Download article in original language : IT0411203FIT.DOC
The Italian-based Parmalat, one of the largest agro-food groups in the world, was hit by a financial crisis at the end of 2003 which led to judicial inquiries involving the owners and management. In order to ensure the continuity of Parmalat’s activities, a decree-law issued by the government in December 2003 placed the group under extraordinary administration proceedings. The group’s industrial and financial restructuring plan - announced in July 2004 by a special commissioner appointed by the government to oversee the transition - was followed by an agreement on industrial relations signed by the main sectoral trade unions in November 2004. This agreement lays down the procedures for protection of employees during Parmalat’s restructuring and reorganisation.
Founded in 1961 and controlled by the Tanzi family, the Parmalat group initially sold dairy products in the province of Parma, Italy. By the early 2000s, it was one of the largest multinationals in the agro-food sector, with products ranging from coffee to every type of dairy products. A striking success story based on investment in innovation, distribution and production, Parmalat had the eighth-highest company turnover in Italy at the end of 2002 (Mediobanca figures). It enjoyed one of the highest brand-recognition indices in the food industry worldwide, and it operated in more than 30 countries, with around 150 industrial plants and 36,356 employees.
However, there was a hidden side to Parmalat’s success which became sensationally public at the end of 2003, bringing the group to financial collapse. The crisis was rapidly followed by a state of insolvency declared by the bankruptcy court of Parma, the opening of two judicial investigations for bankruptcy and stock market manipulation, and the arrest of the owners and a number of senior executives on charges of stock manipulation, criminal conspiracy for the purposes of fraud, and false accounting. The documents made public to date by the judicial investigators - and a special commissioner’s report on the causes of Parmalat’s financial collapse - show that the crisis had roots in the past. The insolvency was generated by enormous outlays on unproductive acquisitions between 1990, the year when Parmalat was first listed on the stock exchange, and 2003, the year when its insolvency was declared. The judicial investigators have stated that financial statements were falsified for more than a decade, with a budget deficit estimated as at least EUR 7 billion. However, this was a matter not of an assets deficit (ie the difference between the company’s value and its liabilities) but of falsified assets and concealed liabilities. According to the investigators, company funds had allegedly been siphoned off for personal use and speculations by the majority shareholder, the company’s top executives and their advisers. During 2002 and 2003 the organisers of the financial fraud, given its huge proportions, had been forced to undertake desperate financial operations until the meltdown came at the end of 2003. The collapse has had serious consequences for shareholders, investors and all Parmalat’s creditors.
The restructuring plan
In order to deal with the Parmalat crisis, at the end of December 2003 the government issued decree law 347/2003 (the 'Parmalat decree') amending decree law 270/1999 (known as the 'Prodi-bis decree'), which regulated the extraordinary administration of large companies in crisis. The 'Parmalat decree' introduced accelerated extraordinary administration proceedings and a series of derogations from the 1999 'Prodi-bis decree', the most significant of which are the following:
- the decision to restructure is immediate, without a preliminary appraisal, and it is taken by the company and the Minister of Industry (not by the courts);
- the Ministry (not the court) selects the special commissioner to oversee administration. In the case of Parmalat, the Minister of Industry appointed Enrico Bondi, a person independent of the controlling shareholders;
- the commissioner can proceed immediately with divestments, even before approval of the restructuring plan, provided they are approved by the Minister; and
- the economic and financial restructuring of the company must be completed in two years. Otherwise, unless rescue interventions take place, the company’s assets will be liquidated.
A Parmalat group industrial and restructuring plan was presented on 20 July 2004 by the special commissioner, Mr Bondi, to the Minister of Industry and to the main trade unions in the agro-food sector - the Italian Federation of Agroindustrial Workers (Federazione Lavoratori Agro Industria, Flai-Cgil), the Agroindustrial, Food and Environment Federation (Federazione Agricola Alimentare Ambientale Industriale, Fai-Cisl) and the Italian Union of Agroindustrial Workers (Unione Italiana Lavoratori Agroalimentari, Uila-Uil). The principal aim of the plan is to free Parmalat from its debts, given that the company, although vulnerable, has a positive operating margin and can therefore be self-sustaining.
The plan emphasises the good prospects of the divisions identified as constituting the core business of the future Parmalat - UHT milk, fresh milk, milk derivatives and fruit juices - and envisages the creation of a joint-stock company that will take over the assets of the 16 companies of the Parmalat group and pay their creditors. Those headquartered outside the European Union - mainly in Brazil and the USA - are not covered by the plan: their crisis will be resolved according to the law of the country concerned. As regards Parmalat’s debts, the new company will pay its secured creditors (the inland revenue, workers, artisans etc) in cash, while paying all others with shares proportional to their claims against one or more of the 16 companies. The Italian government has also assisted with the solution by giving creditor farm and haulage businesses, which have been affected by the crisis, access to credit on especially good terms. It is possible to expect that the new Parmalat will soon be quoted on the stock exchange (information on the offer is expected to be issued in mid-January 2005 with quotation following in the summer).
As far as employment is concerned, the plan does not deal explicitly with redundancies, but rather with personnel reduction and rationalisation following the sell-off of activities not considered central to the new company’s strategies. The ways in which the company reorganisation plan and worker protection will be implemented in the event of redundancies and rationalisation - which will mainly affect the American continent - were the main issues addressed in talks between representatives of the new Parmalat and the main trade unions in the sector, which led to the conclusion of an agreement in November.
The agreement on industrial relations
The agreement signed at the Ministry of Industry by Flai-Cgil, Fai-Cisl and Uila-Uil and the special administrator of Parmalat in November 2004 appears to fall entirely within the scope of the plan for the company’s recovery launched in July 2004. The agreement lays down guidelines for regulating employment relationships and relations between the new prospective owners and the trade unions, safeguarding jobs, and providing social protection for all of the group’s employees. The main points of the agreement are as follows:
- as the business plan is implemented, and with particular reference to activities deemed no longer central to the group’s strategies, action will be taken to devise employment solutions for the employees concerned and suitable instruments (ie 'social shock absorbers'- IT9802319F and IT0311306T) for redundant workers. Companies belonging to the group but operating outside Italy will - in line with the legal and contractual provisions applicable in such cases - begin national-level negotiations with recognised trade unions;
- besides share transfers, the parties to the agreement view the transfer of undertakings as an instrument to use for divestment of activities deemed no longer central to the new Parmalat’s strategies. In these cases will be the system of worker guarantees and protections provided by the EU Directive (2001/23/EC) on business transfers and Italian laws will be applied;
- in order to off-set the impact on employment levels of the group’s reorganisation, following specific negotiations the instruments available for this purpose (retirement and 'mobility' with a view to early retirement), as well as initiatives for the outplacement and redeployment of redundant personnel, will be activated;
- given the complexity of the situation, the parties undertake - in addition to their information and consultation obligations under the law, the relevant industry-wide collective agreement and decentralised bargaining provisions - to conduct three-monthly reviews of the progress of the business plan, upon request of any of the parties, with particular reference to employment and social protection;
- the group's industrial relations system will continue to consist of two levels. The first is a national coordination level, involving representatives of the unitary workplace union structure s (rappresentanze sindacali unitarie, Rsus) (IT0309304T) assisted by the national trade union secretariats, for group-level bargaining. The second is a company coordination level, involving in-company Rsus assisted by the territorial union secretariats, for company-level and territorial bargaining; and
- finally, the signatories agree that recovery of the group requires product and process innovation. The agreement therefore states specific goals and guidelines for the industrial recovery plan (eg improvement of product quality, introduction of new technologies, updating of logistics and marketing strategies, and development of a transparent and efficient management and governance system). In this regard, meetings to discuss and assess the investment plan for 2005-7 will be held before 15 May 2005.
Reactions
The agreement signed in early November 2004 was welcomed by all those involved. The national representatives of the main sectoral unions - Flai-Cgil, Fai-Cisl, Uila-Uil - declared their satisfaction, because the agreement lays down industrial relations procedures closely targeted on maintaining employment levels and relaunching production. All workers are guaranteed negotiating rights and all are eligible for payments from the Wages Guarantee Fund (Cassa Integrazione Guadagni, Cig).
'If Parmalat has filled the front pages of the newspapers as an example of industrial piracy and a lack of ethical responsibility by management and its advisers', declared Franco Chiriaco, the Flai-Cgil general secretary, 'today, the commitment of the workforce and the unions has turned a new page in Italian industrial policies. The agreement may become a model for advanced industrial relations geared to quality and competitiveness in a context of recognised and enhanced labour rights.' The secretary of Fai-Cisl, Albino Gorini, has praised 'the determination of the special commissioner not to resort to dismissals but to divestment and rationalisation protected by law and bargaining. One of the main tasks for the unions is now to prevent the credibility of the plan from being compromised by cuts in staffing levels and reduction of contractual protection to economic aspects alone.'
The representatives of the Ministry of Labour and Social Policy and the Ministry of Industry, who have followed the Parmalat affair since the outset, have also welcomed the agreement, pledging that they will constantly monitor the progress of the business plan and implementation of the agreement.
Commentary
Parmalat is considered to be a well-performing business in the milk sector, but one on which a fraudulent financial empire was constructed. This is an important premise for analysis of the affair. In fact, despite its technical complexity, the restructuring plan for the group proposes a relatively simple solution: eliminate the activities deemed no longer central to the new administration’s strategies and repay the debts of a company which, albeit with difficulty, should rapidly return to economic and financial sustainability. Unlike other recent and notorious cases of the collapse of leading multinationals operating in diverse sectors, in this case the company crisis has not entailed an obligatory choice between the protection of workers or the protection of creditors. Parmalat therefore seems to be heading towards a solution different from the complete destruction of industrial assets hit by financial bankruptcy - thereby limiting to some extent the severe economic and social consequences for numerous workers and savers which often follow such crises.
The group restructuring plan and the agreement on industrial relations seem to constitute a programme that goes beyond management of an emergency situation. They set short- and medium-term goals and seek to achieve the broadest possible consensus among all the social and institutional actors involved. In particular, the agreement on industrial relations seems to be an attempt by the special administrator and the social partners to devise a system of rules - and transparent mechanisms to enforce them - to deal not only with the gravity of the present situation but also to relaunch the company industrially and economically.
Implementation of the restructuring plan will indubitably be costly in terms of employment and the reorganisation of human resources, and with consequences that cannot be assessed in the short term. Consequently, given the great uncertainty that still surrounds the future of the new Parmalat, having undertaken a recovery plan this involves all the social partners and goes beyond mere emergency measures, this may prove in the medium period an effective strategy to save one of the largest companies in Italy’s industrial system. (Diego Coletto, Fondazione Regionale Pietro Seveso)