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# 51999AC0698

**Opinion of the Economic and Social Committee on 'Managing Change Final Report of the High level group on economic and social implications of industrial change' **

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Official Journal C 258 , 10/09/1999 P. 0001 - 0005 *

Opinion of the Economic and Social Committee on "Managing Change Final Report of the High level group on economic and social implications of industrial change"

(1999/C 258/01)

On 15 December 1998 the European Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on "Managing Change - Final Report of the High level Group on economic and social implications of industrial change".

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 10 June 1999. The rapporteur was Mr Little and the co-rapporteur Mr Sepi.

At its 365th plenary session (meeting of 7 July 1999), the Economic and Social Committee adopted the following opinion by 103 votes in favour and four abstentions.

1. Introduction

1.1. A report on economic and social implications of industrial change was released in November 1998 by a "high level group" selected by the European Commission and under the chairmanship of Mr Pehr G. Gyllenhammar. The group was invited by the European Council at the Luxembourg Employment Summit in November 1997 to analyse industrial changes in the European Union, to look at ways of anticipating and dealing with change and its economic and social effects. The report acknowledges that it can only deal with selected areas and provide examples and that it concerns difficult and contagious problems. The group recommends that the report should be followed up by dialogue between the Commission and private sector organisations to discuss the best way forward in anticipating and dealing with change.

1.2. In line with a request from Commissioner P. Flynn, the ESC decided to examine the high level group's report ("the Report") and to publish an opinion thereon prior to consideration of the Report by the European Council. Facets of this wide and important subject have been dealt with on many previous occasions by the Committee and, therefore, the comments which follow here are focused in the main on matters directly raised in the Report.

2. General comments

2.1. The Committee considers the Report as providing a stimulus to the consideration of the phenomenon of industrial change and the promotion of effective action to deal with it. It provides a useful commentary on the background to change. The Committee particularly welcomes the Report's recognition that industrial change provides new opportunities and its emphasis on the creation of new jobs rather than the defence of obsolete ones. The broad strategy of seeking stimulus from an approach built on benchmarking, innovation and social cohesion is valid.

2.2. Industrial change can be driven by many different factors but a common feature is that new opportunities arise. The Report seeks to identify means of converting change into such opportunities. The Committee contends that, to so do, change must be not only anticipated, prepared for and managed but also actively exploited to give the greatest economic and social benefits. Central to that task is the need for European industry to ensure essential productivity and to improve competitiveness in global terms.

2.2.1. The Committee agrees that the business community, the representatives of employees including trade unions, employees themselves, national governments and local authorities all have roles to play in exploiting change.

2.2.2. However, the Committee regrets that some of the proposals are confined to possibilities for providing information - mostly on a voluntary basis - which are not part and parcel of effective consultations in preparation for political and economic decision-making. Such consultations should be aimed at exerting a timely influence on decision-making so that structural changes lead to an optimum economic and social scenario.

2.3. Inherent in radical change is the creation of the need for new skills and the demand for new competences. If this is not considered in parallel with organizational, administrative and technological changes, the time period for change to take place will be extended and the potential benefits may be diminished.

2.4. The employability of an individual is defined in the Report as her/his ability to find a niche in the labour market. The Committee submits that, in order to establish or re-establish such a niche, the individual requires mobility, adaptability and commitment together with appropriate skills. She/he needs to have the opportunity for training and re-training during the course of her/his career as skills now need to be viewed on a dynamic basis. The Committee agrees that the responsibility for becoming and maintaining employability is shared. Training and learning extend from relevant formal education to on- and off-the-job training and re-training either provided by companies or facilitated by public authorities. New methods of on-the-job learning will be essential.

2.5. The Report's call for companies to recognize obligations to other stakeholders in addition to their legal responsibilities to shareholders is not novel and continues to be supported by the Committee. Many large companies do operate in this way and the Committee welcomes the suggestion that through benchmarking, comparison and sharing information on a voluntary basis, other companies would be encouraged and helped to improve their policies and procedures.

2.6. The benefits of having effective means of informing and consulting employees have long been recognized by the Committee. Good communication, openness and dialogue with employees increase motivation which is a key contributor to optimum business performance and to the smooth implementation of essential change. Voluntary arrangements are favoured for such dialogue, having the commitment of all parties involved and being tailored to the organisation's size and culture.

2.6.1. When equality of information is available, employee participation is stimulated and collective bargaining, when it takes place at the appropriate level, is likely to be more constructive and can lead to benefits by way of greater productivity and flexibility. The Committee regrets that there is no specific reference in the Report to collective bargaining.

2.6.2. Open dialogue is particularly important for the smooth implementation of essential change and should be an integral part of the process.

2.7. Whilst the Committee supports the overall objectives of the Report and welcomes the impetus which it should give to strategic planning and action, it cannot endorse the entire contents of the Report. It contains a number of useful suggestions - not all of them new - to which the Committee gives its support. However, there are also recommendations which are extremely vague and some which are controversial to say the least. In addition, the structure of the report is somewhat confusing with four sections which contain unnecessary repetitions and, more significantly, lack harmony and are even contradictory in some cases.

2.7.1. Although the Report is comprehensive to a degree, the Committee feels that there are a number of surprising omissions. It makes no reference to the need for improving the access to venture capital markets nor, in the main body of the text, to the potential boost to employment which could be given by completing the single market. It fails to place sufficient emphasis on the necessity for international competitiveness in order to safeguard employment and to the potential for employment growth from SMEs and the service sector.

2.7.2. In addition, the Committee suggests that it would have been desirable for the Report to emphasize the need for the aims of this initiative to be furthered by appropriate industrial measures such as completion of the single market, opening up of government procurement and establishment of the European company. Such measures can contribute to the expanding and growing European economy which is necessary for the renewal of European industry.

2.7.3. Moreover, nowhere does the report envisage encouraging companies in third countries - which compete with EU businesses in the single market - to improve their social dialogue too, and to apply minimum social standards within the firm. The Committee considers that the economic and social implications of industrial change call for a global approach, including strong pressure from the EU to secure a better framework for competition conditions internationally, inter alia by means of minimum social clauses.

2.7.4. The Committee is surprised that no reference is made to the boost which would be given to competitiveness, and hence to employment, by business tax reform in each Member State and by eliminating the negative consequences of unfair business tax competition between Member States.

3. Specific comments on the Report

3.1. Observatory on industrial change (Part 1.3)

3.1.1. The Report recommends the creation of a European Observatory on Industrial Change which could provide a resource in helping to anticipate and plan for sectoral and regional economic developments. The Committee will be interested to see the outcome of a feasibility study of this proposal and which is being launched by the Commission.

3.1.2. The Committee considers that, regardless of the conclusions of that study, the Commission should keep a constant watch on industrial change so that it can adjust its actions and the Community policies which it proposes to the Parliament and the Council. To this end, it is vital that the Commission step up consultations on industrial change with industrial circles and the social partners; it must also radically reform its own internal organisation, for example by using multidisciplinary task-forces to eliminate the barriers between directorates-general and which prevent it from acting with the requisite consistency.

3.1.3. Whatever forum is adopted, the Committee would stress the need for a link to economic and political decision-taking and for the social partners to be involved in such a way that they can participate therein.

3.2. A Managing Change Report ("MCR") on employment and working conditions (Part 1.4)

3.2.1. The Committee welcomes the Report's recommendation that companies be encouraged to report to their own employees on employment and working conditions on a voluntary and flexible basis. It recognizes the fact that best practice is developed, not by legislation, but by the voluntary adoption of the highest standards in the own interests of a business and its employees.

3.2.2. However, the degree of prescription suggested in the Report for the proposed MCR is greatly excessive and the presumption that there should be a single methodology is at variance with the recognition of cultural diversity and adaptability. Publication of such a report could pose problems for companies reluctant to disclose their innovative practices to competitors.

3.2.3. Nevertheless, the Committee would wish to encourage all companies - both European and foreign-owned - with over 1000[nbsp ]employees within the EU to prepare a form of "managing change report" on a voluntary basis. It could provide information on what structural changes are foreseen and give a pro-active outline of proposed change management. It could describe the company's proposals and programmes for

- the process and methods of learning to meet demands for new skills and competencies

- the development of technology and organization

- sustaining equal opportunities (major change tends to have a disproportionate short-term effect on less-favoured groups)

- dialogue with other societal forces about managing change.

3.2.4. The effect of industrial change is not confined to the private sector. Accordingly, the Committee would also wish to encourage public sector bodies employing over 1000 to adopt the practice of preparing such a form of report.

3.2.5. The involvement of employees and their representatives in drafting and implementing the report is considered to be essential to its success.

3.2.6. The Committee suggests that the report be drawn up on the basis of objective criteria and be certified by an independent body nominated by the company.

3.2.7. The Committee suggests that the Community and Member States could be encouraged to take into account in the award of public aid the form of certified managing change reports, as proposed by the Committee in para 3.2.3. above. This would provide an incentive to spread the practice to more large organizations without encroaching on management freedom of decision.

3.2.8. However, the Committee is strongly opposed to the parallel recommendation in the Report that the proposed MCR should be a criterion for the award of government contracts. For such a criterion to apply, adjudications would require to be made of the company and its MCR at all national, regional and local levels at which contracts are placed. That would interfere with the commercial rights and obligations not only of suppliers but also of government and its agencies as public contracts should, and in some cases must, be placed on a strict value-for-money basis. Advocating that such a report should be considered as a criterion for the award of all government contracts is totally incompatible with the statement in the Report that "the idea of any form of compulsion is eliminated from the outset". The Report itself acknowledges that compulsion would lead to argument about definitions and difficulties rather than foster real attempts to convey good practice in open and innovative ways.

3.3. Infrastructure for new technologies (Part 2.1)

3.3.1. The Committee endorses the Report's statement that one of the main economic roles of government is to create the infrastructure which facilitates economic development. It supports the priorities identified and particularly welcomes the emphasis on information technology and the call for liberalization of the telecommunications sector. The Committee welcomes the proposal to give financial incentives for getting this sector off the ground.

3.4. Employability and lifelong education and training (Part 2.2)

3.4.1. A major factor giving rise to unemployment in Europe is, as stated in the Report, that the supply and demand for jobs cannot readily adjust to each other in a period of major technological changes and globalisation.

3.4.2. The Committee concurs with the statement that companies have an obligation and a direct interest in helping to maintain the employability of their workforce. However, the reality is that successful and forward-looking enterprises will, in their own interests, invest more heavily in their workforce than others will do.

3.4.3. The Report acknowledges that workers and public authorities share the responsibility for employability but it does not develop sufficiently the role of the individual who is the ultimate beneficiary. For example, he/she has an obligation to participate actively when given the opportunity for further education and training. The role of the state is identified correctly as being to facilitate the process of continuous learning. The Committee fully agrees that training and lifelong learning are of paramount importance in striving for employability but points out that this applies not only to full-time employees but equally to part-time staff, teleworkers and the self-employed.

3.4.4. In the light of the above, the Committee considers that it is invalid for the Report to refer to companies having to "safeguard" the employability of employees. Corporate responsibility for taking certain measures cannot itself guarantee a positive outcome.

3.4.5. Such a corporate responsibility is fulfilled by training, developing and retraining employees for the jobs they are contracted to fulfil together with roles which they may be asked to undertake for the company in the future. By this means, employees generally gain transferable skills and improve their employability. The Committee considers that it is an entirely different matter to suggest that companies should be held responsible for the training of employees for jobs should they leave. Companies can - and so do in many cases without any contractual or legislative obligation - take steps to assist employees no longer required to find other jobs, for example, by means of outplacement services.

3.4.6. The Committee agrees that there is a role for public funding for training which may be necessary if persons being redeployed are to find suitable new jobs. The "Work foundations" public/private sector partnership scheme operating in Austria is cited by the Committee as an excellent example of good practice which could be adopted more widely. Under this initiative - designed to achieve the concentrated vocational reintegration of people affected by redundancy - comprehensive assistance is given to find new employment by way of outplacement guidance, training/retraining and support in self-employment or business formation.

3.4.7. The recommendation that any Company "manifestly failing to take the necessary steps to safeguard the employability of those dismissed should no longer be eligible for any form of public aid" is unenforceable because employers cannot safeguard employability when individuals and public authorities share the responsibility. However, in appropriate circumstances, there is a case for companies to be granted economic incentives and funding for the training which is necessary in order to promote the redeployment of dismissed employees in suitable new jobs. Such incentives would not interfere with companies' freedom of choice but would assist those wishing to play an active part in growth of European industry as a whole.

3.4.8. The Report fails to identify the link which is necessary between education bodies and industry to ensure that education and training remain relevant to the rapidly-changing world of work. There are a number of voluntary education/business partnerships in the UK, for example, which could be adopted elsewhere as good practice.

3.5. New areas of employment (Part 2.3)

3.5.1. Two examples are given in the Report of sectors which could play an enhanced role in the labour market over the next decade. The Committee acknowledges that there may be potential growth in these sectors but it is disappointed that no stronger examples are given and that no reference is made to new forms of commerce.

3.5.2. Nonetheless, the Committee notes with satisfaction that the two examples are taken into account as factors in employment growth. Both of them - personal services and creative arts and entertainment - play an important role in society not only at the economic level but also in improving the quality of life.

3.5.3. There may be merit in the proposal to encourage and stimulate creative arts and entertainment. Any action in this area must, however, be and be seen to be compatible with open markets and free competition on a global basis. The Committee feels that public financing of European "Oscars" would not be justified.

3.5.4. In the case of personal services two taxation aspects are considered both of which involve subsidiarity. The proposal that tax relief should be given to "employers" for primary personal services has some attractions but against that it would in effect constitute regressive taxation for the better-off acting as an employer in such instances.

3.5.5. The Report notes that several countries have taken active steps to reduce the tax and social cost burden in respect of low paid employees and recommends such measures be taken more widely in order to bring down the actual cost of less-skilled labour. The Committee welcomes the recommendation as such action should give a boost to both employment and competitiveness especially in labour-intensive businesses and particularly with the active involvement of the social partners.

3.5.6. In addition to other new areas of employment such as information technology, structural change is creating new forms of employment of which teleworking in all its facets is an important example. The Committee recommends that the Commission should prepare an analysis of recent studies of such new forms of employment.

3.6. Creation and development of SMEs (Part 2.4)

3.6.1. The Committee is pleased to note that a number of its policies for the sound development of SMEs are incorporated in the Report. It particularly welcomes the emphasis on entrepreneurship and innovation.

3.6.2. The wider establishment of "one-stop shops" is supported although it is pointed out that those already in being do not guarantee bureaucratic simplicity. The Committee draws attention to the need for such operations to be supported at national and local level.

3.7. Managing crises (Part 3)

3.7.1. There are a number of contradictory statements made in this section of the Report, and proposals in it lack clarity as to which would apply to individual companies and which to all companies operating in one industrial sector in a region.

3.7.2. Small and medium-sized companies and even large firms cannot alone overcome the problems of declining industries nor of sudden major crises. For enterprises themselves to remain in business, they need to identify and then satisfy new markets and customers.

3.7.3. The Committee supports the general principle that major change at regional level be managed through a collective effort as has been undertaken, successfully in many instances, for steelmaking, coal mining and shipbuilding industries. Voluntary and flexible territorial partnerships should be encouraged. Both Community and national funds should be targeted at helping the transition, which can be managed successfully, from declining industries to new and growing sectors.

Brussels, 7 July 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI