Debate over industrial relations aspects of proposed super-merger of Telecom Italia and Deutsche Telekom

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The possibility of a merger between Telecom Italia and Deutsche Telekom, proposed in April 1999, has given rise to a debate among Italian trade unions on its potential industrial relations impact. The focus of the discussion is the legal form that the new company may take and its consequences on industrial relations, notably in terms of co-determination rights.

In April 1999, the Italian-owned telecommunications group Telecom Italia and its German-owned counterpart Deutsche Telekom announced that they planned to merge. If approved by shareholders and industry regulators, the merger would create a company worth EUR 163 billion and with 100 million customers. While awaiting resolution of the economic, corporate and organisational problems relative to this "super-merger", the Italian trade unions began a debate, indeed a controversy, concerning the model of industrial relations that might apply the future Italo-German telecommunications company.

Olivetti takeover bid

The uncertainty of future developments, and perhaps also the abstract nature of the trade union debate, is borne out by the fact that the merger is subordinate to an agreement between the two governments concerned. This agreement in its turn is conditional on the outcome of a prior hostile takeover bid for Telecom Italia by Olivetti, the Italian-based electronics giant.

It seemed initially that the Olivetti bid could be welcomed by the Italian government because of the dynamism that it might inject into Italian capitalism, which is seen as lethargic. However, the bid was immediately opposed by both the management of Telecom Italia and its main shareholders - including Fiat, which recently declared its intention to sell its 0.6% shareholding should Olivetti's bid be successful, and conversely to increase its investment should the planned alliance with Deutsche Telekom go ahead (according to a statement by Umberto Agnelli at a meeting of the Fondazione Piaggio in Pisa, reported in the newspaper Il Sole 24 Ore, 15 May 1999).

The trade unions have been cool towards Olivetti's bid, given their fears concerning its expected effects on employment levels. These fears are shared by the leaders of the two largest Italian union confederations. Sergio D'Antoni, general secretary of Cisl, and Sergio Cofferati, general secretary of Cgil, have repeatedly voiced doubts about what they see as the limited transparency of the Olivetti deal, stressing in particular the perceived lack of an investment plan for the new company that would result from the takeover, the unclear consequences for personnel, and the impossibility of determining the amount and type of redundancies in the absence of a clear industrial plan. The attitude towards the operation is one of "critical neutrality", as evidenced by a statement made by Mr D'Antoni: "I shall not go into the merits of [Olivetti's] bid, but the plans for future development and employment should be clarified ... the discussion so far has concerned only financial matters" (quoted in an interview with Il Sole 24 Ore, 27 April 1999).

Given these hostile or critical positions on Olivetti's bid taken up by management, the main shareholders and the unions, the government has grown increasingly neutral and "wait and see" in its attitude.

The proposed super-merger

The projected "super-merger" between Telecom Italia and Deutsche Telekom - which was the response of a Telecom Italia management hostile to Olivetti - has prompted an even more controversial reaction from the government and the trade unions, mainly because of its possible repercussions on corporate arrangements and industrial relations. The conditions imposed by the Italian government if the deal is to go ahead implicitly highlight its main weaknesses, which are the joint management of the new company and the impossibility of restoring the recently privatised Italian company to public ownership (the Italian government retains only a "golden share" in Telecom Italia, while 72% of shares in Deutsche Telekom are owned by the German government, and the privatisation begun in 1996 will be completed only in 2002). Forthcoming meetings between the two governments will concentrate on these problems, which at the moment seem difficult to resolve and are closely conditioned by Olivetti's bid.

These aspects and difficulties of the Telecom Italia-Deutsche Telekom merger are also responsible for the opinions, this time strongly contradictory, expressed by the leaders of Cgil and Cisl: the differences are exemplified by the titles of the interviews given to Il Sole 24 Ore by Mr Cofferati - "A company based on German company law is unacceptable" (25 April 1999) - and by Mr D'Antoni - "Co-determination is an opportunity not to be missed" (27 April 1999).

Mr Cofferati of Cgil in particular has raised three objections against the merger with Deutsche Telekom, although accepting that from a general point of view it may be regarded as positive in terms of its industrial potential and possible "synergies" between Italy's leadership in mobile telephony and Germany's in fixed telephony - compared with the uncertainty that surrounds Olivetti's offer, characterised by over-indebtedness and excessive risks for investors and personnel. The three objections are that:

• basing the new company in German law implies a lack of parity between its owners, which raises the doubt that the deal is more a takeover than a merger. Mr Cofferati suggests that the difficulties of overcoming the problem of parity ownership stem less from technical considerations than from the trade unions. That is to say, these difficulties are tied to consent by the German unions, which have representatives on the Deutsche Telekom supervisory board. The leader of Cgil points out that it was the workers' representatives at Continental that recently blocked the purchase of that German company by Pirelli. If the German unions find it difficult to accept corporate models and industrial relations systems different from their own, which may reduce the protection afforded to German workers, Mr Cofferati for his part claims the right to reject a "Rhineland" model of industrial relations - which, he argues, displays "largely non-Europist and still profoundly statist attitudes". A merger between a state-owned and a private company, moreover, would complicate the problem still further;
• the system of workers' representation in the German company seems unsuited to the Italian context, given the different histories of industrial relations in the two countries. The combination of the two bargaining levels, industry-wide and company-level, sanctioned by Italy's tripartite central agreement of 23 July 1993 (IT9803223F), which was confirmed by the "social pact" of December 1998 (IT9901335F), is seen as more appropriate to the activity of Italian trade unions. It is argued that the presence of union representatives, which is not merely symbolic, on the joint supervisory board would partly reduce the effectiveness of the two-tier system, diminishing the scope of company-level bargaining. Moreover, Mr Cofferati notes that, as matters stand, only the German trade unions would have the possibility of representing workers on the board; and
• the proposed system of employee shareholding in the company is regarded as "extremely dangerous" or even "incestuous". Italy's very high level of contractual and household savings should be directed to the market to foster the creation of institutional investors. In the present situation, instead, those of Telecom Italia employees would be channelled into the ownership of a single company. In Mr Cofferati's opinion, "this produces one of the worst rigidities for an economic system, a financial rigidity as well as of the labour market, since workers no longer move around".

The position of Mr D'Antoni of Cisl on these three issues is instead one of positive acceptance, albeit with some specifications, mainly because the Telecom Italia-Deutsche Telekom merger may "relaunch the creation of the European Company". Consequently, he argues, the fact that the future company will be based on German, Dutch or Italian law is less important than the fact that it constitutes a new model of a company receptive to workers' interests. Indeed, "the idea of the German company comes closest to the model for the representation of the interests of capital and labour that we have always proposed." The problem, in Mr D'Antoni's view, is that hitherto discussion has concentrated only on the presence on the board of the merged company of five management representatives from each of the two companies. There has been no discussion of representation of the workforce, which should take similar form. As for employee shareholding, Mr D'Antoni considers this to be an essential component of the future model of industrial relations that will emerge from the hoped-for merger: "One can imagine a system of co-determination with the joint presence on the board of German and Italian representatives backed by mass employee shareholding, as well as by general shareholding." Therefore, not only is the Cisl leader critical of Mr Cofferati's "laissez-faire" arguments on shareholding, while failing to discern the "incestuous" nature of the capital/labour relationship denounced by Mr Cofferati, but he also argues that facilitating workforce access to capital may increase employees' motivation.

Commentary

The proposed Telecom Italia-Deutsche Telekom super-merger has increased the doubts and uncertainties felt by the industrial relations actors regarding the Italian company's industrial and investment plans, as well as the transparency and clarity of information - doubts and uncertainties already provoked by Olivetti's bid for Telecom, the outcome of which was still unclear at the time of writing (17 May 1999).

The leaders of the two largest Italian union confederations are both suspicious of the deal (although it may have less painful, and above all more controllable, effects on employment than have been envisaged) and of the unclear information and participation distinctive of current privatisations and mergers. Yet, regardless of its eventual outcome, the Telecom Italia-Deutsche Telekom affair has above all highlighted substantial conflict between the secretaries of Cgil and of Cisl on the model of industrial relations, on workers' representation, and on employee shareholding (and its results?) in the future supranational European company. Although this clash has been personally expressed by the two union leaders, and although it substantially reflects the positions of the two largest confederations on a specific issue like the Telecom Italia-Deutsche Telekom merger, it may in the near future extend into the growing debate on the possible model(s) of industrial relations in companies in the European Union (Serafino Negrelli, University of Brescia)