Bottom Line Rests On Working Peace

The Age

Sunday June 25, 1995

Nicholas Way

Brokers and investors ignore industrial issues at their peril, writes Nicholas Way. Peace in the workplace is crucial to balance-sheet figures.

WHEN the recent industrial trouble erupted at MIM's North Queensland copper-lead-zinc-silver operations at Mount Isa, no one should have been surprised. Industrial trouble has been brewing at the mine for months, even years, due to bitter inter-union rivalries and poor management.

Yet to read much of the investment literature about MIM that pours out of the broking houses, investors would have had few insights into just how volatile the industrial situation was at Mount Isa, the operational jewel in MIM's crown.

The comment by the broking firm Hambros Equities in February this said: ``A union demarcation disupte initiated by the reduction in the number of unions that would participate in enterprise bargaining at Mount Isa has developed and is affecting mine and smelter production.

``After four short stoppages at Mount Isa in the past two months, the previous agreement has been reopened and negotiations between all five unions, MIM and the Industrial Relations Commission are continuing. At the time of writing, enterprise bargaining is still at a sensitive stage, though it will be resolved in the near future, we expect by the end of February."

More than a year earlier, the broking firm ANZ McCaughan, in a 123- page report on the giant Queensland miner, could only devote a few lines to industrial relations under the heading ``Measures taken to improve competitiveness". In what was otherwise a detailed and thorough report on the group, a crucial area of the group's operations was effectively ignored.

As far back as February 1992, a 100-page report from James Capel only briefly discussed management in the introduction and did not mention employee relations a remarkable oversight at a time when enterprise bargaining was emerging.

A close examination of industrial relations tells investors far more than the possibility of a strike. To start with, it is an obvious indicator of management skills. Good employer-employee relations, especially in highly unionised companies like MIM, are not easily achieved, and managements that do this are likely to be implementing the correct strategies in other areas.

In the case of MIM, even the company now concedes that operational decisions made more than 2000 kilometres away in Brisbane only inflamed what was a volatile situation as the company attempted to reduce the number of unions on site, cut staff numbers and improve productivity.

It is important to remenber that in the mining industry the management of operations is one of the few areas where a company can have a direct impact on profitability. In other crucial areas, such as the exchange rate and the price of the commodity, the companies have to bow to the dictates of the market.

Far-sighted companies such as CRA are well aware of this. It has embarked upon a strategy of moving employees, where possible, off the award and on to staff contracts.

While this has brought the company into conflict with the unions, CRA believes it has certainly enjoyed considerable productivity benefits from more flexible work practices and improved staff morale.

At sites such as its iron ore operations in the Pilbara, in north-west Western Australia, it is not exaggerating to say it has changed the workplace culture at sites that were once bywords for industrial lawlessness.

Broking analysts are aware of the industrial relations changes instituted by CRA. And, almost to the analyst, they agree with the thrust of the changes being made. But the coverage remains largely superficial with the unions' position simply dismissed.

While there are arguments to support CRA's strategy, there has been strong opposition at some workplaces as well as unfavorable decisions in the Industrial Relations Commission. There are also other viable industrial strategies based on union cooperation, as BHP has demonstrated.

It is not just in the mining area that industrial relations are important. About five years ago, the Queensland engineering group Evans Deakin was in trouble, its share price below $1. There were several factors behind the company's poor performance, including poor productivity.

When the management tackled the myraid problems, it was recognised by the Brisbane broking firm HTM Wilson as an excellent turnaround situation. The broker brought the story south for the Sydney and Melbourne institutions only to find that few were interested. When the stock started to move strongly, they scrambled aboard the Evans Deakin bandwaggon.

This - series of events highlights why brokers give so little emphasis to industrial relations; their major clients, the large institutions, are often as ignorant of the important trends - in this area.

Analysts usually have backgrounds in accounting and economics, their forte being balance sheets and profit-and-loss statements. The world of industrial relations is largely alien to them, their own workplaces being non-unionised. While it is a generalisation, analysts would appear to have few contacts with union officials, relying on senior management's version of industrial relations.

Many investors have been or are employees. As such, they know how important their own working environment is to them, and how poor management of employer-employee relations can cost the company. As investors they are therefore entitled to know how companies are handling this crucial issue, especially in an era of enterprise bargaining.