AdSlot 1 (Leaderboard)

The Secret FD: The financial consequences of industrial action

fd-picket

IT APPEARS that an agreement to end the dispute between NHS (so called junior) doctors and the government over the imposition of a new contract has been reached. Transport for London continues to suffer strikes over alleged ‘hostile’ management attitudes and the safety of proposed 24 hour weekend tube services. BBC journalists called industrial action in April over flexible working arrangements, and university lecturers staged two days of strikes and other disruptive action during exam periods, complaining about a pay reduction of 14.5% in real terms since 2009. This summer, in time for the Euro 2016 tournament, France is engaged in its national hobby of widespread strikes, this time over labour reforms designed to achieve job creation and economic growth.

I read an interesting study which found that the frequency of strikes in the UK has been inversely proportional to their cost in cases where the key factors affect both the employers and the employees (eg pay and conditions), but in the cases where the factors affect only the employees (eg unemployment levels) the correlation was weaker and strikes were more frequent.

The current wave of strikes in France are inconsistent with this theory. The country seems to be incapable of reforming its economy, and many businesses are resigned to the fact that the cost of further industrial action outweighs the benefits from the attempted injection of flexibility into the 3280 page labour code by the deeply unpopular President Hollande.

Industrial action usually takes place in the context of a labour dispute but it may also be intended to bring about political or social change, and it may include one or more of the following: Work to rule, overtime ban, occupation of the workplace, go-slow, or strike.

The word ‘strike’ in this context was first used in 1768 when sailors in support of demonstrations in London ‘struck’ or lowered the topgallant sails of ships at port therefore disabling their ability to put to sea. Some Asian languages use the term ‘hartal’ for strike action, originating in Gujart, signifying the closure of shops and warehouses. This is not to be confused with ‘bhukh hartal’, literally hunger strike, but used as a derogatory term for abstaining from work. The first recorded account of strike action was towards the end of the 20th dynasty, under Pharaoh Ramses III in ancient Egypt in 1152 BC, and the practice has spread with alacrity ever since.

Multinational businesses are faced with a never ending plethora of varying local legal and cultural differences on industrial action matters, some of which come with severe personal liabilities for employers and directors that are unlikely to be on their risk registers.

Famous landmark strikes include the 1980 Gdansk shipyard disputes which led to the historic Gdansk Social Accord, the creation of Solidarity and the elevation of Lech Walesa to President of Poland. In the UK, we had the Winter of Discontent which brought about the fall of the Labour government and opened the way for the Thatcher premiership. The Iron Lady famously faced down the miners in their 1984 strike in a humiliating defeat for Unions and for the Labour Party, but with wide economic and social consequences. These examples are in the context of a broader social movement rather than simply about pay and conditions, but their economic impacts and legacies both positive and negative are complex and impossible to measure accurately.

In the US, workers at General Motors (GM) staged a national strike in 1998 which had some unusual economic consequences. Car buyers (mostly fleets and lease companies) diverted significant business towards Ford, Chrysler and Toyota instead, so they and the supply chain fared quite well. Then, immediately after the strike, US car production hit record levels and everyone including GM was a winner, although the US auto industry story has been a checkered one since then of course.

Although not all industrial disputes are about pay and conditions, after years of austerity and pay restraint I fear we are facing an inevitable cost bubble which may burst and take the form of increased industrial action putting many organisations and businesses at risk.

However, I would be surprised if any of us has correctly factored the direct cost nor the ongoing financial consequences of industrial action in our long term financial plans, although I believe certain FDs have been tempted to exaggerate the profit impact of industrial action incurred when presenting their results. Surely not, you might say.

Last month the SFD was in Dubai where strikers and unions receive no legal protection, and strikes can unfortunately lead to criminal punishment

Related reading

/IMG/022/271022/diamonds44
/IMG/932/163932/export
/IMG/370/178370/graph-arrow-upwards-growth
Theresa May 1