Back to Basics

Industrial Relations Study Commission: A Progress Report

Alan Rowe

In opening, I would like to dispel any expectations of controversial matter in this paper, which might have been stirred by the session heading, 'Issues of Trade Union Reform'. It would be insensitive of the Business Council's Industrial Relations Study Commission to open its public presentations by laying down prescriptions on reform of trade unions and I do not propose to do so. Not only would this be inappropriate, but it would reflect an extremely narrow focus. The Commission's charter to advise on industrial relations reform is far broader than simply addressing the role of trade unions. When the organisers of the 'Back to Basics' Conference invited me to speak, I pointed out that the Industrial Relations Study Commission's work is still in its early stages. The Commission is still gathering its facts. It has not had an opportunity to develop any policy conclusions. I am thus not in a position to foreshadow its likely views on the major issues in industrial relations.

What I will talk about today is the way in which the commission is going about its task. Its approach is quite different to that taken by most previous proponents of reform. But before moving to that approach, I will briefly outline the background to the Commission's establishment.

The first point to note is that the Business Council was formed less than five years ago. Its primary objective is to develop medium-term policy positions that will improve the fundamental culture and strength of the Australian economy---the underlying principle being that the better that culture and underlying strength, the better it will be for business as a whole and for individual Australians. That is the basis on which it approached industrial relations policy. After lengthy and, I understand, sometimes spirited debate as to the virtues of a highly centralised versus an enterprise-based approach to industrial relations, it opted in principle for the latter towards the end of 1986. Having reached that in-principle position, it then considered implementation. It decided the only way to think through the implications of its in-principle position was to devote resources---human and financial---to an intensive analysis of the changes necessary to shift the industrial relations centre of gravity towards the enterprise.

The Commission was then foreshadowed in the Business Council's March 1987 policy statement entitled 'Towards an Enterprise Based Industrial Relations System'.

In arguing for the fundamental reorientation of the industrial relations system, the Business Council believes that it should move away from its present focus, which is largely outside the enterprise, is adversarial in nature and is conducted by intermediaries positioned between company management and its employees. Rather, it should move towards an enterprise focus, with development of a high degree of mutual trust and interest, and with strengthened direct relationships between employers and employees. The Council's policy favours development of binding and enforceable enterprise-level agreements. These should be negotiated annually, or preferably bi-annually, between management and a cohesive bargaining unit involving representatives of employees. The content of agreements would be up to parties, but under this approach there would be scope for greater flexibility in remuneration, working time and job content, with mutual benefits for companies and their employees.

The Industrial Relations Study Commission was set up in October 1987 to advise on ways of achieving the Business Council's objectives. It is chaired by Mr Fred Hilmer, Managing Director of McKinsey and Company in Australia. Many of you will know Mr Hilmer through his book When the Luck Runs Out, published in 1985, which argues for rethinking Australian attitudes towards work and productivity, as we can no longer afford to live off our natural resources. The other members are Mr David Macfarlane, Managing Director of James Hardie Industries; Professor John Rose, Director of the Graduate School of Management at Melbourne University; and Mr Peter McLaughlin, who has moved out of his position as Director of Policy Analysis and Research with the Business Council in order to work full-time on the Commission. The Commission is serviced by a small secretariat, including myself.

The Commission's central term of reference is to identify means of achieving changes to the current industrial relations system that will improve the way people work together at places of employment. The main objective of this policy is to increase the competitiveness and performance of Australian enterprises in providing goods and services internationally and domestically, as well as in enhancing the personal achievement and satisfaction of individuals at work.

Perhaps, at this stage, I should clarify our use of the term 'industrial relations system'. We are referring to the system in its broad sense, as covering the roles played in relations between employers and employees by:

• government, including the legal framework and relevant arbitral and regulatory bodies;
• unions, including their operations and structures;
• management of both larger and smaller organisations, private and public;
• employer organisations, including their operation and structures; and the
• direct day-to-day relationships at the enterprise level.

It is for the Commission to decide how it proceeds and reports, bearing in mind that an important part of its role will be to stimulate ongoing debate and workplace reform. However, it is expected that it will complete a good part of its tasks within twelve months.

I now turn to the way in which the Commission has decided to carry out its work. This has been influenced both by the Business Council's policy objective of moving the focus of industrial relations closer to the enterprise and also by the response of supporters of the present system to previous reform proposals.

Previous proposals have largely been either for a radical move to deregulation, without detailed description of the steps involved in achieving this goal, or they have been directed to a limited range of issues, such as particular changes to the legislation on matters such as sanctions, to overcome what have been seen as failings in the effective operation, or balance, of the system. While sanctions are clearly an important issue, I think it needs to be remembered that although a more powerful system of sanctions may be an effective deterrent to some forms of industrial action and to some abuses of due process, it is less likely to affect basic attitudes of employees towards their work or to give encouragement to greater efficiency in workplaces. This suggests a need to take a wider look at the operations of the industrial relations system. The Hancock Committee was able to dismiss the advantages claimed by supporters of a deregulated system, including the views put forward at the 'Alternatives to Arbitration' Conference which it sponsored in October 1984, as not proven. (Richard Blandy has referred to this as a 'Scots verdict'.) The Committee Chairman, Professor Hancock, subsequently stated, in his address to the America's Cup Convention of the Industrial Relations Society of Western Australia in January 1987, that:

'The Committee's judgement was that it had identified objections to dismantling the conciliation and arbitration system. These might be counterbalanced if an alternative were on the agenda and advantages were demonstrated for it.'

He went on to say that:

'The Committee did not have before it either an achievable alternative or a statement of the advantages which might reasonably be anticipated from moving in that direction.'

The main volume of the Hancock Report gives over only three pages, out of a total of 694, to discussion of workplace industrial relations. And this discussion is largely about what good relations in the workplace should be like. There is not a single reference to experience distilled from actual studies of workplaces in Australia. However, Professor Hancock doubts that changes to the formal industrial relations system would have much effect on the conduct of relations between employers and employees at the plant level. In the speech from which I have already quoted, he states that '. . .good and bad enterprise relations are compatible with the diversity of formal industrial relations systems' and 'the totality of experience of developed countries without conciliation and arbitration systems affords no ground for thinking that deregulating the Australian industrial relations would alter the quality of workplace relations.' In its report the Hancock Committee comments that 'to the best of our knowledge, no successful attempt has been made to isolate from other factors the contribution of the industrial system (if any) to deficiencies in Australia's productivity performance. Unless this is done, assertions about that contribution must be regarded as pure speculation'.

However, some other Australian commentators believe that the existing industrial relations system does have a harmful impact on productivity. For example, Professor Richard Blandy and Judith Sloan, in their article for the ACC/Westpac Economic Discussion Papers series on 'The Dynamic Benefits of Labour Market Deregulation' argue that a key aspect of labour market flexibility relates to productivity, and they point to the importance of labour/management relations at the plant level in determining the productivity outcome. They identify benefits which could be expected from employee participation and gain sharing. They note that 'some would argue that the arbitration system does not constrain the development of such arrangements, although any empirical basis for this view (or, indeed, opposing view) is largely absent'. They go on to say that 'there is a pressing need for research into the workplace industrial relations practices in Australia to assess the impact of the workings of the arbitration system thereon'.

Dr Joe lsaac, formerly a Deputy President of the Conciliation and Arbitration Commission and a strong supporter of the present system, also highlights the lack of information on what happens in Australian workplaces and the impact of the Australian industrial relations system on productivity. He argues that:

'There is little systematic appraisal of the real impediments to greater work flexibility. The more we know about what goes on at the place of work, the greater the progress we are likely to make in improving industrial relations and productivity. What is urgently needed is a data bank of information, updated periodically about critical elements in the place of work, as well as case studies of successful and unsuccessful attempts at greater work flexibility. These will identify the sticking points and suggest how they may be overcome. I mink I am right in saying that at present, most of us who write about the Australia labour market know very little about the most vital part of that market---the workplace.'

My reading of events in Australian industrial relations over the last decade or so is that there is a great deal in the Isaac view. That is not to defend the 'Scots verdict' approach, which has stymied any worthwhile reforms to a system with which practically no one seems fully satisfied.

But if I could be a little provocative, it seems fair to say that those seeking reform have not done their case full justice either. There has been no shortage of those able to sketch out 'lights on the hill'. But there has been, in my view, a serious deficiency of those willing, or able, to devote their energies to tell us how to get there. On this point at least, I suspect this would be as true of papers prepared for the H R Nicholls Society as of any other recent reformist writings.

Now it is a lot easier to make that observation than it is to overcome the criticism of not being able to substantiate the workplace effects of the system and relate those to specific reforms---in Isaac's terms, 'to identify the starting points and suggest how they may be overcome'. If it was easy, it would have been done years ago.

But what I can say is that Business Council members have been prepared to provide the financial backing to support their interest in furthering enterprise-based industrial relations and, on behalf of the Commission members, I can say that they will be doing their best to inform and influence debate. These considerations have strongly influenced the Commission's approach to its work. This has three main elements.

First, rather than approaching industrial relations on a top-down, system-driven way, the Commission has decided to begin at the bottom, by looking at what actually happens in Australian workplaces---in other words, to attempt to fill the deficiency in our knowledge pointed out by Blandy, Isaac and others.

Secondly, rather than focusing largely on macro issues, such as wages policy and wages flexibility in the macro sense, the Commission intends to concentrate much of its attention on micro and non-wages factors. It will be looking at actual differences in productivity between efficient and poorly run plants and working to identify the factors which drive these productivity differences---for example, how work is organised, the existence of restrictions on the most efficient use of labour and plant, skill levels and utilisation, consultation and information-sharing arrangements, and the impact of our rigid wages system and, alternatively, of gain sharing or other financial incentives.

It is well known that plants producing similar items can often have massive differences in productivity. The Commission's interest is in attempting to identify reasons for these productivity differences and the impact of the industrial relations system on productivity outcomes. We are interested in testing whether productivity in typical Australian plants is low by international standards and compared to best practice. There is certainly already much anecdotal evidence to this effect. It is important to know whether this is due to scale and other factors outside the industrial relations system, or whether any poor productivity in Australian can be attributed to aspects of the industrial relations system.

That brings me to the third essential difference in how we are going about our work. Focus on the macro level, and on the institutional or legal framework has often resulted in the role of management in industrial relations being ignored. The Business Council has asked us to treat management as a key variable. It is sometimes argued that 'management failure' is at least in part responsible for the quality of labour relations in Australian workplaces. We will be looking both at management structures and management/employee communications. We will be examining the extent to which management structures are efficient in terms of enhancing industrial relations at the enterprise level, whether management is making most efficient use of its labour resources, given the constraints to the existing system, and the impact of the system on employers' negotiating skills. This goes back, in effect, to testing Professor Hancock's view that it is not the industrial relations system which matters, but the way employers and employees interact within enterprises. Obviously, if it were established that the existing system prevents or inhibits efficient behaviour, the case for change should be substantially advanced. Of even greater importance, given that it should be easier for management to change its own practices than other parts of the system, we will be looking at any guidance which we can provide to Business Council members, and the business community generally, on how it can improve industrial relations and efficiency through better management practices. I should add here that many companies have already gone well down this road. It is unlikely therefore that we will discover anything new. But hopefully we can be a catalyst to the spread of innovation and successful practices. How are we going about these objectives in practice?

First, we have contracted Sydney University's Department of Industrial Relations to prepare an annotated bibliography of Australian workplace studies. The bibliography has now largely been completed and it will be published within the next month. (I can be contacted for copies.) By and large we expect this work to confirm the commonly held view that studies of workplace industrial relations have been a neglected area in Australian research, which has largely been focused on systems issues and macro wages policy.

Secondly, we will be attempting to partially fill this gap by doing our own research on industrial relations in the workplace. This will occupy much of our resources. We hope it will provide a body of material, not only for our own work, but to serve as a factual basis for advancing the debate on industrial relations more generally. The main approach we have chosen is to undertake detailed paired studies of selected Australian and overseas workplaces. Our goal is to try to establish if, and how, productivity in Australian workplaces is being impaired by particular 'system' factors and by the effect of the 'system' as a whole on the values and attitudes in our workplaces. We aim to undertake a fair number of these paired studies choosing, as far as possible, plants of like size producing the same or similar products and where similar technology is being used, or should be accessible. Obviously, we hope to be able to make this sample as representative as possible of the broad spectrum of Australian business through a mixture of plant sizes and varying degrees of capital and labour intensity, and through selecting plants from various industry sectors, including resources, manufacturing and services. The overseas plants will be chosen from a number of countries, including the United States, Asia, the United Kingdom, and continental Europe. Our methodology essentially comprises three elements: lgathering hard data on plant productivity and practices;

• on-site discussions with plant managers, supervisors and shopfloor employees to obtain an appreciation of how work is actually done and of the different perspectives of this; and
• more detailed follow-up inquiries to test insights and build up knowledge of the effect, if any, of particular practices and systems on plant efficiency.

We have been substantially assisted in developing this methodology, and in the preparation of detailed questionnaires, by the National Institute of Labour Studies at Flinders University. Researchers from the Institute are carrying out the studies jointly with our own staff.

At this stage we have completed two pilot studies; the first, of two Australian manufacturing plants in different States using like technology, but with quite different workplace practices; the second, comparing a similar service activity in Australia and the United Kingdom. We are at present drawing together the results of those studies and looking at any necessary refinements to our methodology, before moving on to further case studies.

Another element of our work, which is already under way, is to identify and, where appropriate, document innovative management practices in Australian companies and to pursue the extent to which such practices are possible in our industrial relations system. We will be looking to see whether, after a certain point, managers are inhibited by the system from doing better. In particular, we will be looking at methods of direct communication with employees, participation practices and information sharing; approaches to gain sharing and other financial incentives; training and skill development arrangements; innovative practices in terms of hours of work or other measures tailored to improving plant performance; and examples of plant or enterprise level agreements.

While we would reasonably only expect to gain access to Business Council members for conduct of the paired studies, we are hoping to extend well beyond the Council's own membership in gathering experiences on innovative management practices. I would be grateful for any volunteers, or suggestions, from this audience.

Today I have concentrated on why and how the Commission is going about its role. At the end of the day, this is a means to an end: that is, to identify problems with our industrial relations system and to suggest appropriate directions for change.

To do this effectively, the Commission will first have to make its case that an industrial relations system focused at the enterprise level provides greater incentives, or less constraints, for people to act efficiently than the existing, highly centralised, system.

The Commission will also be examining the implications of a shift to an enterprise-oriented system in terms of:

• the legal and institutional changes, both including the nature of Federal and State laws, needed to facilitate improvements in enterprise level relations between employers and employees;
• the role and nature of conciliation and arbitration in an enterprise-focused system; how best to develop cohesive bargaining units at the enterprise level;
• means of enforcing enterprise agreements, including the role of sanctions and the civil law;
• changes that might be required to the structure and approach of management in both private and public enterprises; and
• what the suggested changes to the focus of bargaining would mean for management structures and the structures and operations of trade unions.

The Commission will be giving special attention to the implications of productivity-enhancing improvements at the enterprise level for macroeconomic management and for the overall regulatory environment in which business operates.

Finally, the Commission will need to give thought to the suggested method and timing for implementing any recommended changes to the legal and institutional structures.

As I noted earlier, the Commission will be expected to substantially complete its work within 12 months. The form and timing of reporting has still to be decided, but I would expect that there will be one main report, possibly towards the end of this year. Some papers, such as the bibliography of workplace studies, will be published before then.

A very experienced advisory panel, comprising Mr Charles Fitzgibbon, former Arbitration Commissioners Mr Justice Robinson and Dr Joe Isaac, and Professor Di Yerbury, has agreed to act as a sounding board to the Commission and we are extremely grateful for their support. We will also be consulting with the widest possible range of interested parties during this year.

Obviously, with the limited resources at our disposal we don't expect to be able to address each and every aspect of the industrial relations system. However, at the very least, we hope that the Commission's workplace research and other investigations will give a worthwhile stimulus to public debate and will assist in shifting the focus out of industrial relations towards the enterprise level.