4^
^
>v
•>
Dii.'^.^/
HD28
.M414
The
Politics of Privatization
Restructuring
in
and
Germany
Lufthansa and Deutsche Teleliom
J.
Nicholas Ziegler
WP#
Revised October 1997
3880
Sloan School of Management
Massachusetts Institute of Technology
MIT, E52-581
Cambridge,
tel.
MA 02142-1347
617-253-3698
fax 617-253-2660
nziegler@mit.edu
The
privatization of public service companies offers an excellent case for assessing
pressures for institutional convergence versus the staying power of distinctive national
advanced industrial countries.
This paper examines the
and Deutsche Telekom in order to see whether changes in
enterprise ownership reflect a process of convergence in the rules of coiporate governance.
While the outward form of privatization in Germany looks quite similar to privatization in
Britain and the United States, these two cases show little evidence that the change in
ownership is driving any formal changes in corporate governance. If anything, German
financial institutions and trade unions continue to exercise distinctive roles that rest on their
historical positions in the German economy.
economic
institutions in the
privatization of Lufthansa
FEB 081998
LIBPARtCS
Politics
and Privatization
Germany
in
Lufthansa and Deutsche Telekom
J.
Nicholas Ziegler
Introduction
Recent changes
whether
all
in the
world economy have prompted scholars and practitioners
ask
countries are converging on a single most efficient set of institutions for economic
management.
Some
observers argue that the three processes driving worldwide competition
globalization, liberalization, and deregulation
around the world.
reasons:
to
Others
— and
insist that national institutions will
domestic interest groups
may
institutional features
may
alter
demand
efficient institutions
distinct for a
range of
give countries distinctive national
that, in turn, perpetuate particular
may
remain
most
protect their preferred institutional arrangements in
each country: existing institutional differences
competitive advantages
selecting for the
—
characteristics in
growth
ways
trajectories; or existing
that support persisting
differences in national markets.'
The debate
is,
Those who focus on
while those
who
however,
difficult to resolve at the level
international
of cross-national comparisons.
dynamics can almost always find signs of convergence
focus on the nation-state are rarely
at
a loss for evidence of continued
^
2
diversity in national institutions.
clearly evident
when
This paper argues that the politics of convergence are most
public-service companies
become suddenly exposed
to the international
Since firms are the organizations most directly subject to international
competition.
competition, their responses to specific cases of economic internationalization illustrate the
specific
mechanisms by which pressures
for institutional
convergence or divergence take
effect.
This paper examines such mechanisms by analyzing the privatization of two of
Germany's
largest public service companies. Lufthansa
Germany was
In the 1980s
often considered the best example of a country where the institutions of social
partnership had beneficial economic effects.
Germany
and Deutsche Telekom.
benefited from a
and individuals
number of
to contribute to a
In contrast to other
advanced
institutional constraints that
made
it
capitalist countries,
rational for firms
broad range of public goods, including a qualified
workforce, a stable currency, strong financial linkages or "patient capital," well developed
institutions for negotiating technical standards, a stable currency, legal restrictions that
moderated price competition, and an economic culture based on
reliability, predictability
and
trust."
In the 1990s,
however, the same
institutional characteristics that
had helped German
firms compete in high-value-added niche markets appeared to be reducing the ability of
German
firms to respond to changing market conditions.
flexibility in
employment
Firm-level
demands
for greater
conditions, particularly compensation practices, began to undermine
long unquestioned norms of industrial relations, such as industry-wide wage bargaining and
even wage parity within single firms.
3
This paper examines these ehanges, and their roots, by
The main questions
experiences of I.uttliansa and Deutsche Telekom.
comparison are the following.
1)
What changes
comparing the privatization
in
employment
relations
by privatization and do these changes point toward a new model of
Germany?
2)
What changes
in organizational structure
experienced by these two companies?
privatization for the viability of
The
What
Germany's
maneuvering.
industrial relations in
ownership
in
are the larger implications of these cases of
distinctive version
of organized capitalism?
was characterized by highly
Each case was motivated by examples of deregulation
United States and the United Kingdom.
in the
Together the two privatizations were expected not
make Lufthansa and Deutsche Telekom more
German
capital markets
German
public to the "culture" of holding equities.
(
were brought about
accompanied the changes
privatization process for each of these enterprises
visible political
only to
3)
that guide the
competitive but also to help develop
Finanzplatz Frankfurt ) and to introduce broader segment of the
In light of the high political stakes
involved, the discussion reviews the motivations and methods for privatization before laying
out the changes in employment relations and organizational structure that privatization
entailed.
Lufthansa
Lufthansa's partial privatization
managerial preparation.
When
in
1994 was preceded by a ten-year process of
Chancellor Helmut Kohl's government
political
first tried to
and
reduce
its
s
4
stake in the national airline,
as in the case of British
its
motivation was not a doctrinal commitment to the free market,
Airways
in Britain, but rather the
Gerhard Stoltenberg, the Finance Minister for the
need
Cliristian
to raise revenue.
In 1984,
Democratic Union (CDU),
presented a program of selling off eleven nationalized enterprises in order to raise revenue for
the national treasury.
Stoltenberg's plan met vehement political resistance from the chief of the Christian
Socialist
Union (CSU), Franz Josef
that private
management of
Strauss.
the airline could
As Minister
weaken
its
President of Bavaria, Strauss feared
commitment
to
purchasing aircraft
from the Airbus consortium, whose German participant, Messerschmidt Bolkow-Blohm, was a
major employer
in Bavaria.
In a letter leaked to the press, Strauss claimed that Lufthansa's
procurement policy was a government responsibility because
nothing any longer to do with
wanted
fair competition."''
In 1987,
to raise capital tlirough a rights issue, the federal
participating, thereby diluting
its
stake
airline sales
when
"had virtually
Lufthansa's
management
government refrained from
from approximately
79%
to
70%.
At the same time,
two regionally-owned banks
in Bavaria, the
Bayerische Landesansalt
Aufbaufmanzierung, picked up five per cent of the
fiir
Bayerische Landesbank Girozentrale and the
airline's
equity, thereby increasing Strauss' s control.
The movement toward
death,
when
privatization gained
a further share offering of
stake to 51.6%.
in
1989, a year after Strauss'
313.5 million diluted the federal government's
The new Finance Minister Theo Waigel was anxious
privatization, but faced a
European market
DM
momentum
number of
in 1992,
additional obstacles.'
Lufthansa had purchased 120
to
move forward with
In anticipation of the single
new
planes in the 1980s.
The weak
5
dollar subsequently foreed Lufthansa to reduce transatlantic fares by as
compete with U.S.
company's
much
Although the federal government was eager
carriers.
as
36%
to
to sell its stake, the
tlnancial condition prevented divestment.
Even with improved performance, however,
prevented the government from reducing
its
stake
the
company's pension obligations
As
below 50 percent.
public employees,
Lufthansa personnel had their pensions guaranteed tlirough a fund for federal and state
employees
(the Versorgungsanstalt des
government's stake
liabilities
(estimated at
afford, or justify if
The
of a
it
financial
new chairman.
priorities,
fell
below 50%,
DM
4
Bundes und der Lander
the
VBL
,
the
VBL).
could demand payment in
If the
full for all
pension
an amount that the federal government could not
billion),
were no longer the majority shareholder.^
and performance problems facing the
Jiirgen
Weber added
Weber,
in
1991.
By making
airline
prompted the appointment
privatization
one of
his
major
a set of managerial motivations to the government's fiscal motivations
Program
'93,"
for the
change
Weber
outlined a series of steps to achieve cost reductions, privatization, and reorganization
in
ownership.
of the managerial hierarchy.
management
In a comprehensive strategy statement, "called
While
all
three aspects of
Weber's strategy sought
greater discretion and flexibility in running the
to give
company, union participation was
essential to the strategy's successful implementation.
The
central part of Lufthansa's effort at cost reduction entailed intensive negotiation
with the carrier's two unions:
OTV
(Gewerkschaft Offentliche Dienste, Transport und
Verkehr. or the public transport workers), which represented most of Lufthansa's blue collar
workers; and
DAG
(Deutsche Angestellten Gewerkschaft. or the German union of salaried
6
employees), which represented approximately 5,000 white-collar workers including pilots and
crew members. In the wage agreement of
1
that reflected Lufthansa's financial difficulties.
and provided for lower starting
payment equal
The agreement
new employees.
salaries for
In a supplemental agreement in 1993,
working hours.
to
made
992, the unions
2.3% of annual wages, while wage
a
number of compromises
froze
wages
for all
employees
7%
increase in
Pilots agreed to a
employees were granted a one-time
levels
were increased by a modest
increment of 2.7% in 1994.'
The
1
992 agreement also provided
for
workforce reductions and the creation of a
many of
low-cost airline, Lufthansa Express, to take over
routes.
Workforce reductions were
to
company
that
The new low-cost
which were deeply opposed
would undermine
their bargaining
to the creation
power
establishing Lufthansa Express as an independent
company
structure, Lufthansa
compromised with
as a division within the Lufthansa group. ^
fleet
and
partial sale
of
its
stake in the
course toward showing a profit for the
With
the
company's
Lufthansa's higher cost domestic
be effected through early retirement or other voluntary
means, with a range of severance packages.
issue for the unions,
new
at the
airline
posed a more
of a fully independent
firm level.
Instead of
company (GmbH) within
the unions
difficult
a
new
holding
by establishing the lower-cost
Further cost-cutting through consolidation of
its
Kempinski and Penta hotel chains put Lufthansa on a
first
time since 1990.
financial condition improving, the question of pension liabilities
remained the only serious obstacle
to privatization.
The Versorgungsanstalt des Bundes und
der Lander (VBL), which provided pensions to Lufthansa employees, was not willing to
continue
its
program
line
if the state's
share
fell
below
50%
for fear of setting a precedent for
7
other companies to be privatized.
it
meant
that
The unions were
not willing to countenance privatization if
employee pension could no longer be secured.
not able to ilnance a
And
the federal
takeover of Lufthansa's pension obligations.
full
The
government was
central
undetermined question was whether Lufthansa or the federal government as majority
shareholder had responsbility for employee pensions
absence of any agreement
In
May
among
if
the
1994, after several months of negotiation, an agreement
payments by the federal govermnent of
responsible for designing and funding
.6 billion,
DM
with
DM
its
1
.
1
1.1 billion
own
by the VBL's
identical to those provided
1
to
be paid
in
issue resolved, the
promote Frankfurt's position
including
Morgan
Bank
share flotation
known
over 15 years.
Lufthansa was
by Lufthansa and the remaining
The government's
of
total share
154 million for ten years and
to
way
to privatization
DM
was
clear.
In
as Europe's leading financial center, the federal
DM
DM
to cost
500
1.6 billion
80 million for
its
effort to
government
assemble a consortium of twenty leading investment banks
Stanley, S.G. Warburg, and Paribas.
institutional investors
and were funded through
"*
With the pension
selected Dresdner
DM
VBL
was reached. Pension
The new in-house plan was expected
billion to be paid
annual installments of
an additional five years.
in the
pension plan with benefits for future retirees
plan.
million to be paid by the federal government.
was
dropped Lufthansa
the parties.
claims for Lufthansa's existing retirees remained with the
DM
VBL
Rather than identifying a few
beforehand (the French approach), the banks used an approach to the
as bookbuilding, in
which the bankers guaged investor
setting a price for the initial public offering.
The
federal
interest before
government was planning
to dilute
8
its
share of Lufthansa below
was so
that
share
successful, however, that the
already
it
50% by
owned
was reduced
to
as well as
35%
its
selling its rights to
any of the new shares.
government was able
to sell the first tranche
any new shares.
rights to
The
As
offering
of shares
a result, the government's
and Jiirgen Weber's goal of discarding the "state-owned"
designation was achieved.'"
Once
privatization
made
of shareholders, the third step
in
the
managing board (Vorstand) accountable
new
to
its
Systems
GmbH)
this end,
Cargo AG),
for freight
and for maintenance (Lufthansa Technik,
existing divisions for passenger service, flight operations, charter flights,
operations.
lines
Toward
subsidiaries for freight delivery (Lufthansa
for information services (Lufthansa
AG)
broad range
Jurgen Weber's "Program '93" was to reorganize the
operating divisions and the managerial hierarchies that staffed them.
Lufthansa added three
to a
and other
Within the group, Weber created a smaller managing board to break the vertical
of communication and added advisory boards for the group as a whole as well as
all
subordinate divisions."
The
centrality
of employment relations became clear again
of wage negotiations.
adopt a
common
This time, however,
OTV
compensation with
1996, these differences
costs.
The
OTV
1
996 with a new round
difficult for Lufthansa's
between
OTV
and
DAG
As an
occupational union, the
less regard to differentials
came
to the fore as
DAG
two unions
reappeared.
placed higher priority on combatting wage differentials
different groups of workers.
wage
was more
strategy and the historical frictions
an industry union,
raising
it
in
As
among
placed more priority on
between employees. In the autumn of
Jurgen Weber took a tough opening stance on
agreed to another wage freeze until 1998, but with an interesting
to
9
xariation on
llic
1^)92
of
DM
in
Lufthansa stock,
2500
4%
500 or could
to
it
join
an employee stock ownership plan with an
in addition,
employees were allowed
purchase Lufthansa stock.
wage
when
limployees could receive an immediate one-time payment
agreement,
The
DAG
payout of
to take interest-free loans
refused to accept the
wage
freeze,
DM
up
to
650
DM
demanded
a
increase on behalf of pilots and flight crews, and risked angering the flying public
called for warning strikes in
moderate newspapers described the
November
DAG's
1996.
Indeed, one of Germany's
position as "grotesque."'"
resistance to the agreement, however, the general press
model
initial
more
Except for the
pilots'
viewed Lufthansa's arrangements as a
for service firms in troubled sectors.
Deutsche Telekom
As
in the case
preparation.
of Lufthansa, privatization of Deutsche Telekom also required considerable
If the plan to privatize
Lufthansa was
initially
motivated by
fiscal concerns,
however, the reasons for privatizing Deutsche Telekom were primarily organizational from the
beginning.
There were two specific motivations.
First, large
business users in the Federal
Republic began complaining about the high rates charged by Deutsche Telekom's predecessor,
the Deutsche Bundespost.
Commission of
the
Second, as part of
its
plan for a unified single market, the
European Community began discussing a
series
of directives
in the
mid
10
1980s that would
call for
stepwise liberalization of national telecommunications markets,
culminating in competition in basic voice service by 1998.'^
In response to both of these developments, the Christian-Liberal government of
Kohl began discussions
to alter the traditional organization
of the Bundespost by appointing a
high-level commission (the Witte Commission) to consider the issue in 1984.
respects, however, the reform
In important
and privatization of the Bundespost was more complex than that
Unlike Lufthansa, which had always been a stock corporation, although one
of Lufthansa.
largely
Helmut
owned by
the federal government, the Bundespost
was
part of the state itself
public administration, the Bundespost reported directly to the Post Ministry and
employment
practices
employees.
In addition, the Bundespost" s
fell
West Germany's postwar
under the administrative regulations that applied
As
a
its
to all public
monopoly on communications was protected by
constitution and could only be
changed by constitutional
amendment.
Perhaps most important, approximately half of the Bundespost's employees were
civil servants
(Beamten).
In accordance with these conditions, the govermnent had to reorganize the Bundespost
before
it
could even consider privatization.
Commission came from
Support for the recommendations of the Witte
the governing coalition of center-right Christian Democrats, liberal
As
Free Democrats, and right-wing Christian Social Unionists.
liberalization, the Free
Democrats used the Ministry of Economics
the Bundespost for opening equipment service markets.
included the Postal Union
would weaken
its
the strongest proponents of
(
The
Deutsche Postgewerkschaft or
role in the Bundespost' s
,
as a stronghold to pressure
anti-liberalization coalition
DPG) which
governance structure or
feared changes that
split the
more
profitable
11
iclephono di\ ision from the postal service; the Bundespost's traditional equipment
manufacturers,
who
Democrats,
who
The
first
(
initially
fa\'ored
opposed any change
employment
quo; and the center-left Social
security and the public provision of services.
change effected by the pro-liberalization coalition was the Postal Reform Act
Poststrukturgesetz ) passed June
8.
1989, which divided the Bundespost into three separate
entities for postal services (Postdienst), the postal
bank (Postbank), and telecommunications
Each enterprise had a managing board and was expected
(Telekom).
results,
in the status
to focus
while regulatory responsibilities were reserved for the Ministry.
was expected
to follow
on financial
In addition
European Commission directives by allowing competition
growing number of segments
—
terminal equipment and
new mobile
Telekom
in a
voice services in 1990,
private business networks in 1993, and mobile data communications in 1994.
These changes quickly became known as Postreform
I
.
They
control in the hands of the Ministry for Post and Telecommunications.
enterprise had a supervisory board
Directorate
was authorized
discussed.
in place.
the governing coalition, pushed for further changes to expose
The
DPG
opposed privatization on the grounds
autumn 1994,
the Social
Telekom
to
market
on the model of British Telecom, became more openly
that
telecommunications
represented a public infrastructure that should be publicly owned.
elections of
Since the
of one enterprise from the profits of
from market pressures remained
forces, the possibility of privatization
In particular, each
chair belonged to a Directorate.
to cross-subsidize operations
the others, significant insulation
As
whose
substantial political
left
'''
Democratic Party (SPD) began
from the DPG's position by countenancing some type of reform.
Prior to the general
to diverge
more openly
12
In June and July of 1994, the
way
SPD
agreed to constitutional amendments that paved the
for further reorganization of the postal service
and telecommunications.
signified a noticeable shift in the balance of electoral politics.
the
SPD,
order to
said that
some adjustment of
make Deutsche Telekom
Most of
This vote
the parties, including
the old telecommunications system
was required
in
The
viable in a changing competitive environment.
Postgewerkschaft disagreed and called the SPD's agreement to cooperate with the reform
efforts a "disastrous decision."''
The amendments dismantled
the Bundespost,
made
it
legal for private
companies
to
provide postal and telecommunications services, and laid the foundation for a series of further
changes that became known as Postreform
According
11 .'^
three incorporated enterprises of the former Bundespost
(
Aktiengesellschaften or AG), called Deutsche Post
.
Deutsche Telekom AG, as of January
was planned
for the
1,
1995.
to the
new
arrangements,
all
became stock corporations
AG, Deutsche Postbank AG, and
Deutsche Telekom
Partial privatization for
middle of 1996, with the other two enterprises
to follow later.
For the reform coalition, these structural changes did not suffice to establish market
principles in the communications sector.
As
the
Neue Zurcher Zeitung one of Europe's
,
prominent market-oriented papers, wrote, the Second Postal Reform signified "only a
timid, mini-step into the area of competition."
report pointing out that the
but did
little
to speed the
The Anti-Cartel Commission
Second Postal Reform changed the
first,
also released a
structure of Deutsche
Telekom,
opening of the market beyond what the European Commission
Brussels had already done.'^
By
early 1995, the advisory
in
committee of the Economics
Ministry released a set of recommendations on a possible Third Postal Reform
—
to resolve
13
which new competitors could enter the market
the regulator) question and set guidelines by
for basic voice telephony."*
As
1
it
996 with the assistance of a powerful external
(FCC) of
managed
turned out. the reform coalition only
the United States.
The FCC became
international business strategy
ally, the
to
impose
its
recommendations
Federal Communications
Commission
Telekom's
a critical actor because Deutsche
depended on access
in
Along with France
to the U.S. market.
Telecom, Deutsche Telekom had concluded an alliance with the U.S. long-distance carrier
Sprint a
One,
few years beforehand.
this alliance
Europe
aimed
at
Known
first
as well as the United States.
Not
vehemently
surprisingly. Sprint's
to
make
For potential investors
international investing
Deutsche Telekom, the firm's
One was an important determinant of
ATT
American competitors such as
In effect. Deutsche
community meant
provide a regulatory authority for the
The
in
the share
lobbied the
FCC
regulatory approval for European carriers contingent on reciprocal
opening of the European markets.
United States.
renamed Global
providing worldwide service to large buisiness customers in
access to the U.S. market through Global
value.
as the Phoenix Project, and later
result
was
that
Telekom's need
German governmental
German market
that
a substantially independent
was
for acceptance
authorities
similar to the
German
by the
needed
FCC
to
role in the
regulatory authority,
established through the Telecommunications Act of July 1996.'"^
Well before the passage of Postreform
internal
changes to prepare for privatization.
were heavily dominated by employee
II,
Deutsche Telekom had begun a series of
With over 220.000 employees. Telekom's tasks
relations.
The organization's workforce included
legally distinct categories of employees: civil servants, accounting for roughly
51%
three
of the
14
workforce; salaried employees, making up a further 20%; and wage laborers, comprising the
remaining
the
same
29%
Personnel from these different categories often worked side by side on
share.
tasks, but civil servants followed different recruitment paths
rights than their co-workers.
determination rights.
relatively lower
Although they enjoyed
According
to the Federal
and had different labor
had no co-
their status for life, they
Remunerations Act,
civil servants
wages supplemented with generous pension guarantees. By
employees and wage laborers did have co-determination
rights
received
contrast, salaried
and the right to
strike,
and the
Minister of the Interior approved their compensation and working conditions.^"
In accordance with the Federal Staff Representation Act
(
Bundespersonal-
vertretungsgesetz ) for worker participation in the public sector, the Bundespost had a highly
centralized, three-tiered system of representation.
Each of the three categories of personnel
elected representatives to the central, the 23 regional, and the 123 local personnel councils
(
Personalrate )
— which
were similar
in
function to the works councils
German companies. Each employee
existed in other
Roughly
force in the Bundespost's telecommunications operations and nearly
councils and the
DPG
were
close.
Two
Betriebsrate ) that
category also participated in the
Deutsche Postgewerkschaft (DPG), a single-company union."'
the Bundespost's persormel councils belonged to the
(
DPG.
80%
90%
of the work
of the members of
Relations between the personnel
other labor organizations, the Deutsche Postverband
and the Christliche Gewerkschaft Post, represented 10% of the Bundespost's
telecommunications personnel, but had limited influence on their own."'
One of
the
most illuminating changes entailed by Telekom's anticipated privatization
concerned the treatment of
civil servants
(
Beamte ). Not only did
civil servants
enjoy
15
guaranteed job security as part of their commitment
They were
on behalf of the
—
something
that
was no longer possible
Telekom was given managerial autonomy
after
January
1995,
1,
when Deutsche
subject only to a supervisory board.
The
solution
legal provision saying that the Postal Minister's authority
would be transferred
were concerned.
This change carried
board of Telekom, insofar as the
civil servants
remarkable significance for the concept of the
civil
Germany.
servant in
servants were being loaned from the state to a private enterprise.'^
maintained the legal fiction that
showed
state.
also legally required to report to a Minister or a State Secretary (Oberster
Dienstherr)
was a
to neutral service
that
Germans were
civil servants
answered only
While
It
to the
implied that
this
civil
arrangement
to the public interest, the reality
quite willing to shift a major activity from the public sphere to a
competitive organization.
Besides the problem of their legal status,
First, their
civil servants
generous pensions, previously paid by the
state,
had substantial financial claims.
had
to
purpose, Deutsche Telekom was required to set aside 2.9 billion
for the pension liabilities
owed
those civil servants in
servants were paid on the basis of rank and seniority
its
—
DM
employ.""*
For
this
per year for five years
In addition, civil
criteria that directly contradicted the
compensation-based pay policies that Deutsche Telekom wanted
employees.
be transferred.
to introduce for its other
Here, Deutsche Telekom introduced the possibility that civil servants would put
themselves on extended leave from their
civil service status
(
in sich
Beurlaubung l and thereby
gain the chance to earn the same incentive bonuses available to other employees, while also
ameliorating the one-time transfer of pension
liabilities
from the
state.
"^
16
Deutsche Telekom also devised new policies for salaried employees (Angestellte) and
wage
laborers (Arbeiter).
Both groups were made
were affected by the change
stock
company
in 1995.
in structure
of worker representation.
Prior to
Deutsche Telekom (and the Bundespost before
Federal Staff Representation Act
somewhat unusual
performance bonuses, and both
eligible for
(
becoming a
it) fell
joint
under the
Bundespersonalvertretungsgesetz ), which established a
three-tiered structure of Personnel Councils.
After January
1995,
1,
however, the company came under the better-known Works Constitutions Act, which entailed
a different two-level structure with one general works council and numerous plant works
councils."^
The reorganization of worker
representation
Telekom's relationship with the Postgewerkschaft.
Telekom welcomed more pluralism
position eroded.
Marmesmann
communications.
RWE,
that
other large
for
its
of a larger change
in
Deutsche
several important questions, Deutsche
in its labor relations
and appeared happy
subsidiary that competed with Deutsche
Similarly, the public transport union
was entering
utility,
For example, IG Metall represented workers
the sector.
to see the
DPG's
VEBA,
growing
(OTV)
Telekom
of other unions
in cellular
utilities,
in
its
Deutsche Telekom had
collective bargaining partner, but
some of
its
own
was happy
subsidiaries."'
Since the timing of privatization for Deutsche Telekom hinged as
changes as on improved financial
Mannesmann,
represented one of the
with investments in telecommunications.
interest
at
Finally the miners union (IG Bergbau) represented the
part recognized the Postgewerkschaft as
to note the
On
part
Several other large unions represented workers in firms that were entering
the telecommunications sector.
including at the
was
much on
results, the enterprise did not hesitate to
legal
begin internal
17
Much
organizational changes in the early 1990s.
concentrated on two types of changes.
First,
Mobilphone
subsidiaries, such as Deutsche
known
offices
(
as
AG
to
In 1993, after a
all
for
new
activities into
mobile telephony and
Second, the company inaugurated an ambitious
each of
each of the branch offices had dealt with
geographic area.
(DeTeMobil)
Telekom Kontakt
Niederlassungen ) according
Deutsche Telekom
spun off non-network
it
DeTeConsult, an in-house consulting group.
reorganization plan
like Lufthansa.
its
123 branch
divisions.
Previously
for redefining the mission
its
three
main business
problems and product
of
lines within their
major outside study, Telekom's headquarters made each of
the branch offices responsible for only one primary business line tlirough one of the
regions.
(
one branch office was
In each region,
to specialize in residential
new 39
customers
Privatkunden ). another was to specialize in business customers (Grosskunden) and a third
would be assigned
With
the support function of network services
legal prerequisites
(
accomplished and organizational changes underway, the
government and the investment community seemed prepared
by 1996.
Since this
were anxious
to see
first
it
offering included only
20%
for the initial offering
of Deutsche Telekom's equity, officials
efforts to interest individuals in the share offering.
investment banks. Deutsche Bank. Dresdner Bank, and
institutions,
advertising for the flotation.
and spent as much as
Goldman
$US
in price for
up
The
retained three
150 million on saturation
Employees of Deutsche Telekom were
to six years.
It
The
Sachs, to lead a consortium
eligible for
ownership plan under which Union Bank of Switzerland would insure
any decline
of shares
proceed well enough to justify further privatization before 1998.
government took particular
of 80 underwriting
Netze und Technologie ).'^
initial
employee
purchases against
lead investment banks again used the
18
bookbuilding method to guage investor interest before the offering
approach led
to
November
1996.
some disagreement between Deutsche Telekom's top management and
U.S. bank,
Goldman Sachs over
November
1
8.
in
the share price. ~'
When
they were oversubscribed and rose nearly
Reflecting the general sense of a successful
front-page story that the
new
Germans were ready
the shares
20%
the
were issued on
during their
issue, the Financial
This
trading day.
first
Times declared
in
its
to "dive into the equity culture."^"
Conclusion
Although no conclusions can be established firmly on the basis of two cases, the
these
two firms
show
three
to the
German economy
main forces driving changes
strongly suggest a
in the institutional
number of
findings.
underpinnings of
centrality to
Both cases
German
capitalism.
First there
Telekom were
is
no question
that the decisions to privatize
Lufthansa and Deutsche
political responses to deregulatory policies in the
Kingdom whose
effects
were
in turn amplified
United States and the United
by directives of the European Union.
The
similarity of the political response in both cases suggests that pressures for institutional
convergence are strong.
The motivation
to privatize
Lufthansa was
initially fiscal,
while the
motivation to privatize Deutsche Telekom rested from the outset on the belief that a privatized
enterprise
would be
better able to
compete
in
more open markets. Despite
differences in motivation, the privatization process in both cases quickly
the intial
came
to include the
19
goals
ot"
raising nionc\ for the national treasury as well as
making
acceptable to international capital markets by giving management
the
eompanies more
more
flexibility in
personnel
matters and organizational change.
Second, however, these privatization experiences were not shaped entirely by forces in
the international
economy.
In both cases, privatization required persistent
planning by political actors as well as managers
nature of these privatizations indicates that the
changing.
at the enterprise level.
German system of
and energetic
The highly
political
industrial relations is indeed
For both Lufthansa and Deutsche Telekom, international competition imposed
pressures that the trade unions accepted as grounds for cooperation wth management's
restructuring policies.
collective bargaining
strategies for change.
To
this extent, the traditional
was tempered with
labor's cooperative response to employer-specific
Yet. labor's response
three of the major unions in these
German emphasis on country-wide
two cases
was not
—
the
dictated entirely external forces.
OTV,
the
DAG, and
the
All
DPG — made
concessions on wages and on workplace flexibility in exchange for maintaining job security
and a voice
in
implementing plans for enterprise reorganization.
privatization indicate that organized labor in
Germany continues
To
this extent,
to play the role
both cases of
of a key
strategic partner in privatization as well as post-privatization restructuring.
Third, these cases illuminated the central role played by international investment banks
in balancing pressures for institutional
convergence and continued diversity.
As
the
gatekeepers to world capital markets, investment banks provide the organizational mechanisms
by which competitive pressures
in
any industry lead
to
changes
such, investment banks have a pivotal role in setting the
in firm-level
framework
ownership.
for the claims
of
As
20
shareholders, employees, customers, and the public at large.
following:
Should the
privatization and, if so.
state
how
play
some continuing
should
it
role in
be structured?
Key
questions include the
company ownership
How
important are employee pension
claims in privatization, and in post-privatization restructuring?
What
other interest groups
have important claims on privatized firms? Are these claimants different
countries?
Are they
after
different for particular firms within a single country?
in different
.
21
Notes
Acknowledizment:
of Management
in
This paper draws on work done by a group of students at the Sloan School
1995 and 1996. Financial support for their research and for my own came
from the Center for European Studies
1
The concepts of convergence and
Ziegler,
Governing
Ronald Dore.
Harvard University and the German Marshall Fund.
institutional diversity are
summarized
Strategies for Innovation in France and
Ideas:
University Press, 1997).
at
For a range of views on the subject see
eds.. National Diversity
in
Germany
also,
J.
Nicholas
(Ithaca: Cornell
Suzanne Berger and
and Global Capitalism (Ithaca: Cornell University
PRess, 1996) and Robert O. Keohane and Helen V. Milner, eds.. Internationalization and
Domestic
Politics
(New York: Camrbidge
University Press, 1996).
For example, Michel Albert, Capitalism Against Capitalism (London: Whurr, 1993);
David Soskice, "The Institutional Infrastructure for International Competitiveness: A
Comparative Analysis of the U.K. and Germany," in A.B. Atkinson and R. Brunetta, eds.. The
Economics of the New Europe (London: Macmillan, 1993); and Wolfgang Streeck, Social
Institutions and Economic Performance: Studies of Industrial Relations in Advanced
Capitalist Economies (London: Sage, 1992).
2.
3.
Official concern over these problems
was
articulated in the federal
government's report,
Standort Deutschiand (roughly translatable as "Germany as an Investment Site"), issued by
Economics Minister Gunther Rexrodt in 1993. Explanations for the new limits of the soGerman Model are provided in Horst Kern and Charles Sabel, "VerblaBte Tugenden:
called
zur Krise des deutschen Produktionsmodells," in Umbriiche Gesellschaftlicher Arbeit special
,
issue of Soziale
It
Welt (1993) and Wolfgang Streeck, "German Capitalism: Does
Survive?" Max-Planck-Institut
fiir
It
Can
November
Exist?
Gesellschaftsforschung Discussion Paper, 95/5,
1995.
4.
"Strauss Scuttles Plan to Sell Off Part of Lufthansa," Financial
Times September
,
21,
1985.
5.
"Bonn may consider
sale
of
its
holding in Lufthansa," Financial Times
,
November
1990.
6.
"Losung des Pensionsproblems macht
Siiddeutsche Zeitung
,
May
5,
1994.
Weg
fur Privatisierung der Lufthansa frei,"
29,
.
22
7.
This discussion relies on Marie Hutchinson, unpubUshed course paper, MIT, December 12,
Mark Hutchinson, "Privatization in Germany: The Case of Lufthansa," Masters
1994, and
Thesis, Department of Political Science,
8.
Ibid.
9.
Hutchinson. "Privatization
in
MIT,
1995), 31-34.
Germany"; "Losung des Pensionsproblems macht
Privatisierung der Lufthansa frei," Siiddeutsche Zeitung
10.
Lufthansa
AG,
,
May
5,
Weg
fiir
1994.
"International Offering Circular," discussed in Hutchinson, "Privatization
Germany"; "Ready for Take-off: The Share Issue by Germany's Lufthansa," Financial
Times September 20, 1994; "Lufthansa and Telekom to Go Private," New York Times July
in
,
,
22, 1992.
1 1
More
detail
is provided in "Lufthansa: The Challenge of
London Business School, April 1996, and Mark Lehrer paper,
on these organizational changes
Globalisation," Teaching Case,
Insead 1996.
12.
"Lufthansa erreicht mit
OTV
einen zukunftsweisenden TarifabschluB, aber Iloten
ihr Nein zur Null-Runde das Sanierungskonzept," Siiddeutsche Zeitung
October 26, 1996; "Lufthansa-Piloten wollen eine Extrawurst; Mit Streiks versuchen sie sich
besser zu stellen als die iibrige Belegschaft," Suddeutsche Zeitung November 12, 1996.
gefahrden durch
,
,
Edgar Grande, Vom Monopol zum Wettbewerb? Die neokonservative
Reform der Telecommunikation in GroBbritannien under der Bundesrepublik Deutschland
(Wiesbaden: Deutscher Universitats Verlag, 1989); Susanne K. Sclimidt, "Taking the Long
Road to Liberalization: Telecommunications Reform in the Federal Repbulic of Germany,"
13.
For
details, see
Telecommunications Policy
15, no. 3
(June 1991): 209-222.
Michael Schwemmle and Hans-Jiirgen Sattler, "Steuerung durch Regulierung? Post- und
Telekommunikationspolitik nach der Privatisierung der Deutschen Bundespost," WSI14.
Mitteilung 48:3 (March 1995): 189 ff, esp 192.
,
15.
Suddeutsche Zeitung (hereafter SZ), 29 June 1994.
16.
Neue Zurcher Zeitung
(hereafter
NZZ), 9 July 1994; NZZ, 30 June 1994; SZ, 29 June
1994.
17.
NZZ, 9
18.
"Orientierung fur eine Postreform
July 1994.
Bundesministerium
fiir
Wirtschaft.
III."
Gutachten des Wissenschaftlichen Beirats beim
Studienreihe, Nr. 85, February 1995.
19. Roland Doll and Lorenz Nett, "The Future Regulatory Framework of the
Telecommunications Market in Germany," Center for Tele-Information, Technical university
of Denmark, Working Paper No. 15, May 1996; Telekommunikationsgesetz (TKG) off July
23
25. 1996, Bundcsecsetzblatt
.
1996, Part
1.
No. 39, issued
Bonn, July 31, 1996; Author
in
interviews.
20.
Owen
Darbishire. "Restructuring Strategy and
Work
Organization: Deutsche Telekom."
Paper for the International relecommunications Research Network, Cornell University, April
1995. Page 19.
21.
F\en though
ci\i! service
employees did not enjoy co-determination
long e\ ol\ ed a strategy of protecting
overlapping loyalties unique to
22.
This paragraph
is
based on
civil servants in the
Owen
rights, the
DPG
had
thus creating a set of
civil servants" interests,
Bundespost's employ.
Darbishire. "Switching Systems: Technological Change.
Competition, and Privatisation," Industrielle Bezeihungen 2:3 (1995): 156-179, especially 170
,
and on Author interviews at Deutsche Telekom, Bonn, November 1995. See also Susanne
K. Schmidt, " Taking the Long Road to Liberalization: Telecommunications Reform in the
Federal Republic of Germany," Telecommunications Policy (June 1991): 209-222.
ff,
Research memorandum by Christopher Delbrueck, June
Deutsche Telekom, Bonn, November 1995.
10, 1995,
23.
24.
German Reuters News
25.
Author
November
26.
inter\'iews,
and author interviews,
Service, 28 June 1994.
Deutsche Telekom. Bonn, and Deutsche Postgewerkschaft, Frankfurt,
1995.
Further detail an incentive-based compensation provisions and on the change from
Personalrate to Betriebsrate are contained in
Beziehungen
Owen
Darbishire, "Switching Systems...," Industrielle
.
27.
Author interviews. Deutsche Telekom, Bonn, November 1995.
28.
Author interviews. Bonn. November 1995.
29.
"Deutsche Telekom tempts employees," Financial Times December
.
Telekom
30.
in
row with investment bank,"
"Germans dive
Financial
Times November
into the equity culture," Financial
.
4.
Times November
,
14, 1995;
1996.
19,
1996
"Deutsche
7588
k
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