MASON INDUSTRIES IS A LEADING producer of automotive components for U.S.
auto producers and, increasingly, for their foreign, Third World subsidiaries
as well. Founded in 1921 in the small Michigan town of Bedford, Mason's
growth paralleled the rapid expansion of the domestic auto industry. As
Mason grew, Bedford grew, to the point where 40% of Bedford-area workers
were employed by Mason. Benevolent leadership, solid growth, and profitability
enabled Mason to offer some of the highest wages in the area and made possible
a strong tradition of civic generosity. Libraries, recreation facilities,
innovative social and educational programs—all bore the brand of Mason
sponsorship.
From 1955 to 1984 Mason enjoyed 10% annual growth in sales. By 1984, the
peak year for sales, Mason had revenues of $400 million and profits of $45
million. During the same 30-year period, Mason was able to build and sustain
a commanding lead in product technology, largely through prudent and farsighted
investment in state-of-the-art research facilities. Beginning in the late
1970s it also started to pay strong attention to improving its manufacturing
plants outside Michigan. While the old plant #1 in Bedford continued to
produce 80% of the mufflers and catalytic converters that counted for the
core of Mason's business, the new plants made products Mason considered
essential to its future and the hottest prospects for major growth—electronic
timing devices, fuel and air filters, and sophisticated emissions controls.
Being outside of Michigan in states with weak climates for union organizing,
the new plants enjoyed wage rates and total operating costs 10% lower than
Bedford #1.
Beginning in the early 1980s Mason's primary business began to change. Stagnation
became apparent in its principal customer base—the U.S. automotive
industry. Its major customers, GM, Ford, and Chrysler— themselves beset
by intense competitive pressure for Japanese-level cost and quality—began
to insist that Mason and other suppliers meet more rigorous standards or
lose their business. Said Mason's president in 1984, "We can only have
one goal—to make our customers as competitive in their own markets
as they can be. This is our biggest responsibility.
Unless we can deliver, we don't deserve their business, and if we don't
deserve their business, then we're out of business ourselves. That means
jobs and our communities will be the losers as well as the customers we
have an obligation to serve."
As a result of growing pressure, in late 1984 Mason took the unprecedented
step of cutting prices 10% across its entire product line. The end result
of this "world pricing" was that Mason held its market share with
its principal customers, but profits dropped sharply. "We cannot sustain
world pricing unless we cut our costs dramatically," observed Mason's
chairman at the time. "We need profits to build for our future."
Throughout 1985 and 1986, price pressure continued as "gyppo"
or cut-rate manufacturers began to woo Mason customers in the U.S. and in
Brazil, Mexico, and Korea, where Mason counted on building a strong future.
Because of the need to cut prices further and the slow progress Mason was
making on its goal to cut costs 30% in two years, Mason President John Lee
surveyed a sober set of business conditions in June
"Sales for '86 will be lower than '84 and '85. Our profits will fall
dramatically if we stay on the current course. Price cutting means we may
not even break even this year. We're holding good market share, but we simply
can't operate at unacceptable levels of profitability. Now the financial
community is getting nervous. New product introductions and the cost of
borrowing for new plants have been costly. We borrowed heavily to finance
the future. Unfortunately, rates were high when we did. We need far better
profits and cash flow than we have now to service the debt and keep the
stock price up.
"Already Townsend Filter has fallen to an unfriendly acquisition. With
our solid technical capacity, modern plant, and strong customer base, we'll
be an attractive prospect unless the stock price moves higher. I'm convinced
our independence is best for our shareholders and certainly for this community.
Their prosperity depends on our continued corporate presence. So the stakes
are high. I need your best ideas on how we get back to target profit levels,
and I want it done in a way that meets the commitments I feel we have to
our customers, our people, and our communities.
"Joe, you represent manufacturing. What's your assessment?"
"Right now we're at 60% of capacity system wide in the U.S. The Bedford
#1 is operating at 80% and the Little Rock, Chattanooga, and NacEville plants
are each at 50%. The three new plants are tooled for electronics and new
emissions devices, but for $2 million we could outfit them to take 40% of
Bedford's production. That
would give us 15% lower costs for the products we are now producing in Bedford.
I know that we've resisted moving production out of Bedford in the past,
and I know that we've made sizable investments to modernize machinery and
improve production flow at Bedford, but I don't think we can afford not
to take advantage of the savings a move can deliver. I've always advocated
getting production to the cheapest domestic sites until we can get our labor
costs in Bedford in line with the industry norm. That may be controversial,
but we could do worse. We could move the production to Brazil. We'd save
the whole 30%. But then the jobs leave the U.S. At least this way they stay
here."
"Carol, you're personnel and labor relations. What's your view'
"Look, we can't forget the fact that we're facing union negotiations
next spring. Moving 40% of the converter business South now just isn't on.
The shop employees didn't get much the last round of negotiations. We gave
them profit sharing, but that's been meaningless. Now we do have redundancies
in the labor pool. I estimate that we're overstaffed 10% in administration
and 20% in direct labor. I say the way to get the cost out is with a generous
early retirement program to reduce the labor surplus. That will cut overhead.
And the union will respond. We've avoided layofls here in Bedford since
'82, but the shop force knows the business situation. They can see that
we'll have to make mandatory cuts if we can't lower costs fast The principle
I operate on is to give people voluntary options before we impose mandatory
measures. That's only fair. I think that honors our commitment to Bedford
better than moving production out. We shouldn't shift work until we've used
the voluntary options. It's not the Mason way. Besides, we all know that
it's still possible to maintain a competitive plant in Bedford, although
significant changes may be required to do it."
"Hal, what's the finance view?"
"I appreciate Carors appeal to principle, but there are some tough
facts that block what she proposes. First, our cash position is going to
keep us from a sweet early retirement package for the union. After debt
service there's just not enough left to do the job. Last round we funded
the early retirement sweetener out of the pension fund surplus, but the
union fund doesn't have a surplus now. The exempt work force fund for salaried
workers still has a generous surplus to fund extra retirement incentives,
but from what I hear reducing the salaried work force through retirements
will only get out 18% of our costs. In addition, these funds cannot be co
rningled."
"Listen," rejoined CaroL "Let's look at who we are for a
minute. This company grew in Bedford. Our history is a history of
commitments to Bedford and its people. The core of our business comes out
of this plant. Now the folks in Tennessee and Arkansas, they're part of
the family, but honestly, I think history gives us a stronger obligation
to our home base than to these newer communities. Before we act let's think
about who we are and the commitments tbat we've always cared about."
"Carol," said HaL "I respect what you're saying, but the
world has changed. Time was when we could afford to offer a better-/ban-average
wage and pass it on to the customer. That's over. There are folks in BraziL
Japan, and Korea just itching to take jobs from us. I say better to send
business to our own folks in the South and save this company than to keep
Bedford whole sn`1 run Mason out of the market."
John Lee closed the meeting with this summary. "Carol's right in reminding
us of our history. There's growing talk that Mason has changed. I don't
agree. But Hal has a point, too. The environment is brutal. I don't intend
to compromise our values one iota. Our people have to know that. But we've
also got a business to run. Now as I figure it, we've got to cut and paste
the options you've put forward to get the results we need. Where do we go
from here?."
| 1986 (est) | 1985 | 1984 | 1983 | 1982 | |
| Sales (millions) | $340 | $360 | $402 | $361 | $321 |
| Net Profit (millions) | $(29) | $ 3 | $ 35 | $ 13 | $(41) |
| R.O.S. (%) | NA | 0.8% | 8.7% | 3.6% | NA |
| Industry Average R.O.S. (%) | 2.5% | 10.7% | 4.3% | 1.1% |
| 1985 | 1984 | 1983 | |
| Salaries, Wages, Fringes | 48% | 44% | 36% |
| Materials and Services | 33% | 32% | 36% |
| Depreciation | 5% | 4% | 4% |
| Taxes | 7% | 7% | 7% |
| Interest Expense | 6% | 4% | 4% |
| Net Earnings* | 1% | 9% | 4% |
| *Rounded from Table A | 100% | 100% | 100% |
| 1985 | 1984 | 1983 | 1982 | |
| Mason | 46% | 45% | 46% | 42% |
| Industry Average | 37% | 40% | 36% | 36% |
| 1986 | 1985 | 1984 | 1983 | 1982 | |
| Beginning - Ending Price per Share | $22-17 | $37-22 | $26-37 | $18-26 | $15-18 |
| Facility/Age | Shop Employees | Average Hourly Wage* | Percent Utlized | Unionized |
| Bedford #1(65) | 2,620 | $19.75 | 80 | Yes |
| Little Rock, AK (25) | 375 | 11.20 | 50 | No |
| Nashville, TN (9) | 390 | 10.10 | 50 | No |
| Chattanooga, TN (3) | 270 | 10.00 | 50 | No |
| Sao Paulo, Brazil (3) | 320 | 4.25 | 70 | Yes |
| Bedford #1 | Exhaust Systems, Catalytic Converters |
| Little Rock | Catalytic Converters, Electronic Fuel Systems |
| Nashville | Exhaust Systems |
| Chattanooga | Catalytic Converters, Electronics |
| Sao Paulo | All Products |
IF MASON INDUSTRIES IS THINKING of moving, that move is going to hurt the
economy in Bedford terribly. But more than that, it's going to hurt individuals
and their families, service industries, and financial institutions. It's
going to have a snowball effect within that town. Mason began in Bedford
and made its money in this town, money that permitted the firm to become
a major corporation that could compete as well as it has as an independent
corporation all theseyears. Mason has opened new operations in other parts
of the United States, and in Brazil—areas where people are paid less.
From what I read, they are paid close to minimum wages and probably have
fewer benefits. I have less sympathy for the company in this case, except
that it employs people. Also, I don't believe that putting American companies
in foreign countries betters the people in those countries very much. Much
of this is exploitation. People with whom rve spoken who work in these countries
say, "Don't buy these products. Because these people work for so little,
you're really not helping them. They're almost slave labor."
Mason Industries should realize the obligation it has to Bedford and its
people given the contribution they have made to the company. While the company
has done good things for the city, those civic activities were in part due
to the contributions of the workers as participants in the company and due
to the town itself which provided a suitable environment for the company's
prosperity. Hence, that which comes back into the community, in the form
of parks or whatever, is a joint gift of the workers and the corporation.
The company should not take a paternalistic attitude in assuming that its
contributions to the community are merely charity. It does not appear that
management has made much effort to involve the city, the county, the state
government, even the Feds, in dealing with this problem. Perhaps management
will decide to close Bedford #1 without telling anybody. The city will lose
its tax base. Government may then assume the burden of supporting the workers,
the merchants, the people the workers brought in, etc. Since closing the
plant would hurt many of these different entities, I think they should be
brought into the picture earlier. Then, together with the workers and the
company, they should determine what might be done at Mason in Bedford, to
maintain as much of the current worker compensation as possible and still
keep the company competitive.
It is to everyone's benefit to create a partnership in this discussion.
I think that some workers would take early retirement if it were sweetened.
Perhaps public entities could help make that happen. Such a public/ private
package might, in the long run, be cheaper for the public sector than unemployment
or welfare. Another possibility might be for the city, the county—the
taxing bodies—to consider a tax abatement or tax relief which would
permit Mason to retool the Bedford plant to be more competitive, rather
than moving it somewhere else. All these strategies require participation
by all parties affected by the possible outcomes. Management, if it is to
be a good corporate citizen, should be willing to attempt such a partnership.
I would not advocate a cut in wages at the Bedford plant as the first option
to consider in this case. Rather, this should be considered in a broader
context of possibilities. Workers might be willing to take a wage cut, but
other possibilities must first be explored. Can Mason refinance its loans
with its lenders? Can Bedford be retooled and modernized? The case seems
to indicate that it should be. More automation would probably mean fewer
workers, in order to preserve jobs with a good salary. If we focus exclusively
on wage cuts, then we move toward the lowest denominator in Sao Paulo, Brazil.
This could upset the workers because they see themselves as the most expendable
item. In my strategy, wage cuts would be a last resort action done in combination
with these other measures. Most workers, rather than lose their job, will
negotiate. But I think you get into a head-on collision if management says,
"The only way you can stay is to accept $4.00 an hour, or $4.00 a day."
That's non-creative thinking. If the workers saw a way that, with retooling
and refinancing, the profit-sharing component of their wage agreement would
start to escalate at a future date. they mi~ht take a lower salary for X
amount of time. If they saw the potential for the profit-sharing to pay
off, they might negotiate. I am concerned that Mason has made considerable
investment in new plants but does not seem to have made suffficient investment
in modernizing Bedford #1. The three new plants are tooled for electronic
and new emission devices. Mason hasn't done that with the old plant. Management
could put $2 million into the three new plants and take away 40% of Bedford's
production. It seems that Bedford was "shorted" at the beginning.
Management had the vision to see what was needed at the other plants, but
the goal really was cheap labor, and those plants were outfitted for cheap
labor with the new kind of electronics. If Mason had outfitted Bedford in
a better way, perhaps the moves to the three other plants could have been
avoided. What if the company had put $2 million into Bedford, had gotten
something from the Feds or the state or the county, and had received concessions
from the workers? Bedford might then be as competitive as the other plants.
In sum, there must be a solution which respects the needs of the workers
in Bedford but which also makes sense for the company.
| —Reduce 1984 Operating Costs 30% | $101.4MM |
| —Return to Break-Even from 1986 Loss | 29.0 |
| Total | $130.4MM |
Thus, cost reduction, where Mason has direct control, is the quickest and most effective approach for attaining John Lee's corporate objectives.
Mason should be viable by attaining its historical R.O.S., which averaged
4.3 percent from 1983 through 1985, and peaked at 8.7 percent in 1984, since
it compares favorably with the industry average of 4.7 percent.
Mason must retain its base business, plus the more sophisticated growth
business.
Alternatives
I. Move 40 percent of Bedford's production to Sao Paulo, Brazil. Mason's
operating manager, Joe, stated this would reduce 1984's operating costs
30 percent, thus achieving one step of John Lee's objective. Using case
data, I calculate the savings at $72,844MM. Personnel reductions at Bedford,
excluding any severance pay, yield $41,396MM, and Sao Paulo's favorable
wage differential, less $1MM for training and start up, yields $31,488MM
(See Attachment B). However, Mason incurs severe adverse consequences.
—Very poor logistical location for servicing its U.S. customers.
—No growth in southern lower cost plants, perpetuating their vulnerability
to U.S. competition.
—Significant compromise of Mason's commitment to U.S. employees and
communities.
Consequently, I conclude this alternative is unacceptable.
II. Combine the various recommendations proposed by Joe, Carol, and Hal
to attain the requisite pre-tax savings. I define this need in terms of
R.O.S., plus turnaround of 1986's loss, with the following range, assuming
sales of $340MM.
| Pre-Tax R.O.S. + | 1986 Loss | Total Required | ||
| Sales | % | $ | ||
| 340MM | 4.3 | 14.6 | 29.0 | 43.6 |
| 8.7 | 29.6 | 29.0 | 58.6 | |
Action Plan
Implement cost reductions in this sequence to minimize the demoralizing
impact of significant personnel reduction upon Mason's employees and the
Bedford community.
· Reduce Material Costs - 5 Percent Pressure Mason's suppliers
to reduce their costs. Based on 1985 costs of $119MM, 5 percent is $5950MM.
Probability of success may be 70 percent. Reduce attainment to --------------------------------------------------$
4,165MM
-Renegotiate Loans - Reduce Interest
Assuming credit conditions and prime lending rates are lower in 1986 than
when loans were made, target I percent of $22MM interest expense.-----------------------220M
.
.
-Defer Payables - Accelerate Receivables
Notify suppliers your terms will be net 60 days. Monitor receivables to
get payment within 45 days. The case data is insufficient to quantify these
savings.
Defer Non-Essential Capital Investments
Limit capital spending to essentials to improve cash flow. I'm unable to
quantify from case data
· Retire Bedford's Excess Personnel
Reduce administrative salary 10 percent - offer generous early retirement,
including six-month severance and professional outplacement. If fewer than
10 percent accept, mandate retirements to attain 10 percent savings (See
Attachment C).-------------------------------3,609MM
Retire 20 Percent of Bedford's Direct Labor
Although funds are insufficient to improve retirement benefits, Mason must
negotiate severance and outplacement counseling with its union (See Attachment
D). ----------------18,644MM
.
Negotiate Bedford Wage Reduction
Bring Bedford's wages to parity with its local competitors with a $2/hour
wage reduction. I anticipate stiff union resistance to any give-back proposals,
but the union will recognize it's an alternative to moving work South and
could save 218 jobs at Bedford. (8,592MM/$39,500 cost/person = 218 people).
Probability of achieving union acceptance is 50 percent, thus valued at
4,298MM (See Attachment E).--------------------------------------------4,296MM
· Shift Work South
Shift work to Mason's lower cost southern plants, elimi-nating jobs
at Bedford. Negotiate severance and out-placement with union. The cumulative
value of the potential savings listed above is $30,934MM (See Attachment
G). Thus, I concluded we should target the following additional reductions:
John Lee's Objective, (See Attachment A) ----------------------$130.4
Less Savings Identified---------------------------------------------- 30.9
Remaining----------------------------------------------------------- 99.5
A shift to the South is essential for Mason Industries to survive. Increasing
utilization from 50 percent to 100 percent at Chattanooga, Nashville, and
Little Rock, should save $60,088MM (See Attachment F).
When it's completed, over six to twelve months, cumulative potential savings
would total $91,022 (See Attachment G), leading me to conclude further cost
reduction may be necessary to get closer to $11OMM. Some or all of the following
action should be implemented:
—Move some limited work to Sao Paulo.
—When cash is available, increase plant capacity in the South, and
further reduce Bedford.
—Retire more Bedford salaried employees.
—Negotiate wage concessions beyond $2/hour.
| 1984 ($ millions) | |||
| Sales | |||
| Salaries, wages, fringes | $177 |
||
| Materials and services | 129 |
||
| Depreciation | 16 |
||
| Interest expense | 16 |
||
| Sub total | |||
| Operating Profit | |||
| Taxes - 7% | |||
| Net Profit | |||
Potential Savings Relocating 40% Bedford to Sao Paulo
- Bedford Personnel Reduction Hourly 2620 x 40% = 1048 people 1048 x (19.75/hr
x 2000 hr/year) = $39.500/person------------------------------------------$41,396MM
- Sao Paulo Favorable Wage Differential
1048 people (19.75 - 4.25 x 2000) =
$31,000/person-----------------------------------------------------32,488MM
- Less Sao Paulo's Estimated Cost for Start Up and Training -----------(
1,000)
-Total---------------------------------------------------------------$72,884MM
Corporate Cost for Salaries, Wages, Fringes
| Location | Shop Employees | Av. Hr. Wage | Employee Annual Cost at 2000 Hrs. | Annual Total Million $ | % of Total |
| Bedford | 2,620 | 19.75 | 39,500 | 103,490 | 80.9 |
| Little Rock | 375 | 11.20 | 22,400 | 8,400 | 6.6 |
| Nashville | 390 | 10.10 | 20,200 | 7,878 | 6.2 |
| Chattanooga | 270 | 10.00 | 20,000 | 5,400 | 4.2 |
| Sao Paulo | 320 | 4.25 | 8,500 | 2,720 | 2.1 |
| Totals | 3,975 | 127,888 | 100.0 | ||
| Estimated Salaried Payroll | 45,112 | ||||
| 1985 Total Salary, Wages, Fringes | 173,000 | ||||
Savings from 20% Retirement
- Total Bedford hourly employees-------------2620
Assume 90% are direct labor-----------------2358
- Retire 20% direct labor savings-------------------------------$18,644MM
2358 x 20% = 472 people x $39,500/person
Less three months' severance - $9,875 x 472----------------4,661
-Net------------------------------------------------------------$13,983
Potential Savings from $2/Hour Reduction
Bedford Total Hourly Employees----------------------------------2620
Less 20% retired -------------------------------------------------- 472
Remaining Hourly -------------------------------------------------2148
Savings:
2148 x ($2/hr x 2000 hrs/year = $4000)------------------------$8,592MM
Less 50% Probability Net---------------------------------------$4,296MM
Projected Savings Transferring Work South
- Increase utilization of southern plants to
100%, eliminating 1035 jobs at Bedford
- Savings
- Bedford job reduction 1035 x $39,500/person $40,883MM
- Wage differential savings
Chattanooga - 270 people x $19,500 = $5,265
Nashville - 390 -----------x 19,300 = 7,527
Little Rock - 375--------- x17,100 = 6,413 19,205
Sub total------------------------------------------- $60,088
Less: Nonrecurnng
Investment Cost--------------2,000
Start-Up Cost----------------1,000
Severance Bedford
3 most $9875 x 1035 10,220 (13,220)
Net --------------------------------------$46,868MM
| ITEM | ANNUAL SAVINGS | CUMULATIVE SAVING | NON-RECURRING COST | COMMENT |
| 1. Material Cost - 5% | 4,165 | |||
| 2. Interest Expense - 2% | 220 | 4,285 | ||
| 3. Retire 10% Bedford's Estimate 90 People | 3,609 | 7,994 | 1,800 | 6 Mo.Severance |
| 4. Retire 20% Direct Labor | 18,644 | 26,638 | 4,661 | 3 Mo.Severance |
| 5. Wage Concession $2/Hr | 4,296 | 30,934 | ||
| 6. Shift40%Bedford's Work South | 60,088 | 91,022 | 2,000 | Machinery |
| 1,000 | Start Up | |||
| 10,220 | 3 Mo.Severance | |||
| Total Nonrecurring | 19,681 |
William F. May
THE CASE STUDY FOR MASON Industries does not afford either a full profit
and loss statement or a balance sheet. However, working with the available
data and certain assumptions we conclude that the hourly wage costs are
$130MM annually and the variable margin is 25 to 30 percent. The average
wage is $17/hour, and there are around 72,000 hours of labor per year.
The first action would be to obtain a new tax lawyer to reduce the tax obligation
of $25MM on $3MM of profit. Putting that aside, the next action would be
to reduce interest costs. Although the interest rate is not given, the case
states that substantial debt was incurred during the high interest rate
period, and we have assumed the rate to be around 12 percent. This results
in annual interest expense of around $22MM. Refinancing this debt at the
current level of 8 percent for corporate BAA bonds would save around $7MM
per year.
Perhaps better yet would be to issue equity, as the stock price has held
around the past five-year average. Thus reducing the debt/equity ratio to
a more normal 33 percent would lower the debt to $130MM from $180MM and
save $6MM in interest obligations, assuming the company has no dividend
obligation—again unknown from the available data. Combining the two
actions, an annual savings of approximately $10MM would be obtained. Now,
addressing the labor cost picture, we should start with the salaried people.
Again, assuming certain ratios of salary to hourly, it would appear the
salaried costs approximate $45MM annually. This seems inordinately high
for a company with a turnover of $36( MM. Without detailed knowledge it
can be estimated that at least $5MM could be eliminated from those costs.
This action would set a policy and climate for a frugal operation and should
be a precursor to some hard negotiations with the hourly employees.
The hourly people are quite aware of the differentials between the rates
at Bedford and those at the other locations, as well as the foreign competition.
Before challenging the people with job insecurity or wage reductions, we
should examine, with representatives of the labor group, the products being
produced from the standpoint of quality, material usage, spoilage, productivity,
design, material flow, machine layout, etc. As an aside, my personal experience
with the production of catalytic converters when I was a director of Engelhard
Manufacturing Company, indicates the product we were producing was so superior
in design and quality that we not only had a virtual monopoly on the domestic
market but also sold substantial volume in Japan and Europe. So in cooperation
with our people, we get them to "work smart" and bring more than
their lunch pails and hands to the job. It is amazing how much they can
contribute when they feel a sense of participating with appropriate monetary
rewards for their suggestions.
Let us assume these talents with their "quality circles," production
teams, etc. can be stimulated to contribute. My experience is that about
5 percent reduction in material usage through lowering of spoilage and about
8 to 10 percent reduction in direct labor costs through manufacturing effciencies
can be achieved. It is also probable that quality levels can be obtained
which would result in market share increases. This would enhance earnings
at a variable margin rate assumed to be 25 to 30 percent. These incremental
volumes should be sought but for the moment can be set aside. Taking just
the actions suggested and assuming a conservative operational improvement,
we have restated 1985 performance in tabular form on the next page.
| Sales | $360MM |
| Salaries, wages, etc. (5MM salary reduction plus 5% reduction in direct) | 161MM |
| Materials(assume 4% reduction) | 115MM |
| Depreciation | 18MM |
| Taxes (50% rate) | 27MM |
| Interest | 12MM |
| Net earnings | 27MM |
The Rev. Jack R. Moon
AS A PASTOR FOR THE PAST 24 years in the area where I was born, went to
school, and was formerly employed by an industry that has since seen fit
to diversify as well as move production to less costly labor markets, I
can readily emphathize with the case study before us. However, the presentation
of the history of Mason Industries and the community of Bedford, Michigan,
seems much too simplistic if—as I have been led to believe—this
is a case "based on fact." Someone once told me, "Never let
the facts get in the way of the truth!" And, over the years as a pastor,
I've reamed that there is a difference between the facts as we see them
and the truth as Christ has revealed the truth in our individual, social,
and economic relationships. I've also discovered—the hard way at times—that
recognizing a problem in the way we are relating to each other is much easier
than helping my constituency arrive at a solution.
There are many complexities in a situation such as the Mason Industries
case study. First, what some people may describe as benevolent leadership
and strong civic generosity, others would label paternalism. Second, I wonder
about the statement made by Mason's president in 1984: "We can only
have one goal—to make our customers as competitive in their own markets
as they can be. This is our biggest responsibility . . ." While that
sounds like a very "ethical" attitude, stemming from a very conscientious
business foundation, the performance of the corporation over its history
did not appear to reRect that statement made in 1984. I also wonder who
if anyone in or outside the corporation—including the Church—ever
bothered to question those non-1984 goal-related activities in which Mason
Industries engaged?
Obviously, hindsight is always better than foresight. I'm not saying that
pointing out apparent errors in judgment in corporate or community policy
as possible reasons for the predicament that both Mason and the people of
Bedford, Michigan, find themselves in will be helpful in arriving at a solution,
but it might serve to give us a perspective in assessing how personal Christian
values operate in corporate growth and performance. In addition, it might
be helpful in assessing community responsibility and the Church's role and
responsibility within growing, prospering communities as well as declining
ones.
The issue here is not the closing of a plant or the loss of 40% of the jobs
in Bedford. What really looms on the horizon—without some careful community
planning in cooperation with both management and labor of Mason Industries—is
the total demise of a whole community with all the anguish and tragedy that
such entails, as families are broken up and/or uprooted.
I can only draw from what I have experienced in southwestern Pennsylvania
where many communities were dependent for so long upon one major industry.
As that industry began to shut down operations, only the immediate employees
and their families were affected at first, but soon the whole community
was touched.
But we must not be caught up in finger pointing and blaming each other in
such a situation. The company and the community need to rally around a common
issue of helping people survive in a transitional economy. And at this point
we may find Christian values at odds with "good business practice."
Chief Financial Officer Hal is correct when he says, "The days are
over when we could pay a better-than-average wage and pass it on to the
customer." The point is that such a policy was never in line with what
the company president stated as the chief goal in 1984.
Integrity in corporate policy is just as much in need of being questioned
when things are going well as when things are going awry, and the corporation
is trying to survive and protect its shareholders. So let's not make Mason
management the demon here, but let's concede that employees, community leaders,
as well as the Church back in the '50s, '60s, and early '70s were all satisfied
to sit on top of the churning money machines that were corporate America
and to think we had reached the promised land.
My own experience with the history of the steel and coal unions of western
Pennsylvania doesn't seem applicable here since there doesn't seem to have
been a history of previous labor problems in Bedford. I do wonder why there
was a need to unionize in a company that appears to have been as "benevolent"
as Mason Industries. Therefore, I am suspicious that Mason Industries may
have been as much a victim of the community of Bedford back in the "good
old days" as it was its paternal benefactor. I say this because I find
it interesting that over the years there seems to have been no rival industry
wooed to Bedford. To have 40% of the jobs in an area concentrated in one
company is high indeed. If we consider schools, hospitals, and all the other
related community services that would employ many of the other 60% of the
work force, it isn't hard to conclude that Bedford, Michigan, is Mason Industries,
and the whole community that has reaped the harvest must now become involved
in the reseeding.
There may not be a solution that everyone will find agreeable, but the survival
of the people with the least amount of human anguish must— from my
perspective, at least—be considered above some financial setbacks.
"The folks in Tennessee and Arkansas" may be part of the Mason
"family," but whole communities in those areas are not going to
be devastated by the loss of some jobs in Mason Industries. Somehow, we
must look for a way of delaying the Bedford plant closing. Unless the community
plans to die, new industry must be brought in. The union may have to make
concessions. Some changes seem necessary in the pension fund structure.
The standard of living may have to go down a little to preserve a living
at all. But since it is everyone's problem, everyone must be willing to
help with the solution.
Allan R. Nelson
FROM THE MATERIALS PROVIDED it is obvious that the workers at the Bedford,
Michigan, plant are overpaid. However, the exact dollar amount is difficult
to assess from the information given. In addition, from an operational perspective
the company is clearly inefficient in the world market for its product.
If the company is to survive, it will have to consider alternative production
or ultimately go out of busines. From the information given, one would have
to conclude that the best possible bottom line solution is to close down
its plant in Bedford and move production to Brazil. One cannot overlook
the concern of the corporation in assessing what it should do about this
obviously bad situation. One must applaud the efforts of Mason Industries
in examining various alternatives and considering the financial implications
on workers, the long relationship that the company has had in the community,
and the devastating impact that a decision to leave would have. The company's
analysis, however, is not objective. Management's desire to preserve what
it has and to be comfortable in its decision has deprived the company of
objectivity concerning the current situation. While the concern of the company
may be real, management is centering on the immediate situation, not the
long-term problem. Plant closings are always a problem. If the company decides
to stay in Bedford, its proposals are no more than a temporary "patch
and fix" solution. This avoids meeting the real problem head-on. The
operation there is basically inefficient. In so many plant closings, the
inevitable is deferred, and frequently, companies are less well equipped
to cope when the final decision is made. On occasion, community groups are
formed to take over plants. Workers are convinced to accept lower wages
and benefits and in some cases they even pledge their savings to become
owners of plants which may be inefficient and, on a long-term basis, doomed
for failure. Better to face these problems early.
Having assessed the problem, it would seem that Mason Industries should:
· Determine the timing for moving the plant to Brazil.
· Establish a firm timetable for ceasing the operation in Bedford.
· Confront workers early on with the situation.
· Establish a program for an orderly shutdown of the facility.
· Offer early retirement, etc. to those employees where it is possible
to bring them under such programs.
· Determine a process for utilizing potential funds from the sale
of the
plant and from employee funds to provide training for employees in
alternative skills.
· Offer transfers to other company facilities where needed. -
- Aggressively seek state and/or Federal help in dealing with the plant
closing.
- Provide assistance for those individuals who will need to move.
· Give career counseling and assistance to employees.
One of the difficult things for any company is to close a plant, particularly
when management, the town, and the company have been closely related—
sometimes for generations.
But the decision to stay and prolong the inevitable may in the end be the
most unkind thing a company can do, thereby creating a sense of unrealistic
security for workers and delaying the inevitable changes that must occur
in their lives. On the other hand, many companies have made these decisions
with little notice, unrealistic timing, and little concern for the welfare
of their employees. This is inexcusable. Better that companies inform employees
of their plans on an on-going basis, and then support their people so that
personal decisions can be made.
Mason Industries is faced with a diffficult decision, but rather than deferring
the inevitable, it is better advised to face the situation now, to use whatever
financial resources it has left to insure as clean and responsible a break
as possible. It should use its resources to help employees and the community
adjust to this change, and it should provide training, relocation, and support
whenever possible.
The Rev. John T. Pawlikowski
WE SHOULD BEGIN OUR STUDY of this case on a positive note. Certainly the
leadership of Mason Industries by and large gives evidence of a deep sense
of moral responsibility to its workers and the community of Bedford, Michigan.
This is abundantly clear in the statements of President John Lee, Carol,
and Don, who display a laudatory grasp of the fact that corporate responsibility
involves much more than erecting a few playgrounds or giving to the United
Way. In their words, one perceived inchoatively a "theology" of
the corporation that views the company as integral to the social fabric
of the community in which it operates. And even Joe and Hal, who seem far
more inclined to abandon Bedford, show some sensitivity to the human costs
involved. Whether or not their "moral argument" that the negative
impact on Bedford is somewhat compensated for by the maintenance of U.S.-based
jobs in the South is as crucial as they seem to make it, it still must be
said that even they are miles removed from the totally callous attitudes
that have accompanied many other such corporate decisions.
If President Lee were to seek counsel from me, I would need to raise the
following issues with him in the light of the recent U.S. Catholic Bishops'
Pastoral Letter on the Economy. My very first question would flow from one
of the cardinal themes of the pastoral: the need for participation in significant
economic decision-making by those affected by that decision-making. It does
not seem to me that even President Lee is quite up to the standard set by
the pastoral in this regard. There is no indication in his remarks that
he intends to develop a process of signif cent consultation regarding the
issue with the union (something which Carol, at least, seems to be hinting)
or with the local community leadership in Bedford. This I believe he should
do. It would also be a concrete example of the partnership called for in
the Bishops' "New American Experiment" economic model proposal
that is central to their pastoral.
But I should interject another point here if I am going to be totally fair
in applying the "New American Experiment" proposal to the Mason
Industries situation. Full implementation of this proposal will very likely
require that the union at Mason rethink its position should it still be
entrenched in the classic "antagonistic" model of U.S. unionism.
Constructive discussions involving the Mason executives, union leaders,
and community representatives within the framework of the New American Experiment
might include some possible relocation of workers to the Mason plants in
the South, some early retirements, and perhaps plans to bring new job opportunities
to the community to take some of the pressure off Mason Industries. One
thing is crystal clear. If the moral perspective of the pastoral is to be
operative in the Mason situation, the employees and their union cannot be
the sole victims. It would be a complete violation of the moral principles
of the pastoral, as well as of the moral principles of modern Catholic social
teaching, to move Mason manufacturing facilities totally to the South solely
to avoid unionization. And #303 of the pastoral clearly states that management
and investors must be prepared to accept their share of the sacrifice in
situations such as that facing Mason:
Management and investors must also accept their share of sacrifices, especially
when management is thinking of closing a plant or transferring capital to
a seemingly more lucrative or competitive activity. The capital at the disposal
of management is in part the product of the labor of those who have toiled
in the company over the years, including current employees.
What is important here is that in the bishops' perspective, the laborers'
"toil" establishes some claims on the company beyond merely entitlement
to a "just wage." This view is in harmony with Pope John Paul
II's insistence in his encyclical Laborem Exercens on the priority of labor
over capital in the conception of an economic model.
There is yet another implication of the "partnership" I am urging
as a model for resolving the Mason Industries situation. It, too, flows
from an important operative principle of the pastoral, namely, that government
has a vital role to play in the resolution of such difficult economic decisions
as that represented by the Mason Industries case. As a result of the partnership,
the corporate management, plus the union and community leadership would
also become an activist force urging some governmental cooperation at the
state and national levels. A major theme of the pastoral is that market
forces by themselves cannot solve the deep-seated economic
problems confronting communities such as Bedford. Government intervention—under
the sway of the principle of subsidization—must come into play. While
government cannot totally control or plan the economy and the "precise
form of government involvement in this process cannot be determined in the
abstract" (Pastoral, #124), government as the principal organizational
tool of the society has a vital stake in overall economic policy for a society:
It is in this light that we understand Pope John Paul lI's recommendation
that "society make provision for overall planning (Laborem Exercens)
in the economic domain. Planning must occur on various levels, with the
government ensuring that basic justice is protected and also protecting
the rights and freedoms of other agents. (#315)
Ultimately such economic planning by government, which is the agent of the
people, is humankind's corporate response to the notion of co-creatorship,
of human co-responsibility for the gift of creation stressed as a major
theological motif in the opening, biblical part of the pastoral. The letter
outlining the directions for preparing my reflections on the Mason case
urged a suggested solution. I shall resist that on principle. Since a major
component of what I would consider an ethical decision-making process—namely,
the consultative partnership involving the union and the Bedford community—is
missing, all I can suggest is that the Mason management take immediate steps
to launch this process. What will emerge I cannot say with certainty. But
I think we must avoid the notion that the applications of ethics to such
situations means merely the evaluation of them in light of certain predetermined
abstract principles by corporate managers or ethicists. Surely this is part
of the necessary effort. But what must be done as well is the surfacing
of such issues in the context of an all-encompassing dialogue in which all
significant players have a voice. The pastoral, in my judgment, envisions
such a participatory model of ethical decision-making.
Dan Swinney
WE ARE ALL COMMlTTt`D TO a productive, profitable, and competitive company
as the best way to protect labor's interests. We recognize that we work
in a changing world and that Mason faces serious challenges from its competitors.
We see the solution to the problems in creating a smarter management and
work force that enjoy greater coordination and discipline in rebuilding
our competitive advantage.
The situation at Mason is similar to problems facing American industry in
general and has been written about with increasing frequency, even in the
business press. The response by many corporations has been to remain focused
on the short-term and quick solutions—exporting their capital, frantic
searches for cheap and non-union labor, transforming manufacturing companies
into distribution channels, and retaining the cardinal rule of the greatest
possible return for the shareholders in the next quarter as the guiding
corporate principle. This has created the phenomena of the "Hollow
Corporation" and signaled the willingness to give up the fight for
a competitive advantage in manufacturing. If management pursues this course,
we should declare the fight over. The union will entrench and fight to defend
and preserve what it has gained in the past.
This is not our preferred approach. With the right response from management,
including respect for the union and the work force and an improved business
plan, we are willing to work with management to fight for our competitive
advantage in the production of automotive components.
The Situation at Mason
There are serious probelms that can only be solved through joint efforts
by labor and management. The only variable that we really explore and try
to solve can't simply be shop-floor wages and price levels. Other factors
should be evaluated including:
-level of shareholder dividends.
· management and salaried work force compensation.
· the history of creating overcapacity through overconstruction of
new plants.
· growth financed on debt rather than equity, particularly when interest
rates were high, leaving the company more highly leveraged than others in
the industry. This has restricted the company's cash flow and reduced the
flexibility it needs in this period.
· decisions on investment and expansion driven in part by a desire
for lower wages and no unions rather than the assessment of how to increase
productivity and product diversification in existing facilities.
· a failure to adequately diversify our product mix leaving the company
linked only to very competitive markets.
· despite the prudent decision to cut prices in 1984, recognition
that we can't compete on the basis of price alone.
Principles to guide us
We think the guiding principles to meet this challenge are rooted in building
on the basics that brought Mason Industries to where it is today. This includes
recognition and continued investment in the town of Bedford and the state
of Michigan; recognition of the incredibly dedicated and productive work
force in the Bedford facility, and the willingness of labor
and management to join together in the fight to reestablish the competitive
advantage of Mason through working smarter. The principles to guide us must
include:
· Full and equal involvement and authority of those who work at Mason
including management, salaried, and production employees.
· Doing a full evaluation of the company with input from all.
· If sacrifices are to be made, they should be shared equally among
the shareholders (i.e., dividend rates), management, salaried, and production
employees.
· If concessions by salaried and shop-floor employees are required,
they will be given in exchange for equity in the form of ownership of shares,
positions on the board of directors, and authority in company management.
The benefits of concessions will be shared with those who made them.
· The community and state should join owners and workers in meeting
this challenge.
· The relations with the union will be guided by the following commitments:
—Particularly because the company is claiming financial hardship, the
union will have complete access to the financial records and business plan,
and the right to a periodic, independent evaluation of those records and
plans at the company's expense.
—The company will affirm its recognition and respect for the union
for its contribution in meeting the challenge we face. The company will
not fight the effort to extend the union bargaining unit to include the
plants in Tennessee and Arkansas.
Options to Explore
· We should investigate the areas that could benefit from increased
investment in research and development geared to product development and
diversification.
-We should assess work rules, production processes, and supervisory processes
with the objective of increasing productivity and lowering indirect labor
costs. We should form a joint productivity committee with access to information,
authority, and corresponding to existing union/management structures and
the collective bargaining agreement.
- We should develop an employee stock ownership plan and bring production
and salaried workers into all aspects of ownership and management of the
company.
· We should investigate the temporary cut of the dividend to stockholders
as a step to improve cash flow to facilitate these other objectives.
- We should evaluate management and salaried workers' wages and benefits.
- We should explore city and state commitments for assistance.