Friday, November 5, 2010

UnProductive Employee Unions

    Historically employee unions are formed with the aim to protect the rights of the employes and that too particular of those in the lower strata, whose voice normaly never reach the corridors of power. To achieve their aim, union leaders normaly have to confront the management in decision which are not employe friendly , call for protests ,strikes etc. But later these unions have deviated from their original path and now consider that their only work is to oppose the management on whatever decision they take.They have evolved similar to those in the category of oppostion parties in India. It might be due to their communist friends who are always in the oppostion bench ,barring couple of states. 
    Here lets take case of recent ipo of coal india and see how the employees were affected by sheer stupidity of the union leaders. As with any public sector company looking  for disinvestment , coal india too faced strict oppostion from the unions. But they couldnt defend their stand for long due to pressure from finance ministry and agreed for a ipo. Even though they couldn't stop the ipo they didnt stop opposing it. They ordered all their members to stay away from the ipo , as step to show their disaggrement. Lets see how foolish this decision have turned to be.
        This IPO was well received by investment community around the globe and based on subscription it turned out to be a block buster. There was demand for 15 times of share in offer ( ie 15 people were ready to buy a share in offer) .Retail segment was subscribed by 2.4 times. Some 15 Lakh retail investors applied for shares.But employes didnt take active part in it .Among the 3.97 Lakh employees ,only 25,000 applied for shares and employee portion was undersubscribed by 0.1 times. These 25,000 employees should have been from the middle/higher management of the company who dont mind about the union's decisions.
        Shares got listed and it moved from Rs232.75 to Rs340 on day one , a mind-blogging returns 46%. A employee who would have applied for 1 Lakh (the max he can apply) would have gained Rs46,000 on day 1. When 15 Lakh retail investors (including me) had gained around Rs15,000 and foreign investors by billions of dollars , the employees who have build up this company stands to gain nothing. Investment bankers (FII)in New york or London should be be enjoying a sparking Diwali whereas the poor employees searching for micro credit agents to fund their Diwali purchases. Rich gets richer and poor stays poor , but this time due to their foolish decision .

    Comming to the argument , these unions should leave back their age old communist policies which good to read in history books now rather than to follow it in principle. They should have used the collective argument power to get more incentives for employees. They could have asked for a 5% more discount on share price for employees than retail investors.  Most of 3.97 Lakh employes should have their monthly salary in the range of Rs10,000 .They cannot mop up 1 Lakh and start a demat account just for this . Union could have argued for special previalages by which a employe benefit trust can get all the shares allocated for them ,without paying upfront money , sold them in open market and redistribute the profits to all employees equally. Surely company management & SEBI would have wholeheartedly accept for such a demand. Such a move would have given Rs16,000 as bonus for each and every employee. Unions should start to embrace capitalism and find innovative methods to benifit their stake holders. In essential adapt to the changing (economic) climate are get ready to become extinct.

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