A New Province for Law and Order
I.R. Lessons from Recent Mining Industry History
My direct involvement with the mining industry is currently limited to one company, which operates through contractors. That constitutes a most important I.R. lesson in itself, that goes beyond the realm of enterprise agreements. That company, and most of my other interests, have significant employee share schemes---another important aspect of I.R. reform for the future.
It is relevant to mention the two other mining companies with which I have had brief nonexecutive directorships recently. In the first company I was described by the Chairman as a potential serious cause of industrial trouble. Not long after my departure the mine went on strike and has been seriously disrupted on and off ever since.
In the second company the changes to management that were critically needed, and which would give the necessary impact to the whole organisation, were not implemented to my satisfaction.
These experiences, quite unpleasant at the time, illustrate for me repeatedly the old saying that "There are no bad soldiers---only bad generals."
The H R Nicholls Society has made a great contribution to the industrial relations debate in Australia largely through chronicling many industrial relations incidents of recent years, and through pointing to the legal and institutional remedies available to avoid and mitigate industrial conflict. There has, however, been the strong emphasis that management has been wearing the white hats, and unions the black hats.
Another way of looking at these industrial relations incidents is to view those that have had successful outcomes as management successes in an ocean of management failures.
The "generals" have sometimes created good soldiers, and sometimes they have not.
My theme today is "management's responsibility to manage." An industrial commissioner recently used the phrase "management's obligation to manage", which has overtones of "noblesse oblige," a phrase which could be confused with "droit de seigneur"! I prefer the word "responsibility".
Management includes in this context boards of directors, company chairmen, governments, industrial relations commissions and officials of unions and officers of employer organisations. They are good generals if there are minimal disruptions and the enterprises are prosperous.
President Truman's office sign "The buck stops here" referred to ultimate responsibility---not to dollars, as some appear to have understood the phrase in Australia recently.
To introduce my theme "management's responsibility to manage" let me remind you briefly of some of the salient facts about Robe River.
The previous management at Robe River constantly warned the new controlling joint venture participant---Peko-Wallsend---in the strongest terms---that site visits by Peko management were most likely to worsen the highly-sensitive industrial relations situation. In Peko we concluded that the only way to signal to all concerned---staff, award employees, unions, joint venture participants, customers, governments, industrial commissions---that we were seriously intent on reform of the operation, was to replace the senior management team with people from Peko who had already proven their ability to salvage viability from operations which were apparently doomed by the combination of rising costs and falling selling prices.
No award employee at Robe River was to be dismissed, except for reasons endorsed by the Industrial Relations Commission, or not contested.
After ten days assessment, we sought voluntary redundancies, promising that beyond a certain number, attrition would take care of further changes. No one ever received the generous voluntary redundancy payments because of union threats that they would never get jobs again in Australia in those unions. As it happened, in the first three months nearly three times as many left of their own accord without any extra benefits.
When the I.R. Commissioner issued an Order to return to the status quo which we knew to be beyond his jurisdiction (as was subsequently confirmed on appeal) there was anarchy and chaos in the workplaces resulting from that Order. Management's responsibility for safety under the Mining Act left us with no alternative but to dismiss the entire award workforce temporarily, thereby maintaining management's initiative.
The unions then ensured that the workforce stayed out for as long as possible, and were subsequently paid for the time lost, by Order of the Commission.
We were determined to practise the "no bad soldiers---only bad generals" precept. Many of the union convenors were either dismissed for publicly-justifiable reasons, or they left through frustration by concerted management.
I believe that a very large part of the lasting success of the changes at Robe River has come from the understanding by all concerned on site that we never set out to blame the workforce for the poor performance of what is intrinsically a very competitive operation.
On the other hand I have no doubt that much of the sustained political attack on Peko, myself and others arose out of the dismissal of the management team.
Having been censured several times by the Coal Mine Managers' Association for management changes in the coal industry, there are few surprises left for me.
Failure to change a demonstrably failed management is of course itself an even greater failure of management. That is the harsh reality of management responsibility. Once the decision has been made to change, it is less compassionate to everyone to delay its implementation. No board of directors or management can afford to pretend that no one knows. It is wiser to assume that everyone guesses, and that delay will only compound the problem.
Forty days into the Robe dispute the Peko board held a special meeting to order me, the Chief Executive, to cancel all public speaking commitments (at the time, eleven) and cease any contact with politicians, including Sir Charles Court, and the media, indefinitely.
I responded immediately rather than risk the possible public setback to our Robe initiative. I would rather have dared them, because I understood the depth of real public support we had. However, I was also aware of the views in the senior business community, strongly influenced by politicians and the media, that we would not win---even to this day, should not win?
It is now time to tell you that immediately after I left Peko, when it was taken over eighteen months later, a very senior member of the Western Australian cabinet told the new controlling joint venturer in Robe River that "now it will be different". I am pleased to say that he was told that it would not be different.
These very personal examples have been given partly because I now want them in the public record, but also because I do believe that management irresponsibility and management failure have been the largely unspoken aspects of industrial relations in Australia.
(It is ironic that one of our strategies at Robe River was to apply to transfer from State awards to Federal. We were opposed by everyone---employers, unions and State and Federal governments. Today the Federal government proposes to transfer Victorians in the same way. I too favour another Australian flag so that we can demonstrate our double standards.)
Management failure in Australia starts from the assumption that management can largely leave to employers' associations the responsibility for dealing with most of the details of employment-starting with rates of pay. It has been "convenient to belong" in a perverse sense of mateship, to associations which are so easily dominated by the most powerful of a group of enterprises which are essentially competitors, and which are therefore only too happy to send their competitors to the wall in order to drive them out or to pick up the pieces more cheaply. After all each enterprise has its own responsibility to its owners to find its best way to prosper. If you don't have an obvious advantage, you have to try harder to maximise whatever strengths you have. Small size often facilitates the greater strengths that come from flexibility. Economies of scale are often only part of the management equation.
The mistake is to be lured into that pretence of uniformity that larger, more dominant competitors delight in imposing. The old lament goes that "if only the employers would act together" against organised labour, or against over-bearing government, or against evidently-united customers. I just don't believe that we can expect it to happen.
Adam Smith had only part of the story about the consequences of competitors meeting together.
Any attempt to cause competitors to act in unison distracts individual management from its focus on its own individual and often unique array of opportunities, and generally weakens its resolve by suggesting, if not demanding, that someone else is capable of minding all the shops at once, on behalf of all competitors, and is doing it better than any one of us could expect to do. In real life, circumstances are always so diverse that this could never be true.
Let us be frank about it, the most valid purpose served by belonging to an employer's association is to find out from your competitors how to outsmart them. Or, in other words, to try to glean what is the truth behind the stories being told!
The worst consequence of employers' associations has been the partial or total abandonment by individual management of responsibility for the wages and conditions of work of the individual enterprise's employees. That abandonment is a breach of the essential relationship which should be developed between each employee and the employer.
A resolute management, working constructively with its own employees, will always enhance its right to manage with those employees because all concerned know---deep down---that that is simply what employment is.
The history of industrial relations in Australia, particularly within larger enterprises and in some industries, has been largely the history of managements' failure, increasingly, to act in accordance with these simple truths. Moreover, managements have failed to try to convince boards of directors that resolute actions can reverse this adverse trend. Whatever may be feared to be the adverse consequences of this resolute action, the alternative of not doing so, leads down the path of increasing disaster. Management cannot look to boards of directors for direction about industrial relations. Management's responsibility is to convince the board that management is managing. Boards of directors are transient or intermittent in their involvement. They are usually intimidated by and inexperienced in industrial relations. Industrial relations is full-time or nothing.
Management is simply the art of persuading people to work as directed. Management that is distracted by claims of "custom and practice" has already lost sight of its responsibility to manage. This is where the efforts in recent years to negotiate change have been so misguided. Management is not about negotiating change, it is about ensuring that each task to be done is done in the best way possible at the time. The appropriate system of rewards to employees is the opportunity cost of employing the best people available, not the incremental cost of negotiation of change. In recent years most large employers fell for this two-card trick and in particular, the coal industry from 1987 onwards. Managements time and time again have found that after protracted negotiations they have ended up with little or no lasting benefit---on occasions they have even lost on the deal. That this should happen, and in our largest and most critical industries, should be cause for the greatest concern. Instead, it is largely shrugged off as "par for the course". "Somehow it will all come right in the end, when the market picks up, and our long-term resource monopoly is better appreciated by our customers."
Macawberism is alive and well, and prospering in many of Australia's resource management teams.
There is simply no substitute for management working out the destiny of the enterprise, with the employees, and with the market---both suppliers and customers. Any other involvement with other parties, whether with the pretext of "we're here to help you" or not, distracts from the responsibility to investors to show that the enterprise can attract the funds needed for its future, in competition with other investment opportunities.
The fact that for long periods most of our largest enterprises have failed dismally to meet that test, shows how distorted our national economy has been. When I started to protest publicly many years ago I was told that my ideas were too theoretical for the real world. In my view we have in consequence been reaping the whirlwind---increasingly. What my critics meant was that by trading in shares through the ups and downs, the cleverest would do very well thank you at the expense of the less clever. The clever were quite satisfied, but the nation languished because a creative return on investment was not achieved.
If we are seriously to debate industrial relations in the face of the existence of our extraordinarily complex (and unique) intrusive government system, we must debate its success or failure in terms of the national summation of individual outcomes. Relative to those nations with which we would like to compare ourselves we have declined---we have achieved a negative sum game, not even a zero sum game. Therefore the "complacency of the clever" is no substitute for the general decrease in relative performance (and prosperity) that other nations have shown us to have suffered.
No wonder some people still look to socialism to provide a fairer, if not more prosperous, outcome.
The truly great contribution of the members of this Society to the industrial relations debate warrants some comment in this paper here today. Not only has the Society provided a wealth of well-documented case studies and philosophical and legal treatises, but it has provided a unique forum of positive attitudes towards a better resolution from the oppressive system that has grown up in Australia. Through that forum has come the clear message---management which resolves to exercise its responsibility can prevail---despite the system. Every time we do, the next time it is easier. It is such a simple message.
It is not a message of triumphant victory, or of a licence to oppress, or of goodies and baddies, black hats and white hats. It is simply confirmation that responsibility must be exercised, resolutely, if we are to get the best performance.
I know that for many managers, including myself, to learn the lesson was not easy or quick. We were all creatures of the Club culture. The temptation to avoid this new found sense of responsibility can be very strong, particularly when those senior to us are largely unaware or scornful. For those who may even wonder why I have pursued these directions in this paper, they have my assurance that many if not most of our major industries still show little sign of comprehension of the opportunities available to them. There is even a bizarre argument that for me to assert such a state of affairs is to make it harder for the opportunities for change to be realised. Because I am not following the Club procedure, my method will be counter-productive.
That argument, which is still quite commonly put forward, is the clearest evidence of the existence and depth of the problem. Those who advance it will predictably be the last to change. Those who are motivated by the opportunities for change are far too busy bringing about change to harbour such a negative view.
I would like now to talk about the role of governments in industrial relations. There is a widespread view that the large electoral majorities of the Fraser governments in the 1970s gave mandates for change which were largely wasted. Few changes were made, and so in a sense that is true. After all, the Federal government has the ultimate responsibility for the state of the nation. However it is almost totally overlooked that during that period there was very little public call for change, even though there was widespread concern that the system was not right. There was effectively no public call for specific changes. Moreover there were very strong objections from the business community, and from the employer's wing of the Club in particular, that government should leave well alone and not provoke disruption. The Fraser government was told many times that it didn't understand industrial relations.
I have given this account from the past not simply to score points in a debate, but to show how confused the debate about the role of government in industrial relations can be.
Naturally I am hopeful that the very coherent policy set out by the Federal coalition parties on 20th October will, in today's less complacent business climate, gain more support from the business community. Some members of this Society may take the view that the Coalition policies still do not go far enough.
My greatest concern is that the process of reaching enterprise agreements will still be more like that which led to the negotiated agreements of recent years to which I referred earlier. There will be too much concern with incremental pay for partial changes, instead of the assumption by management of full management responsibility, with pay rates matching opportunity costs of employment.
As we evolve towards true enterprise agreements between managements and employees, but while we still have the present Club culture and systems, I can see that there will inevitably be many unsustainable agreements reached, leading to calls from despairing employers for a return to the security blanket of the previous rigid awards system that has increasingly crippled Australia.
Among the many ironies of Robe River remains the fact that with few exceptions the unions have consistently frustrated the efforts of management to provide more attractive pay packages. The changes to work practices have been profound, but the unions have held their members in inflexible pay structures simply because they are so opposed to reaching any agreement with the Robe management.
Let me assure you again that, as for Robe River, I have specific examples in mind in the mineral industry for each of my remarks in this paper. I feel a certain reticence to name the mines or companies. In a very real sense it is none of my business, and in another sense I should confine my own thoughts and actions to those enterprises where I have evident responsibility. But that leads back to the remarks about the role of government, which is so predominant, so pervasive, and which is the concern of all of us.
Even under the Coalition policy that role will continue to be significant, at least for some time. While it continues we have reason to be concerned that enterprises will not achieve optimal freedom and flexibility in their arrangements with their employees, and that many of the old rigidities will remain.
We must look towards an across-the-board lessening of the intrusiveness of government on a scale still barely thought of within the political policy arena if we are to achieve a greater understanding in the community of the nature of responsibility of management. Governments will go on trying to usurp the role of business management in so many ways, their pretexts including the madness of the 1980s, or the banks in the 1990s. There is always a pretext for interventionalist government. Communism and socialism are characterised by loss of individual responsibility. In the western world we are not far behind!
The outcome of this usurpation is frustration of business activity across the board because of inappropriate and largely unnecessary regulation, and a continued diminution of management responsibility because management so readily believes that its responsibility ends with compliance with government regulation. Government would not be seen to have a case for intervention and would be dissuaded from intervention, if resolute management believed that it should be---and could be---more responsible.
This paper is concerned with management's responsibility to manage. My criticisms of management today, as with the actions of some of us in the industrial relations field, do not always sit comfortably with the entrenched conventional established received wisdom. They were not meant to do so, because we are here examining management's responsibility without regard to the clutter that has held this nation back.
After speaking on industrial relations recently I was asked about the role of the Business Council of Australia. I replied that I had nothing against the idea of the Business Council, but I had not joined because of the cost and time involved when I had Peko to run, Robe River to transform, and many mineral industry involvements. When I then added that I didn't need any more lunches and dinners listening to Bob Hawke there was a spontaneous round of applause.
Let me assure you that wherever I go it is the young people who want to know where "us oldies" got it so wrong for Australia. Why did we let the Peter Cooks and David Parkers and John Halfpennys ruin this country? My own awakening came early---too early, according to the received wisdom. The time for change is always now if we are to transform our destiny. Robe reduced the accident rate to one-tenth, quadrupled productivity and trebled export sales and yet is still locked into the relevant State and Federal awards and Industrial Relations Commissions. There is another generation of mining projects emerging much less encumbered and even more productive.
The same must be true of most of our industries and
businesses if only we can concentrate simply on giving
management the clear responsibility to manage as best