You might be perplexed by how rumours that begin on the shop floor often turn out to be prophesies. Here is a cautionary tale of the importance of listening to the front line.
Ever been perplexed by how rumours that begin on the shop floor often turn out to be prophesies? It is the instinct of MDs and senior managers to issue statements that rumoured cutbacks, redundancies, removal of certain senior staff, take-overs etc., are simply malicious tittle-tattle and should be ignored. Often in fact, these rumours are found to be not only true, but also very accurate.
In this narrative, a 1980s unionised lead-acid battery factory is subject to conflicting messages from head office. Rumours abound among the factory staff, and the unfortunate MD – who has been informed of head office plans – finds it very challenging to quell the surge of unrest and threatened industrial action within the factory.
Paul was a newly appointed MD of a lead-acid battery manufacturing company which was part of a corporate group of diverse manufacturing industries. He was appointed to guide the company into profit after five years of increasing losses. After three months in the position, he was satisfied that the company’s underperformance was attributable to low productivity, excessive material costs and consequentially low sales volumes.
He had submitted a 12-month plan of capital investment and staff redundancies that should bring the operation back into profit. He had been given approval and was one month into the schedule. His management style was to be honest and inform the company’s staff of the situation; he had inclusive meetings with managers and union representatives to explain the strategies required to prevent the factory closure. Eventually, common ground was established, and a path forward consisting of investment and voluntary redundancies was identified, with full cooperation from almost all staff.
One month into the schedule, Paul had a call from the finance director Trevor, at head office. There had been a new development. The parent company was in negotiation with a large battery manufacturer, and now intended to sell the battery manufacturing company as a going concern. In order to maximise the price, it was necessary to show a paper profit within nine months. The details had been meticulously constructed and it was just possible – with some stringent measures.
The main actions were to impose a 20% redundancy across the factory, preferably of senior managers as they were the most expensive and would not invoke a union backlash. All expenditure on new equipment and the new battery models was to be scrapped to maximise return on capital employed and minimise amortisation.
Maintenance costs should be reduced by selling older equipment and accepting a lower turnover due to the resulting lack of manufacturing capacity. However, this would still not be enough due to the size of the site and the subsequent land taxes and mortgage repayments. To reduce these operating costs, it was decided to reduce stock levels to one third to save on the overdraft interest repayments, which were substantial.
Paul’s first question was: “Why was this not the objective anyway?” Second question: “How on earth do I break this complete turnaround to the factory staff, particularly after all of the efforts to devise and get acceptance for the current plan of action?” There was a long period of silence before Trevor gave Paul the instruction that under no circumstances should he breathe a word of this to anyone. If it got out, it would completely undermine the whole deal and the potential buyer would back out. He would not even tell Paul who the other party was.
A difficult one
This was awkward for Paul: it went against his nature to play games in this way. However, he dutifully held meetings the next day after arranging a script that essentially said that the project plan was on ice due to “unforeseen economic pressures from exchange rate variations and asset downgrading across the group.” He had no idea what that meant but stuck with it.
It was meaningless, which meant he could not be accused of a falsehood when the real story was out. Besides, the sale may fall through and at least the numbers being made redundant were reduced. That should help when facing the factory representatives.
After one week he was approached by a union delegation. They were concerned about the word on the factory floor that the company was being taken over by another battery manufacturer. A little shocked by the accuracy of the rumour, he had only one reply to offer.
“There is no information to suggest that this is the case,” he said. “The present cost reduction exercise is designed to maximise the factory efficiency in order to generate better use of capital. This will be essential to convince the factory owners to sanction further expenditure on equipment. If we can do this it will secure the factory’s future by improving output and profitability.”
Pushbacks
There were a lot of pushbacks on the nebulosity of the statement. No-one seemed convinced and further action was threatened by union representatives. After the delegation had left, Paul turned to the managers and directly quizzed them about the origins of this rumour. No-one could enlighten him, but all promised to help find the source.
After a couple of days of random speculation as to the source, Brian the technical manager inadvertently stumbled across the origin. On checking a report from his QA officer, Jean, concerning loose strapping on some lead ingot batches delivered by the lead supplier, he went to the incoming goods warehouse, but arrived ahead of Jean.
The factory sale came up. Jeff asked: “Are you certain you got it right, it is this factory?” The driver replied that is what his daughter said. “She is a sales clerk in the smelter. She took an enquiry from an overseas battery manufacturer asking about lead price and sales volumes. Not only that, they specifically asked about the annual sales to this factory. She’s not allowed to say, but thought it strange.”
Jeff: “Yes but still not proof, is it?”
Driver: “I agree but the same day her boss asked her to make up a seasonal sales record for this place. It was to be sent to your corporate head office. Look, if I were you, I would try to find out what it all means; there are 250 jobs at stake here. You’re a union rep, and you need to look after your members.”
Curious
As Jean arrived, she and Brian checked the lead ingot strapping, which was in good order. After this, Brian went to the grid casting department to check the lead ingot pallets that were currently approved for use. Curious to find out more about the rumour, he spoke to two of the casters, Alan and Ali.
They confirmed the origin of the rumour was from the lorry driver. They also confirmed that his daughter did work in the sales office of the lead supplier. After reassuring them that he was also in the dark, Brian decided to talk to the finance director, Phil. He drew a blank there and when he went to see the MD he was unable to get past Paul’s secretary, who insisted that he was not available for the rest of the day.
Paul, in fact, was away for the next two days visiting a potential manufacturing partner in mainland Europe. The idea was to negotiate a reciprocal agreement whereby they would market and sell each other’s products, particularly where they had gaps in their respective ranges. It was a difficult meeting as they had also heard a rumour of the factory sale.
Most of the time was spent trying to get to the bottom of the rumour, rather than detailed discussions of product types, design details, costs, branding, delivery times and marketing. The European manufacturer claimed that it originated from their shop floor, via a lead delivery driver. It turned out that they had the same lead supply company. They also claimed to know the name of the potential purchasing company. This was news to Paul.
Reception committee
On his return, he was faced with a reception committee at his door, demanding to know what was happening as the rumour had progressed, and the word was that the company was to be bought out by the end of the following week. Paul was essentially an honest straight-talking character with a keen intellect. He could sense he was being kept in the dark, but still had to handle this internal situation without triggering a strike, but without deception.
He partially came clean, admitting that he had not been informed of a company purchase the following week. He also promised to take it up with head office. That he duly did and was told that a purchase agreement had indeed been drafted. But nothing about the purchase date. This was the best that he could squeeze out of the main board representatives, and he took it to the meeting arranged with the factory managers and staff.
Strike avoided
The meeting was not a disaster and Paul had avoided a strike and bought some time, but felt very uncomfortable in doing so. One week later, he was visited by the chairman, Graham. Paul knew what was coming: the company had been purchased, and the incoming directors wanted to put their own man in charge to oversee the transition.
Graham was very sympathetic and offered a very generous severance package of three months’ full pay and to keep the company car until the lease ran out in another 18 months. Genuinely annoyed at the deception, the clear damage to his reputation and standing with the factory staff, Paul (unusually for him) demanded to keep the car, which they should purchase on his behalf.
To his surprise it was immediately agreed. So was the union demand to guarantee that employment contracts and salary agreements would remain as they were after the company purchase.
This was a salutary lesson for Paul to learn what is meant by the lead-acid battery industry being a small, tight-knit and incestuous business.
