Human resources policies influenced the failure of Fagor Electrodomésticos

A piece of work by the UPV/EHU-University of the Basque Country explores the clash that took place between employee ownership and human resources management in the co-operative

  • Research

First publication date: 26/04/2019

Imanol Basterretxea, lecturer in the Department of Financial Economy II and a co-author of this study. Photo: Mikel Mtz. de Trespuentes. UPV/EHU.

Five years after the collapse of Fagor Electrodomésticos, a study conducted at the UPV/EHU’s Faculty of Economics and Business has explored the management of human resources followed by the co-operative as one of the factors contributing towards the co-operative’s decline. Just as many companies learnt from the success of Fagor Electrodomésticos in the past, the authors are keen that this failed experience should help other organisations avoid the same outcome.

The preferred recruitment policy of hiring the offspring of co-operative members, the growing rate of worker absenteeism, a Taylorist production system and reverse dominance hierarchy. These are the four factors linked to the management of human resources explored by a research group at the UPV/EHU’s Faculty of Economics and Business in connection with the decline of Fagor Electrodomésticos, which had been one of the most important co-operatives in the Mondragon Corporation.

“The failure of Fagor has been studied in numerous pieces of work and the human resources policies were obviously not the main reason that led to its bankruptcy, but they did accentuate its problems and hampered its rescue. Other academic studies had not tackled these issues and we felt it was worthwhile exploring them. The aim of this work was to analyse and make known the mistakes made at Fagor Electrodomésticos so that others can learn from them and avoid the same outcome,” explained Imanol Basterretxea, lecturer in the Department of Financial Economy II and a co-author of this study.

In the study they dealt with these issues in interviews with 25 people involved in the co-operative, most of whom had built up experience spanning more than 20 years in Fagor and who had filled a variety of positions, ranging from executives to workers, including members of the Social Council and Governing Council. “We also interviewed executives of the Mondragon Corporation as well as senior officials from various public administrations involved in the negotiations with Fagor aimed at preventing its bankruptcy,” he added.

Worker absenteeism, the consequence of misguided policies

One of the symptoms that best reflects the deterioration that Fagor Electrodomésticos underwent was the increase in worker absenteeism: “it rose from 4% in the 1990s to nearly 8% within the space of ten years, higher than the absenteeism rate of private Spanish companies, and remained thus until the demise of the co-operative,” said the researcher. This fact runs counter to what had been observed in previous decades and to be expected in a company owned by its workers. “What is more, it was the younger members who had the highest number of cases of leave, when the logical thing would be for absenteeism to be higher among older individuals as a result of the assembly line work they were doing. Most of the people interviewed were of the opinion that this absenteeism reflected the lack of commitment and satisfaction of the young personnel,” he went on.

In the research two reasons are put forward as responsible for triggering this disengagement among the personnel. Firstly, “the nepotistic recruitment policy followed whereby priority was given to the offspring of members encouraged the youngsters who joined to assume that their jobs were secure and, in addition, as many of the people we interviewed remarked, there were problems when it came to transmitting the co-operative culture and work culture to the younger generations,” said Basterretxea. And secondly, a large proportion of Fagor’s assembly lines had a Taylorist production system with tasks that were repetitive and which involved little creativity. “The typology of these jobs was not considered to be appropriate for co-operative members to do because it clashed with the promises of autonomy and participation inherent in co-operativism,” he added.

Finally, in the work they also analysed how “a reverse dominance hierarchy” was generated in Fagor Electrodomésticos, “above all following the dismissal of the company’s general manager Mongelos owing to pressure from the Social Council in 2006. This reverse dominance hierarchy, accompanied by weak leadership from the management, led to delays in the implementing of harsh, unpopular decisions, such as the closing and transfer of lines to the subsidiary in Poland, salary reductions, the working of solidarity-based (unpaid) overtime or relocations to other co-operatives. The pressure exerted by the Social Council was also found to have grown owing to the generation of a culture of clear imbalance between rights and obligations. The members certainly felt that they were worker members, but less and less that they were the co-owners of their company; this led them to use their votes in the co-operative management bodies more as workers (alienated by the Taylorist system of work and disengaged as a result of the austerity measures) than as owners.

Aside from the interest that it may have in academia, “we understand that this work and the lessons arising out of the failure of Fagor may be of interest for other co-operatives and other organisations and companies that share some of the features of Fagor Electrodomésticos. For example, the effects of work security on the satisfaction and absenteeism of the co-operativist members can be easily extrapolated to other organisations, such as the public administrations, and the consequences of the practices of nepotistic recruitment could be transferred to many other companies, particularly family-run ones,” concluded Basterretxea.

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