HR plays critical role in joint ventures, profit-sharing plans

By Gordon Sova
|Canadian HR Reporter|Last Updated: 03/15/2001

In joint ventures, described as a relationship with all the same pitfalls as matrimony, HR professionals have the crucial responsibility of “getting to know” the other organization.

At the recent Automotive Parts Manufacturers’ Association (APMA) Human Resources Conference in Toronto, Raymond T. Finnie, president and CEO of Wescast Industries, described his firm’s experience with Linamar Corporation in setting up a joint venture to produce automobile parts in Hungary. (The APMA represents 400 auto parts manufacturers who account for 90 per cent of the independent parts production in Canada.)

As the auto industry globalizes, parts suppliers are being forced to think globally in order to supply parts when and where they are required. This often involves forming a partnership with another firm that has a needed competency or a geographical presence.

And a fundamental, yet often overlooked first step in the joint-venture process, is understanding the other firm’s values and corporate culture.

If the ways in which the two companies operate are too divergent, they will most likely generate conflict when the cultures begin to co-exist. Each organization must know clearly why they are going into the joint venture and what they expect to get out of it.

HR plays a central role in defining what each organization will bring to the new venture.

The formulation of policies and procedures that will not conflict with those of the parents’ is a monumental task, one often not tackled until late in the process. Identifying what personnel and data resources each will provide the joint venture early in the process will avoid misunderstandings later. Issues such as organizational structures and reporting roles, compensation schemes and performance management criteria must be settled ahead of time.

Recruiting staff for the start-up of a joint venture presents special challenges for HR. This was the case at Wescast Industries, where the Hungarian workforce had a different language and culture from the Canadian owners.

Finnie’s group worked with Hungarian consultants and began at the top, hiring a bilingual general manager whose input was fundamental in the staffing of the rest of the management posts.

Both managers and skilled trades were rotated between Canada and Hungary to receive training on the equipment that would be used in the plant, as well as train others.

Compensation plans

Delegates to the conference were also told of the important role HR must play in communicating and implementing compensation initiatives such as profit-sharing plans. According to Monica Hall, vice-president of human resources for Algonquin Group Inc., who presented a status report on her organization’s recently created profit-sharing plan, creating a plan involves communication and training of employees.

Algonquin manufactures custom auto accessories and is located in Huntsville, Ont. The firm spent a lot of time making sure everyone understood the mechanics of the plan when it was introduced. With the plan operational, monthly meetings are held with the rank and file to discuss the status.

The profit-sharing plan is not a simple one: its criterion for success is Return on Net Assets (RONA), a percentage calculated by dividing Earnings Before Interest and Taxes (EBIT) by the value of new assets and subtracting a threshold profit level intended to satisfy the company’s shareholders. Eighty per cent of each individual’s bonus is based on business unit performance and 20 per cent on corporate performance.

According to Hall, encouraging individual workers to think about how they work, and the ways they could improve efficiency was central to the plan. The ways in which each department contributed to RONA and what actions would improve that contribution were discussed at monthly meetings.

The employees of Algonquin have come to understand the workings of the plan and to alter their habits to reflect it, says Hall. She recalls walking across the shop floor one day and seeing a welder pull out a pair of earplugs and throw them away. He was immediately castigated by a colleague, who shouted: “Hey, don’t screw with my RONA!”

Other speakers at the APMA conference included Aldo Cianfrini of the Centre for Skills and Development, who described a disquieting portrait of the state of technical education in the Ontario secondary school system in the face of a widening skilled trade shortage in the auto parts industry.

He described how the chronic under-funding of secondary education has resulted in expensive shop classes being replaced by cheaper and more popular computer classes in fulfilling the provincial graduation requirement for technical credits. As well, teachers qualified to teach technical subjects are retiring or leaving the profession faster than they can be replaced, says Cianfrini.

Gordon Sova is the editor of CLV Reports, a Carswell newsletter and sister publication that has been reporting on collective bargaining and labour relations in Canada for more than 40 years. He can be reached at (416) 298-5186 or by e-mail at gordon.sova@carswell.com.

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