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Entreprises en difficulté et initiative publique

Anne-Marie Kumps
Paul Grand-Jean
Robert Wtterwulghe

Troisième partie. Sauvetage managérial et/ou financier des pouvoirs publics

Symposium on enterprises in difficulty and public aid

John Heath

Texte intégral

1In the UK, most Government aid to enterprises in difficulty has been in the form of finance. However, most of the problems of these enterprises have arisen because of the inadequacies of management. It is one of the responsabilities of management to anticipate any difficulties that may arise and to have contingency plans ready such that the survival of their enterprise is assured whatever misfortunes may occur. There may be situations arising from ’acts of god’, such as armed conflict, that no management can guard against; but such circumstances are rare.

2With this focus on the role of management in enterprises in difficulty, my remarks are divided into two parts: Government Help to Existing Management; and Government Influence over the Appointment of New Management.

Government Help to Existing Management

3There have existed for many years Government services to industry in general in the UK which any enterprise, whether in difficulty or not, can use. Such services include the Export Credit Guarantee Department that provides credit insurance for UK exporters, and the Export Services Branch of the Department of Trade, which provides much statistical and other information for exporters, and will help exporters to obtain overseas agents to act on their behalf.

4In addition there have been a number of ways in which the UK Government has provided managerial help specifically to enterprises in difficulty. It is usual to commence such help with a study of some kind. These may relate to specific projects on which the enterprise requires help, as conducted in the Industrial Development Unit in the Department of Industry for example, or they may involve the Central Policy Review Staff (CPRS) in the Cabinet Office, or there may be a specially constituted committee of enquiry relating to a whole industrial sector in difficulty. The National Economic Development Office (NEDO) has also undertaken a large number of studies of individual sectors of industry with problems of survival or growth. The tendancy now is for sector studies to be undertaken by a committee on which the government, management and trade unions will be represented.

5A recent example is provided by the footwear manufacturing industry. This sector consists largely of small enterprises, rather traditional in outlook, which have been unable to adjust competitively to overseas competition from Italian and Eastern European sources. The few large manufacturing firms, all of which are vertically integrated with retailing, have however been relatively successful. The UK manufacturing industry has contracted rapidly in recent years, although not as rapidly as in Belgium. In 1975 the Government set up a Steering Group comprising senior executives from some of the largest manufacturers, trade union representatives, employers trade association representation, four Members of Parliament from Constituencies most affected by the closure of an increasing number of footwear manufacturers, and two civil servants from the Department of Industry. The Chairman is Chairman of one of the manufacturers.

6The Steering Group commissioned a large study of the industry and its problems (a study paid for by the Government) from a firm of economic consultants. This huge report of over 1.000 pages, completed in July 1976, was highly critical of management in the industry, and also of the dominant position of a company which was both the largest retailer and the third largest manufacturer in the industry (which had not been invited to participate); but in a subsequent Memorandum submitted to government that company was itself highly critical of inaccuracies and misrepresentations in the report. However the report of the Steering Group with its recommendations was sent to the Secretary of State for Industry in April 1977, and is believed to contain a request for £10 million financial aid. The consultants’ report also proposed that the government should assist in introducing new management into the industry. It may be of interest to quote here part of the consultants’ recommendations:

7«The fundamental problem is to attract new managers into the industry. This can probably only be done by financial incentive. We consider that the advent of thirty-five new senior executives into the industry would have an envigorating effect, not only on the companies concerned but also, by example, upon the industry as a whole.

8We therefore, recommend that the Government help to finance an influx of up to thirty-five new managers into the industry in the following manner.

9For a three-year period the government would subscribe up to half the salary of new senior executives in the industry on the following conditions:

  • the amount of subsidy would be limited to £5,000 per enterprise per year;
  • the scheme would apply to a maximum of thirty-five new managers appointed on a first-come, first-served basis;
  • any enterprise in the industry might apply for one such manager only. If the manager, once appointed, left the company’s employment the subsidy to his salary would cease;
  • the role of the Department of Industry (or other agency) would consist of ensuring that the post was satisfactorily advertised; that the selection was correctly carried out; and that the appointee was from outside the industry.

10Once these pre-conditions had been fulfilled, the role of the Department of Industry would cease. »

11In general in the past the outcome of such studies has been disappointing. Except for those in the IDU, which are short in duration and generally undertaken by businessmen, there is a tendancy for such studies to be unduly lengthy and time consuming; and the record of implementation by Government of the recommendations has not been good. One major difficulty is that if an enterprise has poor managment such reports are unlikely to be read by them, and even if they are seen by such management they may not have necessary skills and experience to implement the recommendations themselves.

12Members of the Symposium may be interested to hear of several experimental schemes which the Government has launched from time to time in the past. First, the Government undertook to subsidise the conduct of industrial consultancy in a number of firms in difficulty (an experiment limited in time and in total financial commitment). An evaluation of the results showed some striking successes, in terms of improved industrial performance, but the scheme was not extended in part because of opposition from industry itself and from the consulting profession.

13Secondly, a ’piggy-back’ scheme was launched as an experiment under which smaller firms having difficulty in exporting would be helped by larger firms in the same line of business (the idea was that small firms would ride on the backs of their larger and more successful brothers). But this scheme was not continued, also in part because of problems of competition.

14Currently the Government is providing financial support to a large number of managers who have been declared redundant from their companies and are currently unemployed, so that they can attend courses at Business Schools and Management Centres. In addition the Industrial Training Boards provide financial support to managers from existing companies in attending Management Courses.

15Finally, encouragement and financial help has geen given in recent years to three enterprises in major difficulty which were taken over by their workers in order to form Workers ’Co-operatives’. One of these enterprises appears to have been very successful. In general, in the UK Government help to existing management — apart from financial aid — has been rather small and intermittent.

The Introduction of New Management by Government

16In order to introduce new management into an enterprise in difficulty the Government has to be in a controlling situation, or to have some leverage by which it can achieve the desired changes. With the major increase in selective assistance to enterprises in this country (largely under the 1972 Industry Act), to an increasing degree the Government may require an enterprise to change some of its top managers before it would agree to providing selective financial assistance. In these cases it is left to the enterprise itself to decide whom they should appoint.

17There are several difficulties with this approach. In the first place if bad managment choices were made originally, there is obviously no guarantee that future choices will be any better. Secondly, the Government is inevitably looking at these enterprises from the outside, and the performance of individual managers undertaking specialist functions may not be well judged by civil servants — who themselves most likely will have had no practical experience in industry.

18There are, however, a large number of enterprises owned or controlled by the Government itself. One large group of such enterprises are the Public Corporations (generally known as the Nationalised Industries), including electricity supply, the British Gas Corporation, the National Coal Board, the British Steel Corporation, the Post Office Corporation, British Airways, and many other large enterprises. A second category of public enterprises includes those companies, such as British Leyland Limited, Rolls-Royce (1971) Limited and a large number of others, whose shares for one reason or another have become partially or wholly owned by the Government (most of them are now grouped within the National Enterprise Board, which itself is a Public Corporation, and which acts as a holding company in relation to these enterprises).

19In all such enterprises the Government itself has powers to appoint at least their Chairmen and Board Members. But the Government has a large number of public appointments to make-well over 7,000 in total—and although special attention is given by Ministers to the appointment of the Chairmen and Board Members of public enterprises there clearly are problems in selection.

20These problems have been partially overcome in the last year by the setting up in the Civil Service Department of a Public Appointments Unit, which advises the Government, Departmental Ministers in particular, on the appointments they have to make. Nevertheless, amongst the Nationalised Industries at any rate, many appointments still reflect a strong element of political patronage, and one would judge that ’the best man for the job ’is not always chosen. Ministers jealously guard their right to make appointments of this kind. Furthermore, the way in which Ministers of both principal political parties have in fact behaved towards the Nationalised Industries has made it difficult to attract the highest calibre management into these enterprises; this is partly a matter of pay, because Ministers not only appoint the Chairmen and Board Members of state enterprises but also determine their salaries, and these have been held down markedly in relation to competing salaries in the private sector, but more fundamentally the job of running state enterprises has been made rather unattractive by the ways in which they have been used by Government in recent years.

21There are indeed many more fundamental problems involved in selecting the right people to run state enterprises. Rather few Ministers have themselves been senior managers in business, and very few senior civil servants in the UK have had practical experience in industry. In these circumstances, and given the power which these two groups possess in relation to such appointments, it is hardly surprising that the system as a whole has been subject to much criticism.

Remarks Made During the Discussion

22On the proposal that there should be a three-year time limit on financial aid to enterprises in distress, in most circumstances this time period would be entirely adequate. If an enterprise in distress cannot be saved in a three-year period the chances are that it cannot be saved at all.

23We must recognise, however, that some sectors of industry will be in decline in any event, however good is the management. This may because of technological change or because the product has reached a stage of maturity such that low labour cost countries overseas will become too competitive for the survival of domestic manufacture, or for some other reason. One would say, however, that even in these extreme situations, if the management is alive to what is going on, they will have formulated and implemented contingency plans and undertaken other actions to save their enterprise and ensure its survival. Management that has not anticipated such fundamental changes should probably be changed in any event. It is a major problem for Governments wishing to aid enterprises in difficulty, if they wish to achieve anything than short term benefits, delays in plants closures etc., to understand which sectors are likely to survive and prosper in the long term, and which sectors are likely to decline however much Government support is provided. If Government aid is seen essentially as ether than short term, to ease the transition from one stage to another, or to bridge a difficult gap in cash flow earnings, then these more fundamental questions about industrial strategy should be asked.

24Finally, if the Government is to put forward rescue plans to enterprises in distress, it is essential that these plans should be flexible and that they should be co-determined with management and workers in the enterprises themselves. Unless the senior people in the enterprise itself feel that they possess these plans, that in reality they are their own plans and not those of the Government, then the probability of such plans being successful is rather low.


Professor à la London Graduate School of Business Studies

© Presses de l’Université Saint-Louis, 1978

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