Employers and labor can think like partners

Employers and labor can think like partners (May 3, 2005)

Ben Teehankee

Managing For Society column, The Manila Times

Labor Day is always an interesting time of the year. As the day approaches, the ominous grumblings from the labor groups escalate in volume. The government fires its own public information salvos, highlighting its efforts to help the workers while being sensitive to the survival of business firms. Business groups issue the usual warnings about the need to be competitive and the danger of companies shutting down if labor costs go too high. The big question facing the three major parties is whether the minimum wage will be increased.

In a recent research forum, a labor economist shared data showing that in many localities, about half of business firms violate minimum wage laws. Casual observation shows that contractualization is equally widespread and growing. Union-busting is a standard managerial tactic, claim labor leaders.

Managers I’ve talked to, on the other hand, report that employee discipline is a perennial concern. Removing workers even for cause is a costly and time-consuming affair. And finally, the ever-present threat of unionization and paralyzing strikes increase the worries of managers about the stability of their firms.

These trends fuel the ritual that we witness every May. Labor insists that employers give it more through higher minimum wages and better job security. Employers are equally demanding of labor to give it more through higher productivity (“doing more for less”) and more flexible work arrangements. The government plays the uneasy role of referee in this yearly tug-of-war.

This May, the President has ruled in favor of the workers, ordering an increase in the minimum wage. With touching eloquence, she appealed to employers to honor the "sweat of the brow of your employees who help give you a good life." In return, she asked the employers to “ensure your workers have a decent wage, a decent workplace and a decent quality of life."

While I always favor giving assistance to the least advantaged of workers through more decent wages, I worry about the win-lose, often politically motivated, debate between employers and labor that we witness every year. What the debate misses is that labor and employers can be real partners in creating wealth together. True partnership is built on trust and respect. Without these elements, what we have is a mutually predatory relationship, which progressively spirals downwards at increasing cost to both parties and at greater risk to the country’s economic survival.

If employers and labor are to move away from the current win-lose mode of scoring points off each other and, instead, move into real collaboration for national development, a basic shift in thinking will have to happen. In the first place, each side will have to better understand how the other side thinks.

Marjorie Kelly, in her book The Divine Right of Capital, suggests that the place to begin looking is at how employers view business to begin with and the role that employees play in it. Employers check on how well the business is doing through the income statement and the balance sheet. The income statement shows the excess of revenues over costs as profit – the bottom-line.

It’s natural for employers to think that a business is doing better the higher the bottom-line is. Here lies the source of the win-lose thinking: a big portion of the cost of business is employee income. Thus, by implication, employers begin to think that the business begins to do worse when employee income increases. Employee income must, therefore, be minimized.

The balance sheet also adds to the win-lose thinking. The balance sheet breaks down assets into those owned by the business (equity) to those which have debt against it (liabilities). The business is normally considered as doing well if it has more assets. Interestingly, balance sheets do not mention employees at all! Therefore, despite the commonly stated notion that “employees are a company’s most important assets”, employees are invisible in the balance sheet.

So it’s easy to see why employers and labor are at cross purposes. Employers are encouraged by income statements to minimize the cost of employee income in order to improve the bottom-line. Balance sheets altogether ignore employees as assets.

Is there a way to think about business as a partnership between employers and labor? One way is to think of it as maximizing both profit and employee income. It’s simple algebra to recast the income statement to support this view. After all, true partners make sure that both get a fair share of a growing pie. Of course, this view of business means that employees and capital owners will share the downturns of business as well as the upturns. Employers will need to look more at profit sharing plans and labor will need to take more initiative to create value for the business while sharing the burden of business slowdowns.

In the end, labor and employers need to stop looking at each other warily as arms-length contractors and more as collaborative partners. A business can only be doing well if both employers and employees are doing well. In order to thrive in the globalized knowledge economy, our country can afford no less.