9 Pogles Pogles is a clothing manufacturer, based in an EU member state, with an international market for its designs. The company's regular monthly board meeting will take place in a couple of days' time. It seems likely that most of the meeting will be taken up with discussing two issues.
Factory closureThe chief executive of Pogles has received an offer from a property developer for one of its factories in its home country. The proposal is to buy the freehold and to demolish the factory to build office units. The developer is offering €3 million for the site which presently employs 150 staff. The developer wishes to exchange contracts as soon as possible, but would not take possession of the site for another year. The chief executive believes that accepting the offer makes strategic and financial sense for Pogles. The developer is quite happy for the offer to be made public once contracts have been exchanged.
It will be possible to relocate all but one of the current manufacturing contracts currently being undertaken by this factory to Pogles' remaining factories in other countries over time, without undue delay. However the one exception is by far the largest contract Pogles currently has. The customer has imposed tight time limits on this contract and will terminate it if its requirements are not met. Production on this contract must continue uninterrupted for the next six months at this factory if the customer's requirements are to be met.
The policy of Pogles is to offer either jobs elsewhere in the group or redundancy packages of 30% of current salary to staff who are affected by a factory closure. The redundancy packages are rather more generous than the statutory minimum in Pogles' home country. However only 20% of staff, mostly at managerial level, are likely to receive offers to transfer to other parts of the group. There are no similar jobs available locally.
The chief executive is concerned that rumours may possibly soon start circulating about the offer and staff may start demanding assurances from management that their jobs are safe. The chief executive fears that if staff knew or feared that the factory will close, there would be a fall-off in output and quality, and possibly industrial action. These would seriously jeopardise Pogles' ability to fulfil the large contract.
Treatment of staff
One of the company's directors has recently returned from visiting a factory located in another European Union member state. Over the last few years this factory has performed better than any other in comparison with cost budgets, and has been particularly good at keeping its labour costs under control. However on his return from his visit, the director reported some worrying facts to the chief executive.
The factory had suffered a significant number of losses of experienced part-time female staff. Although none had been dismissed, other employees still working at the factory made serious accusations that some had been 'forced' to resign by the actions of the factory manager. Among other accusations, it was suggested that they had been pressurised to take on work above their contractual hours, or at times when they had never in the past had to work, such as during school holidays, weekends or on late shifts.
Some had taken on the extra work, in fear of losing their jobs and in the knowledge that other clothing factories locally had closed down in recent months. However many of the other staff had found the new working arrangements impossible to fit in with their domestic situations and had reluctantly handed in their notice. To replace the staff who had left, the factory manager recruited full time staff on flexible contracts, which required them to accept shift changes provided two weeks' notice was given to them.
Required(a) Analyse whether to disclose the decision to close the factory to the staff working in the factory, using the American Accounting Association ethics model.