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Management Report

Management reports, briefs and video-clips issued by Samsung Economic Research Institute

How to Manage Labor-Management Relations During a Recession

How to Manage Labor-Management Relations During a Recession

KIM Tae-Jeong

May 27, 2009


Welcome to our video program. I’m Tae-Jeong Kim from the Human Resources Department.

A recession can be a crucible for businesses to test and strengthen the capabilities they built during better times. How companies respond to a recession varies according to the level of trust between employees and management. Companies that maintain cooperative labor management relations will be able to take a step back and see the bigger picture in times of crisis. In other cases, conflicts between labor and management could escalate further. How do businesses successfully manage labor-management relations in tough times? Today, we will take a look at how to manage labor- management relations through case studies from global companies.

Dr. Roethlisberger said, “The core part of corporate management is communication. If communication is smooth, it boosts employee morale and provides a creative atmosphere.” Many already know that communication is important. However, the importance of communication, particularly in times of an economic recession cannot be overemphasized.

Good communication creates a bond of sympathy, enabling employees to share their sense of crisis. The US retail giant Home Depot, for example, sent emails to its employees when it had to lay off as many as 1,300 employees in 2008 due to the recession. It carefully explained the desperate situation facing the company and how it would cope with the crisis. As a result, it succeeded in creating consensus among employees.

The biggest issue in labor-management relations during a recession is how to both share and minimize the pain. Things like cost savings efforts, wage cuts and unpaid leaves, as well as efficient management of the workforce can help minimize stress. The per-pilot average monthly flight hours of Southwest Airlines, for example, stood at 62 hours in 2001, much higher than those of rival airlines. This helped to ensure its survival when the airline industry was hit hard by the September 11 terrorist attack.

Another example is Toshiba which implemented rotational leave for employees of the semiconductor business, making it mandatory for 9,200 employees to take 5-10 days leave. As a result, it was able to avoid payroll cuts.

When such cuts are unavoidable, companies need to make efforts to implement them smoothly through labor-management cooperation, and to minimize side effects through the operation of retirement support programs and fair selection of those to be retired. P&G, for instance, gives three to six months advance notice to those to be retired, as part of efforts to make them better prepared for the retirement. It also runs a discussion group called “Life After P&G” for the soon-to-be retired, while operating an outside office for its retirees, aimed at minimizing any possible conflicts and side effects.

Recessions can turn into a new opportunity for businesses to take another leap forward if they can elicit active union participation in innovation activities based on trust between employees and management. Volkswagen, for example, reviewed the idea of relocating its factories towards Eastern European countries in 1993 when its productivity fell far behind Japanese rivals and the economy was in a slump. The factory council, which represented line workers, and which had resisted factory innovation efforts, made an about-face and decided to actively participate in innovation activities. As a result, Volkswagen improved its business performance, achieving an operating profit to sales ratio of 1.7% in 1998, cancelling its factory relocation plan.

There is another case wherein employees and management agreed to enhance job flexibility, thereby saving on costs and improving work efficiency. A good example of this is BMW which adopted a flexible work hour system in 1986. BMW also introduced the “work hour account system,” in which workers can save unused leaves and worked overtime and use these leaves when they want.

This is a time when we need someone to rely on. Even a global household name can disappear in a single day, with unexpected outcomes occurring far too often. Under these circumstances, hope rests with the people you work with. In tough times, strengthened trust between labor and management can serve as a stepping stone to overcome the crisis.

Thank you for watching. I’m Tae-Jeong Kim.

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