Eircom Transformation A Social Dialogue Case Study

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Eircom Transformation - A Social Dialogue Case
Study
Communications Workers Union Ireland
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ENVIRONMENT SCAN IN MID 1990s
INCREASING LIBERALISATION
GLOBALISATION OF INDUSTRY
INVESTMENT IN NETWORKS SERVICES
LOW COST EFFICENT COMPETITORS
BUSINESS and REVENUE GROWTH
A Rapidly Changing Industry
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Managing our way through Change
Key Issues for Company and Union
Transform from Monopoly Provider to Open Market
Develop a Strategic rather than tactical approach
to change
Protect Employment by pursuing a growth strategy
for the business
Need to Reduce Costs to compete effectively
Major Investment required in networks and new
technology
Strategic Partner to compete in a globalising
business
Incentivising and Rewarding workers for making
the changes was critical
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Joint Union -Management Analysis
Transformation Essential
Created a Shared Analysis of the Business
New Approach Required - Old Model inappropriate
Recognised that many of our interests were
aligned
Members Interests must be addressed
We needed to manage change differently
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Developing a Strategic Response
BUSINESS TRANSFORMATION
Despite strong commercial performance eircom
faced an uncertain future as further deregulation
was introduced.
eircom needed to effect a transformation from a
domestic monopoly to a global competitor.
We had to find a means of securing our members
interests in a climate of turbulent change and do
it in a way which would not irreparably damage
the Company.
Improve Productivity
Reduce Cost Base
Low Cost Competition
Business Transformation
New Work Practices
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The Solution
A Transformation/ESOP Agreement in 1998
Transformation
Partnership
ESOP
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TRANSFORMATION
Transformation Components
Provided for some of the most radical changes in
work practices and the widespread introduction of
new technology and operational support systems.
110m cost reductions
Staff Reductions
Bonus Elimination
New approach to dealing with re-skilling and
redeployment by developing employment pathways
through a dedicated Resource Business Unit.
New Overtime Provisions
New Work Practices
Focus on the business and expediting the
introduction of change to meet business needs.
New Flexibilities
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PARTNERSHIP
Partnership Components
A different approach to dealing with change based
on a recognition that many of our interests are
shared.
A Shared Agenda
Dialogue
A recognition that conflict could result in a
failure to capitalise on our strengths and to
avail of the opportunities to grow the business
going forward.
Building Trust
Problem Solving Approach
Partnership is about committing to process
Business driven change, and to resolving its
impacts on people though active dialogue and
positive engagement between partners.
Managing Change
Respect for Partner
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SOCIAL DIALOGUE (PARTNERSHIP)
Key Principles
Partnership is not a means to implement the
companys agenda but a way of securing workers
interests and doing what is right for the
business through dialogue.
Management Leadership
Accept Partners as Equal
We share a challenge to guarantee the success of
the business, grow revenue and deliver quality
service.
Transform own Thinking
Open to new Ideas
Must also be a commitment from the employer
within Partnership to resolve the impact of
change on people in tandem.
New Skills Required
Valuing the importance of employees and creating
the circumstances where they can make a real
contribution to business success is essential.
Facilitation Critical
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The eircom ESOP
Key Features

• ESOP Principles
• Long Term and Collective
• Corporate Governance Rights
• Board Level Representation
• Tax Efficient Distributions to participants
• Use stake to influence and shape our future.
• 14.9 Shareholding in Company ( 1998)
• 5 for Verifiable Transformation
• 9.9 Purchased by Employees
• Commerical Loan
• Part Funding of Pension ( Capital Contribution
  from Company)

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The eircom ESOP
eircom ESOP Basics
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The eircom ESOP
Structure of Eircom ESOP
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ESOP MM- Three Stage Review Framework
Transformation Inputs
Business and Service Objectives
ESOP Monitors Measures

• Enhanced Customer Service
• Revenue Growth
• Cost Reduction
• eircom people

ESOP Monitors Measures
STAGE 3
Transformation On Track
STAGE 2
STAGE 1
ESOP Date
March 99
Dec 99
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Post eircom IPO Scenario
2001
1996
Strategic Alliance
ESOP
IPO
Tech Stocks
Retail Investors
Demerger
LBO
1999-2001 Increasingly competitive domestic
market.
Strategic Partner shareholders ( KPN/Telia )
looking for an exit.
500,000 small shareholders holding sizeable
paper losses after IPO - Tech Stock collapse.
Decision to sell Mobile business put Fixed Line
business in play.
Opportunity for ESOP to enhance its stake in the
company
Strategy to increase stake and influence in
Company
Succeeded in securing 29.9 stake in new eircom
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Benefits of Offer
ESOP Proposal

• Major shareholder in Valentia (29.9)
• Possibility of higher equity returns
• Fixed return from Valentia preference shares and
  convertible rights into ordinary shares upon
  exit event
• Appoint 2 of the 11 Directors on the Board of
  Valentia including Vice-Chairman
• Participation on the Remuneration, Nomination,
  Audit Committees and other sub-committees
• Early repayment of existing debt
• Appropriation starts 18 months earlier (May 2002)
• Structured to protect ESOTs favorable tax
  position

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Extending ESOP Developing Partnerships
Conclusion
Many industries and companies will undergo major
changes as the effects of the information
society, globalisation, liberalisation on
business and markets takes hold.
Catalyst for Change
Building Trust
Risk Taking
Unions and Employers will be confronted by new
and ever greater challenges to adapt to the
change.
A Shared Agenda
Innovative approaches to managing change,
providing secure rewarding employment, and to
incentivising workers, will need to be developed.
Doing Whats Right
Respect Identities
ESOP and Partnerships could be some of the keys
that unlock the door to future success in many
enterprises.