In March 1998, Germany's Thyssen AG and Krupp Hoesch AG steel companies, their works councils and the IG Metall trade union concluded a bundle of agreements concerning industrial relations issues arising from the Thyssen Krupp merger.
Mergers and acquisitions in Germany
Corporate Germany is changing. Pressures of low-cost competition from abroad and high costs in Germany, boosted by the European Single Market and the preparations for EU Economic and Monetary Union, are forcing companies to restructure. Mergers and acquisitions are one means of corporate change. The consultants M&A International GmBH report that in 1997 some 1,900 companies saw a change of majority stakeholder, a 7.2% increase on 1996. In only 933 cases was the buyer a German company, implying that Germany is an important target of cross-border acquisitions.
Organisational change associated with mergers and acquisitions has serious implications for work organisation, industrial relations and management systems. One recent example which raised public interest was the merger of the German steel producers Krupp-Hoesch AG and Thyssen AG (DE9704207F). The following summarises the chronology of the merger and agreements concluded in March 1998 concerning industrial relations after the merger.
The Krupp-Hoesch/Thyssen merger: a chronology
- 18 March 1997. Krupp-Hoesch, the second-largest German steel producer, announced plans for a hostile takeover of its main competitor, Thyssen, aiming at creating substantial "synergy" effects and improving the competitiveness of the German steel industry. The initial attempt by Krupp to take over Thyssen unleashed a storm of public, political and trade union protest. Workers at both companies launched joint protests, pointing to the workforce reductions of 12,000 after Krupp took over Hoesch in 1991. Thyssen's management fervently objected to the bid and declared that it would do everything possible to avoid the takeover. After mediation by the state government of Northrhine-Westphalia, Krupp declared that it would shelve its takeover plans. Instead, both companies decided to merge their steel productions from 1 April 1997.
- 27 March 1997. The IG Metall trade union and both companies signed a joint agreement that there would be no redundancies during the period of restructuring. In the event that the new company sees the need to revise its human resource planning, it was agreed to set up a joint committee comprising managers and works councillors as well as representatives of IG Metall, the state government of Northrhine-Westphalia and the cities affected by job losses.
- 4 November 1997. Krupp-Hoesch and Thyssen resumed talks on a complete merger and the creation of a heavy-industry concern with annual sales of more than DEM 60 billion and a workforce of more than 180,000 - Germany's fifth-largest industrial company. One of the disputed issues was whether to have a genuine merger or a takeover by Thyssen of Krupp, which could have been more tax-efficient. IG Metall and the Thyssen workforce preferred a Thyssen take-over of Krupp, which would have maintained the special coal and steel industry form of co-determination (see below). This form applies at Thyssen and would have given IG Metall far more influence over company policy and investments than that in force at Krupp.
- 9 January 1998. The chairs of the supervisory boards of Thyssen and Krupp-Hoesch requested the executive chairs of the two companies, Ekkehard Schulz and Gerhard Cromme, to submit a joint industrial plan for a merged Thyssen-Krupp company on the occasion of the supervisory board meetings of both companies.
- 22 January 1998. Thyssen announced that its supervisory board had approved the Cromme-Schulz plan for the merger. The plan includes provisions on the group management structure, a guarantee of no merger-related redundancies (as agreed with workforce representatives of both companies and IG Metall), and a split of Thyssen-Krupp into five divisions: steel, trade, industry, automotive, and plant construction. The name of the new concern will be Thyssen Krupp AG. The steel activities, with total sales of DEM 22 billion, will remain the main area of business, although a large-scale rationalisation process with workforce reductions of about 6,500 by the year 2001 is inevitable.
- 2 February 1998. A "merger working group" of representatives of the workforces and management of Krupp and Thyssen, as well as IG Metall, discussed key questions related to the merger. As a result, all sides agreed that there will be no redundancies by 2001.
- 5 February 1998. The supervisory board of Krupp-Hoesch approved the merger plan.
- 6 February 1998. Thyssen and Krupp announced that the merger was to be carried out in the autumn of 1998, and that the new group would come into operation early in 1999.
- 17 March 1998. IG Metall, the works councils and the two companies concluded a package of agreements on issues including co-determination at Thyssen Krupp AG.
Co-determination at Thyssen Krupp: the contentious issue revisited
Co-determination in Germany
The concept of co-determination refers to two distinct levels and forms of employee participation: co-determination at establishment level by the works council and co-determination above establishment level, on the supervisory board of companies. Three statutes for different sectors of the economy and sizes of company regulate the latter form of board-level co-determination.
- The 1951 Coal, Iron and Steel Industry Co-determination Act (Montanmitbestimmungsgesetz) provides for parity co-determination - ie the supervisory board consists of an equal number of employee and shareholder representatives, plus one additional member who is elected by the shareholders' meeting on the proposal of the majority of both groups on the supervisory board. This form of co-determination is also extended to group parent companies which are not active in the industry themselves but whose subsidiary companies within the coal, iron and steel industry produce at least 20% of the group's net output or employ more than 2,000 employees.
- The 1952 Works Constitution Act (Betriebsverfassungsgesetz) covers companies in other industries with between 501 and 1,999 employees. Under this law, employee representatives occupy one-third of seats on the supervisory board.
- The 1976 Co-determination Act (Mitbestimmungsgesetz) covers all companies employing more than 2,000 employees. It provides for equal numbers of representatives of employees and shareholders on the supervisory board. In the event of a tie, the chair - elected by the shareholders' representatives - has two votes in a second ballot and hence can give the casting vote in favour of the shareholders.
The contentious issue
The question of co-determination at Thyssen Krupp was intensively disputed over a long period of time. The Cromme-Schulze plan left open questions relating to workers' say in management decisions. Montanmitbestimmungis practised at Thyssen but not at Krupp, where after the 1992 merger of Krupp and Hoesch, the co-determination required by the 1976 law was supplemented with additional agreements. Krupp repeatedly stated that it would not be possible to adopt the worker participation scheme specific to the coal, iron and steel industry for Thyssen Krupp. This Montanmitbestimmungscheme had been explicitly requested by the workforce and IG Metall. Its non-adoption by the new group led the workers' representatives on the supervisory boards at Krupp and Thyssen to vote against the merger.
The March 1998 agreement
The March 1998 agreement between IG Metall, the works councils and the two companies includes three parts. The most important provisions concerning industrial relations are as follows.
The basic agreement (Grundlagenvertrag) stipulates many details of the merger process and that, as a matter of principle, the works councils will be involved in the merger process. This takes place via a "merger working group" consisting of representatives of the works councils, IG Metall, and the two companies. Furthermore, a "coordination group" of works councils along with works councils project groups on the merged company's industrial plan and personnel plan are to be established at concern and division level. The agreement also includes a status quo clause on employees' entitlements, which are not to be affected by the merger.
The no-redundancy agreement (Kündigungsschutzvereinbarung) stipulates that there will be no merger-related redundancies before 31 December 2001. This provision is not valid for employees who reject reasonable offers under the personnel plan.
The co-determination agreement (Mitbestimmungsvereinbarung) confirms that Thyssen Krupp is subject to the 1976 co-determination law. In addition, a "supervisory board presidency" consisting of the chair of the supervisory board and one representative each of shareholders and of employees is established. In the event of disagreement between the representatives of the shareholders and the majority of employees' representatives (or vice versa), this presidency has the task of finding a consensual solution. Furthermore, it prepares a consensual proposal for the nomination of the labour or labour director (Arbeitsdirektor), the member of the management board responsible for personnel and social matters. There will be employee directors at the level of the whole concern and of the five divisions. The spirit of the agreement is to force the supervisory board to stick to consensual decision making.
Commentary
In a globalised economy, corporate Germany has to change and is already changing. One does not need to be a prophet to predict that the phenomenon of mergers and acquisitions in Germany will gain in importance, and this trend is very likely to have serious industrial relations consequences.
The case of Thyssen and Krupp highlights two questions.
The first relates to the adequacy and modernity of German co-determination laws, especially the 1951 Montanmitbestimmung. One may interpret the struggle of IG Metall to maintain parity co-determination at Thyssen Krupp as the final combat concerning the 1951 rules, which are in danger of dying out due to the adjustment crisis of the German iron, coal and steel industry.
Second, the Thyssen Krupp case shows how difficult it can be even for German companies, which are certainly acquainted with the German industrial relations system, to prepare for restructuring and integrating their operations, not to speak of the actual implementation of such plans, with all its difficulties. How much more complex and difficult might it then be for foreign companies successfully to take over or merge with German companies. This certainly has to be taken into account when complaining about the fact that there is too little foreign direct investment in Germany. On a larger scale, this implies the question as to whether some German industrial relations institutions not only mediate but also serve as a barrier to structural change. (Stefan Zagelmeyer, IW Köln)