Avoiding an EBA's Shackles
For many Australians, the union movement's industrial, 'Campaign 2003' might seem unknown, almost irrelevant. But for decision makers in many industries---CEO's, company directors, financial analysts and other senior executives---the unions' promise to launch multi-tiered industrial and activists campaigns against them in 2003 is causing concern. The car and food manufacturing sectors, commercial construction, chemical and petroleum industries, and call centres and aviation perhaps represent the primary but not only industries on the unions' hit list.
The union campaign is organised around the opportunity presented by the expiry of thousands of Enterprise Bargaining Agreements (EBA) all at about the same time this year. In this environment, unions are coordinating both their demands and their tactics to press for expanded EBA provisions. In the impending negotiations, individual businesses are vulnerable because they negotiate from their individual perspectives, but unions coordinate across industries, delving for commercial pressure points to win their day. Already, there is plenty of pressure activity happening 'on the ground.'
How then do business people manage or even make sense of the EBA demands unions put upon them? What tools are available to assist the decision making process?
The financial implications of pay rises are simple and can be factored into assessments of negotiations. But the raft of other demands made by unions tends to confuse assessments, creating difficulty in working out how some demands will impact on operations and why the demands are being made at all. It is on these non-pay issues that firms and decision makers are at their most vulnerable.
For example, it is hard to evaluate the cost implication of a union demand to expand the powers of an EBA required 'consultative committee.' What are the cost impacts of an EBA requirement that a company must ensure its suppliers have an EBA with a 'relevant' union? What are the implications of an EBA clause that forces non-union employees of the firm to pay $500 a year to a union? Why should a company agree to a union demand that the company keep the use of casuals and labour hire within proscribed limits? Why would a company agree to EBA prohibitions on the use of contractors? What is the cost of having rosters and work timetables controlled through an EBA?
Making sense of these non-pay related clauses is difficult, particularly when the demands seem to fit some unknown but grand union agenda. Ultimately a company must make decisions based on its specific needs, using assessment tools where available. To this end, the non-profit, economic think-tank, the Institute of Public Affairs, has been analysing Enterprise Bargaining Agreements from the perspective of the impact on management prerogative. It has published the results under its Capacity to Manage Index.
Through its specialist Work Reform Unit, the IPA conducts case studies on management issues within industrial relations and labour environments. The executive director of the IPA, Mike Nahan explains that when the IPA looked at Enterprise Bargaining Agreements, it discovered that almost half of the clauses did not relate to employee incomes but seemed more designed to affect the way companies were managed.
Nahan says this factor is hidden from the standard data on labour and management issues. 'It's a big hole,' he claims. 'When analysts look at how firms perform, they are running half blind. Without the full picture, it's impossible to accurately assess from a macro perspective what causes good or poor performance'
The first phase of this Capacity to Manage Index was released late last year and the second stage is being developed at the moment. Companies are rated according to the results achieved from their EBAs.
In the first study, 50 EBAs from the food manufacturing sector and 35 from the commercial construction sector were assessed. Mike Nahan explains that clauses relating to pay issues were excluded so that the Index would focus solely on management items. Clauses are rated as to whether they improve or diminish a firm's capacity to manage. An overall score is achieved and firms are rated according to the EBA assessment. The second study is focused on the car manufacturing industry and other industries will follow.
One of the first surprises from the study is the discovery of the extent to which EBAs conform to a single broad format. Mike Nahan says that in constructing the Index, the IPA was not sure how many variables would exist. 'But it was discovered that Australian EBAs conform to standard formats; once the format had been unearthed the assessments became comparatively straight-forward.'
In many ways this of itself is the first most important outcome of the research. The concept behind enterprise bargaining developed under the Keating Labour government was that firms could break away from the once size fits all award system. EBAs would give companies the ability to purpose design their formal employee agreements to suit the specific needs of each business and their employees. But the early indications are that this has not happened.
Using the Capacity to Manage Index as a guide, EBAs look more like the old award system with minor variables between some companies. This may explain the confusion sometimes experienced by CEOs. Thinking that they are negotiating purpose designed employee agreements, the negotiation game in reality is to manoeuvre companies into agreeing to preordained formats. Companies' greatest weakness is in not understanding the real game, because they find themselves accepting clauses that, on the surface, may seem innocuous but in fact have high operational, and sometimes legal, impact.
Take one common clause found in many EBAs, the requirement on a company to ensure that its suppliers have EBAs with 'relevant' unions. This clause may seem to mean little. Companies signing such EBA clauses often already source most or all of their supplies from EBA registered firms. But if this clause becomes accepted into an EBA, the sourcing of suppliers ceases to be an operational management issue and becomes an industrial relations issue, capable of becoming a dispute before an industrial relations commission. Further, this clause clearly puts a limit on the capacity of the firm to source suppliers based on assessments of best available service, price or quality.
The financial implications of such clauses are impossible to assess but the Capacity to Manage Index rates this particular clause as a negative. The 'price' of such a clause is 'Opportunity lost and opportunity never known.' All that can be known is that in thousands of different ways this reduction in the capacity to manage will daily downgrade the comparative ability of a firm to perform. In addition, recent developments have suggested that this 'supplier requirement' clause could put a company in breach of the Trade Practice Act.
A recent appeal against one of these clauses in a New South Wales case was conducted on the basis that the Trade Practices Act prevents companies entering an agreement with a union where the agreement imposes restrictive clauses on third parties. The union in that case withdrew the EBA clause before the case could be heard. But the firm's involved in the case had already become exposed by initially agreeing to the restrictive and potentially illegal clause. This case highlights the need to be cautious, of management controlling clauses in EBAs.
The early results from the Capacity to Manage Index also give cause for concern that many Australian firms could be under-performing. The generally poor Index ratings in the construction and food manufacturing sectors, suggest that these two industries could produce better results than currently is the case. In the construction sector this was reinforced by the public complaints of the manager director of Grocon, Australia's largest construction company, that its industrial relations situation is hamstringing it's business. This observation is consistent with Grocon's poor rating under the Capacity to Manage Index. The negative scores of -20 and -22 on two of Grocon's EBAs suggests that each EBA has at least 20 management restrictive clauses that impede the ability of Grocon management to perform to peak capacity.
Not all is bleak. A few companies have shown a break from the overwhelmingly negative ratings achieved. Sanitarium and Uncle Bens scored in the positive range, as did two New South Wales electrical companies and a medium sized construction firm. These were exceptions, demonstrating that companies do not have to give away their management right to manage.
The IPA's Capacity to Manage Index, is only one tool, and is not prescriptive of business success or failure. Many factors affect a firm's performance. What needs reiteration, however, is that no firm can allow itself to under-perform in any area. The object of management must be to have all pistons firing at maximum capacity if full potential is to be reached. Within this concept, keeping an eye on a firm's capacity to manage should be a normal process of sound management.
The process to assess capacity to manage
Establishing the methodology for the Capacity to Manage Index involved a detailed process of reading dozens of Enterprise Bargaining Agreements and looking for consistencies and patterns in clause types. No predetermined idea of EBA clauses was held.
What was discovered is that most EBAs fall within broad frameworks where commonly, clauses refer to 'consultative' committees, use of labour hire, casuals and AWAs, control of rosters, work allocation and many other areas normally considered that of management responsibility. Clauses that related to remuneration and other areas not directly affecting daily management capacity were excluded from the assessment consideration.
This process of studying EBAs before undertaking the individual company assessments, enabled the methodology to be built 'from the ground' so that it reflected the reality of EBAs rather than being imposed by predetermined concepts. Once the EBA frameworks had been discovered this enabled an assessment grid to be established that facilitated a consistent and reliable assessment process.
When the assessment process began, assessors were required to be mindful of refining the grid if new clauses were discovered that had not previously been included. Initially the assessment grid went through several reviews until it was finally settled and found to be applicable for each EBA being assessed.
Scores of +1, 0 or -1 were given to each EBA clause studied. The plus, zero or minus allocation, indicated a clause had a positive, neutral or negative impact on management capacity to manage. Scores were added giving each EBA a total, averaged rating. Care was taken to prevent doubling up. That is if two clauses, for example prevented managers from having control of rosters, only one -1 score was applied.
The following quotes from a random selection of EBAs were considered to reduce management capacity to manage.
Plant closures will be restricted to one per year.
During the life of this agreement the Company shall not employ persons covered by this agreement under an Australian Workplace Agreement.
The Staff Consultative Council will be required to agree on issues at 100% consensus in order for the issue to become practice.
All elections will be organised by the union.
Contract Casual Labour: It is agreed that the Company will utilise, only reputable providers and due consideration will be given to those providers recommended by the union.
The Company will not engage any labour hire company to supply labour to .... Plant and production and maintenance work will continue to be undertaken by direct employees.
Metal & Electrical contractors working on the site shall be advised that they are required to have appropriate industrial agreements with the relevant union.
The current arrangements for filling vacancies shall apply.... full time employees, current casual list employees, then other external applicants.
Permanent employees shall be given the option to work overtime before a casual employee is requested to work....
The implementation will be without prejudice to the Union's right to oppose the changes.
The ratio of casual employees to permanent employees will not exceed ...% of the total number of permanent employees.