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Reforms will allow managers to face fears

14 March, 2006

Normally, any link between a business closure, job losses and the activities of unions is indirect. But the closure of Kemalex Plastics' Melbourne plant provides a direct link. Kemalex specifically blames the plant's placement into voluntary administration on a 10-week campaign conducted against them by the Australian union movement.

Ken Phillips, The Age - also published on the Institute of Public Affairs web site

The case also highlights why a deep sickness exists in manufacturing and why it has not been fixed, and it gives some clues as to the potential impact of the Federal Government's industrial relations reforms.

The principle relationship that exists between unions and managers in the manufacturing sector is fear and intimidation.

Profit margins and production processes are so finely tuned in manufacturing that managers fear that any disruption to production could push the company into the red. They are correct. Manufacturing unions are obsessed with having businesses run in a certain way and intimidate managers to get their way. But constant global competitive pressure means the union way is an unprofitable way. Change is urgent but gridlocked.

The Kemalex case shows what happens if managers do not toe the union line. Kemalex's Melbourne operation is small and has long been unprofitable. The plant turned over $12 million last year in plastics components mainly to the car industry. About two years ago, managing director Richard Colebatch introduced independent contractors to help change the way the plant operates. Colebatch got the approval of the union. As one part of an overall strategy, the use of independent contractors was producing positive results.

But in April this year, the union decided it did not like independent contractors. The union teamed up with other unions and, through the ACTU, conducted a 10-week strike and public relations demonising campaign of Kemalex. Colebatch kept the plant operating as only half the staff went on strike; but he was no match for the combined might of the union movement.

There are 1.6 million unionists in Australia, who feed annual revenues into the unions conservatively estimated at more than $550 million. Unions are big business. However, they do not produce anything. In fact, they are a huge marketing conglomerate. By focusing their huge infrastructure and resources on a single target, they can intimidate on many levels.

In the Kemalex case, the unions paid workers to stay on strike. They shifted personnel onto the picket line, brought in heavies to jostle the police and non-striking workers, and unleashed a co-ordinated media and political assault. Plant and vehicles were vandalised.

The business being terrorised may have been Kemalex but the real union target was the Federal Government's industrial relations changes.

Colebatch stood up to the physical, legal and media intimidation and kept running his business. But the one-off costs directly resulting from the campaign and its aftermath amounted to more than $1.1 million. This forced the closure. The unions knew no industry association or friendly government would come to Colebatch's aid, thus allowing Kemalex to be a sacrificial lamb for union slaughter.

Kemalex's Melbourne plant and the 80 jobs are now history. But the industrial relations changes are the future. Would the new laws have made a difference to Kemalex's capacity to undertake change? Do the changes offer opportunity to Australian manufacturing to competitively catch up? Probably, yes.

Under the new federal laws, awards and agreements cannot place restrictions on independent contractors or labour hire, for example. Such clauses will be void and attempts to introduce such clauses, or strike over them, would be illegal and subject to fines. In addition, businesses will be able to sue unions for damages. If Colebatch had suffered the union assault in 2006 instead of 2005 he presumably would have been able to sue the unions for the $1.1 million costs incurred.

No wonder the unions are campaigning so hard. Unions do not like being subject to the same responsibilities faced by the general community. But Australian history has shown that where unions and union officials are subject to civil litigation for damages they cause, they become highly restrained in their action.

For manufacturing businesses that need to change, the new laws offer opportunity to avoid the Kemalex experience. But to achieve the required competitiveness, managers will need solid strategic direction, sound legal advice and a firm focus on success. They will need to step beyond their fear. History has also shown that many managers will do this.

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