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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Abbott government takes on big business-union 'establishment'

Monday, February 10, 2014

There is considerable speculation, even confusion, over the motivation of the Abbott government in knocking back subsidies to Holden and SPC.

Some Liberal/National parliamentarians and state governments are nervous, fearing negative political fallout. But the government's reasoning is clear.

What's developed in the comparatively small economy of Australia is a new "Establishment".

This Establishment is a deal-making club consisting of big corporations doing deals with big unions and government. Simply explained, corporations cut industrial relations deals with unions. In return unions become lobbyists to governments for corporate handouts and all sorts of approvals.

This behind-the-scenes union lobbying covers planning and environmental approvals, tax breaks and much more. In the construction sector it extends to union lobbying for "friendly" corporations to win profitable government contracts.

This new Establishment started under the Hawke Labor government. The creation of the Business Council of Australia was part of the set-up.

Establishment processes have become the way through which "serious" business is done in the exclusive, clubby environment of Australian corporate business. It operates in manufacturing, transport, retailing, construction and even mining.

For a long time Liberal/National state and federal governments were naively seduced into this. Some still are. Even the Howard government played along.

But this big business dealmaking system revealed itself to the Coalition when corporations abandoned John Howard over Work Choices.

The federal Coalition was further jolted when corporate Australia, organised by their representatives at the Australian Industry Group, politically massaged through Labor's Fair Work Act and the destruction of the Australian Building and Construction Commission.

In opposition during the Rudd/Gillard period, the Coalition realised corporations mostly behave as political prostitutes. Corporations display limited concern for Australia. Instead they are intent on cutting self-interested deals. Those deals are facilitated with union backing.

What's resulted, however, is an appallingly bad management regime in corporations. The industrial relations deals that unions demand are marginally related to worker pay. What matters to unions is control of corporations' management processes. SPC is a prime example.

The 314-page SPC agreement is effectively a management-neutering manual imposed on SPC's ground-floor managers. Every decision managers make must occur within a formalised "consultative" process subject to drawn-out appeals. Every decision is a potential referral as a "dispute" to the Fair Work Authority.

To change a simple roster or minor production schedule, for example, is a hugely bureaucratic, time-consuming process. Success with even small changes is uncertain.

The outcome is that managers can't manage. Business becomes stuck in time warps, incapable of responding to even small shifts in market demands. At SPC, it's not the workers' pay that's the issue. Instead it's the inability of the company to function properly. This gives SPC little chance of being domestically or internationally competitive.

SPC's panicked local Liberal parliamentarian, Sharman Stone, needs to realise this. For "over-generous workplace conditions", don't read "wages", read "management strangulation". This is the cause of SPC's doom. Government money won't help.

What the Abbott government has done is realise the real problem. Australian corporations have become managerially incompetent. They have traded off their shop-floor management ability for union lobbying support.

Successful businesses require innovative, competent, empowered managers. Australia's union/corporate/government Establishment has neutered Australia's managers.

The Abbott government is now saying to corporate Australia: "If you want money and favours, show us your management capability." The government is doing what any sensible bank would do. No one should give money to a business with failing management.

In the SPC case, the business is wholly owned by Coca-Cola Amatil. CCA purchased SPC in 2005. They knew SPC had big problems. They haven't fixed those problems but made them worse. Their 2012 union agreement is worse than the previous one.

The hugely profitable Coca-Cola has the affront to demand government money to pay for its failed investment. Coca-Cola should grow up. If a small business person runs their business badly, they personally suffer.

Governments don't bail out failed small business people. Yet Coca-Cola wants the taxes of small business people to subsidise their business failure.

Keep the jobs issue in perspective. Of Australia's roughly 9.5 million people working in the private sector, some 7 million are in small businesses. The real jobs potential is in small business. Badly run big businesses that receive government handouts drag everyone down, damaging job prospects in the process.

The Abbott government is saying 'no' to badly run corporations. So they should. In the process, the Abbott government is turning its back on the big business/union Establishment.

There's a new dealmaking game emerging. The Abbott government is preparing to push reforms through that will take restrictions off small business people. They're signalling corporations to lift their game and manage responsibly.

Political deals are being replaced with a demand for high managerial and business performance.

This is the way Australians can prosper.

[First published in The Australian, February 2014]

Related: Ken's expanded presentation to The Mannkal Foundation in Perth (YouTube video)
Anonymous commented on 11-Feb-2014 02:43 PM
I agree that Abbott is on the right track calling out feeble managements who call on public support to offset their own failings.

I have been filling the inboxes of the employment minister, industry minister and selected commentators for years on the issue. I recall giving you the benefit of my opinion a few years ago, I think in your previous role.

There are 2 seemingly intractable issues in correcting the appalling productivity constraints in businesses run by big business.

• operating managers these days don't know what they don't know. Improving productivity in operations and construction is not possible in this circumstance.

• in construction, owners, EPCM contractors, unions and ,to a lesser extent sub-contractors are all on the same end of the rope in the tug-o'-war.

In my day many engineers in resources started as apprentices while studying at uni at night. We worked up from the drawing office through maintenance management jobs, to design and construction spending many years understanding the process, the equipment, and most importantly the personnel management and people development before getting to engineering management and general management. We moved around from mining to manufacturing to project management and back. All the time mapping production processes, cutting out the waste, making workers jobs more interesting and rewarding (ie having workers enjoy being more productive)

Later I found big business favouring "big brains", slot a history graduate into a line management role and sure he could learn quick, but he didn't know what he didn't know.

My observation is that this has resulted in managements who now need consultants to help them understand the job they are being paid to do.

And the EPCM contracting strategy where the owner seeks to pass the risk to the design consultant, who passes the construction risk to the contractor who writes contracts to snare the subbie, means no-one is focussed on the cost or efficiency as a driver. And that's why you get a response from the Victorian government bureaucrat in charge of the desal project when queried about $150k salaries and $75k living away allowances, says that this is a matter for the contractor and it won't cost the Victorian taxpayer one cent more.

So good luck Tony Abbott, we hope you can find some experienced, knowledgeable and motivated managements to turn the productivity up, and find some company boards who have some appetite for risk, willing to take on the contracting establishment to get the job done for the right price.

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