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

ClarkemarkMark 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.


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