02/10/2007 - 22:00

The business of business

02/10/2007 - 22:00


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The business of business

The Construction Mining Forestry & Energy Union’s Western Australian boss, Kevin Reynolds, said something the other day that intrigued me.

At a recent Master Builders Association event, Mr Reynolds told the audience that his union was just a business.

He was explaining that the union had to grow its membership, including through entering worksites to tout its wares, in order to sustain itself (including the salaries and conditions of 40 state office staff).

Said to a business audience, this seemed like an acceptable statement.

It’s quite clever really. Despite the obvious antithesis between the builders and the union – both hard nuts in their own ways – Mr Reynolds was talking the language of those across the political divide.

But as well targeted as that line may be, I have dwelt on it for a while and I can’t help wanting to disagree.

Businesses are set up to profit their owners. Some proprietors may sacrifice profits for community objectives, and that’s their choice, but by and large businesses are there to earn their owners a living.

Unions, in my view, are something altogether different. They are community organisations, so-called not-for-profits, that are typically established to further a cause. Profits, or surpluses, may often be generated by this kind of organisation, but that is not the primary focus.

That is not to say that unions or any other community organisation can’t decide to adopt business practices in order to operate more efficiently or effectively in doing what they were set up to do.

But thinking like a business is very different from being a business.

It would not be hard to argue the opposite of this. Take the union case for example.

Unions seek to improve the position of their members, often in monetary terms, therefore delivering a profit for their membership. Revenue, in terms of fees or other money derived in whatever manner, can be used to pay the operating costs to run the operation that delivers those profits.

But is this really the same as a business? Probably the closest example of this in a business sense is a mutual organisation, such as the RAC or a credit society.

In this instance, members may pay a sign-up or renewal fee or that may be generated from accounts they keep or services they use. Some surpluses are kept to develop the business but generally these organisations return profits directly in the form of lower service charges up-front or rebates later.

Some might argue that members of unions and mutuals profit in similar ways, such as lower charges for an essential service or higher wages. Neither comes as a cheque in the mail from a clear-cut distribution of profits, but both are direct benefits of membership.

Of course, there is a clear distinction in these examples. In the case of the mutual, the benefit could be accounted for as something that is a direct result of the organisation giving up potential for a surplus at some stage.

In the case of a union, the benefit might come from membership but the profit is clearly extracted from another organisation – one that is a real business.

However, I think the distinction is more obvious than that. It comes down to the concept of ownership.

In the case of a mutual, in the end, the members actually own something. We have seen that in the case of the takeover of Statewest Credit Society by Home Building Society Ltd. As difficult as that process was, the members got to vote to exchange their shares in the mutual for cash or shares in Home.

No such ownership exists with the likes of unions, charities or genuine sporting clubs. The exception to that is the latter, where professional sporting teams call themselves clubs but they are really businesses, with owners, generating profits.

Sport is a field where many organisations operate in that grey zone between business and community bodies, but the clear distinction comes down to ownership. A member might have a vote on the leadership and benefit from membership but, in the end, do they own anything?

By the rules of incorporated associations in this state, surplus property at dissolution of such an organisation may only be transferred to another like organisation, not to members or former members.

I’ve gone to the trouble to discuss this idea simply because I believe there is a fundamental difference between an organisation established for a purpose other than making a profit.

The law makes this distinction, as I noted above and in many other ways.

Not-for-profit organisations get all sorts of special treatment, from tax breaks to less onerous legal requirements, in recognition of their unique status.

While these organisations may need to think like businesses to survive and prosper, that ought to be only to continue to achieve their intended objective.

Businesses are very different; they are there to make money. If they are anything else, they generally aren’t around for long.

The job of a union, for example, is not to make money for the sake of it.

If the organisation develops that sort of culture and focuses on that objective, it would appear to me to operating contrary to what it was established for and clearly outside the intent of the laws of the land.

While I don’t suggest this makes it illegal, it does lead me to question why special treatment is needed for organisations that think and act like businesses, and often compete with real businesses.

Some of the above is a bit tongue-in-cheek, but I really don’t believe Mr Reynolds needs to be on a membership drive to keep himself in business.

If that’s the only reason he’s doing it, it might be time to call it a day.


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