Counting the cost of not sticking to their knitting

Banks and trade unions might not appear to have a lot in common, given that one represents capital and the other represents labour. However, when recent events are considered, they share a common problem when it comes to focusing on their core competencies.

While banks and unions aren’t alone in having deviated from what they do best, they provide a good starting point in an examination of the problems caused when an organisation, or an individual, diversifies into unfamiliar territory.

Banks have risk assessment as their core competency, which is a simple way of saying they have to judge carefully who they lend money to, and be confident that it will be paid back (with interest, naturally).

Unions’ core competency is the job of representing workers, ensuring their rights are protected and that they get a fair day’s pay for a fair day’s work.

Where both have strayed is that some banks have started applying non-banking tests on certain customers – most notably the Carmichael coal project in Queensland, which has reportedly become a project that falls outside the lending criteria of Westpac.

The reason for a particular coalmine being unpalatable to Westpac appears to be based on the volume of noise generated by environmental protests about Carmichael, because other coalmines are acceptable to the bank.

In other words, Westpac is making a lending decision not based on strict business principles, but on a fear it will be targeted by protests – a step which, once taken, could be applied to a long list of other controversial social issues.

Some superannuation funds have applauded Westpac’s Carmichael decision. But they too have a problem, in that introducing social factors into investment decisions might mean a fund does not deliver the full financial returns members expect, and to which they are legally entitled.

The issue with unions is a lot clearer and can be measured more accurately through the spectacular collapse in their membership numbers in the private sector – to a lowly 9.3 per cent of the workforce – a fraction of what it used to be and four times less than union membership of the government workforce, which stands at 38.3 per cent.

Why private sector workers have abandoned unions is partly due to the removal of laws that made union membership compulsory, but also due to unions spending members’ money on social-issue campaigns with no bearing on them.

If unions stuck to their core competency of working for the rights of members, the decline in membership might not be as dramatic as it has been.

In the case of banks and unions, it is fringe issues that have been elevated to a level not deserved and not directly related to what the organisation represents, then used as a reason to make incorrect decisions.

Some bank managers see coal mining as a social evil. However, even if this were the case, there is no question that it is legal as well as being Australia’s second biggest export, and to decide that one particular coal project is not a suitable customer is a significant departure from what a bank should be doing.

Union leaders argue it is reasonable to campaign on social issues, but they can’t claim that all their members agree, as the collapse in membership demonstrates.

Government also has a case to answer on the question of core competency, with the best recent example being the decision to not take strong action in protecting swimmers and surfers from shark attacks, partly because of the loud noise from save-the-sharks protestors.

Given that protecting the public from danger is undoubtedly a core requirement of government, it is remarkable that our political leaders are shying away from this responsibility because a handful of people believe that sharks have greater rights than people.

The news media is another interesting example of the failure to understand a core competency, with the added challenge of dealing with the disruption of the internet and the failure of management to understand the change it has introduced.

Generations of newspaper managers thought that their job was to make sure the presses ran on time and that papers were delivered to customers – a belief that was partly right but skirted around the real reason for a newspaper existing, which is the dissemination of news (and advertising).

What the internet has done is return the news business to its core function, though not without trauma for managers who love the sound of the presses rolling and who have failed to understand that customers are not buying a piece of paper, they’re buying what’s on the paper – or the screen of an electronic device.

Sticking to a core competency is not always easy, especially when disruptive technology changes the way a business functions, but it is important to understand what an organisation does and how it creates value for its shareholders, and jobs for its employees.