# EUR-Lex - 52012DC0007 - EN

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# 52012DC0007

**GREEN PAPER Restructuring and anticipation of change: what lessons from recent experience? /* COM/2012/07 final */**

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GREEN PAPER

Restructuring and anticipation of change:
what lessons from recent experience?

1.
Introduction: proactive
restructuring for future competitiveness and growth

The central
subject of the present Green Paper is company restructuring and its social
consequences which are a cause of legitimate concern for many European
citizens. Restructuring is a crucial factor for employment and for the
competitiveness of the European economy.

This Green
Paper aims to identify successful practices and policies in the field of
restructuring and adaptation to change in order to promote employment, growth
and competitiveness as part of the Europe 2020 strategy[1] and in particular the
industrial policy flagship initiative of October 2010[2], the "Agenda for new
skills and jobs" adopted in November 2010[3].
The Green Paper is also intended to contribute to improving synergy between all
relevant actors in addressing challenges related to restructuring and
adaptation to change and takes into account the important work carried out in
recent years by the European Commission, the social partners, regions, Member
States and many other stakeholders.[4]

The Commission
wishes to renew the terms of this policy debate in the light of the lessons
learned from the economic crisis, the deep changes in the economic and competitive
contexts worldwide and the structural reform agenda currently implemented in
the EU.[5]

In that light,
the Commission will build upon the outcome of this consultation to consider new
ways to better disseminate and effectively implement good practices, including
at EU level, for dealing with both immediate concerns related to the economic
crisis and long-term competitiveness objectives as identified in the industrial
policy flagship initiative. The Commission will feed the results of this Green
Paper consultation into the revived flexicurity agenda, also with a view to steering
a renewed debate at EU level on a possible approach to and framework for
restructuring.

In the
industrial policy flagship initiative, the Commission stated, in particular,
that ‘updated orientations on restructuring can be very useful in reinforcing
the capacity of businesses and workforce to adapt to a fast-changing economic
environment’. Such updating could also ‘encourage a shift from purely reactive
actions to more anticipative strategies’.[6]

The Green Paper is accompanied and
supported by the Staff Working Document ‘Restructuring in Europe 2011’.
The Staff Working Document describes the impact of the economic and financial
crisis on labour markets and the responses of the different stakeholders;
illustrates EU action in the field of anticipating skills needs and developing
competences; highlights the role of EU funds in support of restructuring
processes, the impact of restructuring in EU regions and the role of ‘smart
specialisation’ strategies[7];
analyses the role of social dialogue, legal instruments and Member States’
support measures in this field; outlines the challenges and the EU responses to
them; and highlights some tentative lessons learned in recent years on
anticipation and management of change and restructuring.

The lessons from the crisis

The European economy is emerging with
difficulty from the deepest recession in decades.
The recession caused a large drop in economic activity in the EU, with millions
of jobs lost and a high human cost, and put public finances under severe
pressure, leaving Member States with more binding fiscal constraints.

The outlook for the EU labour market, which
proved rather resilient during the 2008-2009 recession and started to create
jobs again by the end of 2010, has deteriorated markedly and continues to
exhibit significant cross-country differences. In many advanced economies, job
creation has so far been insufficient to hire back the workers laid off during
the crisis, and the consequences of the recession are increasingly raising
concern about the possibility of persistent effects on unemployment rates.

Besides
diverging GDP developments, other relevant factors explaining the differences
in unemployment rates across Member States include differences in the extent of
adjustment of working hours, different needs to relocate labour across sectors,
e.g. away from construction, different education and training systems, notably
apprenticeship arrangements, different economic and institutional starting
conditions and dissimilar policy responses to the recession.

In spite of
extremely adverse market and financial situations, companies and their
workforces throughout Europe have, by and large, engaged creatively in restructuring
processes that have been constructive, effective and instrumental in limiting
job losses, through innovative arrangements, often with the support of public
authorities and European Commission.

The European Commission's communication
"A European Economic Recovery Plan" (COM (2008) 800 final)
adopted in November 2008 provided a framework for a co-ordinated action at EU
level, across the various policies and mobilising the available instruments to
support the European economy. In this context, cohesion policy is of particular
importance as the main instrument at EU level for investing in competitiveness,
growth and jobs.[8]

It is urgent to
analyse the adequacy of this response in the light of the uncertainty
about the path of the current recovery and the new risks looming on the
horizon.

The competitiveness challenges

From a more medium-term perspective,
technological progress and innovation shorten the product life cycle and
constantly force firms and the labour force to adjust. In addition, changes
in the international division of labour and the arrival of strong
companies from emerging countries, in particular those specialised in the upper
segments of the market, further intensify the competitive pressures on European
companies. The competitiveness of the European economy, the preservation of its
activities and jobs and the development of new products and related job
openings will depend more and more on the capacity of European companies to
enhance their competitive base through innovation and rapid but smooth
adaptation to change. In this sense technological change and innovation may
force adjustment strategies for companies and labour, but there are also
indications that innovation, combined with research and education can build an
effective way to pull Europe out of the crisis. The Commission launched the
Innovation Union Flagship initiative in 2010, and reported on the progress of
the state of the Innovation in 2011. [9]

Firms divert
resources from industries and sectors producing traditional goods and services,
usually with a low elasticity of demand to world income, towards sectors and
industries with a higher technology and knowledge content, usually with a high
elasticity of demand to world income. The competitiveness of the EU depends on
its capacity to foster framework conditions for innovative fast-growing firms,
important for sustainable growth and job creation.[10] It will also depend on the capacity to retain and further develop a
productive base in Europe, which in turn will bolster the service economy.

Enterprises need to be able to adapt to the
internationalisation of world production and respond to the competitive
challenge. Any obstacles to such adjustment could hamper competitiveness and
employment in the long run. Framework conditions, as stressed by the industrial
policy flagship initiative, are crucial to enable successful economic
adjustment. An early involvement of all relevant stakeholders is necessary for
the adjustment measures to be successful. Adequate access to finance is especially
relevant, as investments can be delayed or stopped altogether by lack of credit
and limited access to finance. Good practices in this area need to be
identified and disseminated.

The
challenge of adaptability of businesses and employability of workers — companies at centre stage of the restructuring process

Human resources development and skills
enhancement are of paramount importance in this context. That is why the EU needs to use recent experience to enhance its
global competitiveness, so that it comes out stronger and turns itself into a
smart, sustainable and inclusive economy delivering high levels of employment,
productivity, competitiveness and social cohesion.

The positive export performance of some
Member States shows that success in global markets relies not only on price
competitiveness but also on other factors such as sector product
specialisation, innovation and skills levels. In these areas, the weaknesses
pre-dating the crisis are becoming glaringly obvious.

The EU has over the last few decades built a
strong system of employment and social protection that, combined with a
relatively high level of education, has been the basis for its economic and
social prosperity so far. However, new actors entering the global economy and fast-changing business environments are challenging a system that
was very effective in delivering growth and jobs. It is becoming increasingly
evident that without change, this system is inadequate to ensure that resources,
and especially human resources, are rapidly and smoothly reallocated from
declining to emerging activities. It is also less and less capable of giving
workers a real chance of professional development when their jobs are at risk,
because it does not nurture their ability to adapt to change.

The recent economic and financial crisis
and the attendant pressure for structural change make it more important than
ever to address such weaknesses. In line with the flexicurity approach and the
Europe 2020 strategy,[11]
the Commission is eager to encourage permanent
business adaptation to fast-changing economic circumstances while pursuing a
high level of employment and social protection through the appropriate
supporting measures. Measures supporting the
reallocation of resources between firms and occupations are strongly in demand. These include changes in employment
protection legislation and business practices related to corporate
restructuring that do not hamper reallocation of resources towards higher value-added
and faster-growing activities, but also appropriate training and activation
policies that, together with suitably designed unemployment benefit systems,
accompany displaced workers towards different jobs and professions.

Restructuring
operations are part of the everyday life of companies, workers, public
authorities and other stakeholders. In recent years, the EU has put a
substantial amount of energy and effort into pursuing policy objectives that
facilitate adaptation to change and restructuring. However, in spite of the
commendable work of the European social partners in this field following
previous Commission consultations, the adaptation capacity of companies,
workers and regions needs to be further enhanced.

The role
of national, regional and local authorities in economic and social conversion

The crisis hit
entire industrial sectors and thereby whole regions, irrespective of national
borders. This has added to the persistent geographic inequalities, both between
and within regions, that undermine the single market.

Proactive and
dynamic restructuring is likely to be encouraged when public authorities play a
supporting role in restructuring operations and processes for anticipating them
by facilitating coordination between outside stakeholders and companies.

The role of regions, besides the one of the
countries, in promoting smart specialisation is of paramount importance and
ways of reinforcing that role should be further analysed.

Public service, another important
employer

While the focus of this Green Paper is on the industrial sector, the
impact of the crisis on the public sector must also be addressed, acknowledging
the important role of both the public sector as an employer and as a service
provider.

Employment in public services (including public administration,
education, health and social work) has been increasing considerably compared to
other sectors over the last three years, with around 2 million more jobs. In
autumn 2010, however, growth slowed down, and in the first semester of 2011
turned negative. The impact of spending cutbacks in the public sector probably
explains this change[12].
The cutbacks in the public sector will mostly affect women both as employees
and as main users of services such as for instance childcare and elderly care.

The production of many public services sector may be more valuable
for the competitiveness of the economy than what their cost and productivity
suggest (e.g. because they give rise to high consumer surpluses or to total
factor productivity improvements in other sectors). This would be the case of
service sectors such as health, education, personal care to children and the
elderly or of transport services.

Public authorities are directly or indirectly responsible through
public enterprises or the granting of concessions for a sizeable share of
employment in the service sectors. Further to their general responsibility for
the economy, they should ensure the conditions for the smooth transmission of
knowledge and the best use of the existing workforce of the sectors of which
they are in charge. At the same time, the need to continue to consolidate
public finances obviously impacts on public sector activities and employment.
Efficiency improving restructuring is increasingly important also in the public
sector. This underlines the importance of restructuring strategies in the
public sector which appropriately take into account the specific role of public
services, including in contributing to productivity in the private sector.

One can also question how can anticipative and strategic long-term
approaches to the management of change and restructuring be applied to the
public sector, in the framework of the current consolidation measures. It would
also be important to take into account the need to restructure key public
services such as healthcare and to ensure their long-term sustainability in the
face of growing demand.

2.
The lessons from the crisis

The impact of the financial crisis on the
real economy started to be fully felt in 2009, when GDP declined at an
unprecedented annual rate on both sides of the Atlantic. Employment proved very
resilient in Europe immediately after the recession, particularly due to the
strong adjustment of hours worked. Since the second half of 2009, however, job
shedding became widespread and unemployment shot up in most EU countries, albeit
with large differences. The recovery gained momentum in the first half of 2010
but stabilised in the remaining part of the year, also reflecting the fading of
temporary factors such as the exceptional stimulus measures. Despite output
recovery, employment growth did not follow until late 2010, and unemployment
remained at the high levels reached in 2009.[13]

The overall trend in employment reflected
different patterns at sectoral level. While initially the rise in unemployment
affected mainly industries that are most exposed to the business cycle and
could rely only to a limited extent on the adjustment of working hours, in
particular construction, there is evidence that part of this increase is
becoming entrenched. In spite of the widespread use of short-time working
schemes, employment declined also in manufacturing and remained on a downward
trend during the recovery. These patterns could be due to the adjustment
triggered by the worldwide recession following excess capacity in certain
sectors and to the fact that GDP losses during the recession risk becoming
permanent.

The need to reallocate workers from low- to
high-productivity sectors may indeed engender longer unemployment spells and a high
structural unemployment rate, which in turn will have negative effects on human
capital, thus further contributing to persistent unemployment.[14]

The speed at which unemployment will go
back to pre-crisis levels will depend not only on the growth outlook and on the
different economic and institutional starting conditions, but also on the need
for sectoral reallocation and on the capacity of firms to adjust labour costs
directly or through varying the hours worked. It will also depend on the
presence of supportive policy frameworks, including unemployment benefit systems
and activation policies providing incentives for the unemployed to go back to
work; wage setting frameworks supporting wage adjustment; tax systems
encouraging job creation; targeted active labour market and training policies
facilitating labour market transitions and the return to work for the long-term
unemployed.

Experience
during the economic crisis demonstrates that, in spite of extremely adverse
market and financial situations, companies and their workforces throughout
Europe have, by and large, engaged in restructuring processes that have been constructive,
effective and instrumental in limiting job losses through innovative
arrangements.

As highlighted
in the European Restructuring Monitor (ERM) Report 2009 ‘Restructuring in
recession’,[15]
in response to the crisis, many companies throughout Europe have taken
initiatives to maintain jobs — most prominently, various means of reducing
working hours (see box). These include production stops, obligations to
take annual leave, shorter working weeks or days, enhanced use of working time
accounts, leave rotation and sabbaticals. In some firms, wage levels have been
adjusted downwards, with temporary cuts of 10–20 % being not uncommon.
Most companies have resorted to different combinations of these measures, and intense
bargaining has led to a wide range of trade-offs — for example, lower wages
in return for company equity. Severance packages, often in combination with
early retirement, are also widespread.

More than ever,
social dialogue and collective bargaining have played a crucial role in
adapting production, work organisation and working conditions to fast-changing
and demanding circumstances during the crisis.

For their part,
public authorities have stepped up public instruments aimed at promoting the
reintegration into the labour market of those who became unemployed during the
crisis. In an early phase of the crisis, Member States enhanced the
responsiveness of public employment services and their service offer.
However, the prolonged duration of the downturn has led some governments to cut
back expenditure and to reduce resources across public administration,
including public employment services (PES).[16]
Some Member States have set up or reinforced pre-existing specific
outplacement bodies. These bodies usually have many stakeholders, including
the state, regional authorities, the social partners and other local actors.
Their efficiency — a result of specialising in outplacement work — together
with the high levels of trust inherent in multi-stakeholder governance make
them a valuable tool for coping with the effects of the downturn.

Shorter
working weeks have probably been the most innovative response to the crisis,
often with extensive public support for these schemes. Generally, workers have been compensated for lost hours both in
countries with public schemes and in countries where working time reduction was
regulated by collective agreement, with public authorities intervening in the
first case to top up collectively agreed compensation. The degree to which
training is provided during newly available free time also varies considerably,
as does the extent to which social security contributions are maintained during
the period of reduced working hours.

During the
2008-2009 recession, the reduction in hours worked has been the main cost-saving
strategy for companies. However, reducing working hours as a crisis response is
not always possible. Within firms a temporary reduction of working time is
possible when positive balances are available in working time accounts.
Moreover, these short-time working schemes are likely
to lose their effectiveness when weak labour demand persists. A belated withdrawal
of these schemes may carry substantial costs in terms of locking in labour to
declining activities, thereby preventing the necessary reallocation of
resources, damaging future growth prospects and distorting competition. Finally, the availability of government-sponsored schemes depends on their fiscal situation,
which has worsened in several countries.

When analysing
these mechanisms, it is important to take into account the fact that their
efficiency and impact, both from an economic and social viewpoint, have
differed considerably in diverse national and sectoral contexts. Any
conclusions on their adequacy and/or transfereability to other contexts should
therefore include an analysis of the factors of success.

Working time reduction and short-time working schemes — some evidence The analysis of changes in employment and working hours in reaction to the fall in output shows that the adjustment of the Member States’ labour markets differed substantially during the worst of the crisis. Whereas in some countries job shedding was immediate, in others employers, in some cases supported by the public authorities through short-time working schemes, first reduced the working hours of their workers instead of making them redundant. The chart below shows that the reduction of working time was most widely used in the EU in the first quarter of 2009, when manufacturing production was in its cyclical trough. Following the recovery of output average working hours also increased, indicating both the withdrawal of short-time working and in some cases workforce adjustments. Table: Quarterly growth in employment and average hours worked in manufacturing sector in the EU (seasonally adjusted) Source: Eurostat Looking at the developments in the Member States, the reduction in working hours was widely used in several countries in the first quarter of 2009. In particular, working time reductions were substantial in Germany, Belgium and Austria, which managed to maintain employment at a similar level to the previous year. Table: Change in the level of employment and in the average number of working hours in manufacturing in Q12009 compared to Q12008 (seasonally adjusted) Source: Eurostat (data for Italy are not available) There seems to be some indication that short-time working schemes served to reduce the rate of job loss and associated rise in unemployment in these economies. Moreover, such schemes are beneficial for businesses, which are thus enabled to retain highly skilled or specially trained workers through the course of an economic downturn. A Commission analysis[17] indicated that these schemes were effective in reducing the impact of the economic crisis on job loss and emphasised that timely withdrawal of such measures was necessary following the economic crisis. The study highlights the risk that prolonged use of short-time work supports demand in declining sectors, possibly delaying their restructuring, especially when the costs of labour reallocation are low and the incentives to restructure high. By delaying reallocation, short-time work schemes hold back productivity growth and the consequent wage gains. To be most effective, these schemes should be linked to an efficient unemployment benefits system that promotes labour reallocation. This analysis is supported by a recent OECD study[18] that suggests that short-term working schemes had an economically important impact on preserving jobs during the economic downturn, with the largest impacts in Germany and Japan for workers with permanent contracts. Such schemes were largely successful in maintaining employment in these economies.

In line with
the recommendations set out in the European Economic Recovery Plan, Member
States introduced comprehensive anti-crisis packages to contain the impact
of the financial crisis on aggregate demand and prevent excessive labour
shedding in response to a temporary contraction of output. In addition to short-time
working schemes, the coverage and generosity of unemployment benefits was
increased in several Member States. Short-term measures also included direct
support to enterprises, such as loans or guarantees to facilitate access to
finance; lowering of social security contributions; job creation schemes in the
public sector; strengthened active labour market policies and training
provisions often targeted at redundant workers.

Starting from 2010, the incipient recovery
coupled with more binding fiscal constraints led to a revision of policy
priorities. Reforms will have to be appropriate to a context where growth is
gradually resuming but labour is not yet giving its full contribution to the
growth potential due to high and persistent unemployment. The focus has to be
on tax and benefit systems that ensure that work pays off; activation policies
that reward the unemployed going back to work; employment protection systems
that balance security with flexibility; wage developments consistent with the rebalancing
and adjustment needs of the economy. Many of the emergency labour market
measures taken at the onset of the financial crisis were gradually phased out.
Active labour market and training policies were strengthened, while some
countries started reforming employment protection legislation to foster job
creation and fight labour market segmentation.

Are the policy measures and practices outlined
above in relation to restructuring, with special reference to short-time
working schemes during the crisis appropriate? In what specific contexts? Are
they able to cope with persistently weak demand?Finally, what can Member
States, the Commission or the social partners do to exchange, disseminate and
encourage wider application of the best practices in this domain?

3.
The competitiveness challenge: the importance of
fostering economic and industrial adjustment

Different ways for companies to adjust

Adjustment is part of the competitive
process for enterprises. It is a means for companies to improve their
productivity. The need for constant adjustment results from technological
change, innovation, keener competition and the emergence of new competitors,
shifts in consumer preferences, changes in legislation, availability and price
of resources and other inputs, market access, etc.[19] The pressure to change that may arise during normal times becomes
stronger during the extended periods of weak economic activity. Companies that
do not manage to adjust to changing conditions will not keep up with
competitors in the long run.

Adjustment can therefore be seen in the
context of a process of re-allocation of resources, whereby existing
productive structures are challenged and possibly replaced by new, more
efficient and competitive structures and firms. With an industry base ever more
skilled and increasingly capital- and technology-intensive, EU industry will
become even more integrated into international value chains as global sourcing
becomes more complex and in order to serve global growth markets.

Such adjustment can take the form of changes
in the company’s activities, e.g. a broader or narrower scope, changing its
position on the value chain, spin-offs and internal entrepreneurship, new use
of assets, clearing of the balance sheets, improvements in skills and training,
and/or organisational changes in the management of the company. In concrete
terms, new business models are emerging that link manufacturing more closely to
services. The development of innovative solutions such as more
resource-efficient production methods or new technologies such as advanced
materials and nanotechnology may have implications for outsourcing decisions,
etc. These are some of the activities that would be part of daily business
dynamics for a sound enterprise to stay competitive.

Framework conditions needed for
efficient adjustment

Companies and sectors themselves normally
know best about their needs for restructuring. To achieve an efficient
adjustment, firms need to operate in an environment where the appropriate
framework conditions enable such adjustment. Any obstacles to such
adjustment will hamper competitiveness and employment in the long run.

The Single market must help set framework
conditions and create opportunities across Europe. The functioning of the
labour market and mobility is one important aspect. .Other important areas, for
enterprises and for society at large, include the functioning of capital
markets (access to finance), the degree of competition on product markets, the
efficiency of R&D and innovation systems, the entrepreneurial environment,
mechanisms for knowledge transfer and take-up of technology, an effective education
system and training and broader societal challenges. These are not only
regulatory aspects. The Single Market Act and the Innovation Union Flagship
initiative is geared to systematically removing these obstacles, enabling
enterprises to get good ideas faster to the market, adjust and grow. Highly
innovative SMEs and innovation clusters are becoming a key channel of the
innovation and production process. This translates into an increasing need for
cluster policy and smart specialisation, provision of skills as well as focused
knowledge of future markets and relevant key technologies.

Restructuring

Restructuring may concern a single firm, be
related to its ongoing business development, or linked to a failure of previous
investments. It may also involve a whole sector or some segments of this
sector. In addition, there are clear differences between sectors, with some
being more affected than others by the pressure mentioned above. For instance,
industries such as equipment, chemicals, motor vehicles or electrical machinery
could be described as heavily affected by global competition and technological
development. This has implications for their need for efficient restructuring.

A recent example of how companies and
sectors are dealing with restructuring in a demanding economic and social
environment is given by the automotive industry in the Interim Report of the
High Level Group CARS 21 adopted on 2 December 2011 (see the accompanying Staff
Working Document ‘Restructuring in Europe 2011’[20]).

Some restructuring operations (e.g. closing
parts of supply chains, temporary redundancy of some employees) will have
negative consequences for the surrounding economy. This means that there is a
role for policy makers, but an efficient policy answer should not delay or
block necessary efficiency-enhancing restructuring. Rather, it should focus on
policy measures that facilitate reallocation of resources to different
enterprises/sectors.

In particular, access to finance is of
vital importance to economic activities, as necessary adjustments that involve
investment can be delayed or stopped by limited access to external funds. Such
access to finance is influenced not only by capital markets or public financial
support, but also by other regulatory factors such as corporate taxation or
bankruptcy rules. Lengthy and
burdensome bankruptcy procedures may effectively prevent honest failed
entrepreneurs from re-entering business and thereby saving existing and
creating new jobs, despite substantial evidence that such 'second chance'
businesses grow more quickly and are more resilient than traditional 'start-ups'[21].

The Commission Communication "Think
Small First, A Small Business Act for Europe" of 2008[22] and the follow up
Communication "Review of the Small Business Act for Europe" of 2011[23] requests Member States to take
two specific actions to tackle this issue. In particular, the
2008 Communication asked Member
States to " Aim to
complete all legal procedures to wind up the business in the case of
non-fraudulent bankruptcy within a year" and the 2011 Communication asked Member States to "promote
second chances for entrepreneurs by limiting the discharge time and debt
settlement for an honest entrepreneur after bankruptcy to a maximum of three
years by 2013"

State aid rules[24] play a role in some cases of
restructuring. This type of aid is allowed for companies that are deemed viable
but in difficulty and would go bankrupt without public support as no private
entities are willing to provide them with capital. Therefore, this aid relates
only to extreme situations in which the companies may not have reacted in time
to a changing environment.

The Commission would like to hear views from
stakeholders on the following questions:

- What types of framework conditions are most appropriate
in order to enable successful industrial adjustment?

- What existing measures on access to finance
to accompany structural adjustment constitute good practice?

- What further measures need to be taken
to improve bankruptcy proceedings?

4.
The challenge of adaptability of businesses and
employability of workers — companies at centre stage of the restructuring
process

The EU has managed to safeguard the
productive base of its economy through the worst years of the economic
downturn. However, with the current uncertain macro-economic conditions, the
ability of European industry to remain competitive and preserve its jobs will
depend more and more on its capacity to innovate as well as to quickly
and smoothly adapt to change. Such change is due to technological progress,
shifting trade patterns, the evolving regulatory framework, changing business
models and consumers’ behaviour. The EU, through its actions in different
policy areas, needs to support its business sector in this regard. The scale of
economic restructuring and social change triggered by the deep adaptation
required by environmental, economic, technological, market and societal
challenges, and accelerated by the great recession, is immense. From an
employment viewpoint, it will involve both job creation and job destruction
and above all job transformation (in terms of new tasks, new skill
profiles and new working arrangements). While a qualified labour force is one of
the key competitiveness factors of European industry, it cannot be taken
for granted and sustaining this factor requires a proactive approach.

Smooth adaptation to change clearly requires
skills needs and adequate human capital investment. In order to sustain smart,
sustainable and inclusive growth it is essential to ensure that firms have a
suitably skilled workforce in order to avoid skills shortages and mismatches. Anticipation
of future skill requirements (for example, the need for green skills and skills
in areas such as health and social care) and the consequent adaptation of education
and training systems, curricula and qualifications in collaboration with the
social partners, development of apprenticeship of quality retraining in the
context of lifelong learning of workers already active in the sector is also
crucial for maintaining high employment. In case of skills shortages, firms
should be prepared to look abroad for talent. To this end, investment
in ICT skills and in digital literacy is imperative. Jobs are being generated in the production of new energy-efficient
semiconductors, in cloud computing service providers, cyber security and in
virtualization applications provider. As a result, people with skills needed in
these sectors will be in high demand, and specific
initiatives on eSkills should be encouraged.

The economic and financial crisis and the
concomitant acceleration of change, with the ensuing needs for restructuring in
certain sectors and for sectoral reallocation of
labour, have made it more important than ever for
Europe to address existing weaknesses with regard to adaptability of businesses
and employability of workers.

The Commission wants to encourage
permanent business adaptation to fast-changing economic circumstances while pursuing
a high level of employment and social protection through the appropriate
supporting measures. Measures supporting the
reallocation of resources across firms and sectors are strongly needed as well as measures capitalizing on the highly-skilled but increasingly
unemployed youth. Better anticipating
and managing restructuring would help employees and companies to adapt to
transitions imposed by excess capacities and by modernisation and structural
adjustment.

Management and employees’
representatives are the key players to discuss forward-looking restructuring
strategies at company level. Policy measures accompany
such restructuring to avoid social hardship and promote new skills and jobs, by
facilitating economic conversion and professional transition. In order to facilitate the reallocation of factors when required,
policies should indeed aim to prevent rigidities in the labour market and its
skills structure becoming a hindrance to adjustment and economic growth.

At the same time, the social and health
effects of employment insecurity, adaptation, loss of employment, and long-term
unemployment need to be addressed by effective approaches which enable
employees to adapt to change at workplaces, quickly reintegrate into labour
markets and mitigate the health effects of transitions. Emerging practices at
company and sector level can be noted in this field, also through times of
crises.

The amplification of the factors driving
change is having a profound effect on the way in which the social partners and
public authorities address this issue. In several Member States, there has in
recent years been a clear trend away from a purely corrective strategy
towards preventive action, i.e. a shift towards a more proactive strategy which
helps to minimise social impacts linked to restructuring process.
Preventive strategies integrate the risks inherent in restructuring, so that
the outcome can be both positive professional mobility of the workers affected
and an increase in companies’ competitiveness.

Observation of restructuring processes
in Europe suggests, however, that practices in this field are sometimes
reactive rather than anticipative and proactive; they can happen too late in
the decision-making process and may not involve external entities early enough
for them to play a role in attenuating the social impact of restructuring.

Passive attitudes and resistance to
change have a huge economic cost and threaten
investment and employment growth. It is therefore important to create the
conditions of trust that will allow all segments of society (companies, workers
and their representatives, public authorities, etc.) to face the future in a
dynamic way.

Is the anticipative approach feasible with
regard to management of change and restructuring?.

How can the existing orientations and
guidelines on restructuring be improved in light of the lessons learned from
the crisis and the new economic and social challenges? How can the lessons from
the crisis be disseminated and implemented?

5.
Creating synergy in the process of industrial change

The Commission would like to hear the views
of all stakeholders on good practices and possible synergy in the fields of:
(a) anticipating restructuring processes; (b) preparing and managing
restructuring processes; (c) evaluation and reporting; (d) the role of social
dialogue; and (e) reviewing passive protection, as outlined below.

(a)
Anticipating restructuring processes

Long-term strategic
planning

Anticipation of change is more successful
if it is integrated effectively into companies’ and regions’ long-term
strategies to secure and strengthen their long-term sustainability and
competitiveness, and if an innovation-oriented culture is fostered. Furthermore
by anticipating change in their long-term strategic planning, companies and
public authorities could grasp emerging opportunities and generate growth and
employment. A positive example in this respect is the development of low-carbon
and resource-efficient technologies, which has proved to be a source of
sustainable growth and jobs in different regions across the EU.

Long-term corporate strategic planning
includes human resources, employment and skills objectives for continuing
development of the skills and competences of the workforce. This can increase
the productivity and therefore the competitiveness and profitability of the
company, and its capacity to adapt and to be innovative. It can also help to
increase the employability of employees and to encourage their mobility inside
and outside the company.

Local and regional authorities can also
play an important role in improving the longer-term competitiveness of their
regions, in particular through the development of smart-specialisation
strategies.

What could be done to encourage strategic long-term and innovative approaches
to the management of change, including employment and skills issues, be
encouraged? How can synergy be improved between companies, local authorities
and other local actors?

How should specific responsibilities and roles be distributed among
companies, social partners and public authorities be distributed in this field?

Early anticipation of
employment and skills needs

Some companies develop mechanisms, in
cooperation with employees’ representatives and/or with vocational educations
and training providers, for forward-looking planning of employment and skills.
Public employment services and sectoral organisations also play an important
role in retraining workers who have to change occupation or sector, thus
facilitating reallocation of labour between firms and sectors.

Identifying the right type of training and
the skills needed, and where they may be found in the future, including in
preparation for demographic change, requires the full cooperation of all
partners involved. Cooperation between companies and vocational schools proves
to be very successful in that matter when being well structured and framed. An
important role can also be played here by local initiatives such as skills
partnerships with regional and local authorities in close cooperation with
outside bodies, including universities and other education and training
providers, technology institutes, innovation centres and development agencies
as well as healthcare and social security providers. Companies can also
contribute to employment and skills observatories, and take part in other
relevant initiatives in the region and/or sector concerned.

How can effective practices for anticipating employment and skills
needs within companies be further encouraged? How can training be developed as
a permanent feature of human resources management?

How can synergy between action taken by companies and public sector
initiatives be promoted to facilitate appropriate employment and skills
policies?

(b)
Preparing and managing restructuring processes

Early preparation

Time is critical in efforts to manage
restructuring well. As far as possible, restructuring operations should be
preceded by appropriate preparation involving all relevant stakeholders in
order to prevent or cushion their economic, social and regional impact. At
sector level, good examples are industry-wide actions undertaken in the defence,
auto parts and telecom industries.

This preparation should ideally occur as
early as possible and start as soon as the need to restructure is recognised,
taking account of the methods and procedures negotiated at the level of the
sector, region or company concerned, if any. An early start will make it easier
to adopt measures to minimise the economic, social and regional impact of the
operation.

How can companies and their workforces be encouraged to engage in early
and adequate preparation of restructuring processes favouring acceptance of
change? What best practices exist in this field?

Building mutual trust and
shared diagnosis

It is important to build mutual trust and arrive
at a shared diagnosis through continuous and high-quality communication between
all the relevant stakeholders. Companies’ long-term strategic goals and
requirements or short-term constraints should be explained to the extent possible,
along with measures envisaged and other possible options in the light of all
the interests concerned.

Corporate social responsibility and a transparent
approach can encourage all stakeholders, especially employees’ representatives,
to cooperate in the search for solutions that satisfy the interests of both
parties without creating undue
delays and uncertainties.

To what extent can mutual trust and shared diagnosis play a role in
good management of restructuring? How can this be promoted within companies and
in broader contexts?

Minimising the social
impact

While seeking to preserve their
competitiveness and long-term prosperity, companies faced with the need to
restructure usually envisage redundancies only after having considered all
possible alternative options. Companies also often try to identify and
implement appropriate supporting measures. Employees’ representatives should be
open to negotiating flexible solutions alternative to redundancies.

As shown by the economic crisis,
flexibility is inherent in the existing system. Many companies throughout
Europe have taken temporary initiatives to maintain jobs, including through
reducing working hours, production stops, obligations to take annual leave,
shorter working weeks or days, enhanced use of working time accounts, leave
rotation and sabbaticals.

When redundancies cannot be avoided, or as
part of the package of alternative options, companies, local authorities and
all relevant stakeholders including health and social security providers can be
encouraged to work together to make arrangements for the employees concerned to
improve their employability and re-enter the labour market as quickly as
possible.

It has been shown that, through its human
and psychological consequences, poorly managed restructuring can have a
significant negative longterm impact on the human resources of companies,
thereby weakening this key resource for competitiveness. Companies and social partners from some sectors
undergoing particularly strong change have therefore agreed on guidelines to
manage mental health issues at workplaces, and are increasingly engaged in
managing these challenges.

What can companies and employees do to minimise the employment and
social impact of restructuring operations? What role can public policies play
in facilitating these changes?

Minimising external
economic, social, environmental and regional impacts

The need to address the territorial impact
of restructuring was mentioned during social partners’ work. In many cases,
when a restructuring operation has major effects in a region, companies seek to
align their preparatory activities with those of all the other actors with the
aim of maximising the re-employment opportunities of employees, encouraging the
economic and social conversion of the region affected and developing new economic
activities that create jobs.

For that purpose, companies often discuss the
measures being prepared with the regional or local authorities and other
relevant stakeholders, including health and social security providers. They
also sometimes participate in and/or contribute to any task force or network set
up at regional or sectoral level to minimise the impact of the operation.

In some cases, the measures outlined above
include the employees of other companies, including SMEs, in the region
affected by the restructuring of larger companies. Information and assistance
to SMEs is likely to help them to adapt their own businesses and manage the
restructuring process.

What can companies, local authorities and all the other stakeholders
usefully do to minimise the regional impacts of restructuring?

How can companies affected as a result of the restructuring of another
company be supported in their own adjustment process? In particular, how can
SMEs be better informed and assisted in the restructuring process?

(c)
Evaluation and reporting

Tools for regular evaluation and reporting of
restructuring operations in cooperation with employees’ representatives and the
outside organisations involved in those processes might prove useful in some
circumstances, in particular to facilitate a learning process.

What role can evaluation and reporting of past restructuring operations
play in increasing knowledge and improving stakeholders’ practices?

(d)
The role of social partners

Since management
and workers’ representatives are among the key players to discuss restructuring
strategies, it would be useful to give a prominent role
to social dialogue in disseminating and encouraging best practices.

What role social dialogue could play in better disseminating and
encouraging best practices for the anticipation and management of
restructuring?

(e)
Reviewing passive protection

A shift from passive employment protection
to active protection is at the heart of the flexicurity concept. One possible
way of implementing this concept is to move away from protecting specific jobs and
towards protecting employees through their working life. Another possibility is
to strengthen the so-called internal flexibility that aims at protecting jobs
through measures ensuring a flexible adaptation to the changing circumstances. In
some instances, however, such a change has not always been accompanied by an overhaul
of the existing employment protection system, especially in terms of burdens
and costs.

Like any other function within companies,
anticipation of change and proactive restructuring certainly have a cost but
also a benefit for all those involved: companies improve their capacity to
adapt, employees become more employable and regions boost their economic
dynamics.

While fully taking into account the huge differences between Member
States in this regard, the Commission would like to hear the views of
stakeholders (in particular national authorities and social partners’
organisations) on whether some aspects of the employment protection systems need
to be reviewed in the light of this intended transition towards anticipation
and proactive protection of employment.

6.
The role of regional and local authorities

Proactive and dynamic restructuring is often
encouraged when public authorities play a supporting role in restructuring
operations and processes for anticipating them by facilitating coordination
between outside stakeholders and companies. They also often create, promote and
support mechanisms to encourage small and medium-sized companies to get
involved in measures of that type. Finally, public authorities also support
anticipatory processes and restructuring operations to alleviate their
economic, regional and social impact. Some of the best practices identified in
Europe are set out below.

Some
identified best practices in Europe:

·
Public authorities, including PES, play a major
role in regions affected by structural change: they set up permanent bodies,
networks or observatories to monitor change processes; promote territorial
employment pacts for employment creation and adaptation; promote or create
mechanisms facilitating employment transition; arrange training for small and
medium-sized companies and their employees and support dialogue and cooperation
between them and large companies; favour regional employment and economic and
social conversion.

·
In some cases, public authorities activate, in
cooperation with companies, rapid response services and support schemes to help
employees facing professional transitions or redundancy. Without prejudice to
companies’ obligations resulting from national laws and/or practices, public
authorities sometimes co-finance employability measures, including the
acquisition of transferable skills.

‘Smart
specialisation strategies’ can also be an important tool for regions to use
in their restructuring process.[25]

At EU level the Coheion Policy, and
especially the European Social Fund, as well as the European Globalisation
Adjustment Fund also exist to support both anticipative action and measures
aimed at helping employees whose job is threatened by particular restructuring
events, including emerging labour market needs resulting from the transition
towards low-carbon and resource-efficient economy.

How can a supporting role be encouraged for public authorities,
particularly at regional level, in anticipation processes, as well as in
particular restructuring events, taking into account differing national
traditions regarding the involvement of public authorities in company-level
processes?

CONSULTATION

The Commission invites all interested parties to respond to the
questions set out in this Green Paper, and provide any additional comments, by
30 March 2012.

The green paper and the template for reply are available on the
Europa website: http://ec.europa.eu/social/main.jsp?catId=333&langId=en

Responses can be sent by email to:

EMPL-GREEN-PAPER-RESTRUCTURING@ec.europa.eu

or by post to:

European
Commission

Directorate-General
for Employment, Social Affairs and Inclusion

Green
Paper on Restructuring

Unit
C2

Rue
Joseph II, 27

Office
06/044

B-1000
Brussels

[1]               COM(2010) 2020.

[2]               Commission Communication of 27 October 2010 ‘An integrated industrial policy for the globalisation era — Putting competitiveness
and sustainability at centre stage’ (COM(2010) 614
final).

[3]               Commission Communication ‘An Agenda for new skills
and jobs’, COM(2010) 682 final

[4]               Including the Commission’s consultation document on
restructuring of January 2002, the results of the subsequent work carried out by
the European social partners and a number of other reports and studies conducted
in recent years, not least in the Restructuring Forums organised by the
Commission since 2005. A useful summary of the lessons learned by all the
stakeholders in restructuring is given in the ‘Checklist for restructuring processes’
presented by the Commission in its Communication of 3 June 2009 ‘A shared
commitment for employment’.

[5]               COM(2011) 815 — Annual Growth Survey 2012, http://ec.europa.eu/europe2020/reaching-the-goals/monitoring-progress/annual-growth-surveys/index_en.htm

[6]               Commission Communication ‘An Agenda for new skills
and jobs’, COM(2010) 682 final, point 1.2.

[7]               Smart specialisation is a condition for
well-perfoming national and regional research and innovation systems under the
Innovation Union's self assessment tool and a key element of the reformed
cohesion policy and is proposed as ex-ante conditionality for the use of the
European Regional Development Fund in the next programming period of the
Structural Funds 2014-2020. A Smart Specialisation Platform was launched in
June 2011 and will assist regions and Member States in developing such
strategies.

[8]               Cohesion Policy: Responding
to the economic crisis. A review of the implementation of cohesion policy
measures adopted in support of the European Economic Recovery Plan, (SEC(2010)
1291 final).

[9]               EU 2020 Flagship Initiative Innovation Union,
Commission Communication SEC(2010) 1161 and State of the IU Report
2011 (2011) 849

[10]             "Innovation Union Competitiveness report 2011",
ec.europa.eu/iuc2011.

[11]             The concept of flexicurity is at the core of an
integrated strategy that has been developed by the Commission and the Member
States on the basis of wide agreement that Europe needs to find new and better
ways of making its labour markets more flexible, while at the same time
providing new and better forms of security. It is a comprehensive response to
the challenges faced by the European labour markets and societies in the
context of globalisation and technological and demographic change. It is an
integral part of the Europe 2020 strategy and its flagship initiative ‘New skills
and new jobs’.

[12]             EU
Employment and social situation report quarterly review September 2011" -
ESTAT

[13]             Source: Labour market developments in Europe 2011,
European Commission, European Economy 2/2011.

[14]             The belated response of employment to the recovery was
also the counterpart of labour hoarding during the recession and went
hand-in-hand with a considerable rebound in labour productivity.

[15]             http://www.eurofound.europa.eu/publications/htmlfiles/ef0973.htm.
See also the ERM 2011 Annual report: http://www.eurofound.europa.eu/publications/htmlfiles/ef1165.htm.

[16]             In an EC survey on ‘PES adjustment to the crisis 2011’,
13 out of 21 respondents declared that their financial resources would be
reduced in the 12 months ahead. In 9 of those 13 cases these reductions amounted
to 10 %.

[17]             Alfonso
Arpaia et al., ‘Short time working arrangements as response to cyclical
fluctuations’, European Commission, European Economy Occasional Paper No 64,
July 2010.

[18]             Alexander
Hijzen and Danielle Venn, ‘The role of short-time work schemes during the
2008-09 recession’ OECD Working Paper 115, Jan 2011.

[19]             See for instance the DG ENTR study ‘Measuring and benchmarking
the structural adjustment performance of EU industry’, available at http://ec.europa.eu/enterprise/policies/industrial-competitiveness/industrial-policy/future-of-manufacturing/files/key_findings_measuring_and_benchmarking_en.pdf.

[20]             See point 4.3.2 of the Staff Working Document. For the
report, see http://ec.europa.eu/enterprise/sectors/automotive/competitiveness-cars21/cars21/index_en.htm.

[21]             The 'Business
Dynamics' study (http://ec.europa.eu/enterprise/policies/sme/business-environment/files/business_dynamics_final_report_en.pdf) gathers this evidence, along with extensive
information on bankruptcy laws of the Member States and analysis of the effects
of differing bankruptcy proceedings on entrepreneurs and
businesses. Further information including a sampling of 'best practices'
supporting honest failed entrepreneurs can be found at the 'second chance'
portal here: http://ec.europa.eu/enterprise/policies/sme/business-environment/failure-new-beginning/index_en.htm

[22]             COM(2008) 394 final of
25.06.2008.

[23]             COM(2011) 78 final of
23.02.2011.

[24]             Guidelines on State aid for rescuing and restructuring
firms in difficulty: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:244:0002:0017:EN:PDF.

[25]             See Commission Staff Working Document ‘Restructuring in
Europe 2011’, point 4.1.3.