The awful Zero Hours Contract

This eminent and good friend has often remarked that I have turned into a socialist (even a communist) in my old age. He claims my writing in this blog is veering constantly to the left. Other readers of my blog ,might wonder, if this is left leaning then what will the true loony left be called. But I know I am going to get a mouthful from him for this post, which is admittedly leftwards tilting.

On matters relating to labour and worker law, I have often argued that countries have brought excessive legislation defending the existing worker and making it expensive to employ any more.Who in his right mind will employ a worker in France, for example. All this misguided legislation only keeps out a large portion of the young out of the workforce. Companies need some flexibility to ramp their worforce up or down based on conditions of their business and marketplace. Minus this flexibility, no modern company is going to hire.

But companies have gone to the other extreme and misused the flexibility to create completely unfair job practices. Take the case of the "Zero Hour Contract" - a British invention and used to the hilt by a wide swathe of so called respectable companies. As a worker you enter into a contract with the employer . but there are no working hours guaranteed, hence the name zero hours contract, You are expected to sit glued to the telephone. When they want you, they'll call you. You have to jump like a jackrabbit and run to the office or factory or store or whatever and you work for the hours they tell you to. You get paid (often the minimum wage) for the hours that you do. Then off you go without knowing whether you have to return tomorrow or not. Back to the vigil by the telephone. During this time, you cannot accept any other employment, even if the phone never rings. And when it rings, if you cannot come to work, you've really lost it and won't get an opportunity for quite some time.

Sports Direct has become the notorious poster boy for this with apparently 20,000 of their total 23,000 employees on Zero Hour Contracts.

This sort of behaviour is why companies and businessmen are hated by the general public, who think they have no scruples or morals in the eternal quest to make more money. Flexibility in the labour pool is one thing. But to keep 90% of your workforce 'flexible" and not even telling them whether they have to come to work tomorrow or not, is surely extreme. There is no business in the world which cannot know how many workers it needs for the next one month at least.  Some sort of rostering is surely possible. And preventing the guy from finding work elsewhere when you have nothing for him, is positively outrageous.

In such an atmosphere, how can there by any training or skills building. What sort of employee commitment can you expect.  Will the worker have one good word to say about the company. And you think this is an efficient business model. And this is a sustainable approach for success . Only a moron can think so.

Peculiarly, one of the organisations discovered to be using this rather widely is Buckingham Place !!  Pip Pip, Your Majesty - this is just not cricket !

Employers have to understand, and demonstrate, that if they want softer laws, they will have to behave reasonably and not exploit. If they can't, or won't, then they should stop moaning about excessively rigid labour laws.

Lie Down Mr Goodwin

Arise Sir Fred, the Queen of England said in 2004 after tapping the kneeling Fred Goodwin lightly on the shoulder with her sword. This archaic ceremony is the conferring of knighthood by the Queen of England. If you are a citizen of the UK or one of its dominions then you can call yourself  "Sir".

Fred Goodwin was the CEO of the Royal Bank of Scotland in its boom years. An unknown, middling bank in Scotland (where's that for Gods sake), he took it to become one of the largest banks in the world. First the acquisition of Natwest, a big British bank much bigger than RBS. And then the mega takeover of ABN Amro, just as the financial crisis was unfolding. The bank was growing wildly through mega acquisitions and was cheered on by all and sundry - the shareholders, the market and even the government, including Gordon Brown, the then Prime Minister of the UK. Hence the knighthood. Sir Fred could do no wrong.

Of course the party couldn't last. It came crashing down with the financial crisis. Sir Fred was axed after the bank reported a loss of £24 bn - the largest in UK corporate history. The UK government had to inject £45 bn to bail out RBS. The public was baying for his blood. He compunded his misery by trying to keep his £16m pension pot - for the years of service he had rendered. Public outcry forced him to give up part of this, although that's an unfair step - if you have to give up your accumulated PF because of a mistake you made, how unfair would it be for you.

Now the UK government has decided to withdraw his knighthood. This is very rarely done. He has for company, Anthony Blunt (a spy), Nicoale Ceausescu, the notorious dictator of Romania and Robert Mugabe, the tyrant of Zimbabwe who were all knighted and the knighthood subsequently withdrawn when it was realised what scoundrels they were. Fred Goodwin is however no scoundrel. The withdrawal was the result of a baying mob (otherwise called the British tabloid press) just wanting to inflict its own brand of punishment.

Fred Goodwin wasn't the first, and certainly won't be the last, to mistime a huge acquisition (ABN Amro) and get killed in the process. He made a bad misjudgement of the extent of the financial crisis - after all who didn't. But he did no crime. He hasn't even been charged, let alone convicted of any wrong doing. If business misjudgement was a crime, each one of us is a criminal. At that time, the shareholders of RBS enthusiastically supported his every move. There are many others who have been conferred knighthoods and were equally in the mess of the financial crisis.

The British are justifiably famous for their sense of honour and fair play. In this instance however, that noble quality seems to have deserted them. Punishing Sir Fred, with Mr Goodwin isn't cricket, old chaps !

The UK conundrum on pensions

If you are in the UK this coming autumn, you better brace yourself for a series of strikes. Public sector unions are calling for a series of sustained strikes. Throwback to the 80s perhaps ?? Maybe. My view is that these planned strikes are completely unjustified and the unions are living in cuckooland.

The problem is pensions. Readers of this blog are young enough to completely switch off at the mere mention of this word. But this is one of the biggest problems in business today.

The problem is that, years ago, stupid HR types, gave away a perk called "defined benefit" pensions. This meant that when you retired you were eligible for a pension which was a high percentage of your last drawn pay. To add insult, these would be inflation indexed and accrue to you till you die. That's all fine, but who's going to pay for all this. The even more stupid accounting types, blissfully ignored the ramifications of what they had promised and simply ignored this future promise. When the time came to pay, surprise surprise, there was no money. This is what brought the mighty car industry in Detroit to the shambles it is in today.

Private industry woke up to this menace a decade or two ago. Firstly they started to predict what might be the princely sums they had to pay and started providing for it (which basically meant that the cost of labour went up astronomically). Secondly, the wise ones stopped recruiting new people on this crazy scheme and instead switched to a scheme wherein your contribution was matched by the employer - but did not promise that you will get moneys linked to your last drawn salaries. The problem will therefore go away in a couple of decades.

But the public sector has been sleeping. Or scared to get up because of the unions. This is the problem in the UK. They are still continuing the unsustainable defined benefit scheme. But the government is now asking that the employees increase their contributions by 3% more. This is what the unions are wanting to strike against. 

Public sector workers must be garlanding the government that they still can get defined benefit pensions. Nobody in the private sector can get it today. Instead they want to go on strike to protect some prehistoric "entitlement". The government should call their bluff and let them strike. They risk alienating voters enough so that Margaret Thatcher II would be voted to power. That should make them pause and think.

Two cheers for Labour's Cadbury law

The Labour party in the UK has announced a “Cadbury Law” as part of its election manifesto. This was motivated by the aftermath of the Kraft takeover of Cadbury. It has many good and some bad features and can potentially be a model for takeover law in many countries.

The broad proposals are as follows

- M&A transactions have to be approved by a two thirds majority and not just a simple majority.
- People (read hedge funds) who buy shares in the target after a bid is announced would be barred from voting
- A “national interest test” is being considered to prevent foreign takeovers in vital industries” – defence, utility, infrastructure being thought of as “vital”

In the red corner in fervent defense of these proposals are the Labour party, obviously, the Confederation of British Industry and Unite – the powerful Trade Union.

In the blue corner, opposed vehemently to this are the Conservative Party, obviously, and the Association of British Insurers. Silent, but presumably in this camp are all the hedge funds, speculators and assorted punters. Silent and sitting neutral are Britain’s Takeover panel (the body that oversees takeovers) and presumably the Liberal party.

I am vigorously in support of the first two proposals and strongly against the third. Hence the two, rather than three cheers.

Firstly I completely support the requirement for two third’s majority. That is a principle that is fundamental in many political democracies. Game changing issues require two third’s majority; simple issues can be passed with a simple majority. Something as fundamental as a takeover, that could potentially extinguish a company should not be taken lightly. It requires a broader support that a simple majority. The argument that such a provision will make takeovers difficult in the UK and that it would protect failing management is humbug. If the case is strong, it will achieve two third’s majority. If its weak, it doesn’t deserve to pass. No consistently failing management can achieve a blocking 34% support.

I defy any rational person to challenge the second proposal. This blogger has railed in the past against the practice of hedge funds buying up huge stakes in targets, clamouring for an increase in the bid and then forcing the target to accept the bid so that they can cash out profits – all under the threat of law suits if they did otherwise. These speculators deserve no sympathy and certainly not voting rights.

Unfortunately Labour has sullied its hand with the spurious “national interest” proposal. This is daft. There is no national interest in roads or power or for that matter BA. This proposal is just a throwback to the days of the public sector, where without competition, Britain’s dinosaurs were just awful. And we have the old problem of defining what is a British fund or a British bidder. This proposal deserves to be trashed into the dustbin.

Notice that an election manifesto contains such well thought out issues, which you may agree or disagree with, but indicates the level of maturity of Britain’s politics. Contrast this with India’s homegrown variety of elephant statues, free colour TV, loan write offs, free power, sacks of cash ….. Or with China’s complete absence of debate on any policy ….

Ni Hao Great Britain

A crying shame, it is. This blog is not meant to be political in nature and is (usually) not prone to hyperbolic hand wringing. This post does both, unashamedly. I just could not believe that the Digital Economy Bill was “passed”, or rather rushed through the British House of Commons. Actually what took place was the ‘Third reading”, which is not the same thing as passing. But we won’t get into quaint British parliamentary traditions where worthies have to yell “Hear Hear” when they actually are meaning &^%$ @#$. They effectively passed that bill. See the photo in this article to see how vigorously attended this debate was.

I am not a British national; I do not live in the UK and have no business commenting on British policy or laws. But I am a self confessed Anglophile. I hold great fondness for all that is good and great in Her Majesty’s kingdom. That paragon of virtue, fair play and freedom, passes such a thing as the Digital Economy Bill - that is difficult to stomach.

95% of the bill is all good and fine, even though it will never achieve the objective of making the UK an IT power house. You cannot make an IT powerhouse when one third of the population reads The Sun, one third drinks 75 pints a night at the pub and one third’s religion is called Manchester United !!

It’s the 5% that is horrible. It gives the power to the government to block internet sites. Read that again – block internet sites. They can block sites that “is being, or is likely to be used in connection with an activity that infringes copyright”. Read my lips – Blocking any website, whatever be the reason, is just wrong. If you believe a website is violating copyright, go to a court of law ; prosecute the site owners; that’s the correct process. Not blocking their site.

This bill has all sorts of provisions on copyright. They can get ISPs to disconnect people who are supposed to be violating copyright. The bill seems to have been lobbied for hard by the old world news and music dinosaurs. A certain old man with big interests in the UK media comes to mind, but we shall refrain from going in that direction.

These dinosaurs are just flailing around as the internet is destroying their old cosy models on copyright. Remember how the music dinosaurs forced you to buy an expensive CD full of rubbish just to get at the one good song you liked. Remember how the music labels forget that the world is global and restrict stuff to certain countries. Remember that if they sensibly priced it and offered reasonable terms, a la iTunes, people will pay for them. Remember that declining costs and profitability are a factor to be tackled in all industries and there is no God given right to media that they should be exempt from it. Remember that content creators on line do succeed if they have appropriate business models. But then dinosaurs are not adept at adapting, as we all know.

Instead they go and get a law such as the Digital Economy Bill. I would expect such a bill in the country which the title of post alludes to. Not in the land of hope and glory.