Union Negotiations Collect Bargaining

Union Negotiations

In the 1990s, America was undergoing a major transformation. What was happening, is globalization (i.e. free trade agreements) made is possible to have access to numerous markets around the world without having to worry about tariffs. This created a transformation in the way many firms are operating by giving them the ability to: increase their profits and lower their labor costs. (Watcher, 2007, pp. 23 -- 29)

In the case of Caterpillar (i.e. Cat), they were dealing with similar challenges during this time. This is because, the firm was trying to lower its labor costs and increase their profit margins. However, a major challenge existed with the contract that the firm had in place with the United Auto Workers (UAW). In this situation, Cat wanted to move away from its traditional business structure to one that is more focused on: specific products lines and geographic locations. This created atmosphere of animosity between employees and managers. ("Caterpillar," 2001)

At the heart of these issues, were the labor contract and the language that was used in the document. What Caterpillar was doing is to focus on similar kinds of agreements that were in place with competitors. If the contract was more favorable to a particular firm, management would unilaterally renegotiate the various provisions. In 1991, the situation was just starting with the firm wanting a similar kind of agreement as John Deere (despite having an existing contract with employees). This started a series of labor related disputes that would set the tone of the challenges facing the organization. ("Caterpillar," 2001)

For management, this was something that was necessary to ensure that the firm was able to remain competitive. At the same time, they wanted to increase the overall return that shareholders were receiving by: expanding into new markets and lowering labor costs. While the employees, were forced to renegotiate a number of contracts that provided less incentives than before. The combination of these factors is important in showing the atmosphere of contention surrounding labor negotiations during the 1990s. To fully understand what took place requires: conducting a functional analysis and providing a summation of these events. Together, these different elements will offer the greatest insights as to the how union negotiations were conducted during this time. ("Caterpillar," 2001)

Functional Analysis

To fully understand the environment of Caterpillar during the 1990s requires conducting a functional analysis. This is when there will be an emphasis on the atmosphere and impact of these events on various stakeholders. The way that this will be accomplished is to focus on: the negotiating environment, the management's strategies / goals, the union's objectives, the party which had the most leverage, the impact of different personalities during the process, the intra-organizational conflicts, how they were resolved and the if both sides acted ethically. The combination of these factors will provide the greatest insights surrounding the atmosphere and outcome on everyone.

The environment for bargaining -- What was the legal, political, economic and social environment?

The legal and political environment had given the company more power during the negation process. This is because, the rights of union members had been consistently declining with many organizations locating in states that had right to work laws and foreign countries. The right to work states gave the firm the ability to easily renegotiate union contracts and break any kind of strike. This made it difficult for the UAW, as they did not have as much influence during the process. ("Caterpillar," 2001)

From the political perspective, these issues led to major changes in the influence of unions on elected officials. This is because, they wanted to help corporations increase their profit margins and reduce their costs. To achieve these objectives, meant that there was various free trade agreements negotiated during this time (i.e. GATT and NAFTA). The UAW was against these treaties, as they felt that it would hurt union workers (by sending manufacturing jobs overseas). Once both agreements were fully implemented, is when management began to demand larger concessions from union employees. ("Caterpillar," 2001)

As far as economics is concerned, Caterpillar was undergoing a major transformation in the early 1990s. This was taking place through modernizing the factories (which increased productivity by 75% and inventories by 60%). Moreover, the company introduced a total of 101 new products between 1991 and 1993. The combination of these factors meant, that Cat need to reduce the number of employees working in different plants. At the same time, the increased productivity and lower inventories helped the firm to post record profits of $11.62 billion in 1993. This is illustrating how these changes allowed the company to become more competitive. As a result, executives had to reduce the total number of employees in order to evolve with these transformations. ("Caterpillar," 2001)

The social environment was an atmosphere of contention between employees and managers. In many cases, there were new policies introduced (which made it difficult for employees to show their support of the union). This meant that there was no tolerance for anyone wearing t-shirts or making statements in favor of their activities. Anyone who was in violation of these rules would be subject to disciplinary action. This increased the total amounts of animosity between: employees and managers during this time. These elements are showing how the bargaining environment was very toxic and one sided (which benefited the company). ("Caterpillar," 2001)

What were management's strategies and goals for bargaining?

The basic strategy that management was using during this process was to reorganize the company in a way that would improve the firm's ability to compete. This was accomplished by: modernizing plants, focusing on growing markets, introducing new product lines, increasing productivity and lowering labor costs. The combination of these factors was designed to ensure that the company can maintain their lead in different segments. ("Caterpillar," 2001)

To achieve these objectives, management's strategies and goals during negotiations was to force the union to comply with nearly all of their demands. The way that this was accomplished is to have various operations established in regions where the UAW had no control (i.e. foreign countries). This allowed Cat to increase their sales in these areas and focus on specific market segments (which improved their overall return). ("Caterpillar," 2001)

For those facilities that were heavily unionized, the UAW was engaged in a strategy of renegotiating existing contracts and dealing with potential strike issues. The way that this was accomplished was to hire non-union workers, having managers fill in on the line and dividing employees against each other. The combination of these factors made it difficult for the union to shut down production. As, there were only limited numbers of employees, that supported a strike (which made it difficult to gain any kind of leverage over executives). This would force the union to send employees back without a contract. Once this took place, is when managers could begin imposing new work rules and regulations. This made it easier to dismiss employees and conduct layoffs when needed. ("Caterpillar," 2001)

What were the union's strategies and goals for bargaining?

The UAW's basic strategy was to shut production through a strike by making managers meet their various objectives. These include: honoring previous agreements, ceasing with the current tactics and addressing issues that are impacting employees (i.e. health care costs). The combination of these elements is illustrating how the union wanted to keep current work rules in place and add to them. ("Caterpillar," 2001)

Which side had more bargaining power when the negotiation started? Did the situation change during negotiations? How and why did this happen?

The side which had the most bargaining power during this process was always the company. This is because the UAW had negotiated a better agreement with Deere (which forced Caterpillar to abandon the previous contract in favor of a similar agreement). As time went by, the passage of different free trade covenants gave the company the ability to outsource a number of jobs overseas. Moreover, the modernization of different plants meant that there was no a longer a need for a large number of employees. ("Caterpillar," 2001)

During the negotiations is when the situation changed. This is because the free trade agreements altered the business model of the firm. As a result, the company could allow the UAW to strike and replace these employees with non-union workers. This gave the firm added amounts of leverage during the process (which effectively broke numerous strikes). ("Caterpillar," 2001)

The reason why this happened; is because there was a shift towards globalization and new technology was introduced. These elements gave the Caterpillar the flexibility to adjust with labor related issues by: going to locations where the UAW had little or no support. Any kind of strike that was called would have a limited impact on productivity. ("Caterpillar," 2001)

What influence did personalities and bargaining styles of the negotiators have on the outcome?

The most dominating personality during this process was the CEO of Caterpillar (John Fites). He was brought in to help the company adjust with the various challenges they were facing from slower growth in a number segments during the 1980s. This exposed the firm to: sudden shifts in demand and it allowed the union to potentially stop production at particular facilities. The combination of these factors, created a situation where Cat had to implement major changes to remain competitive. ("Caterpillar," 2001)

As a result, Fites used various tools to force the union to comply with the company's demands at all costs. This meant that managers would engage in actions that were designed to limit the benefits and the rights of employees in the workplace. Once a strike occurred, is when this attitude of take or leave it forced union officials to send employees back to work (which resulted in new restrictions on their activities and a reduction in benefits). ("Caterpillar," 2001)

These ideas were influencing negotiators by incorporating a number of these provisions into the new contract. At which point, employees rejected the agreement. However, the UAW was able to avoid a strike and forced everyone to continuing working without a contract (which allowed management to unilaterally impose these rules). This is showing how the attitudes and ideas of the CEO had an impact on what provisions were used during the negotiation process. Once this occurred, is when many of these principles became a part of the demands imposed on labor by management. ("Caterpillar," 2001)

How did intra-organizational conflicts impact the outcome?

Inside Caterpillar, there was tremendous debate among executives about how to be able to reduce legacy costs associated with health care coverage and pension plans. At the same time, the company needed to have greater amounts of flexibility in: conducting hirings, layoffs and opening new facilities. The combination of these factors created some questions among management about how to achieve these objectives. While at the same time, protecting the employees' interests. This led differences of opinions with some managers viewing the anti-union atmosphere as confrontational. Despite some of these views, the majority of executives supported the new approach when dealing with UAW (based on economic survival). (Cimini, 1998, pp. 4 -- 11)

In the case of the union, there were divisions between some workers who continued to remain on the job despite a strike that was called. A good example of this can be seen with 1995 labor dispute when the UAW had 10,500 employees go on strike. However, during this time 4,000 individuals continued to work. This is showing how 38% of the workers did not support the actions of the union. (Cimini, 1998, pp. 4 -- 11)

How was the conflict resolved?

The way the conflict was resolved is Caterpillar agreed to select provisions the union wanted to include: the rehiring 160 workers (who were suspended for supporting UAW activities) and providing a 2% to 4% wage increase. While the company was able to: impose new work related regulations, implement a two tier wage system, executives had greater control in conducting disciplinary action and many of the traditional legacy costs (i.e. health care and employee retirement) were passed on to employees. The combination of these factors is showing how Caterpillar was the clear winner in the dispute. As they were able to achieve nearly every single objective during the initial restructuring plan and reduce the influence of union. (Cimini, 1998, pp. 4 -- 11)

Did either side behave unethically?

The labor situation at Caterpillar is showing how neither side acted ethically. In the case of the union, the fact that they were able to negotiate a better contract with another employer is a sign that they did not care about the future of the company. As they are giving their largest competitor (Deere), a major advantage with: labor costs and the ability to restructure. This was based on union officials thinking that they could do what they want when negotiating with employers. The reason why, is because they could call for a massive strike and bring corporations to their knees. ("Caterpillar," 2001) (Cimini, 1998, pp. 4 -- 11)

In the case of management, they acted unethically by breaking the previous agreement with employees and unilaterally imposing new workplace rules. This did not take into account the issues staff members were dealing with. Instead, the company was focused on increasing their overall bottom line results at all costs. The combination of these factors is showing how both sides acted unethically by: looking out for their own self-interests during the process. ("Caterpillar," 2001) (Cimini, 1998, pp. 4 -- 11)

Summation

The issues that were impacting Caterpillar are showing how there has been a change in the way labor negotiations are conducted (with the union having less power). As a result, Caterpillar was able to force the UAW to accept these transformations. For the company, this helped to increase their bottom line results. While at the same time, it allowed the firm maintain critical market share and expand into regions that were rapidly growing (i.e. China and Brazil). The combination of these factors gave Cat the ability to reduce the total number of unionized employees. This improved the flexibility of the firm in dealing with a host of challenges. (Cimini, 1998, pp. 4 -- 11)