Introduction
Corporate restructuring has been
exercised in corporate companies as early as 1900s and contributed an impactful
activity to employees and even stakeholders. Restructuring normally being
adopted when the corporation is no longer willing or able to develop or
utilizes the capabilities and also its assets which were invested earlier in
the past investment decision (Lowell, 2003) . Corporate
restructuring can take in two forms; Renovative restructuring and
redistributive restructuring. The Renovative restructuring mainly contributes
to equitable economic growth, while redistributive restructuring benefits
certain groups at the expense of others.
The redistributive restructuring
involves six forms such as divesture, buyouts, outsourcing, relocation,
downsizing and bankruptcy. All this activities of redistributive restructuring
initiated with negative approach to certain group of people and vice versa for
those who remains or being relocated after restructuring.
Problem Statement
Restructuring approach is a
historical revolving process where organization will initially starts with
redistributive restructuring and later followed with Renovative restructuring.
Downsizing workforce or employees in ensuring to achieve ‘rightsizing’ of the company,
or divesting certain departments, even subsidiaries so that the company can
invest in a new innovation using remaining work force and assets. Despite of
such intention, companies might end up with bankruptcy or total sell-out of the
company and some company might stop half way due to lengthy restructuring
exercise.
By practice, corporate restructuring
entails a divesture of resources in one or more market, activities and
locations. On the other hand, companies In can also involve in a substantive
downsizing on employment level without having withdrawing its business activities
in an area, multiple area or even not abandoning the market and process
activity.
The impact of restructuring can
contribute a downside economic impact to retrenched labor force, local area,
national and global levels. Some big companies such as Peugeot with 198,000
employees, Wal-Mart; 1,300,000 employees or to any 500 fortune companies will
only create an enormous negative impact before any Renovative restructuring
takes place. In 2002, 13 major corporation in the world had revenues exceeds USD100
billion, of which six are American, three Japanese, two German, one British and
one British-Dutch (Fortune 2003). General Motors, General Electric, Ford Motor.
Chrysler, ITT, Boeing, IBM Eastman Kodak, Firestone Tire are examples of company
distributed in many countries of the world having employment as 2,901,678, will
just contributed major negative economic impact to the retrenched work force,
national and even global level (Lowell, 2003) . An example, in the New Economic boom
of late 1990s, Alcatel made number acquisition in North America for Data
networking capabilities in voice transmission including optic fiber. However
between 2002– 2003, its revenue falls dramatically and cuts its employment from
132,000 to only 60,000; a reduction of 72,000 employees within 2 years and
another 18,000 dismissed from their job when they later divest their cable
business. Alcatel is a good example of global player involves in many countries
in the world with its telecommunication base business including Malaysia.
Research findings
Restructuring might finally ends up
with upside impact to remaining employees . However, studies made in Sweden
that despite of all the possibilities in having the positive implications, there
are negative impact not only to the victims but also to the survivors, on
displaced workers. The effect such health, earning for remaining, uncertainty,
working environment, even work stress for remaining after redistributive
restructuring (Bergstrom, 2005) .
According to Bergstrom, “The intention of
restructuring might not always be realized and he suggested that restructuring
is insufficient to change the performance and/or cost structure of firms.” (Bergstrom, 2005) . He also added that,
there are evidence shows that restructuring causes negative effects on
survivors. (Bergstrom, 2005) .
In Korea, Corporate restructuring
contributed a significant effect on workers job insecurity and indirectly
significant to their health and health behaviors (Chaekyu, 2003) . He added that, the Korean society
should revise the strategy of corporate restructuring where the intention is
reducing the cost of operation for short term and yet contributing a heavy
burden on long-term survival and development of the company. The corporate
restructuring has decreases the corporate productivity and weakens the social
integration in Korea (Chaekyu, 2003) .
Restructuring is a lengthy process
which roughly takes one year to complete. According to Audra L. Boone who
studied 298 firms in US from 1989-98, found that due to the time period and
urgency of resolving critical financial or operational situation, the companies
end up with a variety outcomes from being acquired, bankruptcy to taking no
observable actions. (Mulherin, 2001) . He added that, from 298 firms propose for
corporate restructuring, 70 percent make a definitive proposal to sell either
all or part of the company while 30 percent taking a route to be out of play or
declaring bankruptcy (Mulherin, 2001) . The estimate percent where the
corporation able to have full value of the restructuring is only 7.5 percent
and the firms that has an average gain from the restructuring is only 5
percent. From the reported percentage, the current methodology of restructuring
has not significantly contributing upside impact to the organizations.
According to Dr. Harvey E. Griggs
from Central Queensland University, he found out that the corporate downsizing
in restructuring has seriously damage the learning capacity of the
organizations even with a well-planned ‘brain-drain’ process (Griggs, 2002) . This will disturbed the learning curve
of the company and a higher cost of operation will be experienced by the
organization.
A research being done on Otago
Polytechnic, USA; to study the impact of organizational restructuring on the employees
commitment. The research provides a
strong evidence to suggest that those survivors demonstrated high potential
loss of loyalty and trust in the organization, feeling of insecurity, confusion over roles and expextations which
collectively called ‘survivors syndrome’ (Theissen, 2004) .
In Malaysia, restructuring has
contributed cases of employees summons employer to the court. There are cases
where constructive dismissal became the case where the employees are being
transfer to new department and later being dismissed due to incompetency
evaluation by employees. The employee claimed that the employer has assigned
him to a new task with the ultimate intension to ship him out. This is clear in
the case of UMW Engineering Sdn Bhd v Fong Pak Fai (1995) 2 ILR 728 Tuan Tan Kim Song. (Sivagnanam)
Conclusion
From the brief writing above, it is
almost certain that Corporate Restructuring has not much contributing towards
constructive impact to the organizations, employees national economic due to
divestures, retrenchment or bankruptcy action. It has also not able to induce a positive long term effect to
those remaining employees after restructuring.
In most cases the percentage of
companies that survived and able to engaged on profitability and sustainability
is minimal and yet end up with divesting a portion or all of the company and
even proposed for bankruptcy. For that we can conclude research need to be done
in developing a new Restructuring Model in ensuring a more justifiable process
and effect corporate restructuring for a better corporate sustainability and
more equitable economic. It is important to note that any negative impact to
employees will induce a back to back impact to a decline in organizational
profitability, efficiency, local and regional economic. On the other hand for
companies with high number of employees will contribute a more prominent effect
even to national and global effects due to divestures, retrenchments and even
bankruptcy.
Bergstrom, O. (2005). A Swedish point of view on
restructuring. Institute for Management of Innovation and Technology.
Chaekyu, P. (2003). The effect of corporate
restructuring on workers health in Korea (Vol. 32). Development and
Society.
Griggs, D. H. (2002). Organizational Restructuring -
The case of learning organization; contradiction or necessity? Australia.
Lowell, W. L. (2003). Corporate Restructuring. The
Oxford Handbook of Work and Organization.
Mulherin, A. L. (2001). Valuing the Process of
Corporate restructuring.
Theissen, C. (2004). The Impact Of Organizational
Restructuring on Employee Commitment st Otago Ploytechnic. Research for
fulfillment of Masters Degree, University of Otago, Dunedin.
