Back to Basics

Industrial Relations: A Management Responsibility!

The Hon Senator Fred Chaney

This session of the 'Back to Basics' Conference is designated 'Industrial Relations Policy'. As other segments of the Conference relate to specific industries and regions, I have assumed that this session is directed to matters of a more general nature that would be relevant to any industry or region in this country.

On the last occasion I gave a paper to this Society, I outlined institutional changes advocated by the Opposition. Basically these are aimed at producing a more flexible, more accountable system which will encourage a more co-operative and productive relationship in the workplaces of Australia. We believe these changes are needed if we are to get out of debt and achieve higher living standards.

I went on to place some emphasis on what is required within enterprises to achieve the continuous productivity improvement essential to competitiveness in the world economy. In particular I stressed the importance of the following factors:

• management deeply involved with the task of getting the best out of the labour force;
• a great emphasis on communication;
• a great emphasis on the capacity of the workforce to improve the productive process;
• a high degree of shared knowledge and understanding about the economics of the operation and the reality of the competitive position;
• clear understanding throughout the enterprise that survival requires being as good as the best in the world; and
• a sense of common purpose on the part of management and labour.

As some of you may know, the Coalition's Industrial Relations Policy, like all other policies, is currently being reviewed. I want to make it clear that the review is not about stepping back from the policy. Rather we are looking for ways to carry the same basic thrust forward. That the policy needs revision is primarily a sign of how far the industrial relations debate in Australia has moved in the last two years, partly due to our efforts, partly to the influence of participants like your Society, and partly to inescapable economic reality.

On this occasion, as we are some years away from being able to implement institutional reforms, I thought it might be useful to discuss the vital role of management in achieving good industrial relations as an essential part of achieving high productivity. I would also like to address two other aspects, namely the importance of management pursuing its goals even while the existing institutional restraints continue to exist; and the impact of institutional structures on both the capacity and the motivation of management to do its job.

Over the last six month I have been struck by the readiness of so many of those with whom I have spoken encompassing trade unionists, individual employers, and employer bodies including the Industrial Council of the CAI---to embrace the view that good industrial relations has, as a central requirement, management committed to, and skilled in, building co-operative relationships with the workforce.

The critical role of management was first emphasised to me when I was spokesman on Industry, Technology and Commerce. More than one senior manager claimed that management resistance to change presented a bigger problem than the attitudes of the workforce. The positive and negative aspects were illustrated by the experience of a senior manager whom I met recently, and who had spent most of his life in the manufacturing sector.

As a supervisor in a major manufacturing firm, he was taught that unions could not be trusted, that he should never concede an issue with them and that the aim was to 'beat the bastards' at all costs. He described a deepseated conflict and mistrust between management and unions. The real interests of employees were disregarded by both sides.

Intransigent attitudes led to long drawn out disputes and regular resort to arbitration and conciliation by a third party.

This confrontationist environment gave rise to the following problems:

• no sense of pride, achievement or accountability among the workforce;
• employees' concerns not listened to by supervisors, resulting in the standard approach of taking problems to the union delegate who invariably 'created' a dispute out of it, which often resulted in a strike;
• excessive absenteeism and tardiness;
• overmanning;
• poor work practices;
• demarcation problems, and competition between different unions within the enterprise for union membership;
• 'compulsory' union membership---enforced by the unions themselves and encouraged by management to minimise disputation; and
• power struggles between union and management seen as a win-lose battle.

The same manager was recently involved in establishing a new enterprise in the same industry. The approach taken to industrial relations has been radically different from that I have just described.

The fundamental approach has been to break down the barriers that traditionally exist between management and employees and to build up a relationship of mutual trust.

This approach has been an outstanding success. It has produced benefits both for the employer and the employees. The benefits to employees are that:

• they deal directly with management to resolve problems without third party intervention;
• the 'them and us' attitude is minimised;
• wages and conditions are attractive compared to general industry. They include:
  • discretionary bonus issues;
  • employee share ownership;
  • job security;
  • no loss of wages through strikes;
  • Christmas functions, BBQs, etc.;
  • a sense of pride in their work, achievement and accountability;
  • supervisors who are prepared to listen to what they have to say; and
  • a knowledge that management cares about their welfare and is concerned for their dignity.

Benefits to the company include:

• no strikes;
• high productivity and efficiency;
• no overmanning;
• low labour turnover;
• low absenteeism; and
• a workforce that cares about the profitability and future of the company and is prepared to accept the need for change.

The result has been an efficient, productive and export-oriented enterprise with a workforce that shares management's vision.

This particular enterprise is non-unionised. While this is significant it was in the manager's view not critical. I was assured that the employer had not actively sought a 'non-union shop' and that a similar approach would have been adopted if it had been unionised. Moreover, I was told that while the presence of unions might have presented some difficulties, the results were unlikely to have been significantly different.

In fact, it was the employees who wanted a non-union shop. Management had offered recruits the choice of whether or not to join a union. They had been told that the company would support whatever choice they made. To a person they chose not to join the union. I was told that this was primarily due to two factors: many recruits had not been happy with their experience of unions in previous jobs; also they trusted the management and felt that it would treat them properly.

This example supports the proposition that the best way of reducing union power is for management to treat its employees well.

The same point is made in a very interesting article I read recently by Ray Stone, a management consultant.

According to Mr Stone: 'If management accepted its responsibilities and did its job, unions would atrophy as the very essence of their power would be destroyed. Unions are only necessary when management makes them so.'

He points out that: 'Many Australian managements in fact teach their people to join unions . . .' by ensuring that '. . . the only way employees can get fair and proper treatment is via the union.'

He relates a story of a company where the female secretarial and clerical staff were constantly tearing their stockings on dilapidated wooden furniture. Management was not interested. In the end one of the clerks caught a splinter under her kneecap and the staff went on strike. Management purchased new furniture---but only after it faced a strike and the involvement of the union.

As Mr Stone concluded, bad management is the best recruiting agent available to the union movement.

If we accept that worker dissatisfaction is a major factor behind union power, what is it that employees want from their employers?

A book published a couple of years ago entitled The 100 Best Companies to Work for in America attempted to find out what makes a particular firm a good place to work in from the point of view of the employee.

Interestingly, for many workers, high pay was not the most important factor. The thing of most concern to employees was the style of management. The best companies from an employees viewpoint:

• made their workforce feel part of a team;
• encouraged open communication;
• promoted from within;
• stressed quality;
• allowed their employees to share in the profits through profit sharing or employee share ownership;
• reduced the distinctions of rank between top management and lower level employees;
• sought to create a pleasant working environment;
• tried not to lay off people unless absolutely necessary; and
• emphasised training and skill enhancement.

Obviously many of these things can be done now even with the existing unsatisfactory legal and institutional framework---to improve industrial relations.

What then is the role of Government?

I was told by the senior manager I referred to earlier that 'industrial relations must be approached from a leadership base not a legalistic base'. There is clearly an important truth in this.

Yet of course there is a role, a very considerable one, for legal and institutional reforms.

The view put forward by Ray Stone and others---to be found increasingly these days in management and business circles---is substantially true, and has, undeniably, profound implications for management. In two important respects, however, it is lacking as a theoretical guide to policy-makers.

First, while in the long run unions in their present form may well atrophy, some form of unionism will survive. In the most neutral, economists' terms, unions are an efficient way for workers to organise, and an equally efficient way for employers to negotiate with their workers. What we need to look for, in the policy sense, is institutional change which will continue to permit that efficiency to both employer and employee, without the present unacceptable face of unionism. There is, at least in theory, a good case to be made for the utmost flexibility in union structure, combined with the most pervasive possible enforcement of genuinely contractual relations.

Second, the view suffers from a lack of historical and political perspective. Australian unions have behind them a century of colourful history, and behind that nearly another century of the struggles of organised labour in Britain. They are, of their very nature, of the left and nurture, at least within their hierarchies, a sense of an historical mission, a mythology, a martyrology.

Sometimes confrontationist attitudes are not entirely, or even mainly, the fault of management; in certain cases---I suspect a diminishing proportion---the confrontation arises from an old belief in the inevitability of conflict between labour and capital.

Of course, just as the ALP has dragged itself into the 20th century, so too its affiliates in the ACTU are doing the same. 'Australia Reconstructed' is the most recent milepost on this path. Unfortunately it still says 'Sweden, 1965'; and notwithstanding the social democrat, or corporatist veneer, some at least of the old hostility survives.

There is no single response to this problem. To the extent that it is implicitly or explicitly practical, it will need to be handled by political means. To the extent that it is reinforced by unions immunity from the law, the law will need even-handed enforcement. To the extent that it depends on unions' monopoly over the supply of labour, then unionism needs to be made truly voluntary. Good management will always help, but we do need to avoid the glib assumption that it will always prevail. The main focus for institutional and legal reform should be in removing third-party obstacles to better and more direct employer-employee relations. Existing union structures which pay little regard to industry (let alone enterprise) boundaries, the whole centralised wage-fixing process, and the often large barriers existing between management and labour---these buttress bad habits on both sides.

In addition, the present system permits outsiders wilfully and destructively to intervene in enterprises. There must be protection from outside interference.

For example, what if a union had been totally unwilling to accept the employees' decision in the enterprise described above not to be unionised, and hence sought a 'closed shop' by industrial action. There must be a legal framework with appropriate sanctions to deal with such behaviour.

One set of institutional 'reforms' about which I am a sceptic is the use of industry plans to produce the management/workforce relationships which are required.

The Steel Plan is a good example---one which is relevant to Newcastle---of the approach of the present Government to improving the quality of management, and making an industry more efficient. The steel industry was in crisis in 1982-83. Steel production was at its lowest level since the mid-1960s, costs were escalating, and labour productivity was very poor.

The Steel Plan involved a range of explicit commitments from each of the major parties to it: BHP, the unions and the Commonwealth and State Governments. BHP promised to invest $800m, the unions would restrain their wage claims, adhere to dispute-settling procedures and co-operate in raising productivity. Government for its part would contain charges and provide industry assistance in the form of bounties and a guarantee share of the domestic market.

Things did seem to improve in the steel industry, at least initially, after the plan was established. BHP Steel Division returned to profitability, productivity increased, and there was a reduction in the level of disputation. Yet if we look beneath the surface, almost all of the productivity growth occurred in the first two years of the Plan. Moreover, as the IAC noted in its annual report last year, there were a number of signs of improvement evident before the commencement of the Plan, and many other factors outside the Plan further contributed to this recovery.

In fact, it is becoming increasingly clear that the Steel Plan has been a failure. Perhaps it is surprising that anyone ever thought it would turn out otherwise. After all, it is some time now since anyone believed that a guaranteed market share would actually improve performance.

Last November the House of Representatives Standing Committee on Finance and Public Administration published a report on the Plan. It noted that while the overall trend in the industrial situation has been very encouraging until the end of 1985, more recent experience indicated that problems were still seething just below the surface. Man-hours lost through disputation in 1986 exceeded the total man-hours lost during the preceding two years. And in 1987 there was a dramatic increase in the level of disputation. The Committee noted that the effectiveness of the dispute-settling procedures and the union's commitment in the area of industrial relations had to be questioned in the light of the recent industrial situation.

In fact, only this week the Steel Industry Authority warned that Australia's steel industry 'may not see out the 20th century' unless BHP and the unions significantly improve industrial relations and productivity.

According to the Authority, BHP's productivity in the September quarter was 285 tonnes per employee per annum. That is actually down on the figure for the corresponding quarter two years earlier. Moreover, the Report notes, this level of productivity is in 'stark contrast' to the performance of overseas producers such as China Steel Corporation in Taiwan, which produced 493 tonnes per employee per annum in 1986. US Steel is achieving productivity approaching 600 tonnes per employee per annum.

The Authority has expressed its deep concern that the Australian steel industry may be further behind its overseas competitors than it was at the inception of the Plan.

Contrast this with the enterprise referred to above which is, I understand, now one of the most efficient and competitive in the world. It seems clear that the approach embodied in the Steel Plan is precisely not the way to go.

It is clear that industries like steel and motor vehicles have, to varying degrees, started to get their act together, including in the area of industrial relations, now that they are faced with the threat of international competition. Yet the approach of the industry plans has been to protect these industries from such competition as a quid pro quo for higher investment, etc. The experience suggests that this has done more harm than good.

Experience with the plans suggests that what Government should in fact be doing is increasing the level of competition to which industry is exposed. This is far more likely to encourage industry to improve the quality of its performance than putting up protective barriers and then seeking 'commitments' to do better. There are many good reasons for deregulating the products market: the beneficial effect on the labour market is one of the best.

This line of thinking receives further support from a very interesting study by Richard Blandy and Meredith Baker of the National Institute for Labour Studies. Blandy and Baker conducted a number of case studies of firms in New Zealand to explore the interaction between trade liberalisation and industrial relations.

The authors found that most of the companies studied responded to trade liberalisation by innovating, trying to improve productivity by 'getting close to their people', finding market niches, etc. Virtually all enterprises saw the changes in the product market environment brought about by trade liberalisatian as a factor which had spurred them towards greater innovation, and towards changes in management style in industrial and personal relations.

Increasingly, all the firms studied saw labour market flexibility as a key to their capacity to survive and prosper, as this was regarded as the best way of improving productivity. The authors noted that a central issue was whether the existing labour market arrangements were sufficiently permissive to allow such enterprise-centred labour relations.

Which brings me back to the need for industrial reform. While the key is good management, committed to flexibility and a positive relationship with the workforce, we will not, I suspect, bring this about simply by preaching to people. From a public policy stance, deregulation of the product market is probably one of the best 'incentives' to good management. However, we must also ensure that existing institutional barriers to improved labour relations are cleared away.

In fact, in New Zealand there seems to be a growing tension between the pace of reform in that country's products market and their Government's resistance to major reform of the labour market. While the New Zealand Government has embraced the cause of trade liberalisation and general deregulation of the product market, it is also being criticised for failing to apply the same standards of reform to the labour market as the financial and productive sectors have already accepted.

Of course, New Zealand's labour market is characterised by similar centralised regulation as is Australia's. It is dominated by rigid wage bargaining which generates outcomes with little regard for the efficiency, productivity or profitability of enterprises. It provides poor incentives for positive relations between employers and employees, with wages and conditions being determined far away from the workplace. And it involves the Government and its agencies too heavily, thereby weakening the incentives for the bargaining parties to behave rationally and responsibly.

It is interesting that the growing liberalisation of the product market is making employers increasingly frustrated with the constraints of the centralised wage system.

The New Zealand experience suggests that reform of the product markets, to be fully effective, must go hand in hand with reform of the labour market. Yes, employers can do more to improve industrial relations even within the existing legal framework, and yes, reduced levels of protection and other policies designed to deregulate the product markets will increase the pressure on employers to improve the quality of their management and to get their industrial relations act together.

However, the existing institutions in Australia seriously militate against a more enterprise-centred approach. Businesses, especially small ones, are subject to complex awards that fail to take account of their own particular circumstances. Wage rises emanate from the Arbitration Commission in Melbourne and have nothing to do with the efficiency or prosperity of the particular enterprise.

To sum up. I believe that good management can achieve much, even under the present institutional framework. I have cited only one example; but we can all multiply that many times over. We can all think of companies, large and small, whose approach to productivity through industrial relations is exemplary; companies who, by pioneering profit-sharing or consultative mechanisms or other strategies, are already far ahead of establishment thinking. In some cases the impetus for good management comes from within; in others it is a response to external pressures.

What is needed of government policy is twofold. We must spread the impetus to good management by opening up all the economy to as much competition as possible. I say 'all the economy' advisedly: as the IAC reminds us at least once a year, it is not only a matter of barrier protection but also of freeing up the protection by regulation within the economy.

Then we need to create the best possible framework in which to allow management the greatest freedom to pursue productivity---the freedom to achieve what is now realisable only by way of small miracles.

Already under the Opposition's existing policy, much of this will be possible:

• voluntary agreements will permit consenting employers and employees to opt out of the system;
• our encouragement of employee share ownership will enable more employers to get their employees to share company goals;
• a whole range of measures will increase the certainty of enforceable industrial and civil legal remedies.

As I said at the beginning, the policy is now in a process of review. I am sure that when I next speak to you I will be able to enlarge on a revised policy which will offer more of the right freedoms, the right incentives, and the right guarantees for civil behaviour.

Inevitably this paper touches on only some of the relevant issues: improved industrial relations is not a matter of a single golden key. Restoring the rule of law is vital. Modern enlightened management and the spur of competition are vital as an antidote to sloth and inertia. Institutional reform is vital to restore focus on the workplace by removing unnecessary external influences. Finally, courage will be required in those circumstances where wrong conduct will not yield to reason. Much of this can come from the community in this period of government subservience to trade unions on matters of institutional reform. I hope this weekend will contribute to that process of change which is possible now.

On the Other Hand

David Clark

Opposition still unable to expand on its industrial relations policy

THE Opposition spokesman on industrial relations, 'Red Fred' Chaney, is a nice enough bloke but his address on Saturday to the H.R. (Harry Rambo) Nicholls Society conference in Newcastle showed yet again that the Opposition still does not have an industrial relations policy.

It called for a change in management attitudes but contained no details on how the Opposition aims to implement its policies, let alone enforce its 'opting-out' approach.

Bob Hawke might have done his utmost to emasculate the sanctions available under the Arbitration Act--- with a little help from Clarrie O'Shea---but subsequent Opposition Ministers of Industrial Relations did nothing to encourage their enforcement or common law actions against trade unions.

Indeed, far from wishing to make radical changes to the system, the Opposition appears keen to reinforce some of its worst features.

If the Opposition is to ever get off the barbed wire fence intact and if we are to have serious industrial relations reform in this country, clear and coherent answers to the following questions are required.

They fall into three general categories.

The first is what precise steps and forms will the deregulation of the labour market take? What is the detailed timetable of reform?

The second involves the changed role of the commission under an Opposition government. Will a degree of 'opting out' actually weaken its current influence, or indeed strengthen it?

The third concerns the means by which an Opposition Government would ensure that national wage case judgements are more economically rational.

Take a hypothetical situation in which the entire Labor Cabinet misplaced letters from donors to the party and retired tomorrow to run pubs in Adelaide bought with their lump-sum handouts:

• Would the Opposition support flat-wage increases under the current first tier if aggregate productivity has risen?
• If so, how would this improve flexibility, given the erosion of wage differentials which would result? If flat rises are opposed, what alternative approach will be put to the commission?
• What will be the relationship between the national wage case and awards and agreements negotiated between employers and employees?

When Senator Chaney introduced his private member's bill to the Senate in November, he complained that the Opposition's policy had been misrepresented.

It does not call for a radical and, rapid dismantling of the present highly centralised system, he said. The Opposition merely intended to open up gradually a 'second stream' of industrial relations through 'opting out' provisions. These would allow enterprises with fewer than 50 workers to leave the centralised system's industrial awards. (This number was chosen because it would not upset business members of the I R Club).

How will even extensive 'opting out' force a lower than otherwise national wage case outcome---given the power of unions who will refuse to opt out?

Under the Constitution, there appears to be only two ''possible heads of power' which would allow an Opposition government to implement the opting out option for businesses with less than 50 employees. The first is the arbitration power, the second the corporation's power.

Last year, Senator Chaney sais the voluntary agreements would be implemented under the arbitration power. Mr Willis's reply to this, which has gone unchallenged in the media ever since, was that this power does not enable the Commonwealth to require any particular wage rate in an award or agreement. If this is so, then it will be impossible to enforce minimum wage rates in voluntary agreements if the arbitration power is used.

But what about the efficacy of the corporation's power? Mr lan Viner QC, in his address to the Harry Rambos, described the Hancock Committee's description of the corporation's power as 'exotic'', as 'a view born of ignorance or prejudice.

But who is right on this very important point? Does the Willis argument hold? If not, why isn't the Opposition stressing how easy it would be to use existing powers?

Senator Chaney stresses the need for co-operation. But how will an Opposition government get the Halfpennys and Gallaghers to lie down with the lambs---particularly given the fact that penalties have been a dead letter since the Clarrie O'Shea case of almost 20 years ago?

Won't a switch to greater reliance on the Arbitration Act lead to less use of the common law and the Trade Practices Act?

The Opposition promised in its 1987 election policy that the 'jurisdiction of the commission will be strictly confined to relations between employers and employees?

How exactly will it preserve the right of independent contractors and self-employed people? For example, how will it end the present practice of unions demanding six months membership and enrolment in BUSS from contractors merely coming on site to do a one-day job?

How will the Opposition force changes in the wage criteria used by d the commission? According lo Senator Chaney, 'the principal criteria should be the capacity of industry to pay'.

But this is much easier said than done.

As my colleague P.P. McGuinness once wrote---'To expect economic sanity from the Arbitration Commission is like expecting celibacy from a rabbit'. (He's still awaiting a contempt of court action.)

Take the December postponement of the national wage case. The judgement stressed that no judgement was then possible on the effects of the crash of 1987. Yet, everyone in the money market knew that the Reserve Bank had been intervening heavily to prop up the $A. Indeed, it ran down our reserves by more than $3 billion in the December quarter. If the Reserve Bank knew, why didn't the commission?

Is the Opposition aware of the great difficulties involved in measuring aggregate productivity. If it intends using GDP per man-hour as the yardstick, then how will it get around the fact that GDP really stands for gross deceptive proximation.

Not only are quarterly figures revised up to two years after the event, the statistical discrepancy the gap between the two methods used to measure GDP---varies greatly. Indeed, in times when wage policy decisions are the most crucial, it tends to be at its largest.

For example, preliminary estimates could show a 2 per cent rise in national product and a 3 per cent rise in productivity. But a later revision could produce a very different outcome. Meanwhile, a wage rise has been handed on by the commission for a productivity increase which turns out to be a statistical error.

What is the Opposition policy on public sector wage increases?

Opting out is no solution here. How wide is its definition of essential services? How will the difficulty of measuring productivity change in this sector be overcome?

Will the productivity yardstick be that which has occurred in the economy at large or just the private sector?

Has the Opposition considered how changes in the value of the $A could be taken into account in NWCs? For example, should we gear wage rises to changes in our terms of trade---or export prices and/or volumes?

The response I got from 'Red Fred' at Newcastle to these questions made it crystal clear that the Opposition still has to do a lot more hard thinking. Glad-handing ACTU officials is not sufficient. (At least the H.R. Nicholls Society is stirring up some serious debate about industrial relations in this country. It is so refreshing to go to conferences on this topic which are devoid of industrial relations academies and superannuated Arbitration Commission heavies---after all not only could most of these people never even run a chook raffle in a pub---they belong to the greatest closed shops of all).

Until the Opposition works out clear and coherent answers to the questions listed above, and they are widely debated in the public arena, we will continue to be a sad little economy which is rich in resources and potential but penniless in industrial relations sanity.

The Opposition cannot remain on the industrial relations fence for much longer without losing its fundaments.

Any group which tightens the wire under it---be they Harry Rambos or the West Wagga Wagga Callithumpians---deserves the strongest support.

Postscript: A little bird told me that the failure rate in Women's Studies at the ANU is very low---indeed, so low, that nobody fails.

Clearly, in the spirit of the Dawkins Plan. the ANU should insist that the Women's Studies academics share their teaching secrets with other faculties--- such as Economics--- which have much higher failure rates and which award far fewer distinctions and high distinctions.