sectors
The International Labour Office (ILO) has explored mergers and acquisition (M&A) trends in the banking and financial services and commerce sectors. Both reports were produced by the ILO as a basis for discussion at the relevant tripartite meetings held in Geneva in February 2001 and April 2003 respectively.
The study The employment impact of mergers and acquisitions in the banking and financial services sector (2001) notes that two thirds of M&As fail to achieve their objectives for various reasons. The report highlights:
- the general decline in employment in the sector, which cannot be solely attributed to the effects of M&As since greater competition, increased use of information and communication technology (ICT) and financial distress are contributory factors;
- the potential for social dialogue within the institutional framework in preserving harmonious industrial relations in the context of M&A-related employment losses.
The report Employment effects of mergers and acquisitions in commerce (2003) states that mergers and acquisitions are driving the commerce sector towards ever greater concentration, leading to the emergence of very large global and regional retailers and wholesalers. It cites a number of recent cases in the European commerce sector and looks at:
- measures to be adopted by governments and social partners in order to promote employment growth in commerce when driven by M&As;
- how the quality of employment could be improved, and how employment concerns and the need for enterprise restructuring can be reconciled.