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Joint CIPD / LSE ninth annual Voice and Value series: Beyond Partnership

Pat McFadden MP,  Minister for Business, Innovation and Skills
London School of Economics, London,  20 March 2009

Good morning.

I want to make a few points today about the Government’s approach to employment relations. You are all involved in this field and many of work on a daily basis in managing employee relations in large companies. You know all about the value of a committed workforce but I suspect you also know that change can sometimes be hard to implement and that, “we’ve always done it this way” can be a real force for conservatism in the workplace.

Our starting point

Our starting point when we came into office was that in statutory terms, employees had too few rights. There was no right to minimum pay, no right to paid leave and our maternity pay and leave were kicking around the bottom places of the European league.

We had a mandate to change that and we did. I won’t list all the measures because you know them well, but minimum pay, guaranteed paid leave and a better balance between family and working life are now familiar parts of the employment law landscape.

Good employment relations also means that if you make new rules, they have to stick. That’s in the interests of the workers and of the good companies who play by the rules. So in recent years we have put more effort and resource into for example minimum wage enforcement. We’ve toughened up the law recently in this area to create stiffer penalties for employers who don’t pay and fairer arrears for employees denied the minimum wage.

And we are putting more resources into telling the most vulnerable workers about their employment rights. We are shining a light into some dark corners of the labour market to uncover and deal with unacceptable employment practices. I am very clear that the recession must not become an excuse to deny basic employment rights to vulnerable workers. So we recently launched a £1m publicity campaign, in conjunction with the Recruitment and Employment Confederation, to inform agency workers of their rights. And there will be more to come over the next year.

I have pulled together all the government enforcement agencies, business and unions in a Fair Employment Enforcement Board to make sure these efforts are properly co-ordinated and to try to lift more of the burden from the person reporting the abuse and giving that burden to the system itself.

But of course not everything has to be or should be done through legislation. As employment relations Minister I am usually faced with three or four postcard campaigns at a time calling for one new law or another. Sometimes they are justified and we have changed the law where we thought that was necessary. But I am struck by the fact that some of these issues should be sorted out in the workplace.

Going to government to call for legislation should not be the first port of call for every grievance in the workplace. There has to be a role for issues to be worked through in the workplace or the company itself.

And for that process to be successful, there is a need for a couple of intangible but priceless ingredients and those are trust and confidence. Trust that whoever you are sitting down with is working with you in good faith. And confidence that whatever you agree will be implemented after you have shaken hands.

You will know that I am also Minister for postal affairs and that one of the issues identified in the Hooper Report as being a major problem for Royal Mail is industrial relations. It’s not a secret. Some years ago my colleague Lord Tom Sawyer was asked to do a report on it and he identified this lack of trust as being a feature of the culture of industrial relations in Royal Mail.

Richard Hooper found that this affects the implementation of change – or the lack of it – in the company. I often hear the claim that people are up for change. But being up for change in general, and then rarely being up for it in the particular, is no way forward for such an important company, particularly one facing profound change because of the revolution in people’s communications habits. The choice here is not change or no change. The choice is change you can manage or change forced on you by a decline in mail volumes that is eating away at that company’s finances.

My point in raising Royal Mail is not to blame anyone. It is to say that if change is to happen trust and confidence are necessary. Its true in a wider sense too. We recently had a visit from the Chinese Premier Wen Jiabao. Talking of the global recession he said, confidence is more important than gold and silver and I think we all knew what he meant.

Confidence is in short supply at the moment but it will be an essential ingredient of economic recovery. I recently met the owner of a large scale bakery in Yorkshire. I asked him how business was and he said, “Fine. People still buy bread in a recession”. But then he went on to tell me that, even though his company was cash rich, they wouldn’t be buying any new cars or vans over the next year. It’s not all about access to finance, critical though that is. It’s also about having the confidence to make the kind of spending decisions that people would not have thought twice about a few years ago.

And you see that lack of confidence around the world as the global recession bites. That’s why it is so important that nations work together to co-ordinate our approach to this situation and why the restoration of confidence will be a key theme of the G20 in a few weeks’ time.

So what does all this mean for employment relations? Do the assumptions we held in the good times hold in the bad?

We have already seen in France and here in the UK outbreaks of industrial unrest driven by the recession. I am not complacent about this and am acutely conscious that in times like this politicians can very easily sound aloof or out of touch. If someone can’t pay their bills, of course they are going to be anxious and fearful.

But I think it is very important how we respond to this. Job competition is much sharper in bad times than good. But I believe it would be a profound mistake for Britain to turn its back on its stance as an open global outward looking trading country. We have thousands of UK companies working abroad and hundreds of thousands of British citizens working abroad.

If every country wraps a curtain around itself, we will all end up poorer. It is trade that made this country great. And it is trade in recent times that has lifted millions in developing countries out of grinding poverty. We should not turn our backs on that now.

Employment relations in a downturn

When times are good, you want employee engagement to help your company grow. You want buy in for the new products and services you are launching. You want everyone to share in the company’s ambition.

When times are bad, perhaps good employee engagement is even more urgent. We have seen a number of agreements recently where workers have accepted pay cuts or short time working rather than the alternative of no job at all.

Think about how tough that must be? People with mortgages to pay, families to keep, sitting down with their bosses and agreeing to take a pay cut because they know the alternative could be worse.

It is not a pleasant choice, and it is for those companies and workers to decide, but it does show a shared commitment to doing what you can to keep the company in business, to try to steer your way through the recession until the upturn comes.

This is when the rhetoric really gets tested. Employees are not stupid. It’s not enough to have mission statements on laminated cards posted up in the office. Engagement has to be real and affect the culture of company from top to bottom. But if it is real, the benefits to business and to workers are potentially huge.

Government is keen to doing more to promote positive employee engagement. That’s why we have commissioned David MacLeod and Nita Clarke to look at some of the best practices going on in UK business and to report to us in a few months. We’ve asked them to think about why some companies have made a real success of this and others have not and to look at the benefits in terms of retention and commitment. I want to thank CIPD for their input into this work. I think this work is important and it reflects some of the trends in government’s own thinking in how best to facilitate change at work.

I referred earlier to the new laws we have introduced and the importance of enforcing them properly. I stand by those new laws setting clear minimum standards but sometimes law can serve to enable rather than to prescribe. That has been our approach for example in relation to flexible working, where workers have a right to requested but not to demand, and where we understand and have written in to the legislation legitimate business reasons why a request might be turned down .

In the same way we took a second look at our dispute regulations and concluded they were too rigid and too legalistic. From next month we will begin introducing the much more flexible system which will replace them, with more money for ACAS to play a bigger role, allowing more disputes to be resolved in the workplace and hopefully fewer ending up in tribunals.

Example of good employee engagement – Garvis Snook

Let me finish with a story. Garvis Snook knows all about the benefits of an engaged, confident, workplace.

Nine years ago he joined a building company that was close to going bust.

He soon noticed a “them and us” attitude between managers and the trades people on the front line.

So he introduced the same terms and conditions for staff and managers, offered incentives for good performance and actively sought the views of staff on the front line.

His company ROK has seen its workforce grow from 600 people to more than 5,000 and its growth in turnover increase from £85 million to £1billion.

Garvis says: “Without getting the workforce fully engaged and committed the company would die. Instead it was reborn.”

Now achieving this sort of real employee engagement isn’t easy since little more than one in ten workers describe themselves as engaged whereas more than four in ten consider themselves to be disengaged.

Saying “people are our greatest asset” is easy. But how do you make that real rather than just a slogan? That’s the simple task we have set David and Nita and the bread and butter of what the HR directors in this room do every day.

Conclusion

We in Government will do everything we can to restore confidence and steer the country through the recession. Times are tough right now. We know that and no one knows it better than the people who have lost their jobs in recent months.

But there is an additional reason why employee engagement and trust and confidence at work are so important. It is not just about coping with the problems of today but it’s about looking to tomorrow too.

We wouldn’t be doing our job if we just tried to cope with the recession and didn’t have an eye to the longer term.

The way staff are motivated – or not - will have a huge impact on whether we become winners in the post-recession world.

I believe profoundly that we can. My boss, Lord Mandelson has called for a new industrial activism. The determination to see, champion and help to create Britain’s industrial future is absolutely essential if we are to make the most of the upturn when it comes.

There has been plenty of talking Britain down in recent months and I am not for a moment trying to detract from the economic difficulties we face, or the human cost of them represented in the unemployment figures this week. But this country still has huge economic strengths. We still have great businesses. And if we keep our confidence, keep looking outward and resist the call of the protectionist sirens, we can come out of this recession strongly.

It is why we recently launched a report to help secure the UK’s place as a world leader in the digital and communications industries.

And it is why, this month, we outlined our plans for taking advantage of the opportunities offered by the transition to a low carbon economy.

But the reality is a new industrial activism will only be powered by a dynamic, confident and revitalised workforce.

And just as the downward pressure exerted by world events can have crippling effects on confidence in local business, so the upward pressure created by an engaged and confident workforce can lift industries to new heights.

So this is a pivotal moment in the history of employment relations and a key moment for those in the HR profession.

Bringing confidence back to our workplaces is not easy, but that should be our aim if want not just to survive the downturn, but to to make the most of the upturn.