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.’