Barloworld retrenchments are short-term thinking

In this first instalment of a series on the coronavirus and capitalism, New Frame looks at how a firm that has made R90 billion in three years is using Covid-19 to get rid of 4 500 workers.

Among the vast inequalities the coronavirus pandemic has exposed is the short-termism of companies and conglomerates. Instead of a long-haul response to economic disruption caused by Covid-19, a number of companies are resorting to shotgun approaches and using workers as scapegoats to cut costs.

When they do this, the conglomerates are conveniently silent about yesteryear’s super profits. An example of such a myopic approach is the Barloworld Group’s unfolding corporate restructuring. 

The group, which has interests in mining and earthmoving equipment, agro-processing machinery, car dealerships, fleet management and logistics, intends to retrench 4 442 of the 12 352 workers that its South African divisions employ. The cuts are planned in capital equipment and motor retail divisions, and in subsidiaries such as Avis Budget and Digital Disposal Solutions.

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With operations in 16 countries, the multinational corporation that is listed on three bourses, including the JSE stock exchange in Johannesburg, aims to swing the axe and cut staff in countries such as Lesotho, eSwatini and Namibia before September. In retrenchment notices given to employees and South African unions that have a presence within the company, Barloworld cites “substantial reduction in the business activities and operations” caused by Covid-19 as well as concomitant declarations of lockdowns globally as the rationale for the restructuring exercise.

The group had failed by the time of writing to comment on the rationale for the proposed retrenchments, the scale of the disruptions or the company’s restructuring proposals and recovery forecast. But in the preliminary financial results for the six months to 31 March 2020, Barloworld Group chief executive Dominic Sewela pinpointed the forecast of a revenue shortfall and reduced operating profits of R1.2 billion in 2020. Sewela also highlighted a number of measures that were implemented to mitigate the economic slowdown exacerbated by the government’s Covid-19 lockdown, such as a 12-month executive remuneration sacrifice plan, pension contribution holidays, the reduction of operating costs and a moratorium on external appointments.

Extreme measures

From the restructuring proposals on the table, it is clear that Barloworld has opted for more extreme measures to streamline operations and cut costs. The adoption of austerity measures to counter negative market sentiments and reducing the workforce by 20-25% reflects a determination to fundamentally reposition the company more than just in response to a Covid-19 disruption. 

Although a downturn in revenue is forecast for this year, the company has accrued a healthy balance sheet over the past three years, with revenue figures for 2017, 2018 and 2019 amounting to R30.6 billion, R30.9 billion and R30.4 billion, respectively. 

The National Union of Metalworkers of South Africa (Numsa) international officer Christine Olivier says that employers like Barloworld are using the Covid-19 pandemic “as an excuse to get rid of permanently employed workers, just to recall them a few months later”. The union feels that by doing this, employers create a bigger pool of precarious workers from which companies recruit on less favourable terms and conditions of employment. Recalling the company’s previous attempts to create a flexible workforce, Olivier is convinced that the latest round of proposed retrenchments under the cover of Covid-19 is a blatant attack on workers and an attempt to roll back gains such as pensions and medical aid. 

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This is not the first time that Barloworld has embarked on a restructure. The conglomerate that in the height of apartheid operated as Barlow Rand and sat on the then government’s sanctions-busting Defence Advisory Board has undergone tremendous reorganisation since 1994. Employing 240 000 globally in the 1980s and a provider of technology to the apartheid government, Barloworld was trimmed in the 1990s as the company unbundled what it considered non-core operations in mining, information technology, engineering and textiles. 

Although the expected downturn is clearly episodic, Barloworld has decided to consider the short-term prospects of the company, and use a scalpel to cut down the labour force and reduce the company’s staff complement. While the proposed round of restructuring does not involve a shift in Barloworld’s focus, the aversion to absorb losses as a result of Covid-19 dislocations and the measures to cut staff are aimed at protecting the company’s share price. It is also to satisfy the financial appetites of the group’s institutional investors, the major one being the Government Employees Pension Fund. 

Huge pay ratios

The unfortunate thing about companies such as Barloworld is the swiftness with which they forget the gaieties of previous financial years. They also fail to look at the inequalities and huge pay ratios within their corporations. 

According to Barloworld’s integrated report for 2019, non-executive directors received fees and allowances of between R158 229 and R1.8 million. The total guaranteed pay inclusive of basic salary, retirement and medical allowances, car allowances and bonuses for top executives and prescribed officers ranges between R4.4 million and R22.5 million. The exorbitant salaries exclude the short-term incentives, lucrative share options and retention payments for executives and senior management. 

Like most conglomerates in the country, the pay scales and benefits in the sectors in which Barloworld operates are extremely uneven. The motor workers that Barloworld intends to retrench fall under the motor industry bargaining council. 

Workers under the scope of this council are only eligible for negotiated increases as long as they earn below a threshold of R205 000 a year. The minimum wage rates in the sector vary between R1 090 and R2 790 a week; apprentices and those on learnerships earn between R1 584 and R2 416 a week; and white-collar workers such as clerical employees and motor vehicle salespeople earn between R5 838 and R19 339 a month. Comparing the pay ratios of what the executives earn and employees’ salaries, it is clear that shop floor workers would have to work several lifetimes to earn even a fraction of what the company pays its top executives.

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Until steps are taken to close income differentials within corporations as the Employment Equity Act intended to do, inequality gaps in South Africa will soar. Retrenchments worsen the dire situation. For unions, it is vital to recognise that the onslaught on workers extends beyond our borders. As Olivier conveyed, the company “has been trying for some time now to downgrade the conditions of employment” of workers in Namibia.  

It is encouraging that Numsa is working with their Namibian counterparts to strengthen solidarity between the two unions and develop a common approach to avert the proposed retrenchments. The labour movement can ill afford to sit back and cross its arms. A broad-based counterpower that involves labour and social movements needs to be forged. 

To take on the bosses during this critical period, in addition to defensive fights against retrenchments, trade unions need to rekindle the faith in a more humane and economically just society.

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