Corus’s UK workforce faces deep job cuts

In March 2003, the Anglo-Dutch steel producer Corus was forced to abandon the sale of its aluminium business after the company’s Dutch supervisory board blocked the proposed move. This looks certain to result in thousands of job losses in the company’s UK operations.

In March 2003, Corus, the Anglo-Dutch steel producer, was thrown into a fresh crisis after it was forced to abandon the sale of its aluminium business. The company’s losses have been mounting despite repeated measures designed to cut costs since it was formed in 1999 through the merger of British Steel and Hoogovens. The crisis looks certain to lead to thousands of job losses in the UK, and conceivably could even lead to the firm becoming bankrupt. Debts at Corus are around GBP 1.2 billion, and the company’s share price has fallen to just over GBP 0.04, valuing the company at around GBP 150 million, compared with nearly GBP 4 billion at the time of the merger.

The latest crisis has been sparked by the decision of the Dutch supervisory board on 11 March to veto the sale of the aluminium business to Pechiney of France for GBP 543 million. This was seen by senior managers of the company as a way of paying off some of the group’s debt, but the plan met stiff resistance in the Netherlands where most of the aluminium operations are located. Many in the Dutch part of the company apparently saw the sale as the profitable and efficient Dutch part of the firm suffering to 'bail out' the ailing British part. The supervisory board used its power under Dutch law to block the restructuring, arguing that the proceeds should be invested in the Netherlands. Senior managers at Corus challenged the decision in the courts on the basis that it was 'irresponsible', but on 13 March the Dutch Commercial Court of Appeal rejected this claim. The company now looks set to turn to its UK operations to find further cost savings.

Background

The merger creating Corus took place in the context of overcapacity in the sector. Other mergers between steel firms have occurred, notably that which brought together Usinor of France, Arbed of Luxembourg and Aceralia of Spain to create Arcelor (LU0201191F), with a prime motive for such mergers being the opportunity to produce cost savings through removing duplicate functions. At the time of the Corus merger, managers promised shareholders that savings of GBP 194 million a year would result. It was evident that this would mean large-scale redundancies (UK9908125F).

By early 2001, with the market for steel turning markedly down, it was apparent that Corus would be suffering very large financial losses. In February of that year, management announced that 6,000 employees in the British operations would be losing their jobs. The union representing most of Corus’s British workforce, the Iron and Steel Trade Confederation (ISTC), sought to pressurise the company into amending its plans, coming up with counter-proposals which included buying a plant from the company and short-time working to tide the company over until the market picked up. However, the legal framework in the UK meant that these proposals would have to find support from managers if they were to have any impact and the company was clearly adamant that it should press on with its original plans (UK0102113F and UK0107140F). Meanwhile, in the Netherlands redundancies were also taking place. Only six months after the merger, there had been a 'wildcat' (or unofficial) strike at the huge and profitable Ijmuden plant following the announcement that the steel manufacturing department would be shut, with the result of 590 jobs being cut (NL0001178F). In 2001 it was announced that 1,100 further jobs would be cut as the company’s losses became apparent.

During the first two years or so of the post-merger period, it appeared that employee representatives were liasing more closely across the two countries. When the axe fell on 6,000 British workers in early 2001, the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) wrote to the ISTC, pledging support for its campaign of opposition to the cuts. Moreover, the Dutch union hinted that it might support a boycott at the Ijmuden plant of any work that was to be transferred from the UK to the Netherlands.

Even after the large scale cuts of 2001, the company’s troubles continued. The share price fell by more than 50% during 2002, keeping up the pressure on senior managers to be seen to be doing something about the situation. In this context, management at Corus sought a further merger, this time with the Brazilian company CSN, but within weeks of the announcement the merger was abandoned. Following this, the firm signalled a move away from its 'multi-metal' strategy by announcing plans to sell its aluminium business to Pechiney.

Prospects

The forced abandonment of the proposed sale of the aluminium business not only triggered an EUR 20 million compensation payment from Corus to Pechiney, but has also brought to the surface deep tensions between the different parts of the business across the two countries. Leo Berndsen, the chair of the Corus Dutch supervisory board, has gone on record as saying that what was portrayed as a 'merger of equals' was in effect a takeover of Hoogovens by British Steel. He said: 'There have been culture clashes. The Dutch way of doing things emphasises consensus while the British style is to give orders and say 'let’s get on with it'.' According to press reports, many in the Dutch part of the firm would welcome a de-merger. Following the decision by the supervisory board, Mick den Boogert, a lawyer representing the three Dutch members of the board, said that 'the supervisory board has reached the conclusion that it is not necessary to weaken Dutch Corus by selling profitable parts, considering it might be possible that the merger realised not long ago might be reversed.'

It is unlikely, however, that Corus management will seek a de-merger. Rather, it seems certain that it will look to close one or more British sites, with inevitable job losses. There is speculation that the company will wield the axe on one of its three 'integrated' sites: Teeside which employs 3,000 people; Scunthorpe where 4,000 people work; and Port Talbot in South Wales which employs 3,000. Alternatively, the firm may look to close a number of smaller sites, with Rotherham (1,600 employees), Trostre (1,000 employees), Stocksbridge (900 employees) and Shotton (720 employees) all seeming vulnerable.

The ISTC union, which represents most of the British workforce, has called for resignations among senior managers, arguing that they no longer command the confidence of those inside or outside the firm. On 14 March 2003, Tony Pedder, the group’s chief executive, did indeed resign but the union was shocked by his GBP 550,000 pay-off. The ISTC general secretary, Michael Leahy, described it as a 'high reward for failure'. More generally, the union’s hopes of liaising more closely with its Dutch counterparts appear to have been dealt a blow as the proposed sale of the aluminium business created tensions between the unions in the two countries.

Commentary

The dispute over the cost-cutting and restructuring at Corus demonstrates the way in which both managers and employee representatives at local level within multinational companies can draw on the local institutional framework to protect their interests. The ability of British workers to shape management’s plans during and after the merger has clearly been much more limited than that of their Dutch counterparts. The significance of the role of the Dutch supervisory board in particular, and the institutions and regulations in the Netherlands more generally, lies not only in the way that they have limited the restructuring in the Netherlands itself, but also in the knock-on effects on restructuring in other countries. The result is now certain to be further deep cuts in employment in the UK, with these coming in parts of the country which are already suffering from unemployment above the national average. (Tony Edwards, King’s College, University of London)