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'
Date: 1999-07-07
Institutions: European Economic and Social Committee
Subjects: economic reform, industrial restructuring, management, social change

10.9.1999

EN

Official Journal of the European Communities

C 258/1

II

(Preparatory Acts)

ECONOMIC AND SOCIAL COMMITTEE

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

2. General comments

A report on economic and social

1.1.
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.

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.

In line with a request from Commissioner P. Flynn, the
1.2.
ESC decided to examine the high level group’s report (‘the
Report’) and to publish an opinion thereon prior to consider-
ation 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.

2.2.
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.

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

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.

2.2.2.
However, the Committee regrets that some of the
proposals are confined to possibilities for providing infor-
mation — 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.

Inherent in radical change is the creation of the need
2.3.
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 obli-
gations to other stakeholders in addition to their legal responsi-
bilities 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 sugges-
tion 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
is likely to be more
takes place at the appropriate level,

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

the Report.

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
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.

Although the Report is comprehensive to a degree,
2.7.1.
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 encour-
aging 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
for a global
social
approach, including strong pressure from the EU to secure a
better framework for competition conditions internationally,
inter alia by means of minimum social clauses.

industrial change call

implications of

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.

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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 recommen-
dation 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 encour-
age all companies — both European and foreign-owned —
with over 1 000 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 1 000 to adopt
the practice of preparing such a form of report.

3.2.5.
The involvement of employees and their representa-
tives 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.

The Committee suggests that the Community and
3.2.7.
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.

However, the Committee is strongly opposed to the
3.2.8.
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 compul-
sion would lead to argument about definitions and difficulties
rather than foster real attempts to convey good practice in
open and innovative ways.

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3.3.

Infrastructure for new technologies (Part 2.1)

The Committee endorses the Report’s statement that
3.3.1.
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 Com-
mittee 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)

A major factor giving rise to unemployment in
3.4.1.
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
invest more heavily in their
in their own interests,
will,
workforce than others will do.

The Report acknowledges that workers and public
3.4.3.
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 employa-
bility but points out that this applies not only to full-time
employees but equally to part-time staff, teleworkers and the
self-employed.

sector

partnership

public/private

being redeployed are to find suitable new jobs. The ‘Work
foundations’
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/re-
training and support in self-employment or business forma-
tion.

3.4.7.
The recommendation that any Company ‘manifestly
failing to take the necessary steps to safeguard the employa-
bility 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 edu-
cation and training remain relevant to the rapidly-changing
world of work. There are a number of voluntary edu-
cation/business partnerships in the UK, for example, which
could be adopted elsewhere as good practice.

3.5. New areas of employment (Part 2.3)

3.4.4.
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 guaran-
tee a positive outcome.

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.

3.4.5.
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

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.

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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.

The Report notes that several countries have taken
3.5.5.
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 recommen-
dation 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.

In addition to other new areas of employment such
3.5.6.
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.

Brussels, 7 July 1999.

3.6.2.
The wider establishment of ‘one-stop shops’ is sup-
ported 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 them-
selves 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.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI