A Case Analysis on “GM and the UAW: A One-Sided Negotiation?”

SYNTHESIS:

The world’s largest and most profitable auto manufacturer, General Motors (GM), is puttering in the slow lane after dominating the automobile industry for 30 years from 1947-1977. Worst, it is rumored to be heading to bankruptcy due not only on for its staggering one billion dollar sales lost during its first quarter after the stock market crashed on October 1987, but more so, for its ever-increasing always improving benefit packages it granted for its employees, its employees’ families and its retired workers. Added to these are the above-the-industry-average regular wages guaranteed even economic hardships and the worker’s efficiency rewards.

The competition from both the domestic and foreign manufacturers is getting tougher, dividing the market into many pieces of share. Unfortunately, as the competition rises, a large number of workers are retiring, increasing the number of retirees GM needs to support with the younger workers it now employs. The situation is, the sales and the market share plummet while the cost of benefit packages and regular salaries continuously increase, leaving GM with enormous liabilities for the years ahead. GM had negotiated itself into stranglehold, indeed, with the United Auto Worker (UAW), the union that had squeezed so much sweeteners from them. GM now needs to know how to re-bargain itself to appropriately balance company’s profitability and employee’s welfare. Otherwise, it may not exist further to provide the benefits it promised.

POINT OF VIEWS:

This paper will be taken under the keen eye of the current CEO of General Motors.

STATEMENT OF THE PROBLEM:

What could General Motors have done in the negotiation process with the UAW that could have prevented the financial crisis?

OBJECTIVES:

  • To determine if GM and UAW have engaged in distributive or integrative bargaining
  • To determine the power UAW hold over GM in the negotiation process
  • To determine courses of action that would appropriately balance employee’s welfare and company’s profitability

AREAS OF CONSIDERATION:

Assumptions

  • Sloan was not able to properly forecast the cumulative impact it had negotiated with UAW, and also did not foresee the power of the foreign entrants; GM felt all invisible and mighty
  • Non-diminution law, which states that “any benefit and supplement being enjoyed by employees cannot be reduced, diminished, discontinued or eliminated by theemployer,” is applied by GM, and the UAW took advantage of it.

Frameworks

Definition and types of Power (p485-487, Robbins & Judge)

  • Power refers to a capacity that A has to influence the behavior of B so that B acts in accordance to A’s wishes

Types of Power

  • Formal Power is based on an individual’s position in an organization.
  • Personal Power is power that comes from an individual’s unique characteristics.

Definition and types of Organizational Politics (p495, Robbins & Judge)

  • Political behavior in organizations are activities that are not required as part of a person’s formal role in the organization but that influence, or attempt to influence, the distribution of advantages and disadvantages within the organization

Types of political behavior

  • Legitimate political behavior > normal everyday politics
  • Illegitimate political behavior > extreme political behavior that violates the implied rules of the game

Definition and types of conflict (p521, Robbins & Judge)

  • Conflict is a process that begins when one party perceives that another party has negatively affected, or is about to negatively affect, something that the first party cares about

Types of Conflict

  • Functional conflict > conflict that supports the goals of the group and improves its performance
  • Dysfunctional conflict > conflict that hinders group performance
  • Task conflict > conflict over content and goals of work

Definition of the processes of conflict management (chapter 15, Robbins & Judge)

  • Conflict process has five stages: potential opposition or incompatibility, cognition and personalization, intentions, behavior, and outcomes.

Definition of third party negotiation (Robbins & Judge)

  • An arbitrator performs a function similar to a judge or court, such as holding hearings, evaluating the submissions and evidence of the parties, and making a binding decision resolving matters in dispute between the parties

Definition of Negotiation or Bargaining (p529, Robbins & Judge)

  • Negotiation is a process in which two or more parties exchange goods or services and attempt to agree on the exchange rate for them

Types of Bargaining

  • Distributive bargaining – negotiation that seeks to divide up a fixed amount of resources; a win/lose situation
  • Integrative bargaining – negotiation that seeks one or more settlements that can create a win/win solution

Analysis

We can generalize based on the frameworks and definitions that the situation happening between GM & UAW union is a distributive type of bargaining since, in terms of hindsight, GM is in the losing side of the win/lose situation with UAW due to the high costs of benefits and the above-the-industry-average regular salaries GM still provides even in their poorest of times. One of the reasons is the organizational politics that UAW has managed to acquire through the personal powers of its union executives over the employees and union members.

As such, given the power and political capability of the union, the UAW has created a functional conflict, which has supported the union’s goal for better employee treatment and compensation but not necessarily for the benefit of the company as a whole in the long-run. Within these negotiations, the power and politics that UAW has acquired managed to lead them to settle a distributive bargaining with GM, leading to the extension of benefits to the retirees and the employees’ families. Another is the political power UAW holds is the closing of a plant where it is no longer under GM’s discretion but of the approval of the UAW. Another is the 95% pay provided to the workers even if there is no production at a plant, even though worker’s pay in the GM is already 60% higher that the industry average.

ALTERNATIVE COURSES OF ACTIONS:

ACA # 1 – shift the bargaining process from distributive to integrative (compromise) by adapting a third party negotiation between GM & the union

PROS:            an arbiter will give unbiased and objective decisions in terms of benefits and compensations & the benefits, and compensations can be accounted by GM in the budget plan in the future for planning purposes and will create a win/win situation

CONS:            the third party may not have the full knowledge or information on the situation inside the working environment of the employees, and the negotiation process may take longer than usual negotiations

ACA # 2 – when GM performance (ie: revenues) goes down, the benefit also goes down; when GM performance goes up, the benefit also goes up.

PROS:            both GM and union of employees will have an equal and distributive justice in terms of performance and benefits and given time and situation.

CONS:            union of employees has no means in checking the true output of GM if it really goes up or down; and will be requiring a third party to decide. Another, there are laws that states that benefits of employees can’t be reduced or decreased from previous years or period.

ACA # 3 – change the period of terms of the contract from 10 years to 3-5 years

PROS:            the shorter period of terms of contract will make GM and the union to adapt and negotiate to relevant issues and grievances

CONS:            the 10 years terms of contract have been used for sometime already and will have to adjust the entire negotiation systems in term of objectives and recommendation. In addition, both parties should approve the change of period terms of contract, if not, a third party must arbitrate in order to define the new period of terms of contract

RECOMMENDATION:

The group recommends (ACA 1) that management shift their bargaining process from distributive to integrative by adapting a third party negotiation between GM and the union. The current approach that the company is utilizing is the distributive method wherein the motivation is more of a win-lose situation. One party is more likely to gain than the other. In this case the one who is in the losing end is the GM Company given the present situation that it is in now.

In shifting the approach to the integrative method it could provide for a win-win situation where both parties (the management and the union) would be able to come up with other creative options that present to be a win/ win situation for both of them. Moreover this is ideal for building long term relationships because it lessens animosities and cultivates openness among the bargaining groups.

If all else fails the bargaining parties can reach a compromise. When the parties settle for a compromise they might not get everything they demand or want but both will get enough of what they need. In this case both parties can be candid about their demands and needs. For example GM could state that they can no longer afford all the benefits that the UAW demands given the current financial situation they are in. They may ask UAW which of the benefits they find most pressing or important and offer to provide those with the elimination of other less valuable ones. In this way GM gets to unburden itself with obligations it cannot afford and the UAW still get to enjoy the benefits they deserve.

ACTION PLAN:

The Negotiation

 

  1. Preparation and planning

After gathering information of the conflict,  use it to develop a strategy. As part of the strategy, CEO should determine GM and UAW’s Best alternative to a Negotiated Agreement (BATNA).

  1. Definition of ground rules

Once planning is done and we have developed a strategy, CEO is now ready to define the ground rules and procedures with AUW.

  1. Clarification and justification

This is the point at which GM and AUW provide documentation the helps support their position. Each party will explain, amplify, clarify, bolster, and justify original demands. It is an opportunity to educate and to inform each other on issues, why they are important, and how each arrived at their intial demands.

  1. Bargaining and Problem Solving

The essence of the negotiation process is the actual give-and-take in trying to hash out an aggreement. It is here where consessions will undoubtedly need to be made by both parties

  1. Closure and Implementation

The final step in the negotiation process is formalizing the agreement that has been worked out and developing any procedures that are necessary for implementation and monitoring.

In GM’s case, an abritator should be a third party andbe present at the negotiation. Abritration is a quasi-judicial process in which a disinteresed third –party hears evidence presented by both the union and the employer on issues in dispute, and hands down a binding decision.

LEARNING POINTS:

Going back to the Corporate’s Social Responibilities, an organization has a responsibility towards itself, its employees, and the society (Abela), as employees, too, have a responsibility towards themselves, their families and the organization they are working with (Zigarelli). And so, working to achieve an appropriate balance between the company’s profitability and the employee’s welfare must be a shared obligation between the company and the employees as they are partners working under the same goals – the company’s vision and mission.

Thinking differently and prioritizing one’s personal objective over the entire organizational goals would lead to a win/lose situation just like the one-sided negotiation between the General Motors and the United Auto Workers. As such, the win/lose situation threatens not just GM, but in the long run the UAW members as well. For the lost of GM would surely affect its employees and its retirees down to its employees’ families.

Fortunately, there is now a win/win option for both parties. No one party really has to be sacrificed in order to achieve a gain. With proper preparation and planning and honestly laying down rules and facts, both parties (the company and the employees) can be educated and informed on what really matters most to them and perceive and understand each others positions. In the end, the company and the employees will be in sync working again under the same obligations and goals although each works under different objectives. The core lesson is that neither the company nor the employees can exist without taking into consideration the importance of each other.

REFERENCES:

Organizational Behavior Book

Robbins/Judge, ESSENTIALS OF ORGANIZATIONAL BEHAVIOR, 13e, (Prentice-Hall, 2009)

Abela, A. V. Profit and More: Catholic Social Teaching and the Purpose of the Firm. In J. o. Ethics. Springer Science and Business Media B.V.

Zigarelli, M. A. Catholic Social Teaching and the Employment Relationship: A Model for Managing HUman Resources in Accordance with Vatican Doctrine. In Journal of Business Ethics. Springer Science and Business Media B.V.

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About marvzmartinez
an Engineer

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