EurWORK European Observatory of Working Life

Corporate governance systems and the nature of industrial restructuring

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  • Observatory: EurWORK
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  • Date of Publication: 29 September 2002

Tony Edwards

Industrial restructuring is an important feature of all European economies. However, patterns of restructuring vary from country to country, and this EIRO comparative study examines one source of these differences - national systems of 'corporate governance' (ie the set of mechanisms that control and influence senior management). It seeks to shed light on the relative influence of employees and of shareholders on managerial restructuring decisions , and to link this to key tendencies and developments in restructuring. The study describes the key aspects of the corporate governance systems in the 15 EU Member States and Norway (also assessing any convergence in these systems), and the main provisions concerning employee representation in restructuring. It then aims to identify the main patterns concerning the link between restructuring on the one hand and the national systems of corporate governance and employee representation on the other.

Industrial restructuring has been a key feature of all European economies over the last few years. One of the main forms of restructuring has been mergers and acquisitions (M&As). These have been highly cyclical, growing rapidly during the 1990s in every country and falling back more recently. Compared with previous cycles, an increasing proportion of M&As is cross-border in nature, giving a clear international dimension to restructuring. While the downturn in the economy in over 2001-2 has been associated with a fall in M&As, it has led to other forms of restructuring becoming much more evident, notably a wave of cutbacks, closures and bankruptcies in a range of sectors. Telecommunications firms, for example, saddled with debt and faced with a collapse in their share prices, have sought to make cost savings, something that is particularly evident among operators of telephone services, such as BT (UK0203103F) and France Télécom, and among producers of telecommunications equipment, such as Alcatel, Marconi (IT0203305F) and Ericsson. Airlines were obviously particularly adversely affected by the attacks on the USA on 11 September 2001, following which many axed routes and cut their workforces, and in the case of Sabena went bankrupt. Moreover, information technology (IT) firms, particularly US-based firms with operations in Europe, have made large numbers of redundancies, disproportionately affecting countries with considerable American foreign direct investment in these sectors, such as Ireland.

Previous EIRO comparative studies have demonstrated significant national variations in the rights of employees in M&As and in the nature of industrial restructuring more generally. The first of these has shown that, while there has been a common trend towards M&As in all EU countries and that these raise important industrial relations issues, the social impact they have varies greatly from one country to another (TN0102401S). The second also pointed to national variations in the involvement of employees in company restructuring, but argued that the 'real influence of employees and their organisations in relation to continuous company restructuring is very limited' (TN0107201S).

The aim of this comparative study is to consider one source of national differences in patterns of restructuring, namely the influence of national systems of 'corporate governance'. Here the term corporate governance is defined as the 'set of mechanisms that control and influence senior management'. The purpose of this focus is to shed light on the relative influence on managerial restructuring decisions of employees on the one hand and of shareholders on the other, and to link these relative influences to key tendencies and developments in restructuring across countries.

This issue has great topical importance. Many observers argue that the pressures of internationalisation in recent years have forced change in systems of corporate governance towards those forms that permit shareholders with no close or long-term attachment to the firm to demand acts of restructuring which deliver greater 'shareholder value' (ie maximise the benefits for shareholders of investing in the company, through share prices, dividends etc). In particular, it is commonly argued that within Europe systems of corporate governance that have been based on close and stable relationships between owners and managers are being swept away and are being replaced by the more fluid and 'arms-length' relationships that have characterised the UK and the USA for many years. A consequence of this, so the argument goes, has been a convergence in the nature of corporate restructuring.

Clearly, product markets have become highly internationalised, and fluctuations in these markets mean that companies across Europe are forced into acts of restructuring from time to time. But is it the case that systems of corporate governance in the 15 EU Member States (and Norway) are converging? Are many countries in Europe moving towards the 'Anglo-Saxon' model? How do the patterns of corporate governance in each country relate to the national systems of employee representation, which we know continue to differ? And how do these interactions shape patterns of industrial restructuring within countries? This study seeks to provide answers to these questions.

The study

This study is based on the contributions of the European Industrial Relations Observatory (EIRO) national centres in the EU Member States and Norway. Information was supplied from each centre on the following issues:

  • the key features of the corporate governance system, paying particular attention to dominant forms of corporate ownership and the existence of a 'market for corporate control';
  • the provisions relating to employee representation and influence concerning restructuring; and
  • key patterns and developments in the nature of restructuring in each country, including 'critical cases' which illustrate important aspects of the national system.

The resulting information allows linkages to be made between types of corporate governance systems and forms of employee representation. More pertinently, it also allows an association to be made between these features of national systems and the nature of industrial restructuring.

It is essential to note at the outset that the nature of the information on these issues which is publicly available differs across countries, constraining the scope for comparison. This is the rationale for the focus on the 'critical cases' which exhibit key developments in each country, since quantitative, nationally representative data are not readily available.

This comparative study:

  • describes the key aspects of the corporate governance systems in the 16 countries;
  • outlines the main provisions concerning employee representation in restructuring;
  • seeks to identify the main patterns concerning the link between restructuring on the one hand and the national systems of corporate governance and employee representation on the other; and
  • examines the implications of the analysis.

Corporate governance systems

Analysts of corporate governance often make a distinction between two types of system:

  • 'outsider' systems are those in which the owners of firms tend to have a transitory interest in the firm and do not have close relationships with those in senior managerial positions within the company. Rather, these systems are characterised by relationships between management and shareholders being fluid and arms-length. Outsider systems are also characterised by the existence of an active 'market for corporate control'- takeovers, particularly hostile ones, are seen as both a remedy for managerial failure and a disciplinary mechanism on managers, ensuring that they act in the best interests of shareholders. Indeed, a further feature of this system in the primacy of shareholder rights over those of other organisational groups (particularly employees). This system is said to be characteristic of 'Anglo-Saxon' countries; and
  • by contrast, in 'insider' systems the owners of firms tend to have an enduring interest in the company and often hold positions on the board of directors or other senior managerial positions. These systems are characterised by stable and close relationships between management and shareholders. This stability of ownership, often coupled with legal or institutional barriers to takeovers, means that there is little by way of a market for corporate control. Moreover, insider systems are characterised by the existence of formal rights for employees to influence key managerial decisions, often through supervisory boards or works council-type bodies. The insider system is said to be found in varying forms in continental Europe.

The distinction between outsider and insider systems is a crude one. Those countries allocated to the outside category possess some of the features ascribed to those of insider systems, such as a number of firms that are primarily state and family-owned. Similarly, insider systems all possess a stock market in which there is a degree of ownership by financial institutions which can buy and sell shares freely. However, the distinction does serve to highlight important differences, and table 1 below shows marked variations across the 16 countries considered in the nature of corporate governance.

Table 1. Systems of corporate governance in the EU and Norway
Country Key features of the system
Austria The 'Hausbanken-System' of investment banking has been a stable source of funds for firms, many of which are privately owned, often in the form of private foundations. Consequently, the stock market is not well developed; the ratio of market capitalisation of publicly quoted firms to GDP is only 15% (compared with 267% in Switzerland). There is not a market for corporate control – a small number of owners perform a controlling function with close and stable relations with senior managers.
Belgium The main forms of corporate ownership are through holding companies and families, with shareholdings being concentrated and coordinated though networks and pacts. This 'pyramid' or 'cascade' structure of ownership creates a strong barrier to hostile takeovers, and there is no real market for corporate control.
Denmark The system has been characterised as 'personal stakeholder capitalism' characterised by personal and family ownership. This is particularly the case amongst the SMEs that dominate the industrial structure. Takeovers have increased but hostile ones are very rare.
Finland There has been a significant erosion of the role of the state and major banking and finance groups in owning and controlling Finnish firms. In their place have come pension funds and other financial institutions, particularly foreign ones. Related to this has been a growth in M&As (often cross-border in nature), though hostile ones are still quite rare. Relations between shareholders and management are not as close as hitherto, and a marked 'shareholder value' orientation is evident, including managerial pay taking the form of share options (FI9804158F).
France The role of the state in owning and controlling large French firms has been greatly reduced by privatisation. Managers appear to be increasingly influenced by the demands of institutional investors, paying out a higher proportion of profits in dividends and having their own pay tied explicitly to share prices. There has also been a growth in M&As, though in the 1990s only two a year on average were hostile in nature.
Germany The German system of corporate governance is central to the 'stakeholder-oriented' political economy. One distinct feature is the extremely high level of concentration in ownership; of 'stock companies' (Aktiengesellschaften, AGs), 35% have only one owner and 71% have a shareholder that owns more than half of the shares. Key shareholders are non-financial companies, banks and insurance companies, while networks of cross-shareholdings and interlocking directorships are common. There are some modest signs of change, however: there are more M&As, with a small number of high-profile hostile takeovers; managerial pay is becoming linked to share prices; and it is now common for firms to have 'investor relations' departments.
Greece The state remains an important owner of Greek firms, as do families. In addition, there are a small number of private foundations (eg Onassis) which control some Greek firms. Takeovers are rare and relations between shareholders and management are close and stable. There is little to indicate significant change in these respects.
Ireland Industrial groups and families, along with the state, are key features of corporate ownership in Ireland. Foreign ownership is also very high, largely through foreign direct (rather than portfolio) investment. The relations between managers and shareholders in publicly limited companies are fluid and arms-length, with a growing incidence of M&As. Senior managerial pay is often linked explicitly to share prices and this has attracted considerable controversy recently.
Italy Family-owned groups are one of the distinguishing features of corporate ownership in Italy while, despite a privatisation programme, the state retains an important stake in many firms. The result is a very high degree of concentration of ownership even among those firms that are quoted on the stock market (of which there are only 294): six out of 10 stock market-quoted companies have one shareholder with more than 60% of the shares. This concetntration acts as a barrier to hostile takeovers.
Luxembourg 'Collective investment funds' and the state are the two main players in the ownership of firms. Senior managerial positions tend to be very secure and, while there are few formal barriers to hostile takeovers, they are unknown in Luxembourg.
Netherlands SMEs are often controlled by families, while nearly 50% of firms with more than 100 employees are foreign-owned. Amongst publicly quoted Dutch companies, a remarkably high proportion of shares (54%) are held by foreign institutions and individuals. Perhaps linked to this, there are some moves towards linking senior managerial pay to indices of 'shareholder value', and institutional investors have become more active in influencing management. However, this influence is normally exercised by 'voice' (ie expressing their views) rather than 'exit' (ie disinvesting). A market for corporate control is gradually emerging: though some barriers to hostile takeovers remain, some shareholders are successfully pressurising firms to reduce these.
Norway The system is distinguished by a small number of owners which control a significant proportion of a firm, and which take a long-term and active view on investments and ownership. Around 30% of the largest 500 firms in Norway are family owned, and a relatively small proportion of firms are quoted on the stock market (the total value of which was only 50% of GDP in 2001). Amongst those publicly-quoted firms, state ownership constitutes 38% of the shares. More generally, ownership is quite highly concentrated, with the largest four shareholders on average controlling 52% of the shares in Norwegian firms. There is a growing incidence of M&As – up from 113 in 1997 to 243 in 2001 – but these are rarely hostile.
Portugal Among large firms the state is a key player, owning 23% of shares, and foreign parties now control 13%. Small firms are commonly sole proprietorships. There are also numerous small, individual shareholders. A market for corporate control is not well developed and hostile takeovers are particularly rare.
Spain While traditionally Spain has typified the 'Latin' model of corporate governance, in which the state and holding companies were central, recent developments, such as privatisation and increasing investment by financial institutions (particularly foreign ones), have changed this. Now shareholdings are much more dispersed: the proportion of 'free floating shares' (in which shareholders have no direct representation on the board) increased from 55% of total stock capital in 1994 to 72% in 1998. Greater importance appears to be accorded to these shareholders by management, and the latter’s pay is increasingly taking the form of stock options.
Sweden A distinctive feature of corporate ownership in Sweden has been the role of 'investment company groups' such as Investor, which are sometimes linked to wealthy families (eg the Wallenbergs in the case of Investor). While there is a reasonably high incidence of M&As, particularly cross-border ones, there remain significant barriers to hostile takeovers, most notably the system of 'A' and 'B' shares (with the former having more votes). Independent shareholder associations have continued to become more active over the last three decades or so.
UK Shareholdings tend to be highly dispersed, with pension funds controlling a third of shares in public limited companies (PLCs) and insurance companies a fifth. Foreign institutions and individuals have also increased their stakes. Banks hold less than 1%. There is a well-developed market for corporate control, with very weak barriers to hostile takeovers; while they are not as frequent as in the 1980s, the possibility of them acts as a 'disciplinary mechanism' on management. Shareholding tends to be fluid, exemplified by the rush out of firms undergoing restructuring. Managerial remuneration is very strongly tied to measures of 'shareholder value', which has been a very controversial topic recently.

Source: EIRO.

Broadly speaking, the UK and Ireland fit into the outsider category. In the UK, a high proportion of firms are quoted on the stock market, where ownership is dispersed across a range of pension funds and insurance companies which tend to hold a small proportion of each company’s stock. There is a greater degree of family ownership in Ireland but recent years have witnessed a significant growth in institutional ownership of Irish companies, particularly foreign institutions. In both countries there is a well-developed market for corporate control, with the prospect of a hostile takeover being an ongoing prospect for many firms. A further feature of both systems is the way that senior managers’ remuneration is tied to indices of shareholder value, and the controversy that has surrounded this in recent years.

The other 14 countries have some common elements, and can all be categorised as insider systems. All of these systems have until recently been characterised by more concentrated ownership than the UK and Ireland, and a market for corporate control has not been well developed. However, there is of course considerable variation between these countries, particularly in terms of the key patterns in corporate ownership. Investment banks are influential in Austria, where relatively few firms are quoted on the stock market, and in Germany, where corporate ownership remains highly concentrated. Despite processes of privatisation, the state is a key player in Norway, Greece and Portugal, and remains important in Finland, France and Spain, though much less so than in the past. Family ownership and control is an important feature of the Danish and Italian systems, and the Dutch system too, though here the increase in foreign ownership is notable. Investment foundations are central to the Swedish system, while 'collective investment funds' are a distinguishing aspect of Luxembourg. In Belgium, networks of inter-firm groups based on cross-shareholdings have created the so-called 'pyramid' or 'cascade' structure of corporate ownership.

As indicated above, many of these insider forms of ownership are evolving. This is partly caused by the internationalisation of economic activity. As large firms internationalise they often weaken their roots in their domestic corporate governance system, while equity markets have become more open to foreign financial institutions. Change is also partly caused by privatisation, a policy that has been pursued with varying degrees of vigour and enthusiasm by most governments in Europe (TN9912201S). Nevertheless, the features identified above result in a degree of concentration and stability in ownership which distinguishes them from outsider systems.

Forms of employee representation

The variations across the 16 countries in forms of employee representation have been clearly established in previous EIRO comparative studies (TN0102401S and (TN0107201S). In this section, we summarise how these differ in relation to the rights of employees in instances of restructuring. We seek to shed light on the formal nature of employee rights and also the more informal ways in which they can shape restructuring. The key features of each national system are set out in table 2 below.

Table 2. Systems of employee representation in restructuring in the EU and Norway
Country Key features of the system
Austria Employee rights are quite strong – not only do works councils have the right to be consulted prior to significant restructuring, but in firms employing more than 20 people they also have the right to negotiate a 'social plan' designed to ease the impact on employees. Consultation processes often lead to compromises over management’s plans concerning terms and conditions and the extent of job losses, while employee representatives on supervisory boards can also influence restructuring. In some cases, union protests to politicians create further pressure on management to compromise.
Belgium Works councils must be consulted three months prior to any instance of restructuring, and the consequences of restructuring must be negotiated with employee representatives, often leading to a social plan. In the light of the closure of the Renault plant at Vilvoorde in 1997 (BE9703202F), these rights have been strengthened.
Denmark Employees have the right to elect a third of members of the company board, which can vote on all aspects of restructuring. Processes of consultation are governed by collective agreements and so vary from firm to firm.
Finland 'Personnel representatives' may be nominated onto the 'administrative bodies' that govern the company. Perhaps more importantly, the system of co-determination means that in firms with more than 30 workers employers must consult over restructuring, and the strong position of shop stewards means that in most cases management’s proposals must also be subject to negotiation. In some cases, unions have applied pressure on the government to intervene where agreement cannot be reached.
France Works councils have the right to be consulted three months prior to any restructuring, but employee representatives appear to have only a limited effect on such plans. There are some instances of unions appealing to politicians for support and of organising demonstrations in protest at management’s plans. Works councils have had some success in the courts in arguing that the process of consultation was not followed fully.
Germany Employee rights stem partly from the system of establishment-based works councils, which in plants employing 300 people can bring in 'external experts' to analyse management’s plans and can also negotiate a 'social compensation plan'. Employee rights also stem from their representation on supervisory boards in large companies. The practical impact of these formal rights varies from firm to firm, however.
Greece Despite the introduction of works councils in the 1980s, employee rights stem largely from collective bargaining. Generally, trade unions are able to ameliorate the effects on employees of restructuring, often using political pressure as a key tactic in the bargaining process.
Ireland There is very little in the way of formal, institutional power to affect corporate restructuring, with a minimalist legal framework centering on the EU Directives on transfer of undertakings and collective redundancies. Where unions are well organised they have the ability to exert some influence, and this is particularly the case in 'social partnership' deals, but these arrangements are quite fragile (IE0208203F).
Italy The principal way in which employees are able to influence restructuring is through collective bargaining, at both company and sectoral levels. In doing so they can use the information and consultation procedures laid down by law. However, despite these procedures, there appear to be significant 'information asymmetries' between management and unions.
Luxembourg In firms with 1,000 employees and where the state has a 25% holding, a third of the members of the board of directors must be elected by employees, who then have formal voting rights on investment and restructuring plans. In all firms with 150 employees, there must be a company joint committee with consultation powers. This system has created a 'consensual' tradition and it is common for these mechanisms to ensure that employees are not adversely affected by restructuring.
Netherlands Works councils have the right to 'give advice' on all major decisions, and in some companies the right to nominate and object to the appointment of members of the supervisory board (a current legislative proposal would entitle works councils to appoint up to one-third of the board - NL0204102F). Processes of consultation are commonly able to influence the nature of decisions on restructuring and their consequences for employees. Recent revisions to the Merger Code have not significantly affected the strength of employee rights.
Norway Employees have the right to elect one-third of the representatives on company boards in firms with more than 20 workers, while in those with more than 200 employees they have to right to elect one-third of the members of a 'company assembly', which has 'decisive authority' in issues of investments, rationalisations and restructurings that have a significant bearing on employment.
Portugal A number of formal mechanisms exist for employees to exert influence over corporate restructuring (mainly through workers' commissions), stemming from a number of articles of the Constitution and subsequent legislation. In practice, there is significant variation in the impact of these rights, depending in part on how well organised trade unions are at firm level.
Spain Employees have the right to be informed of changes of ownership on the same terms as the shareholders, and management must allow workers' representatives to issue a report setting out their views if the changes affect employment (this report is not binding on management). Collective dismissals have been strongly regulated in Spain, but recently have been subject to numerous reforms which have made it easier for managers to make redundancies (though agreement with workers' representatives or administrative authorisation is still required).
Sweden Employees have representation (albeit a minority) on the boards of companies, while the process of co-determination means that consultation with trade unions must take place on all 'important changes'. Unions often manage to secure concessions from management concerning its original plans - eg over number of employees affected.
UK There is a minimalist legal framework. Such rights as exist stem from EU Directives on transfer of undertakings (implemented through the TUPE regulation) and collective redundancies. Therefore, the ability of employee representatives to influence restructuring stems from unions’ strength at firm and plant level, meaning that there is considerable variation in this respect.

Source: EIRO.

There are two principal channels through which employees can influence restructuring. The first is by using those rights that are based in systems of co-determination or social concertation. Some national systems of employee representation grant employees the right to be informed well in advance of any restructuring that will have a significant impact on employment, and allow their representatives to negotiate a 'social plan' to deal with the consequences. This is the case in Austria, Belgium and Germany. Many countries in Europe have rights concerning employee representation on company's supervisory or management boards, or boards of directors (TN9809201S), which have the ability to discuss and decide on proposed cases of restructuring. This is the case in Sweden, Austria, Germany, the Netherlands, Denmark, Finland, Luxembourg and Norway. To varying degrees, and in various forms, these countries have systems of co-determination that are part of a tradition of dialogue and that promote a spirit of compromise when it comes to the extent and nature of restructuring. Employee representatives are commonly drawn from trade unions, which can also be influential through collective bargaining in these systems, of course. Indeed, the position of unions is in most cases strengthened by the institutions of co-determination.

The second type of system is where the source of employee influence over restructuring is primarily through trade unions and collective bargaining. In some countries, this channel is the primary way in which employees are able to exert pressure on management, despite the existence of works councils. This is the case in France, Italy, Spain, Portugal and Greece. In the remaining, two countries, the UK and Ireland, which lack formal institutions such as works councils and do not have a strong tradition of social partnership, the influence of employees is largely dependent on the strength of unions at firm level. These two countries have a fairly minimalist legal framework, with the legal rights that employees enjoy coming mainly from EU Directives on collective redundancies (98/59/EC) or the transfer of undertakings (2001/23/EC) (however, these rights may be increased to some extent by the implementation of the recent EU Directive (2002/14/EC) on national information and consultation[EU0204207F], which includes rights relating to restructuring plans). In countries where employee influence is principally through unions and collective bargaining, management-employee relations over how restructuring is dealt with tend to be more adversarial, and the ability of employees to influence restructuring varies considerably from sector to sector and firm to firm according to union strength.

The diversity of patterns of restructuring across Europe

The 16 countries considered are all characterised by some corporate restructuring. None of them are immune from downturns in product market conditions in particular sectors, such as those that have affected IT, telecommunications and airlines recently. Indeed, they are all becoming subject to fluctuations in product markets as more sectors become more exposed to international trade and supported less by state ownership or regulations. However, the extent and nature of this restructuring varies significantly across the countries. In this section, we analyse this variation and try to relate it to the systems of corporate governance and employee representation described in the previous two sections. For each country we sketch some of the key aspects of restructuring and exemplify the patterns through a discussion of one or more 'critical cases'. The countries have been categorised into four groups. Each of these groups contains some diversity, but there are also important commonalities within them.

Stable insider systems with a strong tradition of social concertation

Three of the countries concerned are characterised by insider systems of corporate governance which are generally stable and in which the system of social concertation is also pretty much intact. The stability of these domestic institutions does not mean that these countries are not witnessing restructuring; all three of them are, with the key 'drivers' including privatisation, growing international competition and a rise in mergers and acquisitions. However, these institutions strongly shape the extent and nature of this restructuring.


Some restructuring is evident, taking the form of some M&As in sectors such as banking, where there has been a desire to form larger enterprises. Some of these M&As have had an international dimension, such as the takeover of Bank Austria by HypoVereinsbank of Germany in 2000. To a degree, restructuring is also occurring in state-owned firms that have been partially privatised, though the state has tended to retain a stake of above 25%, limiting the extent to which restructuring is driven by the new private sector owners. Where restructuring does take place, there have inevitably been some workforce reductions, but these have tended to be relatively limited and where they have occurred have normally been managed through voluntary redundancy, early retirement and 'natural wastage'.

The general picture in Austria is of some restructuring being evident, but the scale and nature of this appears to be shaped by the stability of the Austrian system. In particular, the concept of 'shareholder value' has not really become influential and the impact of restructuring continues to be mitigated by the tradition of social partnership.


There is some evidence of an increased incidence of restructuring in Denmark, showing up, for instance, in a rise in the number of employees affected by M&As in the 1990s (though this actually involved fewer, larger deals). Some of these M&As have involved foreign groups, a well-publicised example of which was the takeover in 2001 by the Norwegian firm Orkla of the Danish newspaper group Berlingske Tidende, which led the new owners to 'put the firm on a diet'. However, the new owners plans for significant cost-cutting came up against significant opposition and its demanding financial returns have not been realised.

The general picture in Denmark is that the system of 'personal stakeholder capitalism', resting on much ownership being concentrated in individuals and families, remains pretty much intact, and the strength of employee rights have not been fundamentally changed either. The pattern of restructuring, being fairly limited in its scope and producing relatively modest adjustment costs to employees, reflects the nature of domestic institutions in corporate governance and employee representation.


There has been only very limited industrial restructuring in Luxembourg. Even amongst those plants belonging to foreign-based multinationals, there have been few instances of severe restructuring. In part this is conditioned by the stability of the corporate governance system in which the state and the collective investment funds have provided a stable basis on which domestic firms operate. Where there are cases of restructuring, the system of tripartism nearly always leads to agreement on how change should be implemented. One high-profile case was the creation in 2001 of Arcelor in the steel sector - formed through the merger of Arbed (based in Luxembourg), Usinor (France) and Arceralia (Spain) - in which the Luxembourg state remained the principal active shareholder and 'co-management' was accepted as the basis on which the group should be run (LU0201191F).

In sum, the limited extent of restructuring and its limited effects on employees reflects the strength and stability of institutions in relation to corporate governance and employee representation. While the concept of shareholder value have not taken hold, the tradition of tripartism and social partnership remains firmly embedded.

Gradually evolving insider systems with strong social partnership

A second group of four countries is also characterised by insider systems of corporate governance and a strong tradition of social concertation. However, this group differs slightly from the first in that the countries are experiencing some changes in the nature of the insider business system. The causes of this vary, as we will see, but one common feature is the extent to which all four of these countries have experienced a growth in inward investment (both portfolio and direct) and a significant internationalisation of large domestic companies. The pace and nature of restructuring in these four countries has been significant and has been facilitated by modest changes in corporate governance, but its effects are strongly conditioned by an enduring tradition of co-determination.


There are some instances of very severe restructuring in Belgium. This is particularly the case in those sectors which have been adversely affected by downturns in the international economy, such as airlines and telecommunications. In the former, the collapse in air travel following 11 September 2001 forced Sabena into bankruptcy, while in the latter Belgacom has made significant cutbacks in response to growing debts and a fall in the value of its shares. More generally, there are also some indications that the fortunes of their shares are 'drivers' of restructuring in Belgian firms. A recent PricewaterhouseCoopers survey of 28 companies which had undertaken restructuring exercises found that the value of the companies’ shares was a more important driver than the general economic conditions. However, the shareholder value concept has not taken hold very strongly across the economy, with the 'cascade' or 'pyramid' system of ownership described above remaining important.

Moreover, there is still a strong basis for 'social concertation' in Belgium, exemplified by the agreements over restructuring at Sabena, in which the state-funded 'closure fund' (BE0205304F) provided for significant compensation payments and assistance in redeployment, and at Belgacom, where an innovative management-union agreement provided for a combination of retraining, working time reductions and voluntary redundancies (BE0201322N). In sum, restructuring is evident in Belgium, but a drive for shareholder value has not removed the key characteristics of the Belgian system of corporate governance, and social concertation continues to shape the way in which restructuring takes place.


There are many instances of restructuring in Norway, particularly in the finance and IT sectors where there have been a number of mergers and acquisitions. More generally, there is much talk amongst managers about 'value-based management', apparently a reflection of the growing influence of external shareholders. The case of the Orkla group (consumer goods, chemicals and finance) illustrates the way that financial institutions appear to be exerting growing influence in Norway. During the 1990s, a number of institutions built up a stake in the firm and gradually pressured management into moving away from the established policy of reinvesting profits for long-term growth towards more emphasis on immediate profitability. This pressure resulted in the ousting of the group chief executive in 2001. Similarly at Kværner (engineering and construction), a long saga concerning merger with Aker (NO0112108N) was eventually resolved in March 2002, with some parts of Kværner being merged with Aker and others being sold off. This was widely perceived as a hostile takeover by Aker and its majority owner, the billionaire Kjell Inge Rokke, who announced his intention to dispose of those parts of the group that could not produce a good financial return.

However, the Norwegian economy retains many important checks on the ease with which restructuring can occur. The high degree of state ownership means that restructuring decisions are significantly influenced by popular sentiments rather than market mechanisms, while the high incidence of family ownership results in the retention of long-term industrial plans. Moreover, the system of employee representation means that the effects of restructuring on employees are often restricted – there have been no compulsory redundancies at Kværner, for example – and the traditions of wage moderation and egalitarianism act as further constraints on the rights of external shareholders. In sum, therefore, the picture in Norway is of increasing restructuring, but the effects of this continue to be conditioned by a system of corporate governance that is evolving only slowly, and by a well-established system of employee representation.


The growth of restructuring in Sweden shows up in the number of employees being made redundant. The total number of enforced redundancies has increased sharply recently, from 28,486 in 2000 to 68,610 in 2001. One prime example is Ericsson, which has been severely affected by the downturn in the IT sector and particularly in the demand for mobile phone handsets. It announced 2,100 redundancies in spring 2001 (SE0104193N).and in April 2002 it announced another raft of 6,300, with more to come in future years. While this shows that radical restructuring can take place in Sweden, the terms on which it was conducted reflected the Swedish system of cooperation – the company set up support programmes for affected workers and those that left received 12 months’ salary. The Ericsson case has also reopened a key debate in corporate governance in Sweden. The system of 'A' and 'B' shares allows those shareholders holding the former, mainly the investment foundations such as the Wallenberg empire, to control most of the voting rights at Ericsson. The company wanted to issue more B shares to raise money to see it through its current difficulties, but to make them more attractive has sought to reduce the imbalance in the voting rights between the two groups. So far, these attempts have been thwarted by the investment foundations and other big holders of A shares, which argue that it would make the group more prone to takeover.

To summarise, the picture in Sweden is of restructuring being limited by the key characteristics of the corporate governance system which is only slowly evolving, and by the continued tradition of co-determination and cooperation.


It is evident that restructuring has been widespread in Germany. A 1999-2000 survey of works councillors produced the following findings:

  • 17% had been affected by closure or sales of sites;
  • 37% had been affected by outsourcing;
  • 21% had been affected by M&As (particularly in finance); and
  • 57% had to deal with a reduction in employment.

A prime example of restructuring was the hostile takeover by the UK-based Vodafone of Mannesmann in 2000 (DE9911220F). The takeover was bitterly contested, involving political opposition in Germany to the deal. After three months, Vodafone won control (DE0003248N) and fairly quickly sold off the machine tools, automotive and tubes divisions – this left only the telecommunications part which accounted for as little as 12% of Mannesmann employees but 68% of the earnings. In some ways, this deal indicated that radical restructuring is possible in Germany, and some have interpreted it as a sign that more hostile takeovers will occur in the future. However, the nature of the restructuring reflects the German system of co-determination – when the divisions were sold off there were job guarantees given by the new owners, and Vodafone itself has not made redundancies in the telecommunications division. More generally, the company has largely accepted the need to deal with works councils and unions despite its non-union roots in the UK. Moreover, Mannesmann was peculiarly susceptible to a hostile takeover; it had an unusually high proportion – over 60% - of shares held by foreigners and did not have one shareholder with a controlling stake in the way that many big German firms do. Three-quarters of the shares in Bertelsmann (media), for instance, are owned by a family foundation, while the regional government of Saxony has a controlling interest in the Volkswagen motor manufacturing group.

In sum, there are signs of change, both through high-profile instances of restructuring such as Mannesmann, and in the embrace of the rhetoric of 'shareholder value' on the part of senior managers in Germany. However, this is not been caused by far-reaching changes in the German system of corporate governance which retains many of its distinctive features, and where restructuring takes place it is still conditioned by the system of co-determination.

Rapidly evolving insider systems with a continuing tradition of social partnership

In a third group of two countries, the insider systems of corporate governance have been significantly challenged in recent years. The changes in the nature of institutions have affected the pace and nature of restructuring. In both cases, the countries’ systems of social partnership have remained pretty much intact, but the ability of employee representatives to shape the consequences of restructuring has been eroded by the growing power of external shareholders.


Restructuring has been a major feature of many sectors of the Dutch economy, including the public sector. This is particularly marked among Dutch and Anglo-Dutch multinational firms, such as Philips, Shell (NL9811106F) and Corus (UK0102113F). To some extent, the pattern of restructuring reflects the strengthening of the position of shareholders over management, while the rights of employees to influence managerial decisions have remained more or less the same. One recent development has been the passing of legislation that has somewhat weakened the position of trade unions in hostile takeover bids. More generally, shareholders groups are actively pressing management into moves that may deliver greater value to them, such as sell-offs, outsourcing and closures. These moves have meant that the principle of 'equal representation' for capital and labour within large companies has been eroded (NL0004188F and NL0204102F). However, the extent of change should not be exaggerated. While a market for corporate control has begun to emerge, hostile takeovers are still quite difficult. This is exemplified by the recent failed hostile bid by Boskalis for HBG in the welding and construction sector. The management of Boskalis took legal action to try to force HBG to accept the deal, on the basis that the latter was neglecting the interests of its shareholders. Despite getting the agreement of a court that Boskalis had been mismanaged, the court did not force management to reverse its decision to reject the bid. Moreover, while employee representatives may not be as influential as shareholders over management, their institutional rights remain intact.

To summarise, therefore, there has been a shift in the balance of power within corporate governance in the Netherlands which has increased the pressure on management to carry out restructuring in order to deliver greater shareholder value, though this does not constitute radical change.


The small size and the openness of the economy have meant that global managerial trends such as an orientation towards shareholder value have become familiar in Finland. In particular, the high degree of foreign institutions holding shares in Finnish companies, and the high levels of foreign direct investment are clearly channels through which this process has occurred. At the same time, the high level of international ownership in Finland has presented problems for employee representatives in ensuring that the system of co-determination remains influential.

The case of the closure of the Kilo computer assembly plant belonging to the Japanese multinational Fujitsu illustrates this development. In 1999, Fujitsu and Siemens announced a joint venture in Europe which, after months of speculation, led to the announcement of the closure of the Kilo plant, leading to 450 job losses (FI0002136F). There was an investigation by the public prosecutor to try to ascertain whether the Cooperation Act (which requires negotiations with workers' representatives over measures affecting employees) had been violated. This concluded that it had not, on the basis that the Finnish managers in Fujitsu did not know that the decision to close the plant had already been taken before completing the process of consultation (even though managers in Japan and Germany almost certainly had already reached this decision) (FI0108196F). The general picture in Finland is of significant change, largely due to internationalisation of corporate ownership.

Evolving insider systems with employee rights based on union strength

The fourth group is comprised of five 'Latin' countries which have been of the insider type, with employee influence over restructuring stemming mainly from the strength of trade unions rather than formal systems of co-determination. A key feature of these systems has, until recently anyway, been the role of the state and wealthy families in owning and exerting a significant degree of control over large firms. This meant that the extent and nature of restructuring was significantly influenced by political factors and by the inclinations of controlling families. Unions have tended to be strong and influential in some parts of the economy, particularly in large, state-controlled firms. However, these systems are changing, mainly due to privatisation and, relatedly, to the internationalisation of large firms. This has created pressure for more rapid, radical restructuring in these countries. There is significant variety within this group in terms of the extent of change, and we consider them in ascending order of the extent of change.


The Greek economy has witnessed a number of instances of restructuring, many of which have adversely affected employment levels. This is particularly evident in sectors such as textiles, the lumber industry, chemical products and transportation, demonstrating the influence of international economic conditions. In the airline sector, the future of Olympic Airways appears to be hanging in the balance. There are some indications that restructuring has been influenced by fluctuations in share prices, and privatisation of firms like the Skaramangas Shipyards and Hellenic Petroleum (GR0108118N) means that more large firms in Greece are subject to these pressures. However, the scale of these pressures is limited, and where unions remain strong they retain the ability to shape significantly the nature of the restructuring.

In sum, there has been modest change in the form of corporate ownership in Greece, accompanied by limited moves towards shareholder value driving restructuring.


The country has experienced a good deal of restructuring, particularly in the banking sector. One high-profile instance of this was the 1999 bid by Spain's Santander Bank for the Champalimaud group, which controls three banks in Portugal. Following the intervention of the European Commission, Santander Bank won control of only a part of the group. Much restructuring has been influenced by privatisation, and following this there has been a tendency to create large economic groups from parts of privatised firms. Cimpor (cement) and Teixeira Duarte (construction) are examples of this. The consequences of restructuring for employees appear to rest on trade union strength in the firms concerned, and so these vary across companies. One interesting development on the part of unions has been their attempt to build up stakes in large Portuguese groups such as Empresa de Electricidade de Portugal (electricity) and the TAP airline, and use these to influence the nature of restructuring.

The general picture is that there have been some moves towards shareholder interests driving restructuring (particularly caused by privatisation), and the ability of unions to influence this is very uneven across the economy.


There has been a considerable amount of restructuring, particularly in banking, where there has been a series of mergers and acquisitions. There are several instances of firms in other sectors undertaking major restructuring exercises, a prime example of which is the Fiat industrial group which in 2002 announced a cost-cutting plan that will involve 3,000 job losses (IT0206101N). However, the Fiat case illustrates the central role of collective bargaining in shaping the consequences of restructuring; the changes have been negotiated and the firm intends to use the 'wages integration fund' in order to restrict the number of job losses (IT0208102N). Moreover, the concentration of ownership among families and the state remains pretty much intact, which arguably leads these 'insiders' to look for long-term recovery plans.

To summarise, therefore, while there has been limited change in the ownership of Italian firms, partly from a small-scale privatisation programme, restructuring is strongly conditioned by the enduring tradition of family ownership and the centrality of collective bargaining.


Restructuring has been pervasive in France. One measure is the number of employees who register for unemployment following redundancy – this stood at 244,525 in 2001, and was particularly high in retailing, intermediary goods, business-to-business services and construction. Four types of restructuring are evident:

  • 'catch-up' restructuring in which low productivity has been a feature of the industry – common in steel and shipbuilding;
  • restructuring in shrinking markets – found in sectors such as cement, oil and electrical appliances (eg Moulinex- FR0110106F);
  • restructuring due to a temporarily poor market situation – characteristic of engineering and telecommunications (eg Alcatel); and
  • restructuring that reflects significant change in the profile of stock/equity ownership (eg Danone and Vivendi).

The latter two cases are particularly interesting. The Danone food group has recently closed two plants in France affecting 1,816 workers (and others outside France) as part of an attempt to refocus on its most profitable activities, with these moves being justified in terms of the pressing need for higher shareholder returns (FR0104147F). At Vivendi, a succession of takeovers in the media and entertainments division has shifted the firm away from its original core business of utilities. This has been associated with a significant dispersion of its shares, many of which are now held by foreign pension firms. The massive debts the firm has built up have claimed the job of Jean-Marie Messier, the Vivendi chief executive, and look certain to lead to significant sell-offs. In both cases, the influence of employee representatives has been very limited, including failed legal attempts to oppose management’s plans.

In sum, the French system has undergone significant change, particularly amongst large firms which have been privatised and have subsequently internationalised. Here restructuring has been driven by shareholder demands for higher returns and the consequent changes have not been blocked by the French unions.


There was a marked increase in M&As during the 1990s in Spain: in 1990 there were 236 cases valued at USD 13,821 million, whereas in 1999 there were 896 cases valued at USD 82,102 million. There was a very high involvement (about 60%) of foreign groups in this trend, raising the extent of foreign ownership of Spanish firms. The influence of this is shown up by the case of the Lear Corporation, a US-based producer of cable equipment for the automotive industry. In 2002, it closed its plant in Catalonia which employed 1,000 workers and opened a new one in Poland (ES0206201N). The workers received 60 days’ pay (instead of the statutory 45) but there were no programmes along the lines of Ericsson in Sweden or Belgacom in Belgium (see above).

To summarise, Spain is characterised by a growing incidence of foreign shareholdings, a great reduction in the role of the state and, related to these developments, a growing dispersion of shares. These changes mean that restructuring is increasingly driven by international economic conditions. At the same time, it has become much easier and cheaper for employers to make workers redundant due to labour market reforms. The upshot has been significant change in the pattern of restructuring, increasingly driven by institutional investors and constrained less by employee rights.

Outsider systems with minimalist framework of employee rights

The final group, comprising the remaining two countries, is of outsider systems with relatively weak employee rights. While the UK and Ireland exhibit some differences (family and foreign ownership are higher in Ireland, while ownership by domestic pension funds and insurance companies is higher in the UK) both are characterised by fluid ownership, the primacy of shareholder interests, and an active market for corporate control. They are also both systems in which employee rights in restructuring are currently minimalist, stemming largely from EU Directives on the transfer of undertakings and collective redundancies. Where trade unions are strong they have been able to shape the consequences of restructuring for employees, but in both countries a key driver of restructuring is a concern to deliver more 'shareholder value'.


Shareholders tend to have more influence over key corporate decisions than employee representatives, and the delivery of shareholder value has become more influential in Ireland in recent years. One recent example has been the restructuring of Aer Lingus following 11 September 2001 (IE0111101F). In response to financial difficulties, management moved to cut nearly a third of its workforce very quickly. Unions were not involved in the discussions about the formation of these decisions, and have argued that the company adopted a 'short-term, accountancy driven' approach. Restructuring has been a pervasive feature of the information and communications technology (ICT) sector over the last 18 months or so. In Ireland, this sector is dominated by North American firms, and Dell, Nortel, Xerox, Intel, Compaq and Gateway have all made significant job cuts (IE0108101F). The closure of the Gateway plant in Dublin in 2001 illustrated the weakness of employees to influence restructuring. The company maintained a strong non-union approach, so redundant workers had only the protection of a 30-day consultation period.

In sum, it is evident that shareholder value is a key driver of restructuring and that this is felt through foreign ownership and the corporate governance structures in place in Ireland. Employee rights, meanwhile, are weak when compared with those in many other European countries.


The system of corporate governance in Britain has resulted in the pressures to deliver shareholder value being strong influences over the extent and nature of restructuring. The finance sector has been particularly affected, with a wave of mergers taking place on the basis that the opportunity to remove duplication of some functions could enable greater returns to shareholders. While these have been largely 'friendly' in nature, a hugely significant event was the hostile takeover in 2000 of Natwest by the Royal Bank of Scotland, which was half the size of its 'prey' (UK0003160F). This takeover led to 18,000 redundancies. The utilities sector has also been the centre of significant restructuring. A good illustration of this is Powergen, which was created in 1991 following the privatisation and break-up of the Central Electricity Generating Board. Over the last 10 years, the company has sold off or closed a number of power stations and greatly reduced employment at those that it still owns. Moreover, it has acquired a regional distributor of electricity in the UK (East Midlands Electricity) and has also made acquisitions outside the UK (eg LG&E in the USA). Recently, Powergen has agreed to be taken over by the German company E.on.

One key aspect of the British system is the active market for corporate control, which has enabled many groups to transform themselves through a series of M&As. Firms such as Marconi did so in the 1990s by moving out of its traditional business of defence into specialist telecommunications equipment. This move turned out to be disastrous; as demand for the firm’s products has shrunk, the share price has plummeted. Despite several announcements of cutbacks the group once worth GBP 30 billion is now practically worthless. It has roughly halved its workforce and its continued survival is uncertain.

The position of employee representatives in all three cases mentioned above has been relatively uninfluential over management’s plans. Generally, unions have had to accept that restructuring will take place along the lines managements indicate, but have been able to influence some of the consequences for employees. In the main this has involved getting assurances that redundancies will not be compulsory, which they are not always able to achieve.

In sum, the UK system is one in which management’s preoccupation with delivering greater shareholder value is central, and the concerns of employee representatives are very much secondary.


The evidence presented in this study makes clear that there are strong linkages between the nature of institutions in the financial markets (or the system of corporate governance as we have termed it here) and those in the labour market. In one group of countries, shareholdings being dispersed across a range of financial intermediaries and a well-developed market for corporate control – the outsider system of corporate governance – goes hand-in-hand with a minimalist legal framework concerning employee rights in restructuring. In the other countries, which exhibit more stability in ownership and less of a market for corporate control – the insider systems – employee rights tend to be stronger, either through systems of co-determination or through collective bargaining (or some combination of the two). As has been made clear, this latter group is diverse, with four sub-groups discernable. The central argument that has emerged in this study is the impact that these various systems have on the extent, nature and consequences of restructuring. Arguably, restructuring has been most pervasive, and has occurred most rapidly, in the outsider systems and in the rapidly evolving insider systems. Without question, the impact on employees of restructuring has been felt most acutely in countries without a strong tradition of social concertation and where union strength is patchy.

A key debate that we referred to at the outset concerns whether there is convergence across Europe in terms of the nature of corporate governance systems and the way these systems shape the patterns of industrial restructuring. It is evident from the above analysis that many countries that have traditionally been characterised by insider systems are evolving. The causes of these changes vary: a reduction in the role of the state through privatisation; the increasing role of foreign ownership, particularly through pension funds; the internationalisation of large, domestic companies; and in some cases, deliberate changes by governments in the nature of domestic institutions. One reading of these trends might be that this constitutes a process of convergence along the lines of the Anglo-Saxon countries, in which ownership is fluid, relations between managers and owners are arms-length and a market for corporate control exists. Indeed, countries such as the Netherlands, Finland, Spain and France have witnessed significant shifts in this direction, while in others such as Germany and Sweden the changes have been notable.

However, the picture is much more complex than an initial reading might suggest. In fact, it is arguably the case that there is now greater divergence across Europe in terms of the nature of corporate governance and employee representation systems and the way these shape patterns of restructuring. Whereas 10 years or so ago the UK and Ireland used to be clear outliers, with the other 14 countries in question exhibiting many common features, now the picture is more varied. In some countries, such as Austria, Denmark and Luxembourg, the erosion of their versions of the insider system is scarcely detectable; in others, such as Belgium, Denmark, Sweden, Germany, Portugal, Greece and Italy, changes are detectable but their effect has certainly not been transformative; in a further group of countries – the Netherlands, Finland, France and Spain – the changes have been very significant. In none of these cases, however, has any of the 14 insider systems converged closely on the UK-Irish model. The result is a picture of uneven change and apparently greater diversity than before.

This has important implications for EU-level policy. Over the last few years there has been a number of proposals on the issue of an EU-wide Directive on takeovers (while the European Commission is currently considering the issue of corporate governance, with a High-Level Group of Company Law Experts examining this and related topics). Support for the idea of a takeovers Directive comes from advocates of the outsider system who hope that it will open up a market for corporate control in countries where currently there is not one. There is also support for the idea from those who advocate the insider model, such as the German finance minister, Hans Eichel who argued during the Vodafone-Mannesmann takeover battle that common takeover rules in Europe might help 'avoid a culture clash between Anglo-American capitalism and the consensual German model'. The proposals on the form of such common rules have failed to make much progress, however (the most recent draft Directive fell due to European Parliament objections in July 2001 - EU0107224N- and the Commission is presently considering a revised proposal). The findings of this study suggest that the increasing diversity in corporate governance and employee representation systems makes agreement on the form that such a Directive might take all the more difficult. (Tony Edwards, King's College University of London)

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