A Matter of Choice

International Best Practice in the Industrial Relations Context

Sheldon Young

When first discussing the prospect of giving a paper to this conference I asked Ray Evans what he wanted me to talk about, to which he replied; "you choose the topic, the conference theme is 'A Matter of Choice' so make up your mind!".

Having heard this typically blunt Evanism, the desire immediately sprang to mind to attempt a paper based on the well known first lady of arbitration called "Flo", who was a superstar back in the days of endless rounds of silly so-called "work value" cases in the sixties and seventies. Flo was normally known to say "yes" and rarely ever "no"! However, on balance I chose "international best practice in the industrial relations context" as a safer theme.

Almost thirty years ago, while attending my first industrial relations conference, I was impressed by a speaker's cute definition of industrial relations, when he said "industrial relations is the art of not making people happy but rather making them less unhappy, which is a temporary condition until such time they are unhappy again".

Today, of course, observations like this seem too trite an analysis of industrial relationships as companies struggle to survive and compete in an unforgiving global market which cares nothing about the great Australian political debate, our socio-economic subculture, management style, industrial relations systems and clubs, or union power. In the real world the market only cares about price, reliability of supply, customer focus and now perhaps, the Mabo factor.

The global expansion of the 1980s witnessed an out-of-control growth surge in an orgy of development. When the world economy stopped business ended up with too much capacity.

Globalisation increases the problem of excess capacity as distribution systems give everyone access to everything with capacity coming from anywhere in the world. This, together with the fact that there is too much capacity in most industries in most developed countries, has created a global competitive environment such as the world has not experienced before.

The chief executive of General Electric since 1981, Jack Welch, in January last year summed up this global competitive environment with riveting reality:

This worldwide capacity overhang, coming at a time when everybody feels poor, is forcing ferocious price competition. As it intensifies, the margin pressure on all corporations is going to be enormous. Only the most productive companies are going to win. If you can't sell a top quality product at the world's lowest price, you are going to be out of the game. In that environment, 6% annual improvement in productivity may not be good enough any more; you may need 8% to 9%, and while the bar keeps getting raised higher, higher, higher, we are all going to be experiencing slow revenue growth. It's brutal!"

His view on what constitutes do or die international best practice is pretty easy to understand.

Back in Australia, we have been gradually moving towards a "best practice" focus. However, the trend has been to reform companies within the present structure rather than by changing the structure. This is a bit like keeping the same old shackles around your wrist and ankles but making them a little looser so they do not hurt so much.

The Australian government-sponsored "best practice project" indicates my point, as it is the same old soil in the garden but with different plants growing in it from time to time.

Australia is, in my opinion, the dinosaur of English speaking countries in relation to labour market reform and deregulation. The United Kingdom went through a dramatic change under Thatcherism when the coal miners' strike and Arthur Scargill provided the perfect opportunity for the empire to strike back.

One example of dramatic change is the North Sea oil and gas fields which started out totally union controlled but after some historic battles, particularly attempts to fabricate off-shore modules out of Aberdeen, the off shore former "wages staff" are now almost totally non-union and on salaried staff conditions, including annualised merit-based packages.

The United States have been in labour reform mode for almost twenty years since the "right to work" legislative movement got under way across the country, to the point now where union membership is around 15%. The coal industry, for example, in the United States is now almost totally non-union on a mine by mine enterprise basis.

Canada has traditionally followed United States trends, particularly with the so-called "international union" structure between the two countries. However, now it is commonplace in the resource sector (which is their economic backbone) to see totally non-union plants in operation across the country.

Closer to home, New Zealand has, of course, gone through a dramatic reform process since 1987, firstly with the introduction of the Labour Relations Act of 1987 (in the Roger Douglas era) and in 1991 with the Employment Contracts Act. Specific examples of case studies and trends in New Zealand will be discussed later in this paper.

In returning to our "dinosaur" situation back here in Australia, I can't help making some observations on the current legislative environment and offer some comments on the Industrial Relations Reform Act:

1. The Act appears to be complex and will increase litigation; it's good for the lawyers.
2. The Act, on the one hand, provides for non-union deals or enterprise flexibility agreements, but does not allow for erosion of wages and working conditions.
3. If the unions have members in the workplace they get to represent them automatically. If they don't, they can still try and "head the employer off at the pass" at the Commission as a lender of the last objection.
4. The unfair dismissal provisions have literally "stolen the show" in terms of creating national debate, to the point of distracting attention away from the non-union enterprise bargaining scenario.
5. The Industrial Relations Reform Act does not recognise clearly enough the much revered International Labour Organisation (ILO) principle of "freedom of association in the workplace".

It is clear that the Act is weighted heavily in favour of the unions in retaining the shackles of the past and could be summarised as follows from the union perspective:

  • you can have an enterprise agreement if we can't convince the majority of employees not to.
  • if that fails, you can have an enterprise agreement negotiation but we will represent any membership we may have.
  • if we don't like the deal anyway we will try and stop it when it gets to the Commission.
  • if we miss out on blocking the deal there, we will continue to campaign on the shop floor for membership of the union.
  • however, if all else fails you can't sack anyone anyway!!

If the Federal Government's motivation in passing this legislation is to enshrine the union in the process, then I sincerely believe they have miscalculated badly, on the following grounds:

1. If employees are to get no less than the union scale for wages and working conditions then why stay a member of the union.
2. If wages and conditions are to be no less than union scale, employers will in time tend to pay more to good employees, widen their job scope and have fewer people employed overall in the enterprise.
3. This window of opportunity to negotiate an enterprise agreement directly between the employer and the employee, however complicated, will, in time, create a greater sense of common purpose about company survival and goals; also, it will erode union participation and, in time, union control.

One has I suppose, to look on the lighter side of the overall legislative debate in Australia when recently the "mother of all industrial clubs", the ILO, allegedly called on the New Zealand government to amend the Employment Contracts Act to promote collective bargaining and protect workers who are members of unions against acts of discrimination and interference by employers.

Ironic isn't it, when anyone who knows anything about New Zealand labour reform is bound to be aware that their Employment Contracts Act recognised the fundamental ILO convention of "freedom of association" in the workplace, and outlawed duress being used by any party!

Back home again in dinosaur land and notwithstanding a broadside from the OECD at the Industrial Relations Reform Act, Industrial Relations Minister, Laurie Brereton, said the ILO report was "a damning indictment" of New Zealand's system and a vindication of the Keating government's labour reforms. If you can work your way through that reasoning, then I'll hire you as a consultant.

Our discussion so far has noted some international legislative and best practice trends. I propose now to change gear and inject some of my own opinions into the subject based on personal experience. Real international best practice, in my view, is managing the enterprise in the most efficient and effective way to maximise the performance of the enterprise.

Best practice can also be described simply as an "attitude". Therefore, the adoption of best practice demands a change of attitude across the enterprise. To demonstrate my point, let us take workforce performance as an example. In my view, motivating, encouraging and educating all employees is the key to creating a winning attitude, and is the only way of creating job security across the enterprise and maximising profit opportunity for the shareholders.

Further, I believe that total focus must be placed on the way people work, rather than what they get paid to attend for work. How to work smarter, better, more efficiently and more successfully should be the objective. Your employees are your asset, so utilise it, develop it, encourage it and get them involved in the enterprise and productivity improvement will follow.

However, management must show leadership, which starts by reforming oneself first. Reform the organisation from the Chief Executive Officer (CEO) down. Leadership is not a popularity contest, so having taken the hard decisions, be resolute in execution of the adopted reform process, including cutting through organisational bureaucracies, eliminating layers, and scraping off the rust and the barnacles.

On the question of union involvement in the change process, I believe strongly that where the unions are currently involved in the enterprise and have a long history of such involvement, then give them an opportunity to be involved in the change process. However, the employees of the enterprise are your assets and your future, and should have the major participative role in the change process.

This method of developing and adopting best practice is usually referred to as the "partnering" approach. It has been used successfully in parts of Australia and New Zealand and has resulted in attitude change (including unions) and has made companies much more competitive in the market place.

However, some of you would be aware that this excruciating process is also known to produce ulcers, nervous breakdowns, hair loss and chronic rashes! However, in the long term, benefits will by far outweigh these sacrifices.

Golden rules in this process include:

  • reform the whole organisation from the CEO down, not just sections of the enterprise.
  • the level of commitment of the parties directly correlates with the ability to achieve results.
  • condition the whole workforce on the need to change.
  • do not expect major changes overnight as attitude and culture change takes time, average from two to three years.

If the partnering approach cannot work, then the other well-known method of achieving change is to adopt the Rambo approach where you take the workforce "out the back" and knee them all in the groin until they know the words to the company song! This method can be effective in the short term, however. I believe that a workforce that wants to work for the enterprise and identifies with the enterprise will be better for the enterprise over the long term.

In cases where union attitude change is not achievable, then the enterprise ought to be justified in executing any strategy deemed to be in the best overall interest of the enterprise. It would appear, for example, that CRA has reached the decision to seek the exorcism of union control from their enterprise, across the organisation. Their own conditioning process no doubt included their experience at Tiwai Point Aluminium Smelter in New Zealand, where substantial gains in productivity were made after a sweeping restructuring of the enterprise.

For other companies finding themselves in similar situations, this may be the way to go. However, the mere fact that the union may be out of the process won't in itself achieve international best practice. Managers must manage the way out with the whole workforce.

I will now briefly examine international best practice in the United States and New Zealand. In the United States, international best practice has been adopted increasingly over the last five years and is mainly referred to as the "re-engineering" of companies. The United States is now definitely more competitive with Japan and Germany than five years ago. They have gone through the painful process of restructuring both in the manufacturing and resource sectors.

The United States has refocussed on values, and employees have learnt the value of their jobs and that job security is best achieved by winning.

To demonstrate the point, take the United States coal industry, which I have just visited with an Australian coal client. My client has embarked on project to develop and adopt international best practice across their whole organisation. This educational tour was a real eye opener for the visiting best practice project team of twelve. The biggest concentration of mines visited were in Wyoming, in and around the Powder River coal mining province and, to a lesser extent, Utah.

Companies there such as Amax, Cyprus, and Kennecott operate some of the most efficient coal mines in the world. However, this was not always the case, as all mines visited had been through the change process at least once and re-organised their way of working across the whole organisation.

To demonstrate the work culture difference: we were at one of the Wyoming mines lunching with our host when of our team members asked whether they had "RDOs", to which the Mine Manager replied "yeah, we have always had rodeos in Wyoming, this is the home of the American cowboy!"

The main themes relevant to international best practice in the United States coal industry are summarised as follows:

  • all mines visited were described as "union free".
  • overall workforce numbers had been dramatically reduced, while production had increased.
  • layers of management had been eliminated, lean structures prevailing.
  • supervisors and foremen had become facilitators, trainers and planners and the workforce under them were empowered with more responsibility and accountability.
  • company key performance indicators and production targets were shared with the whole workforce.
  • employees, whether management or miner, identified with their employer and the "winning attitude" was obvious.
  • a communication policy of "open door" was evident and communication cascaded throughout the organisation on the basis of "honesty without fear".
  • the workforce was trending towards being seamless in relation to employee benefits such as pension funds, sick leave, vacation and health coverage.
  • absenteeism and turnover was extremely low.
  • area offices had been eliminated and mines reported direct to headquarters.
  • management practices had dramatically changed.
  • all mines had continuous improvement programs on an ongoing basis.

At the last coal mine visited in Utah again one of our team members asked a question of our host, "how many miners' deputies do you have?". The reply was deadly serious, "none we don't have deputies out here at the minesite, we leave that to the sheriff in town who organises deputies when we need them out here!".

I will now briefly share some of my own experiences with you from the New Zealand resource sector in relation to international best practice.

Historically, New Zealand labour and management practices produced a far more volatile industrial climate than Australia in the 1970s and early 1980s. Delays of literally years in major project construction were common and the resource sector productivity in mining and petrochemical enterprises were also very poor.

My first visit in 1974 was to negotiate a labour agreement for the construction of an underground coal mine and my opposing negotiator was the notorious "Dingy Patterson". His reputation was built at miners' stopwork meetings when he used to throw his lunch box up into the air and scream out "if it stays up in the air we work and if it comes down and hits the ground we strike!". Great start welcome to New Zealand.

However, it was in the mid-1980s that New Zealand got its wake-up call. This era of reform was driven by the Labor Government's "Rogernomics" program that produced such a plethora of sweeping legislative and administrative reforms in privatisation, corporatisation, deregulation and the Labour Relations Act of 1987. This Act introduced a fast track recourse to the Employment Court to issue compliance orders against either unions, employees or employers for any breach of awards or agreements. This Act was the real start of the labour reform program in New Zealand.

I have been working the New Zealand resource sector since 1974, and more intensely in the last five years, to observe their sweeping changes. In the few examples to which I will now refer, the change in attitude and performance included dramatic changes in management performance, particularly in respect of involving the workforce in the process of change

  • 1989 Greymouth coal project in the heartland of the old coal mining capital on the South Island's west coast (Dingy Patterson used to work in Greymouth at 'Strongman' mine). No mine was allowed by the Miners' Union to work more than 265 days per year. Despite this 365 days of operation on a basis of twenty-four hours per day availability was achieved on the understanding that 'no deal---no mine' (mine still not approved). If the project proceeds it will probably on a 'non-union' basis.
  • 1990 Eight months prior to the Employment Contracts of 1991, Golden Cross gold mine negotiated a landmark single union labour contract introducing 365 days of operation on a basis of twenty-four hours availability, twelve hour shifts at straight time and straight time shifts on Saturdays, new methods of supervising and other sweeping changes, and is now non-union by election. This mine, with its unshackling of past featherbedding was, and is, regarded in New Zealand as the first real breakthrough in the resource sector in terms of mainstream labour reform.
  • 1991-93 Shell Todd Oil Services in the upstream oil and gas industry: reform of the workforce onshore and offshore, multi-skilling---all employees classified as production technicians, demarcation gone, new management style.
  • 1991-1993 Synthetic Fuel Corporation (now Methanex); the largest methanol producer in the work and the only gas-to-gasoline conversion plant: total adoption of international best practice and the merging of another methonal company into one organization, a total new way of working and of managing with customer focus and now competing against other Methanex plants globally.

The above two change projects were carried out using the partnering approach with employees, management and unions. However, Methanex operators broke away from partnering during the merger negotiations and finished with less operators, individual contracts, and a 90 per cent 'non-union' workforce.

Overall, New Zealanders have picked up their act dramatically in terms of international best practice, but they started from a long way behind. Some Australians even say the sheep don't look as anxious as they once used to.

The next two-and-a-half years of the National Government's term in office will see a continued momentum of labour deregulation, including the reform of some of the historical industrial dinosaurs who would not take the risk of restructuring during the Government's first term in office.

Returning to the Australian scenario, I conclude with a few parting shots:

  • to the Federal Government: stop the 'bully boy tactics'; stop regarding the States as your enemies; give them a go, even the so-called conservative States.
  • to Australian companies: let us get our act together at home and change Australia into a nation of winners. It is critical that management lifts its game. We can't afford to sit on past achievement and become legends in our own crib time. Now is the time to get organised, get going, get out there, motivate, brainstorm, share the truth about the enterprise, involve the workforce in the process and, above all, lead.
  • to the conference theme of 'A Matter of Choice' in the union membership context: it should be a non-issue in the workplace; the principle of freedom of association is sacrosanct. After all, it is the employees' union and it should be their democratic decision whether they are members or not.
  • to the unions: change or be changed.
  • to Australia generally: receive your wake-up call or settle to become just a mega-tourist resort.

And to you all: may the wind of international best practice be always at your back!