Four imperatives for headcount restructuring in Europe

Several myths and stereotypes surround headcount restructuring projects in Europe. Headcount restructurings must factor in local labor law and co-determination rights, which vary significantly across the continent. As a result, multinational employers often fear the cost and complexity of dealing with restructurings at their European operations and subsidiaries. 

Typical drivers of anxiety include: 

• The material cost of restructuring and severances
• Process risks due to the involvement of local Works Councils and Unions
• Reputational risks arising from public or stakeholder reactions
• Local management resistance, stemming from inexperience or past failure.

The current macroeconomic environment puts companies under significant pressure to transform and respond to disruptive forces, often requiring adjustments to their employee structure. From our deep restructuring experience, we know that complexity is manageable – with thorough preparation and specialized local legal advice.

Here, we focus not on whether headcount should be restructured in European operations, but on how – when essential – this can be achieved in a considered, empathetic and value-preserving way. We set out four focus areas:

1. A holistic reorganization concept
2. International project management, factoring in local laws
3. Communication and risk management
4. Negotiation preparation.

1. A holistic reorganization concept

Thorough preparation is essential. While the specifics will vary across jurisdictions, the broad principle applies: well-designed restructuring measures will lead to faster, smoother negotiations and implementations, helping avoid criticism and lasting noise.

A holistic reorganization concept should set out:

• The company’s current financial position, the market context and competitive landscape
• The actions required to maintain a sustainable market position in the medium and long term
• Details of the planned structural and operational measures
• The impact of planned measures on future profitability, the organization structure and its capacity 
• A substantive and robust justification of the measures and number of job cuts, including the exploration and elimination of alternative options
• A timetable for implementation and any job losses; essential information for any impacted employees and their representatives.

Our diverse project experience shows that, the more detailed the concept and the substantive basis, the faster the information phase can be concluded and the benefits of transformation can be realized.

2. International project management, factoring in local laws 

The success of any restructuring program, no matter how ambitious or holistic, depends on effective implementation. This is where a Project Management Office (PMO) comes into play. 

In our experience, taking a proactive, content-focused PMO approach will drive the success of a transformation. Typically, this is characterized by:

• Considering implementation throughout the initial concept design
• Hands-on implementation support
• Pragmatic and effective project reporting
• Consistent stakeholder management
• Ongoing management attention
• Focusing on the critical path and interdependencies.

Local labor law will dictate the process and timelines of transformations, and several jurisdictions may be in the scope of the transformation. The PMO therefore needs to operate internationally, based on a thorough understanding of local employee laws and rules.

Depending on the level of expertise and capacity of the client’s internal legal department, we strongly recommend complementing the PMO with external labor law experts for the various jurisdictions. If several jurisdictions are in scope, it can make sense to engage with a labor law firm providing local experts across the relevant countries, often as part of an international network, offering a “one-stop” service. Legal guidance for each country, and for Europe overall, will be essential to ensure local procedures are adhered to, while maintaining a holistic and consistent view of the overall project.

3. Communication and risk management 

Effective stakeholder communication is the critical enabler for successful headcount reduction programs. The initial communication of the planned measures is the starting point for the change process. All key stakeholders must be considered and brought on board with the communication of the transformation concept and its core components.

In our experience, this is where the initial course is set for the success or failure of the transformation. Communication planning should therefore be prioritized at the outset, alongside the design of the transformation concept.

Key elements of the communication plan:

• A comprehensive stakeholder map that encompasses all key interest groups, including shareholders, employees, customers and suppliers, as well as local politicians, such as state representatives and mayors
• The key narrative and messages that should be included in all documents
• A detailed roadmap and timetable for the initial announcement, specifying who, what, when and where – and a defined order of information flow to different parties 
• Process-related documents, e.g., timely invitations for Supervisory Board meetings, shareholder resolutions or notifications to the capital market
• Preparation of the relevant documents for the dates included in the schedule, e.g., presentations for informing the Works Council or employee meetings, as well as press releases, speaking notes and Q&A documents.

Starting preparations as early as possible is critical for success. In our experience, several alignment meetings with various internal stakeholders will be required, and there can be lengthy discussions over individual words.

The more complex the transformation, the more advisable it is to seek external support from an experienced communications agency to manage the process and documents, as well as ensure that key messages are included in all documents. Establish a regular communication process during the entire transformation phase, not just at the outset.

Headcount restructurings regularly trigger risks such as strikes and reputational damage, as well as loss of employee motivation and increased attrition. We typically see risks across the dimensions of operations, revenues and people. We recommend proactive risk analysis and mitigation during the preparation phase and before Day 1 communication. Take a three-step approach, and maintain this throughout the negotiation and implementation phases:

1. Identify risks across all relevant dimensions
2. Assess each risk based on its likelihood and material impact
3. Begin contingency planning early to mitigate major risks.

4. Negotiation preparation 

Once the headcount restructuring has been communicated and the information requirements of employee representatives have been fulfilled, many jurisdictions require a negotiation phase, in which the employer and employee representatives discuss the planned measures and negotiate severances and other benefits to be provided to employees affected.

In our experience in European jurisdictions, it is critical that negotiations are conducted locally, taking country specifics into account. At the same time, a central steering of local negotiation teams and processes is vital to ensure consistent information and negotiation approaches, as well as aligned decision-making. For example, if specific concessions are made in one country, employee representatives in another country may request the same concessions during negotiations. 

When negotiations need to be conducted, we typically recommend the following approach:

1. Nominate local negotiation teams (combining local management and HR, external labor lawyers and advisors), with a mandate to allow short decision timeframes
2. Define the negotiation strategy for each jurisdiction, actively pursuing “win-win” outcomes where each party is satisfied (to the extent possible)
3. Clearly define negotiation boundaries or “corridors”, for each jurisdiction, including negotiation buffers and “red lines” not to be crossed
4. Establish regular alignment meetings across the various locations, to enable coordinated approaches and decisions.

Successful negotiations depend on the local negotiation teams. It is easier to correctly assess situations, and define and evaluate the relevant options, on a local basis. All discussions should therefore be prepared and followed up in detail by this group. It is crucial to recognize the turning points in negotiations and to use the resulting opportunities to reach a final agreement that satisfies each party – to the extent possible.

Conclusion

These four imperatives for headcount restructuring in Europe focus on general guardrails. Each transformation context is different, and country-specific regulations will need to be factored in. Experience, thorough preparation, and the right level of pragmatism will guide the smoothest possible implementation – when it really matters.