No Lovefest At Birkenstock

A labor dispute rips the family company as the sons step into the patriarch's shoes

No shoe makes more of a political statement than the Birkenstock, the comfortable, German-made sandal with the clunky sole. Hippies popularized it in the U.S., while German Greens are still recognizable by their Birkenstocks-and-socks. A pair of Birks--which can cost up to $110--radiates a liberal image.

Until recently, so did the company that makes them. Run by Karl Birkenstock, 59, fifth-generation owner of the 222-year-old shoemaker, the company recycles materials and soles, pays workers' commuting costs, and gives free shoes to employees. So it may come as a nasty surprise to Birk lovers to learn that the company is locked in a bitter labor dispute.

FLEX TIME. While the family is now trying to contain the damage and move on, the showdown causing so much turmoil involves the same generational trends threatening others in Germany's Mittelstand sector of family companies. Throughout the sector, the postwar generation of patriarchs is stepping aside and their sons and daughters are trying to assert their own leadership. At the same time, Germany's unions are struggling to replace lost membership at giant companies by making inroads in smaller ones. The result, says Stefan Behr of Mittelstand consultant DGM, unleashes "a clash situation."

If a clash could occur at Birkenstock, it could happen anywhere. Birkenstock--organized as a group of companies that make different shoe parts--employs 2,000 workers, all of them in Germany. All belong to small teams whose members willingly swap jobs with each other. This flexibility allows for higher productivity, says the family, which supports a wage scale that's generous by industry standards. The highest wage negotiated by the leather union is $9.68 per hour, while the lowest hourly wage at Birkenstock is $11.30. The family won't disclose financial data but says that sales, now around $600 million, have grown between 10% to 20% every year since the 1970s.

About five years ago, Karl started preparing his sons for the succession. Stephan, 28, handles logistics; Alex, 27, runs sales and marketing; and Christian, 23, who left school at 16 to work full-time, manages production. They grew up next door to headquarters in Bad Honnef, a small, picturesque town on the Rhine. Alex attended his first trade fair at age 10, wearing his First Communion suit to serve drinks to guests.

But through the early 1990s, tensions were building at the plant in St. Katharinen, a nearby town. There, some 700 workers in Birko Schuhtechnik, one of the family companies, assembled straps, buckles, and soles into complete sandals. Ulrike Koster, who had joined Birko in 1976 and rose to team leader, felt the brisk rise in sales was creating too much pressure on workers. To boost productivity, Alex had introduced bonuses linked to the number of shoes teams turned out. Yet workers claimed that the task of operating complicated new machines was affecting productivity. "It got worse when the sons came," says Koster, who has since left.

In April, 1993, the frustrated employees decided for the first time to elect a works council to represent them in discussions with management. The family wanted nothing to do with outside unions but had no objection to a council. Then, however, the council allowed the Union for Woodworking & Plastic Materials to recruit members at Birko.

In December, 1993, all hell broke loose. At a companywide meeting that included the family, the council demanded equal pay for men and women and a review of the bonus system. Christian charges that an outside union representative humiliated his father by calling on him to be less extravagant in his personal finances. For a man who rises at 5 a.m., wears cheap gray suits and Birks, and has no secretary, this was too much. In tears, Karl was too devastated to speak.

Birkenstock canceled the bonus system at Birko. Then, to meet brisk summer demand in 1994, Alex wanted to run the plant overtime, but the council refused to approve it, fearing layoffs later. Delivery delays cost millions of dollars in sales, says Alex.

"IDIOTS." The turmoil enraged Karl. He started at the company in 1954 when just 30 people worked there, made the sandal a global icon, and saw no reason any employee should oppose his family. "Karl Birkenstock is a fantastic businessman, but he still operates as if it were the early 1900s," says Ulrich Schmulz, a local politician who tried to mediate the dispute. "He has to have the last word."

Both sides filed numerous complaints against each other with labor authorities and the prosecutor's office. Karl was fined $10,300 by a public prosecutor in Koblenz for calling council members "idiots" in April, 1994. Alex was fined $11,700 for obstructing a council meeting where he argued the need for overtime. "The [council members] are puppets of the union," says Alex. Greater strife exploded among the workers themselves, many of whom wanted the bonus system back. Council members felt so harassed they carried weapons.

Determined to end the problem, in 1994 the sons started shifting some production from Birko to newly opened plants nearby. Some 450 workers quit Birko to work at the new plants. About 130 held on. Others quit Birkenstock altogether in anger either over the demands of the works council or the family's hostility.

Then in early 1995, Karl tried to shut Birko down by paying the workers to leave. But the workers demanded $2 million--three times more than what the company says is legally required. That's when the feud took a Dickensian twist: The family, refusing to cave in to more demands, decided to keep the workers employed but isolated. The Birko employees were moved to another building and Christian put in charge. When the workers complained that there weren't enough toilets, he shipped in portable construction-site restrooms.

Now Christian communicates by mail or through a security guard with the 98 remaining workers, who have nothing to do. As Christian walks in unannounced one morning, one woman ditches her knitting, another hides her book, while three more stubbornly go on playing cards. Boss and rebels glare at each other. No one speaks.

"JUST JEALOUS." Isolating the renegades in their legal yet dreary conditions has triggered a spate of articles in the German press, sporting headlines like "Psychoterror" and painting the company in a terrible light. But neither side is giving in. "We have power as long as we can hang on," says Marion Rahm, head of the council. Birkenstock is equally stubborn--it costs $138,000 per month to keep the ghost company open.

Across the road in another Birkenstock company, workers seem content. "They're just jealous we have good work without them," says Sigrid Sieg, 30, as she paints glue onto leather straps, seated in a spacious room with splendid views of a snowy valley. Business is nearly back to normal, too, with only a few German Greens and hospital workers kicking off their sandals in protest. But the behavior of the Birkenstock family risks further backlash. And the confrontation daily wounds the soul of a proud family company.

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