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Blue Collars, Dark Suits, and Stocks (Part 1)

9 October 2007 - Features - Editor

The concept of assets and liabilities as two sides of coins applies to human resources, just as it does for financial statements. Potential and current investors in stocks are told by executives that people are their greatest assets, yet this class of resources can also lurk as a serious drag on profits and business performance. Lack of compliance with labor laws is a constant threat that holders of corporate stocks must face, for there is no telling when employees may organize themselves and present employers with retrospective claims. Legal immigration and related issues are equally threatening-illegal immigrants are entitled to many costly provisions of employer obligations.

Though employees at lower levels of organization structures have provided traditional fodder for aggressive collective bargaining, recent developments with respect to corporate governance and product liabilities have shown that even top level executives are not above using whistleblower protection to make startling disclosures. The latter may have serious financial implications, destroying values of stocks involved. There is no certain way for investors to be sure of full legal compliance by their companies, and public knowledge of legal audits is virtually unknown. It only makes matters worse that hidden deficiencies in the human resources management function may gradually and chronically erode the values of stocks, quite apart from making them dive abruptly on occasion.

The People Dimension of Service Sector Stocks

Service elements gain in importance as generic competition replaces the monopolies of patents. Retaining customers has at least as much influence on value trends in stocks as early investment in acquiring them. Investors are accustomed to large expenditures to secure customer bases, and relationships with them are widely believed to determine business performance in many sectors. However, a matter which is often overlooked is: who will look after customers? The best customer relationship systems will not yield returns if the right people, duly trained motivated, are not in place.

It is hardly possible for retail investors to know the internal marketing facts of the companies in which they own stocks. Most employees will not present their problems and frustrations to outsiders, especially to customers. We may enjoy friendly and caring service at establishments which have issues of serious contention between unions and managements. Executives generally go to great lengths to make sure that outsiders have no inkling of dissent which their teams may harbor. There may even be cases in which employees as individuals are reasonably contented, but in which working relationships are vitiated by political and power equations of trade union bosses.

Trade Union Influences on Stocks

No country or economy can escape totally from the occurrence and implications of collective bargaining. The effects are not limited to paying members of unions alone, as other stake holders are directly or indirectly affected by the nature of agreements on wages and working conditions. Consumers may be the hardest hit, as they must pay ultimately for all reductions in productivity. The economic effects on trade unions may be so pervasive that national governments cannot remain mute spectators to the conduct of important negotiations between labor representatives and managements: this inevitably brings politics in to the picture, with much variation between countries in its wake.

Blue Collars, Dark Suits, and Stocks (Part 2)

 


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