Workplace Tremors: How Chapter 11 Is Demolishing Employee Expectations
Some people insist that fairness requires that we slash wages across the board if we cut wages for anyone. Well, I am sorry. My job is to preserve the value of this enterprise as we restructure. We have to adjust to market conditions and appropriately pay for our human capital at each level. There are large disparities in this country and around the world in what people can expect for mowing the lawn, versus managing a huge business. It may not be fair, but it is reality…. They [have to] understand that I haven’t got any more money.
Robert S. “Steve” Miller, Delphi Chairman and CEO
Time was when declaring bankruptcy, whether for a company or an individual, was a sign of shame, and admission of failure. Having been through it myself, I can vouch for the feeling of failure, but the social and business stigma that used to accompany a declaration of bankruptcy has long since left the building. When it comes to businesses, too often these days Chapter 11 is just another business decision, a way to jettison crushing and/or inconvenient debt in an effort to create greater value for shareholders…and leaving workers in their dust. Left unsaid, of course, is the reality of who’s paying those costs- you and me- but that’s a story for another time. No, what concerns me this time around is the growing trend among businesses of filing for bankruptcy to rid themselves of onerous labor contracts and costly worker benefits.
Welcome to the brave new world of labor relations. It’s despicable and it’s underhanded, but it is, after all, just business.
The scene in Lower Manhattan was reminiscent of teenagers rushing to the front of a concert stage, only this time it was middle-aged lawyers and Wall Street bankers who pushed elbow to elbow into a federal courtroom no bigger than a gas station mini-mart.
The throng of pinstripe suits forced court aides to call in workers to pry open windows for ventilation, allowing U.S. Bankruptcy Judge Robert D. Drain to proceed with the Oct. 11 opening-day hearing regarding the “petition for relief” by Michigan auto parts maker Delphi Corp. under Chapter 11 of federal bankruptcy laws.
Once shunned by respectable companies and ignored by Wall Street, federal bankruptcy court has become the venue of choice for sophisticated financiers and corporate managers seeking to pull apart labor contracts and roll back health and welfare programs at troubled companies.
About 150 major corporations are now in some stage of bankruptcy reorganization, including four of the nation’s leading airlines. As the prospect of other large enterprises taking a spin down Chapter 11 becomes more widely discussed in business circles (“maybes” on the list include such iconic names as General Motors and Ford), the tactics used in bankruptcy courts are shaking the very foundations of the American workplace.
Whether an assembly-line worker or middle manager, an employee can no longer assume that promises made earlier — health benefits or fully funded pensions — will be there when he or she retires. The loss of security arising from Chapter 11 reorganizations has introduced a new element of anxiety into the lives of baby boomers who are approaching 60, not to mention younger workers just starting out in their careers.
It would seem that we have arrived at a place where any semblance of a social contract between business and labor is just so much smoke and mirrors. Business has, after all, been always about the bottom line- anyone who’s been laid off (as I have) can tell you that much. Now, though, there can no longer be any doubt that workers are viewed merely as commodities, valued only for their productive capacity and cast aside once that capacity diminishes to an unacceptable level.
Mt father’s generation could reasonably have expected to work at a job for many years, retire to a comfortable pension, and enjoy the largesse that stemmed from many long, hard years working for The Company. That world has been merely a memory for many, many years now. Rare is the person who works for the same company for an entire career. With the global economy making competition more cut-throat and ever-present, job security and stability is in many cases no longer part of the equation.
Why the surge in corporate bankruptcies at a time when the economy is expanding? The explanation heard most often is two-fold: global competition and out-of-control labor costs. Competition from low-wage assembly plants in Mexico and Asia is tightening the screws on American manufacturers who must pay top-dollar wages to unionized workers as well as promised pension and health benefits, known as “legacy costs,” to retirees.
“Legacy costs are killing us,” says Robert S. “Steve” Miller, who was named Delphi’s chairman and CEO last July. Miller is emblematic of the shifting nature of bankruptcy law. A self-styled “corporate doctor,” he has a law degree from Harvard University, a master’s degree in finance from Stanford University and a blunt speaking style that makes him quotable in the media.
Before taking Delphi into Chapter 11 on Oct. 8, Miller made it known that unionized employees represented by the United Auto Workers (UAW) would have to accept either a wage reduction of 62 percent, from an average of $26 an hour to as little as $10 an hour, or sharp benefit reductions to retirees.
Delphi may be an extreme example of what is happening in the American workplace, but as time goes by, I believe it will serve as a harbinger of things to come. We live in a world in which supporting a family on $26/hour can be difficult. How can anyone reasonably be expected to do it on $10/hour? Yes, I understand the circumstances that have brought Delphi to this place, but I wonder what sacrifices management is being called upon to make? If I’m a rank-and-file employee being asked to swallow a 62% wage cut, I want to know that management is also going to feel the pain. I want to know that they are going to have difficulty making the payments on their BMWs, their Porsches, and the pricey, exclusive private schools and colleges their children attend.
But the reality, to use Miller’s word, isn’t so simple. Delphi does have money — specifically, it has $1.6 billion in cash on hand. Even more significantly, it secured $2 billion in loans and revolving credit from Citigroup and J.P. Morgan Chase bank just before it filed for bankruptcy. Which raises a question that the common explanation for Chapter 11 filings doesn’t answer: If Delphi is so broke, with unsustainable wage costs and skyrocketing pension obligations, why are two of the nation’s major banks offering to lend it money on excellent credit terms?
The answer: For the same reason that Bank of America, General Electric Capital Group, UBS Securities and distressed property, or “vulture,” capitalists have invested billions of dollars in supposedly tattered companies entering or exiting Chapter 11 since 2001. Investors can profit richly from the meltdown of established companies — at least in the short run. Chapter 11 protects a company from creditors as management develops a reorganization plan and restructures its liabilities in the hope of becoming profitable again. Older companies may have high legacy costs, but they have long-term customer contracts and plenty of cash flow.
Of course, the only people NOT making money off Chapter 11 are the workers being asked to accept massive wage and benefit cuts. It’s not that the money isn’t there for these companies; it’s just that there is a much greater return on investment to be had if that money isn’t going to workers- never mind the fact that without the workers, there IS no company.
“The way the code is now structured, the temptation is to make the workforce pay for management’s mistakes, rather than taking all of the stakeholders into account and re-building the company together,” says Harley Shaiken, a professor at the University of California at Berkeley who specializes in labor issues. Chapter 11 calls on management to bargain with unions in good faith to reduce costs, but also permits management to petition the court to void labor contracts and substitute whatever terms it chooses. Properly stage-managed and set in motion, the restructuring process can steamroll the union, peel away retiree benefits and dump pension obligations onto the [Pension Benefit Guaranty Corp. (PBGC), which Congress set up in 1974 to insure defined-benefit corporate pensions].
In short, you and I end up paying the freight to cover pension costs when corporations decide that they can prop up their stock price (and thus their own year-end bonuses) by jettison the “inconvenient” responsibility of funding employees pension plans. It’s so much easier when you can simply treat workers like the dsiposable commodities they are, eh? After all, when workers no longer provide value for a company and it’s shareholders, why shouldn’t a company be able to toss them aside and replace them with someone younger, cheaper, and more productive?
The days when loyalty might have been looked upon as a two-way street are long gone, and American workers should be honest with themselves. We will be treated as if we matter only so long as our employer can exploit us for whatever they can get out of us. Once that ceases to be the case, we should expect to be tossed out like yesterday’s coffee. What we are seeing now is only the tip of the iceberg. Given the current climate, we can and should expect the state of labor relations to steadily decline as corporations discover new and more egregious ways to wring every last bit of value out of employees before tossing them out with the trash.
Welcome to the New World Order, eh?
