The Blog

Why Unions Must Be Part of Our Long-Term Economic Solution

The success of Germany has been founded on a willingness across the board to look long-term and to seek commitment to shared goals. The country's experience shows that such an attitude can help tackle the most serious of difficulties.

The Trade Union Congress, like a Seventies revival band, rolled into Bournemouth this week. There will, I predict, be few surprises. From the conference floor, we will hear all the old hits replayed with industrial action threatened, government failure and employer callousness slammed by a succession of speakers. In response, the media, politicians and business will react by painting unions as out-of-touch and a brake on progress. It is a familiar if depressing narrative.

So it was no surprise that when I first started doing business in Germany a decade ago, I took with me a typical British paranoia about the role of trade unions. I knew that German unions were, through works councils, much more actively involved than in the UK and I was not looking forward to this engagement or believed, for a moment, it would help us in making our businesses a success.

Experience has taught me that I was wrong. I quickly came to realise that union involvement through works councils, far from being a necessary evil, has real benefits. They create the conditions where a proper and rational dialogue takes place on how to achieve shared goals.

I found that unions, given this responsibility, took it very seriously and understood that it was in the interest of their members as employees, for the company to do well. There was an alignment of interest which works in everyone's favour.

The results could not be clearer. Germany is an oasis of industrial peace in Europe with far fewer days lost to industrial disputes than in the UK. Nor is it co-incidence that the country is Europe's economic powerhouse.

It was an experience which has fundamentally changed my attitude to trade unions and not just in Germany. It helped lead directly to our ground-breaking agreement with unions who represent the 30,000 care staff who work for Four Seasons, the largest independent provider of elderly and specialised care in the UK, which Terra Firma acquired last year.

The voluntary recognition agreement with the GMB, the Royal College of Nursing and Unison is the first of its kind in the private care sector. It commits us to negotiate and consult with the unions on a unit-by-unit basis.

Here again, we saw an alignment of interest based around our commitment to make quality of care for our 20,000 residents the most important differentiator for our business. This can only be delivered through a stable, motivated and well-trained staff.

The agreement signals our determination to work together to deliver this goal. By improving staff conditions, we can boost retention rates which allow us to invest with confidence in raising skill levels. It is good news for our residents, for our staff and, of course, for our business.

I am well aware that such a landmark agreement might not be expected from private equity nor that a private equity boss should act as cheer-leader for the role of trade unions. But it shows what can happen if we get out of our entrenched positions and look at the broader picture. And that's the real lesson for the UK from Germany and the role of unions.

The success of Germany has been founded on a willingness across the board to look long-term and to seek commitment to shared goals. The country's experience shows that such an attitude can help tackle the most serious of difficulties. Germany may now be Europe's economic success story but few would have bet on this when it was struggling with the huge costs of re-unification.

In the UK, there is too little long-term thinking or attempts to forge agreement. Vested interests remain powerful and determined to die in the ditch to defend their privileged position. Trade unions are, by no means, the only example of this attitude. The professions can be equally effective in preventing progress. There is a lack of alignment right across the board.

Our banks failed because they were run in the interests of their bosses, not the long-term interests of shareholders or wider society. Decisions were taken to increase earnings in the short-term, on which bonuses would be paid, feeding risks and recklessness. I am far from confident that we have seen the change in culture needed to ensure banks can again provide their proper role at the centre of our economy or to prevent a repeat of past recklessness.

This lack of alignment also undermines the performance of our public companies. Many institutional shareholders continue to put short-term performance before sustainable long term health of the firms in which they invest. The tyranny of quarterly reporting prevents managers concentrating on anything other than the most immediate return. Freed from these pressures, it is private equity which has the luxury of looking not just over the next three months but seven or ten years ahead. It is why we saw the benefit of an agreement with unions at Four Seasons.

But we need a far wider change of culture and attitude if we are to emulate Germany's success. As a country and society, we have to find the courage and vision to get out of long entrenched positions, agree common goals and find a way of reaching them together. We need to focus on long-term benefits rather than having decisions taken on their impact over the next couple of years or even months. Let's Work Together may now be a very old song but it sounds just as good today.