Mark Clarke: We Need A Looser Labour Market - The Swiss Model

Mark Clarke is a Strategy Consultant with the Boston Consulting Group and prior to that was a Brand Manager for five years with Procter and Gamble. He has lived and worked in the UK, the US and in Switzerland.

What do you do if you have an employee who is just not delivering? It is not that they are demonstrably and wilfully not co-operating. It is not that they have been caught with their hands in the till. It is just that they are not delivering with the high level of competence and passion that you think your organisation deserves. Well, in this country the answer is that there is legally very little you can do. You cannot get rid of someone for being ‘barely adequate’ - despite the fact that your customers demand products and service well in excess of ‘barely adequate’. In an increasingly people based economy, many companies see this is a problem.

The major companies get around this problem by effectively bribing their ‘barely adequate’ management with a mixture of sizeable pay-offs and good references in return for leaving quietly. Obviously this places an additional cost on business.

But the public sector has no such recourse available. For example, the former Chief Inspector of Schools, Chris Woodhead, said ten years ago that there were 15,000 incompetent teachers in our schools. Common sense tells us this was right. We all remember the good and the bad teachers at our own schools. Well, the bad ones are still there. They haven’t raided the school funds or got caught in the wrong changing rooms so they are allowed to continue with ‘barely adequate’ teaching.

So what can we do about it?

Working in Switzerland for a major multinational introduced me to a different employment model. I had an employee who was not going to make the next level. There was nothing abysmal about her but in the performance driven culture of that company it was time for her to move on. Our company lawyer was on holiday so I called the largest law firm in Geneva to talk to their employment practice to obtain some advice. They did not have an employment law practice.  I called the second largest firm. They didn’t really understand what I was asking for. Finally I found a generalist lawyer who explained the situation to me.

Essentially, in Switzerland they have contract law not employment law. They have contracts which appear in a very similar form as in the UK. Except that they are two way contracts. In the UK the employee can leave by giving the employer the standard notice period; but the employer cannot enforce the same contractual terms. In Switzerland, however, the notice period is two way. The employer can terminate the employment with no cause  - in exactly the same way an employee can and does. Essentially, the State does not feel that it should interfere with a contractual relationship between two adult parties.

The effect of this ‘looser’ labour market is dramatic. Companies are flooding to Switzerland. In recent years Procter and Gamble, Gillette, Unilever’s Elida Faberge business, Caterpillar, Medtronic, Hewlett Packard, Dow and Frito Lay have all moved their European or global headquarters there. They have moved UK jobs to Switzerland and dramatically reduced their corporation tax payments to the UK. Their UK operations are now little more than powerless branch offices. 10% of Swiss GDP now comes from companies such as this. As a result, Switzerland has the lowest unemployment rate in Europe which is 25% lower than the UK’s already low unemployment rates at 4.3% vs the UK’s 5.3% or the EU15 at 7.6%.

If we want to remain competitive in the world we need to confront the global challenge of a global economy. We need to understand that companies have choices and are choosing to exercise that choice against the over-regulated UK and the EU model. We should be looking to further liberalise our employment legislation. We should not to be trying to defend the Thatcher reforms but instead, following Switzerland’s example, and extending them.

Incidentally, the woman who I had to let go is now far happier and far more successful in a different company with a different culture.

Comments

[margot james]

Fascinating insight into how Switzerland is different yet again. Perhaps this explains the exceptional productivity of my company's Swiss Office. Don't be too pessimistic about UK management's ability to move staff on, if you have a rigorous performance management system and strong managers it is still possible to move 'barely adequate' performers out, without paying over the odds,but you have to have to invest in watertight HR systems that are difficult for employees to challenge in the courts. By the way, top hiring tip, never bother taking references from immediate past employers, always trawl further back in the employee's history to talk to people who are no longer concerned by what the potential new recruit might think about them, and get references over the phone if you can - people will always tell you more than they will write about someone. Congratulations Mark on a most interesting piece.

[aristeides]

Quite right. All the evidence points to hire at will labour laws leading to lower unemployment. For some reason a lot of people are very timid about pointing this out and few centre-right parties adopt it as policy.

Why is that? Probably because the statistical argument is very difficult to make against the anecdotal one of throwing people on the scrapheap (no doubt without having given them adequate training etc). It is salutary that Mark's ex-colleague did find a more suitable position elsewhere though any Question Time audience will be able to come up with plenty of examples of the opposite.

Without pretending to know what the legal position is, I would also not be surprised if hire at will were point blank illegal in the EU and probably a good reason why the Swiss use it to their competitive advantage.

Mark also inadvertently destroys the myth that you have to be in the EU - let alone the Euro - to attract multinationals.

[william]

Margot, it's not always so easy. There are many situation where it is essential to move people out quickly as they pose a substantial threat to an organisation's survival.

After firing a thief who sued us and won in excess of £10,000 for wrongful dismissal, where I had to sit through being lied against - and where there was clearly falsification of records - and where the case lasted two years - I would say that is why I no longer run my business myself (it's affected my nerves and my health has been affected), and why I spend time (like writing here) trying to get the dreadful situation we are in changed.

At one time I was ambitious to create hundreds of jobs, but now I am happy for my business to just coast along and gradually reduce employment numbers in the UK.

If entrepreneurs no longer find it worthwhile to take risks to expand their businesses, the whole of society suffers. Our unemployment is rising towards European levels, and I predict that it will ultimately get there.

It is in small business that jobs are created. Small business cannot afford large HR departments, or the time to waste on non-productive activities such as endless bureaucracy. The supply of new jobs is starting to dry up as a result.

An employer is a human being who wishes to carry responibility for others, on terms that are acceptable and that make sense. There will be less and less of such people as things stand.

I did not know about Switzerland. It is very hopeful. Maybe one day we can get back to a world where we are protected from thieves and liars and society won't reward them with money, attention and endless opportunities to exact revenge on those who bring an end to their little games.

Big organisations create few jobs. They are usually looking to downsize their workforces. It's the little guy who creates the future. Spare a thought for him ...as he/she will pack up before long.

Statistics on creation of jobs are explained by Professor David Storey of Warwick University. I'll see if he has anything online.

[Alex Williams]

Excellent piece!
Yet another example of how the UK's obsession with legislation and 'guarantees of security' has smothered enterprise and discouraged risk-taking.

The signs are all around us, that 9 years of New Labour is gradually leading to the same problems that Old Labour created in the 70s, albeit on a reduced scale.
Inflation, unemployment, high tax burdens and a burgeoning money supply threaten a new winter of discontent.

Britain needs it's brave and optimistic entrepreneurs to step up to the plate and expand our economy. They can not do this with the anchor of socialism around tied to their waists.

[Cllr. Robert-j Tasker]

Impressive piece by Mark,

Notice how Gordon Borwn's solution to every work force problem we have in this country is to set up a tax-sapping quango to find ways of dealing with it, rather than investing directly. China fast becoming a country of engineers and New Labour's reactionary reponsive policies spring to mind as an example.

If employees start to do what Margot has suggested than I think many of us ought to be worried about find perspective new jobs! Of course I'am joking.

Well done Mark,

Regards,

[Denis Cooper]

Tread carefully here. People won't vote for a party which promises to make it easier for their bosses to sack them, especially if that party also says that it's fine and right to sack British workers if Poles are cheaper.

Yes, in principle this should be a matter between employer and employee, but there isn't equality of arms. Yes, in theory if it's easier for employers to shed unwanted workers then they're more likely to take the risk of hiring them in the first place, and unemployment will go down, but that isn't the way most workers see it. Yes, a tight labour market is the best guarantee that employers will treat their employees fairly, but then how there can ever be a tight labour market if employers pressure the government to allow unlimited immigration?

[Craig Cox]

A compelling article which demonstrates the case for flexible employment law, whilst still supporting an economy that has been withered by the europhilean policies of this government.

Denis Cooper makes a valid point, which I understand as pragmatism over principle. However, this situation would not have occured if statist socialism hadn't corrupted the work ethic of the employee. Mark makes paramount importance of getting key industries back into this country, fostering a low tax initiative, and using other vehicles other than the state for the employment of those currently out of work.

An article of insight, principle, and of enviable intellect.

[Denis Cooper]

It's not entirely pragmatism over principle, although people are less likely to vote for a party if they have a nagging fear that it might destroy their jobs, leave them unemployed and on the scrap heap, and wreck their lives. That much should be obvious from the last three general elections, following on from the ERM disaster.

But there's also the question of the underlying principle. Would the purpose of these labour market reforms be to assist companies in running their businesses more efficiently and profitably, or to improve the lot of the workers and reduce unemployment and under-employment, or (as Gordon Brown might see it) to expand the economy and increase tax revenues to fund more public spending?

I think the Tory party has to decide whose side it's on. If it's not on the side of conscientious British workers just as much as it's on the side of employers, and definitely far more than it's on the side of foreign workers, then it wouldn't govern in the interests of the country as a whole.

[keith bedson]

Good point about teachers - trying to get rid of a "bad" teacher is virtually impossible. Unions protect even the most hopeless teachers and leave the rest of us to pick up the pieces. What is even worse is the fact that some poor teachers are unhappy in the job but hang on because no one "puts them out of their misery". The result is frustrated children and extra work for others in school.

The other point is that schools have to tolerate some poor staff because it is impossible to replace them.

Legal point: These are my private thoughts and do not represent my employer's view.

[Alex Williams]

Denis makes a good point about the electability of this kind of policy, namely that it isn't electable. That
doesn't mean it isn't valid however.

Just because we intend to do something in Downing St. doesn't mean we need to place it at the forefront of an electoral campaign.

It is for the greater good of the entire country, employers and employees, to have a looser labour market.

[Alan T]

I wasn't quite clear from the article Mark if you envisage anti-discrimination employment legislation being swept away relating to women and homosexuals etc. I don't think I would view that as a positive development.

[william]

You all forget that an employer is a person. All the rights you wish to bestow and maintain are only rights to sue employers for money. None of you will create one job like this. In fact you will destroy thousands of jobs, and put marginal employees out of work.

In the name of helping people who are well able to help themselves, you are creating a pernicious situation where the weak will be the victims.

Not one of you is interested in the reality of what is actually happening to human relationships. Once lawyers and the State dictate the 'deal', there is no respect or affection or trust between people - only potential threats.

In small businesses these threats are 'inappropriate', counterproductive and downright bloody evil. They need removing completely as in Switzerland.

Cameron claims to be interested in localism. That will help as all these supposed rights will be negotiated on a local basis. The futility of industrial tribunals is more obvious at local level, and employers would have some opportunity to question the system directly. Right now if you write to your MP to complain about all this barrage of job-destroying nonsense, all you will get is a reply saying that we have no choice but to fulfil our treaty obligations to the corrupt totalitarian state of which we are now all contented citizens.

[Martin]

Dennis Cooper:"People won't vote for a party which promises to make it easier for their bosses to sack them,"
This is true. The Conservative party got its reputation for being the nasty party precisely because it was prepared to do things like this for the good of the country and was very easily portrayed as "nasty" for doing so. Likewise, it is very easy to be popular and look like your being kind to the workers by opposing such moves. It is one of the great strengths of Socialism. The left and Socialists in particular often promise greater worker protections and will happily deliver whilst the public are blissfully unaware of why they need a more flexible Labour market. Those who oppose a more flexible Labour market damage the economy but look very nice doing so. Those who are in favour of such moves often help to boost the economy but look very nasty in doing so to an economically illiterate public. This says a lot for why Thatcher is so hated and loved in equal measure

[william]

I agree Martin. That's why I support David Cameron's localism. If the government permits such issues as employment rights to be decided locally, the real issues can be weighed against each other, and the superficial media political game which delivers this kind of measure can be dismantled. For example small companies where the relationships are all personal should not be regulated in the same way as corporations that employ thousands.

Localism is as revolutionary in its implications as Karl Marx. It identifies the source of power in our society as too centralised and easy to manipulate, sees that it is producing unfair and destructive results - and it seeks to revolutionise.

[Yet Another Anon]

Of course another alternative would simply be to scrap all concepts of Statutory Notice or Holiday or Minimum Wages or Maximum Working Hours or Redundancy and leave the result up to the Employer and Employee to sort out, scrap Employment Tribunals as well. This could part of the way towards scrapping the Employment functions of the dti perhaps with what was left in terms of Economic matters going to the Treasury and the Science & Technology bits either becoming a seperate Department or becoming part of the Cabinet Office, the Health & Safety Executive could be scrapped and it could go back to the old system of having inspectorates that would only be involved with Heavy Industry, Roads, Railways, places dealing with dangerous chemicals and the Building Trade and largely not having anything to do with Small Business or Office Firms.

[Richard]

The ideal would be to get the government out of business and allow matters to be settled on the basis of common law contract and tort law. If people don't like what a business is doing they can boycott it. If they don't like its employment terms they can search for work elsewhere. Yes I know this sounds easier in theory than it is in real life but then so do business regulations. There will be winners and losers under both a regulated and unregulated system but the latter is more likely to contribute to faster economic growth.

[Denis Cooper]

Martin,

"..... "People won't vote for a party which promises to make it easier for their bosses to sack them," This is true. The Conservative party got its reputation for being the nasty party precisely because it was prepared to do things like this for the good of the country ... "

This is why I'm concerned about both the language and the underlying attitude.

We all know that sacking workers may be good for the employer's bottom line, and indeed it may even be essential for the survival of the business.

But it's not good for the sacked worker if he can't find another job with similar earnings, and even then not it's necessarily good for his family if the only job he can find means uprooting them, disrupting the children's education, and breaking away from their existing social support network.

And it's not good for the country as a whole if he and his family are left idle and living on social security benefits and cease to be self-respecting and productive members of society, and the children grow up without absorbing a work ethic.

I've detected a similar attitude over the question of immigration, with some people saying that they prefer hard-working immigrants to British people who "sponge" on society. But after a million diligent eastern Europeans have arrived, there won't be any fewer "spongers" - immigration doesn't solve that problem, rather it makes it less likely that any serious efforts will be made to solve it - and the real habitual "spongers" will be joined by decent British people who want to work and support themselves and their families, who previously did so, but whose jobs have now been taken by cheaper migrant workers.

Then again a few weeks ago there were people commenting on the West Lothian Question who viewed Scotland not so much as part of our shared homeland but almost as an apparently unprofitable subsidiary which should be hived off.

There are some unhealthy attitudes here, which if translated into policy and put into practice would not lead to what in modern jargon is termed "social cohesion", which Conservatives might previously have called "community spirit".

[Richard]

"There are some unhealthy attitudes here, which if translated into policy and put into practice would not lead to what in modern jargon is termed "social cohesion", which Conservatives might previously have called "community spirit".

There was a great deal more community cohesion before the rise of the welfare state. Let's not forget Friendly Societies and the high levels of charitable giving that used to exist. Many of us fabour a minimal state not because we are ideological libertarians but because we believe it is more conducive to the organic growth and functioning of civil society.

[Denis Cooper]

Let's not forget Cameron's declarations that "We're all in it together", eg:

http://www.conservatives.com/tile.do?def=news.story.page&obj_id=123429&speeches=1

"As I've said, with so many of these problems we're all in it together."

We can't all be in it together if simultaneously:

1. It's made easy for employers to sack British workers.

2. It's made easy for employers to recruit cheaper replacements from abroad.

3. There's no support for Britons who are unemployed or on poverty wages.

[Denis Cooper]

http://icteesside.icnetwork.co.uk/0400business/0008bj/tm_objectid=17502311&method=full&siteid=109975&headline=britain-s-eu-workforce-on-the-rise-name_page.html

"Britain's EU workforce on the rise"

" .... foreigners' income taxes are expected to add £300m annually to the Treasury's coffers." Is that before or after the government has paid out more in social security benefits to British workers and their families? Eg, job seekers' allowance (and eventually in some cases incapacity benefit) to those who have lost their jobs, and working tax credit, housing benefit etc to those who still have jobs but at depressed wages? Not to mention the costs of crime with which unemployed and disaffected youths may fill their empty days. "About 90pc admitted that the chance to recruit a skilled staff member for perhaps less than the UK equivalent pay scale was a factor in their decision" - and unskilled and semi-skilled workers as well, at perhaps less than half the UK equivalent pay scale. Fine and dandy for employers, then, but the rest of us will pay the price now and in the long term.

[jon lear]

Mark - a truly brilliant piece which captures the essence of the current tight restrictive employment laws we operate under.

I would be very very keen to better understand your views on sex discrimination:harrassment laws - a key area for reform I would suggest.

Well done again - very insighful from someone who has been there and don't it so to speak!

Best wishes, Jon.

[Tom]

Certainly a looser labour market has some attractive features. In some sectors in the UK (the media, for example) poor performance is dealt with pretty speedily with minimal expense to employers, but in others (especially in government) it's a notorious problem.

But I think you certainly overstate the case - I'm sure the main reason for companies locating their headquarters in Switzerland is that Switzerland is a tax haven. Your evidence backs up a quite different case - for cutting corporation and other taxes in order to be more competitive.