Corporate structural change and social dialogue in the chemical industry

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Corporate structural change and social dialogue
in the chemical industry

• Yasuhiko Kamakura
• Industrial Specialist
• Sectoral Activities Branch (SECTOR)
• International Labor Office (ILO), Geneva

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Topics

• Profile of the global chemical industry
• Recent mergers and acquisitions (MA) in the
  chemical industry 
• Impact of restructuring on jobs and working
  conditions
• Implications of restructuring to human resources
   
• Social dialogue in times of corporate structural
  change 
• Conclusions - catch-all Global business
  standards

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World chemical production, 2002 (billion US)
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Profile of workers in the chemical industry

• Not exceeding 5 million workers, including
  pharmaceuticals.
• Unionization approximately 20 per cent or
  higher.
• Unionization rate varies from country to county.
• Fall in trade union membership appears to be an
  undeniable trend.
• Unionization rate among white-collar workers has
  been increasing, although overall unionization
  rate in the chemical industry has been declining.

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Recent mergers and acquisitions (MA) in the
chemical industry
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Evolution of MA in the chemical industry,
1988-2004
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From cross-border MA to mega-mergers
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Examples of mega-mergers in pharmaceutical
industry, 1989-2000
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Increasing presence of financial firms in MA
activity, 1997-2003
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Average impact of restructuring on company
performance
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Emerging chemical producers

• China
• India
• Southeast Asian countries
• Central and Eastern Europe

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Why Asia? Global industrial chemicals employment
by region, 1990-2000
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Why Asia? Global plastic employment by region,
1990-2000
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Why Asia? Global oil refining employment by
region, 1980-2000
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Impact of restructuring on jobs and working
conditions
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Extent of job losses, 1990-1999
Over 1.5 million jobs were lost in the industrial
chemicals
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Job losses at company level in the US
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Wage system towards flexible wage system

• Wages are one of most disputed issues between
  employers and employees in restructuring. Often
  ends at strikes.
• Management also face pay cuts.
• One solution can be found in sectoral negotiation
  in Germany. Firmly established sectoral
  collective agreements can meet the demands of
  workers and companies by increasing flexibility.
  Opening clauses can meet the balance of
  ambivalent interests of the parties.

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Wage levels

• MA might increase wages in the short-term, but
  wages will decrease in the long-term.
• One UK study shows that, on average, the impact
  of acquisitions is to increase average wages by
  11 per cent in the acquiring firms two years
  after merger. However, much of these increases is
  due to the positive impact that related
  acquisitions have on wages.
• The impact of merger is greatest when the size of
  the acquirer is small.
• Workers in large firms benefit from acquisition.

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Implications of restructuring to human resources
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Costs of poorly implemented restructuring cost
to human resources in the chemical industry

• Celerant Consulting studies found that over half
  of recent transactions held to have destroyed
  rather than created value.
• CAN International stressed that MA needs to
  consider transferring skills in transforming the
  company.
• Excessive downsizing of manpower would harm the
  companys growth, because losing people with
  expertise and knowledge indicates a weakening of
  the base for growth. Particularly at MA, the
  recruitment and selection in personnel decisions
  are more important than ever.
• To acquire the specialist expertise needed to
  implement change in a creative and flexibility,
  avoiding the high fixed costs of maintaining this
  expertise as part of the permanent management
  structure.
• Learn organizations would be serious harmed.

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Outsourcing and contract labour

• According to the ICEM, specialist contractors are
  not necessarily a problem, because they are
  established companies whose contracts with the
  principal companies. They employ skilled workers
  on a long-term basis, with relatively decent
  terms and conditions.
• A problem exists in a new breed of service
  supplies, e.g. outsourced HRM units at BASF in
  Brazil. Often, there are no benefits such as
  pensions, medical insurance, death or industry
  benefits, sick pay, paid leave, or maternity
  benefits.
• Needs to conduct dialogue on setting limits to
  the use of contract and agency labours, and to
  negotiate with or consult the unions prior to
  contracts being tendered. Employers will not sign
  any contracts with a third party that could
  affect the employment status of their direct
  employees, prior to consulting with such
  employees union representatives.

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Importance of human resources development

• Enforcement of human resources management in the
  process of restructuring.
• VAAs survey indicates that academic and
  managerial employers are not happy about chemical
  companies lack of attention to personal
  development.
• 37 per cent responded poor.
• 26 per cent were happy about the profit-related
  bonus system, but 35 per cent said the system is
  poor.
• 17 per cent of managerial employees were very
  satisfied with top managements leadership, but
  33 per cent did not.

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Workers financial participation

• The European Foundation for the Improvement of
  Living and Working Conditions (EFILWC) across
  the EU some 45 per cent of business units with
  more than 200 employees have a profit-sharing
  scheme.
• Annual company results are at the central issue
  discussed at EWC. In the UK, more than 85 per
  cent of EWC discussed the annual company results.
• DSM introduced a share option scheme for its
  employees in the Netherlands in 2000 through a
  collective agreement.

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Social dialogue in times of corporate structural
change
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Social dialogue

• The ILOs working definition on Social Dialogue
  all types of negotiation, consultation, or simply
  exchange of information between representatives
  of governments, employers, and workers, on issues
  of common interest relating to economic and
  social policy.
• The chemicals industry advances the term social
  dialogue as a political tool of establishing
  social justice and stability.
• Why Social Dialogue? Organizations with
  communication infrastructures that all for
  constant listening and feedback reap the reward
  of that approach. Companies with the most
  effective employee communication programme
  provided a 26 per cent total return to
  shareholders, compared to a -15 return from
  organizations at the other end of the scale.
  Using employee feedback!
• Eastman Chemicals Employee Communication
  Advisory Committee (ECAC)

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Why is consultation important?
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When and how consulted?

• KIPLAS in Turkey
• In order to discuss restructuring, top managers
  or executive boards of chemical companies call
  trade unions or their representatives at work at
  an appropriate time.
• It is the practice for employers to attempt to
  have dialogue in case the restructuring calls for
  collective redundancies.
• Consultation is organized on a voluntary basis.
• All level of employers and employees concerned
  are involved in consultation.
• Boehringer Ingelheim in Austria
• Consultation takes place before the Strategic
  Plan of the corporation has been publicized.
• Company provides its employees with a full range
  of information.
• The company reported that the session concerning
  its companys structural change, employers and
  employees is held once a week for two years. The
  company consults with its employees about a
  variety of issues because the company believes
  better informed its employees and their
  representing organizations will show a higher
  motivation for change.
• The company provides its employees any kind of
  information involving the companies to
  opportunities and challenges. Confidential
  information is provided to its Works Council
  members.
• Japanese cases prior consolation before
  structural change taking place have established
  as a norm in the industry.

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What issues have been raised at EWC?
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Case studies in the Japanese chemical industry (9
large chemical firms)

• All companies share the sentiment that sharing
  information with trade union and employees is the
  key of success of the restructuring.
• One company states that some of the important
  matters that workers and employer should become
  to share the common understanding that the
  company growth and a profit increase are
  prerequisites of securing workers jobs and
  improving conditions of work.
• The company needs to provide substantial
  information with their workers on consultation. A
  successful consultation needs for mutual
  understanding that the company and workers will
  resolve the problems with sincerity and in good
  faith. Others stressed the timeliness of
  consultation and sharing the substantial
  information of what and how change would take
  place with trade union.
• A chemical company points out five major elements
  for a successful restructuring These are
• Strong belief of top management towards
  restructuring and his/her direct dialogue to
  employees
• Confidence and accountable actions of line
  managers
• Contributive dialogue and negation of supporting
  staff.
• sufficient information disclosure and adequate
  action to disclose such information to workers
• Prompt response to resolve when troubles arise

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Collective bargaining in times of restructuring

• Collective agreements in the chemical industry
  incorporate a provision that when a contingency
  problem affecting the workers and company
  financial matters the collective agreements
  mandates the company to inform trade union of
  such plans and implications to workers
  conditions of work.
• A regional collective agreement in Suisse
  chemical industry signed in January 2002
  incorporates the rights of providing information
  with trade unions. Collective agreement gives
  trade unions the rights to organize workers
  meeting to discuss emergency matters among trade
  union members without employers intervention.
• The Japanese Business Federation (JBF) - all nine
  Japanese chemicals firms responded to the ILO
  questionnaire state that negotiations with trade
  unions with respect to corporate structure change
  were initiated based on the collective agreements.

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Global Framework Agreements (GFAs)
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Corporate Social Responsibility (CSR)

• The social responsibilities of business and their
  contribution to the decent work agenda is, and
  has always been, a central part of ILO efforts to
  promote economic and social progress.
• CSR is one of the important ways today in which
  enterprises affirm their principles and values,
  both in their own internal processes and
  operations and in their interaction with other
  actors.
• While enterprises are increasingly reflecting the
  principles that underpin international labour
  standards in their CSR policies, for the ILO it
  is important to emphasise the voluntary nature of
  CSR.

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ILO MNE Declaration

• Observe industrial relations no less favourable
  than those observed by comparable employers
• Respect freedom of association and the right to
  collective bargaining, providing the facilities
  and information required for meaningful
  negotiations
• Support representatives employers organizations
• Provide for regular consultation on matters of
  mutual concern
• Examine the grievances of worker(s), pursuant to
  an appropriate procedure.

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CSR reporting under structural change

• Benefits of CSR CSR helps companies to
  disseminate information about their organization
  and its progress in achieving a range of goals to
  their stakeholders including workers.
• DSM indicates that the purpose of the CSR report
  is to information stakeholders about our Triple
  P ambitions (Planet, People and Profit) and the
  progress we have made in realizing them. As a
  stakeholder company we attach the utmost
  importance to building trust, by performing well
  and holdings a construction dialogue with
  stakeholders.

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Contents of the employee section in Corporate
Social Responsibility (CSR) reports of 26 listed
companies in the Netherlands
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Conclusions - catch-all Global business
standards

• The fiduciary principle
• The property principle
• The reliability principle
• The transparency principle
• The dignity principle
• The fairness principle
• The citizenship principle