COVER STORY : Is Your Job Safe? – 2006: Cuts or a light spring clean?

To the pessimists, 2006 is the Year of the Knife – the time for swingeing cuts in senior and middle management – and there is ample evidence to justify it. In February, the country’s largest exporter, Fonterra Co-operative Group, signalled likely major cuts in management in its bid to become more efficient in the wake of declining commodity prices and weakening terms of trade.
Similar tough talking few days earlier by the embattled national carrier, Air New Zealand, had already underscored what many saw as the parlous state of the New Zealand economy and the vulnerability of Kiwi business. Last month, New Zealand Post announced that 80 management jobs would probably go because of new technology, increased competition and slowing economy.
There have already been management redundancies in two businesses owned by entrepreneur Graeme Hart, the former New Zealand Dairy Foods (now being integrated into Goodman Fielder) and Carter Holt Harvey (see box story “A contrarian’s case study”). More are expected.
Add to the mix some poor corporate profit results and negative economic growth for the March 2006 quarter – 50 percent along the way to what economists call “technical recession” – and the pessimists appear to be right: New Zealand’s six-year stint of golden weather is well and truly over.
But is it really time for managers to wield the knife? Optimists (and there are some) view 2006 as more like the Year of the Feather Duster – the time for management spring clean and little restructuring but otherwise business as usual.
Economic restructuring, once the corporate companion of recession, remains as common as pulling teeth, and no less painful – so common, in fact, that under the generally agreed accounting principles (GAAP) it has long been accepted as normal business cost, not permitted to be described as “extraordinary” or “abnormal” in the profit and loss account. Management restructuring and redundancies might not be pleasant to the victims but they are now accepted management tools in times of stress – and 2006 is shaping up to be stressful.
Much of business, if the opinion surveys are anything to go by, appears disgruntled with the Labour Government over corporate tax rates and compliance costs. Business is also gloomy about economic prospects – so much so that it tends to eclipse the success many companies are enjoying in the present.
What the surveys don’t emphasise is that the economy has not collapsed – there has been no re-run of 1989-91 (the worst years following the 1987 sharemarket crash) – and some businesses are doing extraordinarily well. What has disappeared is the comparative advantage Kiwi managers enjoyed over Australians, Britons and even Americans after the public-sector reforms of the late 1980s and the workplace reforms of the early 1990s. The rest of the world has caught up and, in some cases, overtaken New Zealand in tax and industrial relations reform.
The slimline public administration that Labour Finance Minister Roger Douglas imposed in the 1980s has given way in recent years to an old-style big-spending public sector, requiring hefty taxes and range of other imposts to keep it afloat. Until last year, that didn’t worry business too much. The economy, especially the construction and property sectors, boomed and for the first period in decades New Zealand’s main agricultural commodity prices rose in unison.
Business Roundtable executive director Roger Kerr says the New Zealand economy has “gone off the pace” while Australia’s remains positive with the added benefits of workplace reform, more private-sector involvement in infrastructure and the promise of tax changes in the next federal budget.
But he is not expecting bad year for managers. “There is nobody in that mode,” he said after Roundtable meeting last month, “but the meeting is not necessarily representative sample.
“There were some quite surprising stories – one from an engineering firm whose turnover is up 25 percent and costs up five percent and others reporting good business… No one came out of that meeting reporting recession with capital R.”
Kerr says the fall in the New Zealand dollar exchange rate will alleviate the business slowdown in the short term. But he is not confident the Government will introduce other measures to stimulate economy growth, least of all “taking razor” to government spending as it promised in 2000.
“We would not be surprised that there will be some [management] shakeout.”
The medium- to long-term outlook is different. The Roundtable, the New Zealand Chambers of Commerce and Federated Farmers called last month for cut in the corporate tax rate to 25 percent and the personal tax rate to 28 percent over three years to make the tax structure internationally attractive and fiscally responsible. But there was no talk of recession.
Without tax cuts, Kerr says, the New Zealand economy will continue to be ground down while Australia will hold its own.
“The Government needs to press on with policies that produced the earlier productivity gains, such as lower taxes, greater labour-market freedom, less regulation of the business sector and greater attention by the Government to problems of low productivity in the public sector.”
That’s long way short of saying that managers are in for shocking year because, despite tough talking from the likes of Fonterra and Air New Zealand, business confidence is stable and the demand for top managers, particularly in the entrepreneurial sector, remains strong.
Noted one Auckland-based executive recruiter: “We are 300 percent up on last year in straight fees. We have got jobs coming out of our ears. Everybody I talk to says it might slow bit but they are getting on with it.
“Ninety percent of our business is in Auckland. Honestly, we are not seeing any negatives at all. There is good flow of good-quality people coming through.
“The slowdown, if it exists, is in the big companies – Air New Zealand, Fonterra and [Heinz] Wattie’s.”
Catherine Judd, managing director of Wellington-based public relations consultancy Awaroa Partners, says PR was usually among the first things to go when the economy weakened but there has been no sign of downturn.
“The year for us has been brisk.”
She says managers who lost jobs through restructuring have “popped up immediately” in other jobs. But some of her clients are concerned that high tax and compliance costs will prove detrimental to the economy, if not immediately.
“People complain about government policy settings but most people take the view: give us the rules and we’ll work with them.”
Farming writer High Stringleman says quality managers are in short supply for top posts in the rural sector. Jobs in the meat and horticultural industries are hard to fill and local management positions are “going begging all the time”, he adds.
Institute of Management national chief executive David Chapman says the challenge for managers in 2006 is to avoid being spooked into making wholesale redundancies.
“We have got to get back to basics in good management and we have got to be prepared to think and plan for the longer term. The short-term cycle has always been bit of problem in New Zealand – [it] has outweighed good management practice.
“Good managers have got to be prepared to stand their ground when it comes to cutting costs. They have got to be prepared to stand by their people.”
Chapman says managers must avoid the “lessons of yesterday” when it comes to restructuring.
“It comes back to [management guru] Charles Handy’s philosophy: one day it will come back to bite you in the bum.”
He says widespread management redundancies have in the past proved false economy with consultants’ bills and severance costs more expensive than retaining staff in the long run.
Chapman says New Zealand’s short-term approach to management issues has produced managers “more concerned about grooming their CVs” than taking an holistic view about their companies.
“There is n