PROGRAMME FOR RESEARCH AND ACTIONS ON THE DEVELOPMENT OF THE LABOUR MARKET ANALYSIS OF THE EXPERIENCES OF AND PROBLEMS ENCOUNTERED BY WORKER TAKE-OVERS OF COMPANIES IN DIFFICULTY OR BANKRUPT MAIN REPORT *** * PAOODOCUMEN COMMISSION OF THE EUROPEA COMMUNITIES This document has been prepared for use within the Commission. It does not necessarily represent the Commission's official position. Cataloguing data can be found at the end of this publication. Luxembourg: Office for Official Publications of the European Communities, 1987 ISBN 92-825-7580-2 Catalogue number: CB-50-87-033-EN-C © ECSC-EEC-EAEC, Brussels - Luxembourg, 1987 Reproduction is authorized, except for commercial purposes, provided the source is acknowledged. Printed in Belgium Commission of the European Communities PROGRAMME FOR RESEARCH AND ACTIONS ON THE DEVELOPMENT OF THE LABOUR MARKET ANALYSIS OF THE EXPERIENCES OF AND PROBLEMS ENCOUNTERED BY WORKER TAKE-OVERS OF COMPANIES IN DIFFICULTY OR BANKRUPT Main Report Author: Rob Paton Cooperative Research Unit The Open University U.K. Study No. 85/4 Document This document has been prepared for use within the Commission. It does not necessarily represent the Commission's official, position. Copyright ECSC-EEC-EAEC, Brussels - Luxembourg, 198.7 Reproduction is authorized, except for commercial purposes, provided the source is acknowledged. The research (Study 85/4) on which these reports were based was financed by the Commission of the European Communities as part of its programme for Research and Actions on the Development of the Labour Market. The analysis and conclusions are the responsibility of the authors. They do not necessarily reflect any views held within the Commis• sion of the European Communities nor do they commit it to a parti• cular view of the Labour Market or any other policy matters. PROGRAMME FOR RESEARCH AND ACTIONS ON THE DEVELOPMENT OF THE LABOUR MARKET ANALYSIS OF THE EXPERIENCES OF AND PROBLEMS ENCOUNTERED BY WORKER TAKE-OVERS OF COMPANIES IN DIFFICULTY OR BANKRUPT Summary Contents Aims of Study Attempts at WTO: Why, When and Where Achieving a WTO Planning the Business Organising a WTO Mobilising external support After the take-over: varieties of success and failure Policy issues Rationales for the Support of WTO Instruments, pitfalls and dilemmas Some General Principles Priorities for enhancing the support of WTOs Removing obstacles to WTO The Marginality Problem the 'Large Plant' Problem The Evaluation and Exchange of Experience Aims of the Study The aims of the study were (i) to provide a comparative review of the experience of Worker Take-Overs (WTOs) and attempted WTOs, in 6 member states, (ii) to identify the factors that facilitate or restrict attempts to form rescue enterprises, with particular attention to - roles and attitude of Trade Union organisations - roles and attitude of employers' organisations - access to capital - national and local Government attitudes - legal frameworks - role and experience of support agencies (and their scale and distribution) (iii) to identify areas of agreement concerning common pitfalls, dilemmas and good practice in the support of WTOs as well as key policy issues concerning them. Six countries were selected for the study. Italy has had the most extensive, and the most successful, experience of WTOs, with perhaps 1000 cases over the last decade. These generally involve small or medium size enterprises, and usually employ, between say, 30 and 200 people in the re-established enterprises. This experience has been concentrated in particular areas of Northern Italy, creating a context in which WTOs have become a normal feature of economic life. The industrialised regions of Spain have also seen very large numbers of WTOs, reflecting both the severity of the economic restructuring it has undergone and the extent of public support for WTOs over the last 10 years. In France the incidence and reputation of WTOs have both fluctuated sharply over the last decade. More recently, between 50 and 100 WTOs per year have continued to occur, with the most promising results being achieved in sectors where co-operatives have traditionally had a presence. British experience has been far more limited, with only about 80 cases in total. However, the number of WTOs has tended to increase in recent years, particularly through the efforts of local authorities in relation to local economic initiatives. More WTOs are beginning to emerge in certain areas; and Trade Union attitudes are being reconsidered. In Denmark only 14 WTOs have occurred. The great majority of these have been commercially successful so the interesting question is why there have not been more. This highlights the importance of economic and cultural factors and the traditions of the labour movement in understanding the conditions which give rise to WTO and make it a realistic strategy. In West Germany, there have been 13 WTOs in the last two decades, but well over 30 attempts, most occurring in the last few years. In general, the experience of and capacity to support WTOs has increased quite rapidly in the last few years - particularly around Bremen - but starting from a very limited base, so that the institutional obstacles remain considerable. Attempts at WTO: Why, When and Where The great majority of attempts at a WTO are a response to the threat of unemployment. As such, they tend to occur: 0 in industries undergoing re-structuring ° where the workforce possesses industry-specific skills for which demand is limited ° where the threatened plant or enterprise is a major employer on which the locality is economically dependent. Such enterprises may be badly run down with little, if any, prospect of commercial viability. However attempts at WTO do not only occur in such circumstances. The owners of a viable, or potentially viable, enterprise or plant may wish to dispose of it for a wide variety of reasons and yet they may fail to attract a purchaser. Such failures in the market for enterprises arise, essentially, because of the high transaction costs associated with the decision to purchase an economic unit, and the likely difficulties of managing the acquisition effectively. Hence the prospect of a high return will be necessary in order to justify the risks involved. In short, an enterprise or plant may be threatened with closure not because it is unprofitable but becuase it is not considered to be profitable enough. Whether or not the threat of closure and unemployment stimulates an attempt at a WTO depends on the confidence of the workforce and the credibility of the WTO idea. In this respect the attitude of various external parties is crucial. In general, mainstream Trade Union movements have been doubtful or hostile towards WTO. More recently, rising unemployment and the failure of traditional strategies for saving jobs have prompted a reconsideration of the WTO option and the position is now more complex and fluid with, for example, differences between unions, and between national and local levels, in several countries. In countries with worker co-operative sectors, the extent of support offered by movement bodies for WTOs has, on occasions, been a controversial issue. WTOs have been seen as offering great opportunities and also great dangers. But in general the stronger the worker co-operative sector in a country, the more credible is the WTO idea, and the more support for WTO attempts there is available. The actions of governments - whether at national, regional or local level - have also influenced the number of WTO attempts occurring in different countries and areas. Though their reasons have differed somewhat, governments of both the right and left have on occasions provided support for WTO, and in other contexts, both have opposed WTOs. In general, government actions towards WTO are best understood in relation to political pressures for job preservation and to the prevailing reputation of WTO for that purpose. Overall, it is clear that attempts at a WTO are no longer an entirely spontaneous initiative by the workforce. It is a response to the threat of closure which has variously been promoted or discouraged, - either explicity or tacitly. Success tends to breed success. The credibility of the WTO idea and the availability of support for WTO attempts is affected by the success or failure of previous attempts. Over the last ten years, this had lead to concentrations of WTO activity in particular localities. In a historical perspective such self-sustaining tendenceis may explain the very different institutional and cultural patterns of the labour and co-operative movements that have developed in, for example, Denmark and Northern Italy. In any event, it seems that the WTO response is more readily undertaken and accepted where collective entrepreneurship and decentralised self-help are established within the labour movement and the wider society. Such cultural considerations provide a caution against assuming that the experience of one country or region can be easily reproduced elsewhere. Achieving a WTO When a workforce attempts to take over a business this involves the preparation of a business plan, the creation of a new organization, and the mobilization of external support. These three areas of activity are closely inter-related. Planning the business The willingness of the workforce to accept responsibility for ensuring viability is critical for the formulation of a realistic business plan - and the discussion and preparation of the plan by the workforce is the vehicle by which it starts to discover and come to terms with the implications of a WTO. Decisions over job losses present these implications most starkly. While a substantial reduction in employment is commonly required there are a number of ways in which the difficulties this poses can be handled without jeopardising the WTO - particularly where there is external support from public agencies and other worker co-operatives. The preparation of a credible business plan also depends on whether the workforce can obtain the necessary information and advice.