Volkswagen in America

April 30,  2024  |  727 words  |  Economics, Philosophy

Auto workers at a Volkswagen assembly plant in Chattanooga, Tennessee voted to join a union this month, after similar attempts to unionize at that same plant failed to gain the necessary majorities in 2014 and 2019.  

This time around the rank-and-file may have been inspired by last year’s successful strikes at Detroit’s Big Three automakers (General Motors, Ford, and Stellantis), when the United Auto Workers (UAW) secured substantial  raises, thousands of new jobs, and bonuses for retirees.

Oddly enough, Republican Governor Bill Lee of Tennessee had strongly opposed this effort.  In the run-up to the union vote he cautioned such a change might jeopardize jobs.  In the aftermath of the election Mr. Lee was quoted as saying he thought the Chattanooga workers “made a mistake.”  Since multiple Southern states have incentivized automakers to relocate outside of Detroit to avoid the UAW, I guess Governor Lee is worried this vote will prompt Volkswagen to consider leaving Tennessee for a neighboring, still-non-union state.

For the UAW, this victory could represent a major turning point in its efforts to represent more of the auto-making workforce in our Southern states.  It now turns its attention to another German auto manufacturing plant, a  Mercedes factory in Vance, Alabama, that is expected to hold a union vote in a few weeks.  

The Volkswagen location in Tennessee was a logical starting point for a broader UAW organizing effort across the South, since as a German-based company Volkswagen is used to giving its workers more of a say in the overall operation of the company.  In fact, German law prescribes that worker representatives must maintain up to half the seats on the supervisory boards of large corporations.

This is a fundamental component of what is known as a “works council.”  Such councils now exist throughout Europe, with different names and in a variety of related forms.  But the oldest and arguably most successful version of a works council can be found in Germany, with its origins dating back to the early 1920s during the post-WWI Weimar Republic.

“Worker representation” sounds like what a union does.  But while a works council is a shop-floor organization representing workers, it is meant to function as a compliment to, or even independent of, a trade union.

In Germany, a works council is comprised of a group of elected employees who collaborate with management to help reduce workplace conflict, increase the bargaining power of employees, correct market failures through public policy, and provide workers more say in key decisions within the company.

Such a council ensures all laws, rules, and health provisions benefit the company’s workforce and are applied correctly.  Yes, it naturally advocates for the employees’ best interest, but it does so through established dialogue with management.  Both the works council and the employer agree on the contractual provisions for wages and working conditions that are binding on all employees.

And get this:  A works council is mandatory in Germany for companies with five or more full-time employees.  But works councils only form at the request of employees, so companies can operate without a works council until the workforce formally requests one.

While I hope the UAW’s next organizing effort at a Mercedes factory in Alabama proves to be successful, even more valuable would be the introduction of the works council concept at these auto plants.

It has already happened, at least in a nascent form, for fast-food workers in California.  The FAST Recovery Act, signed into law in 2022,  established a fast-food council that will be made up of workers and corporate representatives from the industry that will hash out standards for wages, benefits, and other working conditions.

This new council gets close to the European model in one important respect: sectorial bargaining.  Under such a model, employees and employers across an industry negotiate conditions all at once, instead of company-by-company, or location-by-location, as currently dictated by U.S. labor law.

Giving workers a voice that allows them to bargain as a unit, as unionization does, is a good thing.  An even better thing would be figuring out how to move away from the often-lethal us-versus-them mentality that descends on too many contract negotiations, once a workforce does go union.  With a goodwill commitment from both sides in the fight, the works council might help American industry find the sweet spot and discover a modicum of much-needed labor-management cooperation.

Robert J. Cavanaugh, Jr.

www.robertjcavanaughjr.com

bobcavjr@gmail.com

Lovesac Wisdom

April 23, 2024  |  540 words  |  Economics, Philosophy

Not a day goes by without a new batch of unsolicited suggestions for self-improvement hitting my inbox.  Fueled by the latest research, these highly-annotated ideas are meant to help me develop a higher level of empathy and improve my emotional intelligence, making me a more effective employer and manager, a better husband and father.

The latest pearl of wisdom came in the form of a promotional blurb for the newly-published memoir of a young man who built a wildly successful, publicly-traded furniture company from the humblest of beginnings in his parents’ basement.  In Let Me Save You 25 Years: Mistakes, Miracles and Lessons from the Lovesac Story, Shawn D. Nelson, the 47-year-old founder and CEO of The Lovesac Company (NASDAQ: LOVE), details how he turned his teenage daydream into a global brand.

The promo lets potential readers know the book is filled with personal stories that illustrate certain maxims Mr. Nelson has gleaned from the trials and triumphs experienced during his gritty journey.  Here is one I can certainly relate to:

Never lose your willingness to sweep floors, and you will become a uniquely effective leader known for your integrity.”

It sounds to me like Shawn D. Nelson might be a proponent of Servant Leadership.  This concept has been around for at least two millennia, of course, but was coined for specific application in the business world by Robert K. Greenleaf in his seminal work first published in 1970, The Servant as Leader.  After spending 40 years at AT&T, Greenleaf retired in 1964 as director of management research.  

He cited as influences his father, who stood for him as a role model for servanthood; E.B. White, whose writings emphasized seeing things as a whole; the culture at AT&T, which showed him it was possible to nurture the spirit of employees while making a profit; and the work of a nineteenth-century Danish Lutheran clergyman by the name of Nikolay Frederick Severin Grundtyig, who showed how servant leadership could transform a country.

Lots of academics and scholars have expounded on Greenleaf’s work since then, helping to carve out an alternative to the conventional hierarchical-oriented leader who sees his/her primary role as delivering profit to shareholders.  The alternative has introduced a more nuanced view of leadership that still achieves profitability while also embodying socially-responsible virtues like stewardship, ethical behavior, and collaboration. 

Such virtues should not be news, since in most cases they were transmitted to us as young children at our parents’ feet.  Just as an aside, neither my father or mother built a wildly successful business, or became a big-time corporate executive.  They were just your basic, salt-of-the-earth types who taught me to do unto others as I would have them do unto me.

Simple, straightforward advice which has stood me in good stead as I have made my way in the world as an employer and manager, a husband and father.  Though it is always good to hear from hard-charging entrepreneurs who have found a measure of humility along with their outsized success.  And I do welcome the work of all those experts who are busy detailing how best to apply such timeless concepts as servant leadership in the business world, while helping to redefine what constitutes ‘good leadership’ in that world.

Robert J. Cavanaugh, Jr.

www.robertjcavanaughjr.com

bobcavjr@gmail.com

California’s New Minimum Wage

April 12, 2024  |  954 words  |  Economics, Philosophy

Any suggestion to raise the minimum wage is countered with how such a mandate would adversely affect businesses that use low-wage workers, forcing employers to cut hours, lay people off, or switch to a more automated system.  We are also told it would invariably result in higher prices to consumers.

And when California’s new minimum wage law for workers at fast-food restaurant chains with at least 60 locations nationwide went into effect April 1, it was met with predictable howls of protest and breathless reports of one large pizza chain closing certain California locations, another even larger pizza chain eliminating its delivery drivers, and a smaller fast-food brand in the state deciding to close its doors completely.

But there is another side to this familiar scenario of wage-increases-equal-job-losses-and-higher-prices-to-consumers that usually escapes scrutiny.

Yes, raising wages increases operational costs.  And managing operational costs to achieve a competitive price point for your product that attracts the maximin number of potential customers is the first order of any business.

But if you are a successful operator in the fast-food space with at least 60 locations nationwide you have cracked the code and found the formula.  It is no longer a question of survival.  It is now a matter of trying to maximize the bottom line, not only to enhance the take-home for you and your executive team but also to make things more appealing for potential investors.

At the franchise level, one of the stories to appear in the wake of California’s new law came from the Associated Press, and quoted an owner of 10 Auntie Anne’s Pretzels and Cinnabon locations around the San Franciso Bay Area.  The individual reports the new wage increase will force him to come up with an additional $470,000 a year in payroll-related expenses, and he will have no choice but to raise menu prices 5 to 15 percent to offset the additional costs.  What this gentleman declines to share with us is what his 10 locations currently spin off in profit.  

This is the missing piece of the puzzle.  What if business owners decided not to maximize profit at every turn?  If you have climbed the mountain, if you have a successful business that essentially prints money, it should be okay to adjust the wage structure at the bottom of the organization so the grunts who get your product into customers’ hands can share some of the fruits of their labor.

Of course, this analysis extends up past the franchise owner and lands in the lap of the major fast-food corporations that maintain 60 or more locations nationwide.  Those entities should probably recalibrate the fees they demand of their franchisees, which in turn would allow the individual franchise owner some breathing room to pay its hourly line workers a better rate.

Not to pick on McDonald’s, but it has a net annual income of something like $2 billion on gross revenues of $6.5 billion.  That comes out to a pretty healthy profit margin of just over 31%.  Maybe good old  Mickey D’s could squeak by with, say, a mere 25% in profit.  The problem, of course, is how a slim-downed margin may make your enterprise less attractive to Wall Street.  And no one wants to risk that.

This is where we come face-to-face with an unsettling step on the road to achieving a more equitable (not equal) economy:  People at the top of the food chain who expect their money to “work” for them must scale back their expectations and settle for making a little less on the disposable income they choose to invest.

What of the many retirees of modest means who depend on a steady return on investment to fund their later years, you ask?  When high rollers cite this as a sign of solidarity with common folk it comes across as a diversionary tactic designed to preserve their own outsized gains.  Scaling back returns to a more reasonable level is not the same as slashing them.  As for those older Americans on fixed incomes:  Their concern is funding a retirement they have successfully reached; people whose career is at a fast-food restaurant are trying to get there in one piece.

Next is the argument that paying someone $20-per-hour to flip burgers or make pizza is just downright crazy.  It is the same complaint levied at unionized auto workers and the compensation package they receive for screwing nuts onto bolts.  This belligerent stance implies only people who do ‘important’ things deserve to make a living wage.

But that is the beauty of the American economic engine!  It is what distinguishes us from, say, Guatemala.  Through ingenuity and hard work, and harnessing an abundance of natural resources, some exceptional souls among us have created industries that mass-produce products to address social needs and/or make life easier, while delivering a measure of profitability far exceeding anyone’s wildest dreams.

If only we could adapt our sophisticated business-school model of how best to run these burgeoning industries, so the people on the lower rungs of the economic ladder, the ones with no leverage, did not have to scratch and claw for steady hours, safe working conditions, and decent pay.

One surefire way to prevent cumbersome government interference with our robust free-market economy is to continually improve the level of fairness and justice it yields.  Some organizations have made this a serious component of their corporate mission, but not enough to turn the tide.

Until we reach a critical mass in this area, when, for example, an international fast-food conglomerate deigns to rethink the 31% profit margin it earns on the backs of a low-wage work force, we can expect government to keep butting in with its ponderous, bureaucratic dictates regarding minimum wage laws.

Robert J. Cavanaugh, Jr.

www.robertjcavanaughjr.com

bobcavjr@gmail.com

Labor Freedom

April 3, 2024  |  200 words  |  Economics, Philosophy

“Economic freedom” is a phrase conservatives and libertarians are fond of.  It expresses their belief in the power of a free market to effectively address all of society’s needs in an equitable manner, with regulation or outside intervention only muddying the waters and gumming up the works.

But “labor freedom” is a new one on me.  It was recently cited by The Wall Street Journal in a short editorial criticizing the nefarious efforts of Big Labor and its Democratic allies in Congress to unionize the new, government-subsidized auto plants in our Southern states.  

In this way those staunch defenders of freedom at the WSJ are standing up for the rights of these working men and women to earn roughly half what their unionized counterparts typically make.

According to the prevailing conservative/libertarian wisdom, if down-on-their-luck locals don’t like what’s being offered at a government-subsidized auto plant that blew into town with great fanfare and a promise to revitalize the community, they have a choice.  Those employees can exercise the freedom they enjoy to find a different, better employer and go work somewhere else.    

Even if that means pulling up stakes and relocating far from their family and friends.  See, problem solved!

Robert J. Cavanaugh, Jr.

www.robertjcavanaughjr.com

bobcavjr@gmail.com