|Address:Rodo-Soken,Union Corp 3-3-1 Takinogawa,Kitaku,Tokyo,Japan(114)|
On April 1 2002, the Mizuho Financial Group (hereafter referred to as Mizuho) completed the corporate split and consolidation process of The Dai-Ichi Kangyo Bank, Ltd., The Fuji Bank, Ltd., and The Industrial Bank of Japan, Ltd. based on the agreement reached in August 1999 that the three banks would jointly establish a holding company. This agreement triggered merger and reorganization of large banks, and became the immediate cause of the formation of four juggernauts. Mizuho emerged as a financial giant with a total asset of 140 trillion yen, 1.4 times larger than that of the Deutsche Bank (about 97 trillion yen), the worldfs biggest financial group at that time.
Despite the great impact the consolidation program had at home and abroad, Mizuho came into operation with unprecedented, massive service disruptions, as everyone knows. The system failure affected many customers, and was covered everyday in the newspapers and on television.
There have been various comments on this case, but very few of them argue the fundamental issue from the viewpoint of the financial workersf movement. Analyzing this incident from such a point of view, I keenly feel the need to go into the basic problems of the mega-reorganization of the financial industry that has rapidly been promoted on an unprecedented scale in the past years. This is the theme of this article.
Let us look over what the gtroubleh was like.
The first stage of the Mizuho Groupfs consolidation and split process was the establishment of a holding company Mizuho Holdings in September 2000, with The Dai-Ichi Kangyo Bank, Ltd., The Fuji Bank, Ltd., and The Industrial Bank of Japan, Ltd. placed under its wing as subsidiaries. In April this year, the three banks were split and consolidated into two banks: Mizuho Bank, Ltd. and Mizuho Corporate, Ltd. These two banks, together with the affiliated trust bank and stock company plus the holding company, formed Mizuho. Mizuho is composed of the Mizuho Holdings, Inc., The Mizuho Bank, Ltd., The Mizuho Corporate Bank, Ltd., The Mizuho Securities Co., Ltd., The Mizuho Trust & Banking Co., Ltd., and other financial subsidiaries.
The system failure took place in conjunction with the inauguration of the two banks: Mizuho Bank and Mizuho Corporate Bank, Ltd., which came into being as the result of the merger and split of the three banks. In integrating the system, they employed the method of connecting the three bankfs systems through a relay-computer as a transitional measure, instead of integrating them at once into a single system. The new banksf automated-teller machines (ATM) service was disrupted because of a bug in the software of the relay-system, and troubles arose on the opening day. The cash card of the ex-Fuji Bank was usable only for the ex-Fuji Bankfs ATM. Or, a debit entry was recorded in the passbooks of some customers, although they did not receive the corresponding cash.
Then a major trouble occurred regarding the account transfer service that banks provide for the payment of telephone and other public utility bills as well as of purchased goods. Usually, a corporation requesting the direct debit service would give the bank a few days in advance the data necessary for transaction; the account identifiers and numbers, the amount of money, as well as the name and number of the correspondent bank branches, put on magnetic tapes or in other forms. The bank would process the data on the computer to carry out automatic debit service.
The integration and split of Mizuho this time involved a massive change of bank branch names and numbers. In entering the change of data, mistakes arose far beyond expectations, and due to the overloading the computer system broke down. As the result, many failures took place in the account transfer payment at due date, and up to 2.5 million cases of delayed payment were reported. And to make matters worse, mistakes of double entry occurred twice early April, with about 30,000 cases of double debit identified each time. There were some 5,000 wrong remittances because of wrong account names or numbers.
Usually banks reconcile accounts at the end of the dayfs business. If they find any unmatched items, which they call gstatistical discrepancy,h they would try hard to find out where the discrepancy comes from. This is a duty banks must perform without fail, as financial institutions whose main business is to handle deposits and withdrawals properly. However, Mizuho Corporate Bank, where disruptions were particularly serious, gdiscrepancyh was found, and the amount of discrepancy went up to 240 billion yen by the end of April. It was reported that the discrepancy remained unsolved for more than two months.
The money withdrawn by Mizuho Bank from their accounts should have transferred automatically to the accounts at Mizuho Corporate Bank, but a major system failure involving fund transfers between accounts occurred as mentioned above, causing a huge discrepancy in accounts. The Mizuho Bank side explained that it was a gmatter of the bankfs internal office operations,h but investigations carried out by the Financial Service Agency and the Bank of Japan reveal that Mizuhofs discrepancy problem ginvolves a grave operational risk that could lead to a scandal.h
What were the causes of such a massive system trouble? The Financial Service Agency issued an order against Mizuho on July 19, requiring the improvement of the bankfs business. The FSA posted this administrative order on its website with an attachment describing the gfacts behind the disruptionsh based on the FSAfs investigation results and on the report submitted by the banks. In the attachment, the FSA refers as the main cause for Mizuhofs system disruptions to gminimum necessary preparations were not made, such as the failure to properly conduct system tests or implementation tests for the purpose of verifying the functioning of the system.h Newspapers have also reported in detail about the launching of the new banks on April 1 without gminimum necessary preparations.h
For example, to start automatic debits between Mizuho Bank and Mizuho Corporate Bank that should go through a complicated procedure, tests on the whole procedure from the acceptance of data through the return of the debit result was necessary. Yet they failed to conduct such tests. Mizuhofs failure in conducting tests provoked anxiety among the corporations authorizing automatic bank debit. Tokyo Electric Power Co., Inc., for instance, requested Mizuho twice in February this year carry out tests on debit using the actual data, but the Mizuho side refused to grant the request saying that they were not yet in a condition to do so (The Asahi Shimbun, April 24).
And yet the computer system was not only the area that lacked minimum necessary preparations. The integration required various information and material such as chits and account books, an instruction manual on the office procedure the new bank would need for its business, and a branch list necessary for cross-reference due to the change of branch names and numbers. However, Mizuho workers have unanimously said that such information and material were either not in time or so inaccurate that they only brought confusion to the workplace.
Mizuhofs office staff, particularly the managerial personnel, who had to carry on business despite the disruptions and to deal with the trouble that were attributed to the integration process as pointed out in the FSAfs management improvement order, have voiced anger against the management, saying that the management should make sincere apologies to the staff for their suffering.
Before Mizuho, there had been other cases of chaos caused in the work site upon integration. Similar complaints were made by the bank workers at the inauguration of Sumitomo Mitsui Banking Corporation in April 2001 as well as of UFJ Bank in January this year. In this sense, if we reexamine Mizuhofs gsystem disruptionsh that got a lot of media coverage from the viewpoint of the workers at the scene, we can clearly see that the occurrence of the system disruptions should not be attribute to the system itself but to the corporationsf way of carrying forward the mega-merger.
The announcement of the three banksf agreement on the integration into Mizuho in August 1999 triggered merger of other major banks. In October 1999, The Sakura Bank, Ltd. and The Sumitomo Bank, Ltd. announced their agreement on unification. In March 2000, The Sanwa Bank, Ltd. joined the plan made by The Tokai Bank, Ltd. and The Asahi Bank, Ltd. in October the year before to jointly set up a holding company (The Asahi Bank dropped out of the plan in June 2000). Then in April, Bank of Tokyo-Mitsubishi and other three banks announced the integration by setting up a holding company, Mitsubishi Tokyo Financial Group. Thus four major financial groups were born. One merger gave rise to another, leading to further merger. Banks vied with each other in promoting the reorganization.
Furthermore, when the merger of The Tokai Bank and The Sanwa Bank and the establishment of a holding company of the Mitsubishi were made publish, after the announcement their unification, The Sakura Bank and The Sumitomo Bank advanced the date one year to complete the union in April 2001. In the case of the UFJ Group set up by The Tokai Bank and The Sanwa Bank (The Toyo Trust and Banking Co., Ltd. fell in alongside in July 2000), gspeedh was added to the integration philosophy as The Sanwa joined the merger plan to move up the merger date from April to January 2002. They also decided to carry out the system integration in concurrence with the corporate consolidation. Banks have been jostling with each other not only for merger and integration but also for the speed of the process.
On top of all that, the background to such wave of major realignment was the financial crisis represented by the failure of The Hokkaido Takushoku Bank, Ltd. in November 1997. An obsession that plummeting of the market appraisal such as stock prices and rating by agencies would lead to business failure became a major trigger for integration and merger. The type of integration and merger of corporations are scrambling to achieve with the highest possible speed requires the competition on the gspeedh of making profit by restructuring to write off bad loans.
In the meantime, financial institutions have been carrying forward with tremendous force personnel downsizing in the name of restructuring. In the case of the three banks that set up the Mizuho Financial Group, they had 38,000 workers in total in 1997. They started to implement a restructuring plan to cut the workforce to 32,000 in 2001 and to 25,000 by March 2006. While pushing ahead with a massive staff reduction, they rushed to merge and to integrate the system.
A symbolic incident took place in The Hokuyo Bank, Ltd. in Hokkaido, showing that the system integration would impose unimaginable burden upon workers. When the Hokkaido Takushoku Bank (Takugin) failed, The Hokuyo Bank took over the part of the business Takugin had carried on in Hokkaido. Later, as it found out that Takuginfs computer system was more advanced than its own, The Hokuyo Bank decided to integrate its system into Takuginfs. In the system transition process, an experienced, female section chief died from overwork.
To integrate the computer system into Takuginfs, it was necessary to switch all data including office terms, business process, and paperwork procedure to Takuginfs formula. Due to the workforce reduction that had already been carried out in the workplace, the Hokuyo Bank was already understaffed; it only had barely enough number of workers to handle the daily business. Under such conditions, The Hokuyo Bank@management went ahead with the transition work; they sent their staff to the former Takugin branch to learn the operation procedure. This meant further burden on other workers, and the manager too would bring the instruction manual back home and read it up till late at night to master how to operate the system, and go to work again early next morning. The bank originally planned to complete the transition in January 2001, but later it drastically moved the schedule forward to May 2000. Both The Hokuyo Bank system department and IBM Japan, Ltd., which developed the system, opposed the acceleration of schedule on the ground that it was impossible to get the transition work done in such a short period of time. But the management overrode their objections to advance the schedule. With intense labor imposed on in such a short time, workersf tension increased up to the breaking point.
Having completed the integration work in May amidst the extreme stress and excessive work, the woman section chief collapsed in the evening on July 19, while she was loading branch ATMs with cash. Two days later she died of subarachnoid bleeding. She was a member of the Hokuyo Bank Union, affiliate of the National Federation of Bank Workersf Unions. Hers was a minority union in The Hokuyo Bank, but the union members, from their own experience of going through that back-breaking work for the integration with her and from their observations on her conditions before her death, defined that her death was karoshi, caused by excessively heavy labor. The whole union took up the fight to get the recognition of her death as work-related one.
The case of karoshi at The Hokuyo Bank was a symbolic event that reveals the reality of workplaces of financial institutions, where merger and integration are being rapidly carried forward on a large scale, involving from megabanks to credit banks and associations. Downsizing is not the result of merger and integration; banks have already cut a large number of workers, which means they embark on merger or integration with insufficient manpower. Worse still, they would fix the integration schedule first ignoring technological conditions, and would even advance the schedule. Consequently they would impose such inhumane labor on workers at their sacrifice.
Analyzing the recent case of Mizuhofs system failure in view of what is going on in the work site, it is nothing more than a phenomenon. No doubt, the outbreak of such a massive system failure itself is an extremely serious matter. Yet if we look at the reality of workplaces, we can see an extraordinary situation, far from what bank labor is supposed to be, is arising not only in Mizuho but also in almost all financial institutions.
The FSAfs administrative order against Mizuho to improve its business attributes the system disruptions first to the fact that gminimum necessary preparations were not made, such as the failure to properly conduct system tests or implementation tests for the purpose of verifying the functioning of the system.h It goes on to say, gthere were serious flaws in the reporting and communication structure within the group, and cross-checking was insufficient, as reflected in the fact that important pieces of information such as those on the inadequacy of tests were kept within the system development sections of the bank responsible for its development.h
In this regard, newspapers and magazines also point out problems arising from the integration of Mizuhofs three banks. Among the four major financial groups, they find Mizuhofs peculiarity in the antagonism between the parent body composed of three banks, namely, The FUJI Bank, The Dai-Ichi Kangyo Bank and The Industrial Bank of Japan. And they say that this antagonism caused a delay in cumulating the system, which became the cause of the system disruptions.@As for other groups, UFJ Group for example, its system is integrated basically into that of the ex-Sanwa Bankfs. Yet UFJ Group too had system disruptions upon the integration, such as 180,000 duplicate debits. The major background to this is banksf workforce reduction beyond the limit and competition on the speed of integration in disregard of actual conditions.
However, we must give careful consideration from the viewpoint of the labor movement to the argument that the Mizuhofs trouble was caused by the tug of war between the three banks that merged.
First, abnormal situations have occurred in many merged corporations, irrespective of the tug of war between the merging corporations.@However, in the case of Mizuhofs system failure, gthere were serious flaws in the reporting and communication structure within the group, and cross-checking was insufficient, as reflected in the fact that important pieces of information were kept within the system development sections of the bank responsible for its development,h as stated in the FSAfs administrative order. This was in fact a major cause of the trouble.
When merging into single entity, corporations would jockey for position. Such rivalry would provoke severe confrontation between the corporations, since the result would affect the future treatment of the employees in each of them. The confrontation would influence the system integration program as well. The point is that in Mizuhofs case, even the delay in system integration was visible, from which the occurrence of disruptions was predictable, and yet the system failed on April 1, the inauguration day. It can be true that the confrontation between the merged corporations acted on the happening of the disruptions.
And now, can it be said that an integration that has no room for such rivalry, such as absorption of the weak by the strong, or a merger in which one enterprise has complete mastery over the other, will bring about more rational management? From the viewpoint of the labor movement, the answer is no. In such a type of merger, the surviving company will push ahead with a massive restructuring, in which the workers of the acquired company will be the first to be fired. The restructuring will lead to the worse working conditions and further downsizing of the workers of the acquiring company that stayed through the merger as gwinner.h There is no ground that such a kind of merger that helps to promote restructuring can assure a rational management in the true sense of the term.
Now let us examine the ways of merger from the labor movementfs point of view. The International Labor Organization (ILO) held a Tripartite Meeting on the Employment Impact of Mergers and Acquisitions in the Banking and Financial Services Sector in February 2000. The International Labor Office prepared a written report to this Tripartite Meeting. Based on a detailed analysis on the large-scale reorganization of financial industry and mergers and integration accelerating across the globe, the report indicates the employment impact and problems of such reorganization.
Citing many studies and reports on M&As of financial institutions, the report points out that such M&As do not always achieve the desired effect for the management, and two-thirds of M&As end up in failure.
Why do many M&As fail? The report points first to the lack of awareness of the need to reconcile differences in corporate cultures between the merging enterprises. It then indicates that in many cases, corporations conduct M&As for the financial purposes such as cost reduction and profit growth, regarding the staff only as cost variable. It states:
gTo reduce the possibilities of failure in M&As, some management experts have recommended that human capital be places at the centre of the process, or at least be given equal attention to that assigned to economic and financial considerations. According to this school of thought, such a redirection would enable acquirers to select the most compatible acquisition targets from a human resource perspective and make integration much easier.
gFrank communication on a daily basis between management and staff helps to dispel some of the uncertainties of M&As and avoid organizational drift. Employees should be informed in good time about the manner in which redundancies, if there are to be any, will be decided and about the role of their trade unions or representatives in the process. It is also important for staff from the acquired organization to be assured that the rights and entitlements they had with their previous employer are to be respected; otherwise there is a high probability of conflict.h
ILO suggests that to have good results in M&As in terms of management, it is necessary to make much of the human factor, that is to say, workers at the work site, to try to reconcile different corporate cultures, to assure workersf rights, and to promote communications. It emphasizes the need of social dialogue. Merger and integration of financial institutions, particularly of juggernauts, have a much greater impact on society. Mizuhofs system disruptions demonstrated afresh from the aspect of the system that a merger of financial institutions is not only a matter of individual corporations.
Criticisms of many mass media about Mizuhofs failure were quite contrary to ILOfs suggestion. They can judge that the tug of war between the managers of the merging companies was one of the causes of the trouble. But if they go on to argue about a management policy that pays no notice to the background of the workers who have worked in the completely different corporate culture, rights violation and confusion in the work place are likely to become worse.
It has already reported that the Mizuho Financial Group decided to move up the schedule two years to accelerate the restructuring program to downsize the workforce to 25,000 by 2006. The system integration of Mizuho will get into full swing through unification of the mission-critical system. Mizuho will carry it out by accelerating the personnel reduction, saying that this is a measure for the grebuilding confidence lost by the system disruptions.h But based on what I have explained above, I must say that such a measure will only help to raise the possibility of recurrence of the problem. After Mizuho, Sumitomo Mitsui Banking Corporation carried out the system integration in July. A chaotic situation was created in the workplace; 13 employees already died while at work by July this year, although last year there were 14 such deaths in total. Further effort for the establishment of rights of the workers in the workplace is called for.
The writer is Secretary General of the Bank Labour Institute.