The European Commission and the International Labour Organization are
encouraging companies to downsize responsibly. How can this be done?
Last month’s conference in Athens on ‘Socially responsible enterprise restructuring’ could prove to be a landmark event.
Responsible downsizing – whether from merger, acquisition or cutback –
has received little attention in the corporate world to date,
especially in the US and the UK. Now the International Labour
Organization and the European Commission – aware that restructuring has
become a permanent feature of business life – hope to change that.
Their strategy will be to talk to companies – via events, reports and
courses – about the business case for responsible downsizing. Badly
managed restructuring leads to distrust, loss of valued staff and lower
productivity, and leaves the survivors stressed and overworked, they
say. It also damages reputation and stakeholder relations, making the
employer less attractive.
More concretely, the ILO
argues the evidence ‘does not seem to support the notion that lay-offs
improve company performance’. Two in three firms cutting jobs reported
lower morale and 36 per cent suffered increased staff turnover in the
following year, a 1997 study by the American Management Association
found. The ILO says ‘scores’ of downsizing exercises are ‘devastating
tales of waste and incompetence’.
By contrast, responsible
downsizing ‘cultivates a stronger commitment from employees and a
willingness to innovate and adapt work systems.’ It is also relatively
inexpensive, typically involving more thoughtful use of existing
resources.
Getting this message across is not going to
be easy. Fred Fluitman, a manager at the ILO International Training
Centre, says: ‘Responsible restructuring makes business sense, but this
view is not held by most companies and investors.’ However, the ILO and
the Commission believe the short-term benefits to the bottom line of
wielding the axe need to be weighed more carefully against longer-term
effects. They are concentrating on firms that have downsized
responsibly and emerged with a positive tale to tell – and there are a
surprising number.
Delegates at the Athens conference
heard, for instance, how General Motors managed to reduce the negative
impact of downsizing its European operations in 2001 by warning staff
early and holding talks with the works council. In exchange for
agreeing not to close an entire plant, the US car manufacturer received
backing from staff to reduce capacity at 16 plants in ten countries,
re-deploy workers, reduce working hours, and raise productivity.
Similarly, when BP recently cut staff from 2400 to 1700 at a site in
northern England, the site staff council helped to select those made
redundant, based on the skills needed to keep the site going. Staff
representatives favoured speedy restructuring to minimize uncertainty,
which saved six months and cut costs.
In other examples
put forward in Athens, French glass company Saint Gobain created a unit
to retrain both its own surplus workers and those of its suppliers
affected by cuts, while Berlin-based health care firm Schering, which
has halved its workforce in the last decade through sell-offs, has
required, as a condition of sale, buyers to maintain labour standards
for at least five years, with no lay-offs.
Posten, the
Swedish post office, has the ‘futurum’ initiative, in which a personal
jobs mentor helps redundant workers, while in the UK, Michelin provided
retraining days and capital grants to employees of eight suppliers when
its Burnley plant closed.
Not all the companies were
large. The David Colegrave Group, a Netherlands-based horticultural
company, offered job training on full pay for nine months to 23 workers
made redundant in a merger. Former chief operating officer Casper van
Kempen told delegates this could have cost tens of thousands of
dollars, but instead created such goodwill that ‘17 employees left
spontaneously without claiming any benefits,’ and also ‘limited
reputation damage in the local community and in our industry.’
All involved in these projects reported that taking a socially
responsible line from the outset can make downsizing less painful for
all – and even turn it into a relatively positive experience.
The need to restructure forces companies to think flexibly. At
Warsaw-based Bank Pekao, which is majority owned by Unicredito
Italiano, privatization led to massive restructuring. Seven in ten
staff were administrators and the sales force was tiny. By giving
back-office staff basic sales training and setting them a sales target
of three current accounts a week, the bank simultaneously reduced its
headcount and restructured the business.
‘If a company
shows it cares about the impact of restructuring on its stakeholders,
it can lead to the development of a positive image for its brand’, says
Andrea Broughton, editor of European industrial relations review, who
has examined a number of such cases, including at Ford and BP. ‘It may
also lead to greater trust among the workforce, which will stand it in
good stead. Change and social responsibility need not be mutually
exclusive.’
