Wave of reorganisations at major Dutch groups: an end to the polder model?

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Early November 1998 marked the start of a turbulent period for the Dutch economy, with major company reorganisations announced at Philips, Shell, KPN and Baan, the causes of which varied widely. The largest trade union confederation, FNV, called for the cabinet to take measures to address the situation, while the VNO-NCW employers' confederation views FNV's reaction as being out of proportion. Nevertheless, it is too early to gauge the long-term consequences that this stand-off between employers and trade unions will have on the Dutch system of consultation (the so-called "polder model").

Early November 1998 saw the announcement of major company reorganisations at Philips, Shell, KPN and Baan,

Shell

On 12 November 1998, Shell announced plans to reorganise all its European activities dealing with the refining, sale and distribution of oil products. The company aims to achieve an annual reduction of NLG 300 million in expenditure by 2000. As many as 3,000 jobs will disappear as a result of the reorganisation, 200 of which (10% of the 2,000 refining and sales employees) will be amongst Dutch employees. Shell has stated that there will be no compulsory redundancies in the Netherlands.

One objective of the reorganisation is to structure the company's European activities around each division, as opposed to each country. To that end, the closure of four national head offices, including the Shell-Holland office in Rotterdam, had been announced two months previously. On 6 November, employees at the Shell laboratory in Rijswijk were told that they would be facing drastic budget cuts. The 1999 budget will constitute only 80% of the 1998 budget, and the 900-strong workforce fears that substantial job losses are inevitable.

Shell management claims that the rapid succession of reorganisations was inevitable. The future may even hold new reorganisations: the cooperative alliance with Texaco in the area of refining and sales will most likely lead to redundancies. In addition, Shell's less profitable chemicals division also seems a likely candidate for reorganisation. Unions have raised criticisms about the developments. The Trade Union for Middle and Higher Personnel (Vereniging voor Hoger Personeel, VHP) points out that the company is still profitable, and believes that the current trend of reorganisation is being carried out to meet the high demands of shareholders. The VHP claims that the recent spate of reorganisations has alienated staff from the company.

Baan

In late October 1998, the software manufacturer, Baan, announced short-term plans to cut its 6,000-strong workforce by 20%. As many as 120 jobs will be cut in the Netherlands. Unions were highly surprised by the announcement. On 5 November, the unions picketed the company's head office in Barneveld prior to the start of negotiations on the redundancy plans. A settlement has since been reached: there will be no compulsory redundancies. However, employees were made redundant at Baan All Finance, a subsidiary of Vanenburg Ventures, the investment company headed by the founders of the listed Baan company, the Baan brothers. Vanenburg Ventures still owns 39% of the Baan company's shares. In part, the problems at Vanenburg Ventures can be traced back to the spectacular drop in value of Baan shares over the past few months.

KPN

Former state-owned subsidiary, KPN Telecom, made an announcement on 3 November to the effect that 3,000 of its 32,000 full-time jobs will disappear over the next three years. Two-thirds of the redundancies will be amongst technicians. In addition, 1,300 part-time jobs will be cut. However, an estimated 1,000 new jobs are to be created in mobile telecommunications and internet services sectors. The company has allocated NLG 800 million for the reorganisation process.

Trade unions fear that some 6,000 employees may lose their jobs, due to the fact that many positions are on a part-time basis. The unions also state that options for the redeployment of personnel are limited due to the fact that supply and demand rarely coincide. The NLG 800 million should go towards retraining programmes, according to one union representative. The CFO trade union, affiliated to the Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) would like to see the further expansion of KPN's existing "mobility centre" for retraining staff, which has an annual capacity of 1,200 people at present.

Philips

In a statement in the UK "Financial Times" on 2 November, Philips chief executive officer Cor Boonstra announced that the group was planning to shut down at least 70 of its 244 production sites worldwide within the next four years. Mr Boonstra claims that Philips has built up excess production capacity over the years. There are also plans to outsource a much wider range of activities in the future. The number of worldwide branches has dropped by 25 since the beginning of 1998. Company spokespeople stress that no detailed plans have yet been drawn up.

The trade union reaction was highly indignant, especially because the announcement was made in a foreign publication without any form of prior consultation. The chair of the largest union represented at Philips, FNV Bondgenoten, said that such behaviour was not in keeping with the Dutch "consultation model". The chair of the largest employers' association, the Confederation of Netherlands Industry and Employers (VNO-NCW), dismissed the criticism, maintaining that companies have been announcing their intentions at the earliest possible date precisely in order to leave employees and unions sufficient space to manoeuvre. FNV-Bondgenoten announced that it would not accept harsh reorganisation measures at Philips. Unions in Belgium, France, Spain and the United Kingdom have voiced their support for this position.

Unions on the offensive

Lodewijk de Waal, the chair of the Federation of Dutch Trade Unions (Federatie Nederlandse Vakbeweging, FNV), the largest trade union confederation in the Netherlands, called for the government to intervene in the various reorganisation plans, especially those at Philips and KPN. In Mr De Waal's view, the situation at Philips and KPN differs fundamentally from that at Baan, since both Philips and KPN are profitable firms. The FNV chair has called for the Minister for Social Affairs and Employment to prohibit labour offices from issuing dismissal permits to the companies in question.

The left-wing political parties, Groen Links and the Socialistische Partij, support Mr De Waal's appeal. The leading party in the Dutch coalition government, the Labour Party (PvdA), supports the idea, but views a ban on redundancies as an extreme measure. The opposition Christian Democrats (CDA) oppose a ban on redundancies, but would like to see the government take Philips' and KPN's redundancy measures into account when reviewing any applications for subsidies. The chair of the VNO-NCW employers' organisation was dismayed at Mr De Waal's appeal, claiming that the FNV is regressing to views that prevailed in the 1970s.

Commentary

Do these reorganisations mark the end of the successful Dutch "consultation" or "polder model" (NL9710137F)? It might appear so initially: a large number of jobs stand to be cut, both in and outside the Netherlands, and the consultative climate has not been left unscathed by the current stand-off .

However, it would be premature to assume that the "polder model" has become redundant. There are different causes underlying each of the reorganisations in question. Baan has been confronted with firms cancelling computer projects because of the priority granted to solving the "millennium bug" problems, and is being punished by shareholders for its complex financial structure. Shell has been suffering from low oil prices. KPN Telecom is facing liberalisation of the telecommunications sector, and Philips has had to deal with the repercussions of heavy international competition. Siemens has also recently announced drastic reorganisation measures.

There is a common thread to these reorganisations, however. International groups are devoting more and more attention to the demands of their shareholders. High yield requirements seem to have been one of the driving forces behind the reorganisations at groups such as Shell and Philips. The heightened emphasis on shareholder value and stock exchange performance has been cause for words of warning from the unions: if companies decide to prioritise short-term objectives, unions will follow suit. Such a development could certainly pose a serious threat to the Dutch system of consultation, even more so than the current (coincidental?) wave of reorganisations. (Robbert van het Kaar, HSI)