Redundancies highlight debate on companies' values

Download article in original language : FI9903197FFI.DOC

March 1999 saw a fierce debate in Finland about the way in which some successful companies treat their staff, centring around the announcement of redundancies at the Pohjola insurance company. Trade unions have reacted strongly against redundancies at companies enjoying high profits, and some firms are seen to be placing investors' interests above all other values.

For some time, Finland has been experiencing an exceptionally strong economic upturn. Companies have achieved good results and new jobs have been created. Under the government in power from 1995 (until March 1999), the number of people in employment increased by over 100,000 to stand at 2,222,000 by the end of 1998. The increase in employment has been strongest in the service sector. At the same time, the new jobs show a considerable shift in structure toward fixed-term and part-time employment relationships, with young people in particular affected (FI9811183N).

The traditional Finnish export industries, such as forestry products and metalworking, have experienced a period of especially strong growth over the past few years. Due to their capital-intensiveness, however, the number of jobs these industries provide does not increase even during vigorous expansion. Before the depression of the early 1990s, these industries had made large investments, and now operating times have been intensified and major mergers have taken place. As it seems at the moment, these sectors are on the decline in employment terms.

Alongside these traditional export sectors, the electronics industry has grown to be an important employer in the 1990s. One of the best examples is Nokia, which has grown to be the world's biggest producer of mobile phones. Nokia, in becoming an electronics giant, has arguably shown how the know-how of a small country can be transformed into success in global markets. The company and its subcontractors have recruited thousands of new employees each year for a variety of different kinds of jobs. Finding suitable personnel has become a problem for these companies. At the same time, strong growth and the recruitment of new employees has necessitated a new, clearer focus on personnel policy. Various kinds of bonuses and share option systems have been widened to cover personnel other than management. Furthermore, training has been made part of the company strategy.

Redundancies despite high profits

Despite examples like Nokia, there seem to be differences in the personnel policies of Finland's successful major companies. The way that the second-largest Finnish insurance company, Pohjola, treats its staff caused sharp controversy in late 1998 and early 1999. The company has decided to pay record high dividends to shareholders, but despite its extremely good trend in profits, announced that it would make 232 employees redundant (out of a total workforce of about 2,800) on the grounds that these clerical workers' jobs will cease to exist due to changes taking place in the markets. The company is planning to transfer insurance services to a call centre, eliminating the need for the desk jobs concerned. This action led to claims that Pohjola has put the shareholders' interests before all other goals. Indeed, when the new general manager, Iiro Viinanen took over a few years ago, the company documented its values in order of priority. The most important was shareholder value - followed by customer orientation, development of internal processes and updating of operations.

Under heavy pressure from the various parts of the labour movement, the company consequently consented to offer the redundant employees an opportunity to retrain for jobs in the call centre, customer services, sales and automatic data processing. However, the new jobs may require willingness for the employees to move to a different location. This concession was accepted by the employees. The workers concerned, and the labour movement more widely, had threatened strike action and cancellation of their insurance policies with the company, which could have resulted in a severe drop in the company's profits in future. Trade union members' insurance policies are of great importance, because the union density rate is so high in Finland.

The role of legislation

The Pohjola redundancy announcements were made in full compliance with the law. The Act on Cooperation Within Undertakings, which governs information, consultation and negotiations in such cases, does not require agreement, as long as the negotiation periods specified by the law have been followed. For this reason, the Union of Insurance Employees (Vakuutusväen Liitto, VVL) - affiliated to the Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK) - considers that the law is not effective. The redundancies at Pohjola were announced in November 1998, after which negotiations were conducted - but these talks had no influence on the decisions already taken. Only the labour movement action made the company offer concessions on the redundancies.

Pressures on management

Management values and opinions, along with company culture, seem to play a part in governing companies' behaviour in situations such as the Pohjola case. On one hand, large companies have to operate to a large extent under the influence of outside interests (eg investment funds), fearing that if profits cannot be kept at a maximum level, capital will be invested in more profitable ventures - with the result that the stock exchange value may decrease and the management might therefore be seen as having failed in its job. If, under this pressure, management has to make short-term profits the goal of its operations, it may be forced to make decisions that are damaging for the company in the long run. On the other hand, one of management's main tasks is to ensure competitiveness - and the resulting change process, together with increased productivity, will mean the disappearance of some jobs and occupations. The new technology and the new jobs it brings require specific training. For many, this fact may mean exclusion from working life.

Commentary

Recent announcements of redundancies despite good company profits, like those at Pohjola and Stora-Enso (FI9902195N), reflect not only structural change in preparation for the future, but also value changes in company culture and amongst the management. In the Pohjola case, the labour movement reacted strongly by threatening to employ a seldom-used weapon - a boycott, which can affect the company's results and the stock exchange rate. However, this road may lead in an opposite direction to that intended: if the company's results are weakened, job losses will be even more likely than before. Nevertheless, such action would seem an effective means of putting pressure on companies which appear to be guided solely by the stock exchange. Since there have been several such cases, even some influential people in employer circles have raised their voices against this kind of company policy. According to trade union leaders, this type of company behaviour may have a severe negative effect on industrial relations, with employees wanting their share of the bigger cake. This tension may lead to difficult bargaining when the possible next national incomes policy agreement is being discussed in late 1999. (Juha Hietanen, Ministry of Labour).