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A Port Talbot buyout could transform industrial relations in the UK A Port Talbot buyout could transform industrial relations in the UK
(4 months later)
A management buyout at the ailing Tata Port Talbot steelworks will depend on a financial package requiring, in all probability, not only private but also government support. And for the sake of retaining the customer base, state backing will have to be vocal as well as financial.A management buyout at the ailing Tata Port Talbot steelworks will depend on a financial package requiring, in all probability, not only private but also government support. And for the sake of retaining the customer base, state backing will have to be vocal as well as financial.
Related: Senior Port Talbot staff ‘to announce buyout plan for Tata Steel plant’
Support for a buyout arrangement is widespread, from the workforce and unions to MPs and, of course, management. The bid exists, though, only in principle. Investors and employees want to see a plan that is tightly and transparently financed, based on a clear understanding of product market, customer base, business threats, investment needs and productivity levels. Management buyouts (MBOs) are typically highly leveraged, and in an industry such as steel and its need for high levels of capital investment, an injudiciously high level of borrowing will be a major strategic threat.Support for a buyout arrangement is widespread, from the workforce and unions to MPs and, of course, management. The bid exists, though, only in principle. Investors and employees want to see a plan that is tightly and transparently financed, based on a clear understanding of product market, customer base, business threats, investment needs and productivity levels. Management buyouts (MBOs) are typically highly leveraged, and in an industry such as steel and its need for high levels of capital investment, an injudiciously high level of borrowing will be a major strategic threat.
The Conservative government has stated: “We are doing everything we can for the industry.” Specific measures under debate include business rates, energy costs, tariffs on imported steel, public procurement, and green taxes. It is beyond these indirect policy instruments, however, where the difficult ideological terrain lies for the Conservatives: direct state intervention. It is precisely in this policy domain where the future success, or lack of it, of the UK steel industry, lies.The Conservative government has stated: “We are doing everything we can for the industry.” Specific measures under debate include business rates, energy costs, tariffs on imported steel, public procurement, and green taxes. It is beyond these indirect policy instruments, however, where the difficult ideological terrain lies for the Conservatives: direct state intervention. It is precisely in this policy domain where the future success, or lack of it, of the UK steel industry, lies.
For those who believe in state intervention, an explicit strategy for industry is difficult to imagine without intervention of some form – so the decision by the Department for Business, Innovation and Skills to take a stake of 25% in the form of debt relief must be encouraging. Sajid Javid, the business secretary – who only recently poured scorn upon the idea of involvement – now speaks of measures to reassure the customer base and of state “co-investment”. It has become clear that David Cameron has tasked Javid with “saving our steel”.For those who believe in state intervention, an explicit strategy for industry is difficult to imagine without intervention of some form – so the decision by the Department for Business, Innovation and Skills to take a stake of 25% in the form of debt relief must be encouraging. Sajid Javid, the business secretary – who only recently poured scorn upon the idea of involvement – now speaks of measures to reassure the customer base and of state “co-investment”. It has become clear that David Cameron has tasked Javid with “saving our steel”.
How successful this will be remains to be seen. The history of MBOs is not a negative one though, and Stuart Wilkie, the director of Tata Steel Strip UK who is heading up the management buyout plan, has the experience of restructuring and plant closure necessary to confront any idealistic illusions.How successful this will be remains to be seen. The history of MBOs is not a negative one though, and Stuart Wilkie, the director of Tata Steel Strip UK who is heading up the management buyout plan, has the experience of restructuring and plant closure necessary to confront any idealistic illusions.
MBOs and investor-led acquisitions are typical of buyouts in the UK. Evidence indicates that following MBOs, strategic focus is reinvigorated, managements are incentivised and companies can increase operating income and streamline capital expenditure. For the UK steel industry capital investment is a major challenge. Tata, to its credit, attempted to address the long history of underinvestment in the industry. Research also shows that companies that experience an MBO, although less productive than comparable plants before the buyout, become more productive afterwards, with better management evolving in the process.MBOs and investor-led acquisitions are typical of buyouts in the UK. Evidence indicates that following MBOs, strategic focus is reinvigorated, managements are incentivised and companies can increase operating income and streamline capital expenditure. For the UK steel industry capital investment is a major challenge. Tata, to its credit, attempted to address the long history of underinvestment in the industry. Research also shows that companies that experience an MBO, although less productive than comparable plants before the buyout, become more productive afterwards, with better management evolving in the process.
A potential difficulty for Labour is that there is often a shakeout. In the UK evidence suggests that MBOs lead to increased employee involvement and employee share ownership. This latter factor raises another ideological shibboleth, this time for UK employment relations: that of industrial democracy. If Port Talbot employees are to buy in – particularly with £10,000 of their own cash, as has been mooted – what type of stakeholders would they become? Crucially, what type of stakeholders would they want to become? What form and strength of voice would employees and their unions want in the running of the company?A potential difficulty for Labour is that there is often a shakeout. In the UK evidence suggests that MBOs lead to increased employee involvement and employee share ownership. This latter factor raises another ideological shibboleth, this time for UK employment relations: that of industrial democracy. If Port Talbot employees are to buy in – particularly with £10,000 of their own cash, as has been mooted – what type of stakeholders would they become? Crucially, what type of stakeholders would they want to become? What form and strength of voice would employees and their unions want in the running of the company?
There is history here. The 1967 Iron and Steel Act provided employees with voting rights for the board of directors – including part-time worker directors who were not allowed to hold union office. This restriction was later repealed and the number of worker directors increased. Following the election of the Thatcher government this experiment with industrial democracy was terminated, but its memory remains.There is history here. The 1967 Iron and Steel Act provided employees with voting rights for the board of directors – including part-time worker directors who were not allowed to hold union office. This restriction was later repealed and the number of worker directors increased. Following the election of the Thatcher government this experiment with industrial democracy was terminated, but its memory remains.
The impact of worker directors was in practice quite limited. They had poor information, little influence and were viewed with some suspicion by their colleagues. It would not be surprising, however, if a stake in the company raised once more the requirement for employees to have not simply a more effective voice, but a say in the corridors of power.The impact of worker directors was in practice quite limited. They had poor information, little influence and were viewed with some suspicion by their colleagues. It would not be surprising, however, if a stake in the company raised once more the requirement for employees to have not simply a more effective voice, but a say in the corridors of power.
The crisis of UK steel could provide an ideological Damascene moment for UK industrial relations, those politicians for whom the market is a deity, and those whose legacy is under threat.The crisis of UK steel could provide an ideological Damascene moment for UK industrial relations, those politicians for whom the market is a deity, and those whose legacy is under threat.