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Anticipating plant closures: the role of advance notification

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Günter Krumme

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Stakeholder perspectives

Two broader contexts offer themselves for discussing plant closure information issues from a stakeholder perspective. First, there is the WORKER ADJUSTMENT CONTEXT: Once the plant closure decision has been made, pre-notification is but one, if essential, instrument designed to facilitate the adjustment activities of, or on behalf of, laid-off workers and to reduce the hidden costs of organizational retrenchment (Hardy, 1988). Seen from the informational perspective, such post-decision instruments may have either substitutive or complementary characteristics. Severance pay is often seen as a partial or full alternative for advanced warning, while retraining and job search assistance measures have been found to be greatly facilitated by informational lead times (Kolberg, 1983). Yet, advance disclosure activities should also be assessed in the still broader context of organizational retrenchment measures involving changes in the labor process, including alternatives to the shutdown of entire facilities. At this level, one would have to consider alternative forms of managerial accountability and employee consultation and participation schemes based on extensions of democratic rules to the work place (Harrison, 1984; Kuenstler, 1984; Simmons and Mares, 1985; Vandamme, 1986). Regular access to information tends to be an inherent feature of more democratic employee relations schemes. This access would facilitate the probing of workers' attitudes towards cooperating with more gradual, less cataclysmic in-situ adjustments such as short-time work, work-sharing arrangements, job- reclassifications and reassignments, or retraining (Greenhalgh et al., 1988).

Secondly, there is the larger SOCIAL AND LOCALITY CONTEXT. Plant closures do not just affect present employees but, through a variety of linkages, also potential employees, local customers, suppliers, local partners of interorganizational cooperative schemes, financial lenders, local unions and their officials, and infrastructure providing government institutions, as well as service activities and the community at large (Freeman, 1983). All of these groups can be expected either to depend on or at least benefit from general corporate disclosures related to changing employment opportunities and specific prior information concerning anticipated plant closures. Thus, beyond the direct labor and employment effects, there are income-, employment-, taxation- and other multipliers as well as longer-term (out-) migration, (de-)investment and other Induced responses and repercussions which comprise the local corporate stakeholder- or "locality effects". These local macro- economic processes should also be expected to respond to corporate Information disclosures and advance notification of plant closures. It should be noted that contraction multipliers and linkage effects cannot be considered as merely the reverse of expansion multipliers (Cole, 1988; Hewings and O'hUallachain, 1983). The downside will see different multipliers because different kinds of inertias and flexibilities will affect, at the micro-level, the relevant adjustments. More specifically, one would have to expect quite different corporate disclosure postures for new plant facilities than for expected closures.

Stakeholder uncertainties and information asymmetries

By the very nature of their role, stakeholders tend to be disadvantaged with respect to information that may be relevant to the plant closure decision. These Informational inadequacies and asymmetries will be the focus of the remainder of this paper.

In general, disclosure decisions will tend to increase the available information for other economic actors and thus lead to a more open, potentially more efficient economy. The disclosure of the firm's performance, intentions and future plans may improve the general corporate information environment, specifically the spatial efficiency of labor markets reducing overcapacities and other miscalculations that may lead to excessive employment fluctuations and plant closure (Aguilar, 1967; Liebhafsky, 1963; Saunders and Flowerdew, 1987). However, the formation of expectations based on complex varieties of information is not always simple, and contradictory arguments could be advanced.

One may also wonder what the impact of economic concentration and organizational conglomeration across regional and national boundaries may be on corporate disclosure climates. It could be argued that world-wide integration and the formation of larger, global organizations, made possible by improved means of internal or "quasi-internal" communications, will reduce overall transaction costs and speed up the transfer of information between locations. Therefore, information related to forthcoming structural changes could become available to regions that formerly had no access to such early warning signs.

On the other hand, the oligopolistic concentration of information sources and larger distances between headquarter and production sites make local stakeholders informationally worse off. The volume and quality of locally specific, non- proprietary ] understand the local relevance of environmental events for the now more complex corporate allocative decision behavior. In short, increased information needs are less likely to be met. The visibility and comprehensibility of local corporate activities to local stakeholders diminishes. What may formerly have been a relatively low-cost, in-situ? monitoring process, must now be replaced with more formal and more costly search efforts or disclosure requests from the organizationally and geographically more distant corporate headquarters. More research is needed to detect the extent to which these information trends will differ across industries and organizational structures (Palmer and Friedland, 1987).

To gain a better understanding of the uncertainties relevant to the context of corporate - locality relationships, three levels of stakeholder uncertainty shall initially be distinguished (Milliken, 1987):

(1) At the broadest level, "environmental uncertainty" Involves a lack of clarity of the structure of the local plant's environment. This deficiency includes a lack of understanding of the local or non-local, intra- or extra- corporate origins of the forces influencing the local plant. It also refers to an inadequate understanding of Interdependencies in the environment and of the mechanisms underlying changes in the environment, together making it difficult or impossible to express the likelihood of environmental states in probabilistic terms.

(2) "Response uncertainties" involve a lack of understanding of what the focal organization's specific strategy options might be for a response to those events and changes in the local plant's environment. Included In this category is the uncertainty about the loci and motivations of the decision-making authorities for exercising such options.

Finally, (3) "effect uncertainties" refer to the lack of understanding of cause-effect relationships. More specifically, they relate to the inability of stakeholders to predict what the consequences of specific (a) stimuli and changes In the corporate environment and/or (b) corporate actions or responses to such stimuli might be for the local plant and thereby for the local economy and community.

Inasmuch as response options differ in the degree to which they Imply an internalization or externalization of the effects of environmental disturbances, such as a market decline, we can refer to four different processes:

(a) the ABSORPTION process uses up accumulated 'organizational slack' (Cyert and March, 1963) and could be manifested by the retaining of employment levels beyond present needs, thereby avoiding closure;

(b) the COUNTERACTION process might involve the retraining of workers with industry-specific skills or in-situ transfers of workers with non-specific skills to new ventures (Perry, 1988); (c) the ACCENTUATION process might best be exemplified by the concentration or "bundling" of work force reductions in specific localities, possibly leading to "selection closures" (Stafford, 1989); or

(d) the NEUTRAL TRANSMISSION would link plant closures directly ("on a one-to-one basis") to the external stimuli Such as sales declines in market areas served by the plant or to the termination of product lines in which the plant specialized. Watts (1989) refers to the latter type as "cessation closure".

Thus, while the roots for any particular plant closure can almost always be traced to the firm's environment, the subsequent ! 15 transmission through complex creation, transformation, and intra- and interorganizational allocation channels will influence the Identification of the particular plant to be closed as well the nature and timing of the closure process. These intraorganizational adaptation processes have become so complex that it is not surprising that "internal factors" are showing up increasingly as reasons for plant closings. Stafford's (1989) discriminant analysis suggests that it might be possible to predict this internal selection process if sufficient and appropriate internal firm and plant- specific information is available. However, Stafford (1989) also suggests that more empirical Intra- corporate comparisons between plants that have and those that have not been closed are needed. In turn, the specific Impacts upon stakeholders will also be conditioned by the nature of the Information disclosure and propagation process.


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