BHP's IR lessons for Australian companies

While Tony Abbott will struggle to reform industrial relations, BHP is showing that companies can make the existing system work to their advantage.

The turmoil in Canberra means the prospect of a new workplace industrial relations act in the next five years is now close to zero. The best that can be hoped for is adjustments to penalty rates and shift allowances.

The Prime Minister simply does not have the political capital to promise an extensive industrial relations act review at the next election in 2016 and, as it happens, companies such as BHP and Simplot have shown that the existing act is very workable if you have the right management.

Instead of relying on the Business Council to lobby the government to change, as most big companies have done, Simplot and BHP set about first changing their management and then changing their work practices. I described the way Simplot undertook the task last week (The turnaround story that should be a model for Australian business, January 28).

But, if anything, the BHP story is even more spectacular. Arguably, in past years, BHP has been the most poorly managed large mining company in the world. A series of big accountancy houses led by PricewaterhouseCoopers showed how Australian miners were the least efficient in the world outside Africa.

BHP as Australia’s largest miner was arguably a key centre of that bad management (Some hard truths for our biggest miners, August 15) and (BHP's radical transformation is good news for shareholders, August 22).

The early changes may have started under Marius Kloppers but when Andrew Mackenzie took control he wasted no time in changing the structure of BHP’s top management. The cost savings are stunning and so are the new arrangements with the iron ore workforce. Grace Collier recently described the remarkable BHP arrangements with its workforce in The Australian (Diamond of a deal among the rough, December 20). It is essential reading for all CEOs.

BHP has an enterprise bargaining agreement which is supplemented with individual contracts with its workforce. The individual contracts cannot take pay below the base EBA level but BHP can move salaries up and down according to the performance of the individual. People doing the same work can see their salaries move in different directions depending on individual performance. In other words productivity is rewarded.

That's exactly what Australian companies want to achieve via legislation. BHP has shown you don't need legislation, all you need is good management. And that is exactly what Simplot found.

Once the Australian dollar falls below US70c, which it almost certainly will, it will make many of the overseas outsourcing deals look very silly. And if the Australian dollar falls below US60c (a real possibility), they will have to be reversed. That is going to require the return of good managers to Australia. Chief executives need to look hard at their own performance and check to see if their human resource departments are telling them complete nonsense -- that's what is normally wrong with our large companies.

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