Involvement of Trade Unions in the United Kingdom (1997)

----------------------------------------------------------------------
This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
----------------------------------------------------------------------
April, 1997
(Source: ICA Review, Vol.90 No.1, 1997, pp.55-60)


Involvement of Trade Unions in the United Kingdom
by Norman Watson*
*******************************************



Introduction
---------------
The Wales Co-operative Centre was established in 1983 by the Wales Trade
Union Congress (TUC). It remains unique in Britain as a trade union
supported body with a clear remit to be actively involved in local economic
development through co-operative enterprise in its widest sense. As a result
of close links with the trade union movement the Centre has been engaged
over the past thirteen years in helping workers form new enterprises in the
face of redundancy and privatisation at their workplaces.

This paper both suggests some best practice principles for trade union
involvement in this particular form of local economic development and
identifies some key issues based on our work over the years and, in
particular, on two specific case studies.

Trade Unions Deal with Employee Ownership
------------------------------------------------------
There can be no doubt that the initiatives set out later in this paper clearly
illustrate that trade unions played a very important role.

There will undoubtedly be other occasions in the future when employees,
through their union, or using their own resources, will seek to preserve
their jobs and conditions through employee ownership. The challenge to the
trade unions is how best to help them in this situation. Our experience is that
trade unions should have nothing to fear from this form of economic
development activity. On the contrary it can help to strengthen trade unions
as they are perceived by their members - as having been directly involved in
safeguarding their jobs and conditions.

These initiatives also illustrate that trade unions can utilise their traditional
strengths in new ways:

-	The negotiating and communication skills of local shop stewards
gained through increasingly sophisticated lay member education and training
programmes.  As trade unions know only too well, management does not
have a monopoly on leadership and communication skills.  These skills are
essential in any buy-out initiative.

-	Their knowledge of the company, its management and its markets.
The personal skills, qualities and confidence of trade union officials are
essential in persuading others to invest in the company.  This role is not
confined to the persuasion of other members.  Bankers can be as impressed
by the quality and commitment of the workforce and its leadership as they
can be by management alone.

-	Trade unionists can mobilise local and national support and provide
the leadership to make sure the venture succeeds.

-	Given further training and support, members of the workforce can
play a full and active role on the management boards of companies.  There
is enough talent and commitment currently locked up in any workforce to
take on new leadership roles.

On the negative side, as some of the cases illustrate, there is a general lack
of commitment and understanding on the Unions' part about the role and
nature of co-operative enterprise. They are often content to stay within their
traditional roles and miss an opportunity to initiate and support employee
ownership. This stems in part from a lack of commitment to employee
ownership in the Unions nationally and partly from the co-operative
movement's failure to make its case to the Unions. The success of the
Wales Co-operative Centre illustrates what can be achieved when the trade
union and co-operative movements work together.

Best Practice Principles
----------------------------
Inevitably the first step is for Trade Unions to accept that the development
of employee-ownership, in all its various forms, has had a beneficial effect
for their members by safeguarding jobs and conditions and giving trade
unionists a more positive and pro-active role in their companies.

We would argue that there is a positive role for trade unions to play in local
economic development. By providing a network of information and support
through the Wales Co-operative Centre to deal with any kind of inquiry,
large or small, the Unions in Wales have provided a positive example of
what can be achieved. It is an example which we believe should be
replicated elsewhere.

The evidence so far is that with the correct training and support trade
unionists can transfer their communication and bargaining skills directly to
the Boardroom and play a new strategic role in the future progress of their
companies.

Based on the Centre's experience in dealing with inquiries from trade
unionists to establish co-operative local employment initiatives we would
suggest the following as a basis for guidelines for trade unions involved in
similar projects:

-	Ensure that all full-time and lay officials are aware of the support
available to establish new co-operative enterprises in their area, or seek to
provide this support on a regional basis where it is absent
If there is a possibility of establishing a new enterprise, refer the 
inquiry as early as possible for support and appraisal to an organisation 
which is sympathetic to and understands employee ownership.  
Any delay can mean that only management benefits from the change in ownership.
 
-	Play an active part in the setting up of the Steering Committee which
will plan the new company using the guidelines for steering committees (see
appendix).

-	Use the existing trade union structures within an organisation, and
the communication skills of trade unionists to report back to the members on
the progress of the bid.  The key factor in any successful employee bid is
the commitment of the workforce, built up through constant and open
communication.

-	Use the trade union structures and resources to help ensure the
success of the new company.  In particular, this involves establishing
mutually supportive links with the new Worker Directors and helping to
provide training when necessary.

-	Recognise that Worker Directors and Trade Union representatives
have different roles to play in the new company and that the success of the
company will depend, in part, on them establishing sound working
relationships.

-	National and local officials should be prepared to help mobilise
financial support for a viable business plan.  The intervention of a trade
union in these situations can often give the Banks the assurance they need
about the commitment of the workforce and the viability of the project, and
can help put pressure to see fair play for the workforce in the face of
alternative proposals and vested interests.

-	Be prepared as a trade union to help the workforce if they wish to
preserve and protect their company in employee ownership.  This could
mean the generation of national and local support when requested.

Case Studies
------------------
Proposed Buy-out of Bus Company
-------------------------------------------
Following the privatisation of the Bus Industry in the UK, a regional bus
company had been set up following a management buy-out, operating out of
six depots.  After two years trading it had run into financial difficulties and a
major institutional investor had appointed a new managing director to try to
turn the business around.  Together with his Commercial Director the new
managing director approached the Wales Co-operative Centre for help in
arranging an employee buy-out which he said would improve the
commitment of the workforce as well as injecting fresh equity.

At the same time one of the two key Unions involved approached the Centre
to seek similar advice.  The other key Union involved contacted the Centre
through its lay membership.  Following these approaches the Centre visited
all of the depots involved and arranged for the election of one representative
from each to form a Steering Committee together with the two managers to
plan the buy-out.

In this particular case the steering committee was able to agree on most of
the issues set out in the role of a steering committee above.  However the
buy-out was faced with three major difficulties:

i. 	The very uncertain and competitive nature of the industry;

ii.	Difficulty in raising the necessary finance, given the poor financial
performance and weak balance sheet of the old company;

iii.	A distrust among the workforce about the motivation and ability of
the two managers involved in the buy-out.  This together with low wages
would have made it very difficult to raise any equity from the work force.

The buy out proposal was further complicated by the lack of common
purpose at a local level between the two key Unions involved.  The bid was
to buy all six Depots, three of them were not profitable and three were.
Union membership was split in such a way that one key union had the
membership in the three profitable depots and the other in the unprofitable
three.  

In the event, the employee buy-out initiative failed, with the three profitable
depots being privatised through a management buy-out and the three
unprofitable depots being closed. Nearly four hundred jobs were lost.

Successful Mining Buy-out 
--------------------------------
This new employee-owned company has now been trading for eighteen
months and is heading for a second year of profit.  It is one of the largest
employers in an area of very high unemployment levels.

The last remaining deep coal mine (and this immediately identifies the
company involved) in the South Wales Coalfield was closed in April 1994
and offered for sale as part of the UK government's policy of privatisation.

The Colliery had been in existence since the 19th Century and was capable
of producing 900,000 tons of coal a year. The coal mined was anthracite, a
very high quality coal which has a good market for both industrial and
domestic use. The local lodge (union branch) of the National Union of
Mineworkers (NUM) led the fight to try to prevent the closure of the
colliery over a six month period. In doing so they attracted national attention
and support. They felt that the mine had good quality reserves of coal
capable of providing employment for 250 people for a minimum of ten
years at an annual production rate of 500,000 tons.

The initial approach to the Wales Co-operative Centre came via the senior
full time official of the area NUM through the Wales TUC. At this point the
fight to save the mine in public ownership was in full swing and no action
could or would be taken to pursue a buyout until the full nationally agreed
review procedure had been exhausted.

Once the review procedure had been completed and the mine closed and put
on a care and maintenance basis pending sale, the miners, led by the local
Union officials of the NUM, formed a Buy-out Team and approached the

Wales Co-operative Centre for formal assistance to mount a bid. The first
task was to pre-qualify as a reputable company capable of making a
sustainable bid. This was achieved with help from the Centre by 14 May,
1994. The government, acting through its advisors for the sale, N M
Rothschilds, then issued further detailed information and invited firm bids
by 14 September, 1994.

There were six members of the buy-out team. Representation of all aspects
of the business was ensured including representatives from the relevant
unions on site. They held regular meetings with their advisors to prepare
their business plan, and reported back to the full workforce every two
weeks on the progress of the bid.

The buy-out team engaged the services of experienced managers, some of
whom had worked in the mine in the past.  The aim was to prepare an
acceptable mining plan for the colliery with the overriding objective being to
maximise the level and the period of employment at the colliery.

Recognising the need to operate the mine profitably, they also stated their
intentions to operate the pit on a strict competitive and commercial basis and
a new finance director was appointed from the private sector to join the
management team. The bid was also based on the premise that as the
workforce would fully own the new company, the commitment of the
workforce to the company would increase and with it productivity and
efficiency, as well as the improvement of industrial relations.

One of the reasons given for the closure of the pit was that there was
overcapacity in the coal industry in the UK and that there was, in particular,
no market for anthracite coal.  In the event, approaches made to coal factors
(coal wholesale traders) and merchants to purchase the mine's products
indicated that the opposite was the case. An important strength of the
eventual bid was the ability to produce signed contracts to buy the 500,000
tons of coal per year, over the next five years, at prices which would ensure
profitability of the pit. The marketing manager from the previous
management was retained to ensure that the new employee owners would
have full information on existing and potential customers.

The bid was led by the miners, but they recognised the need to recruit and
retain experienced managers who would invest the same equity (8,000) as
would be required of each individual employee owner. It was then proposed
that the colliery would be managed by a small executive board comprising a
non-executive Chair, a Colliery Manager, a Finance Director, two Worker
Directors (elected by the whole workforce) and a Mining Surveyor. The
number of directors directly elected from the workforce would increase
from two to four once the debt finance from the bank has been repaid.  The
board would meet monthly to give overall direction to the company and
oversee all managers and workforce.

In addition regular quarterly meetings would be held with all the
shareholders to allow them to raise matters of concern.  The previous
unions in the colliery, including the NUM and NACODS were given
recognition and full collective bargaining rights.

Each individual employee owner contributed 8,000, raising 2m of equity.
Voting at shareholders meetings is on a one person one vote basis.
Employees are required to sell their shares to an Employee Benefit Trust on
leaving, thus retaining employee ownership in the future.

Significant levels of finance had to be secured to ensure the success of the
bid in a competitive situation and to provide sufficient working capital to
secure the success of the new company. The willingness of the workforce
to invest collectively facilitated an approach to banks for debt finance.

The bid for the colliery had to be submitted by 14 September, 1994. The
success of the bid was announced by Michael Hestletine, then President of
the Board of Trade, at the Conservative Party Conference in October 1994.  

Final completion and transfer of the mine to the employee owners took place
on 23 December 1994. The whole process had taken a period of nine
months from putting together the pre-qualification documents in April 1994
to completing the sale at the end of December 1994. 

Appendix
-----------

The Role of the Steering Committee

The Steering Committee of any employee buy-out bid should agree a range
of issues and objectives:

Who will be represented on the Steering Committee ? - All the unions,
management? It must be democratic and representative.

*	Is the new company going to be 100% employee owned?

*	If not 100% employee owned, then what amount of equity is to be
held by workforce?

*	Do they want the new company to remain employee owned in the
long term?

*	Do they want a means of ensuring that the company cannot be sold
without a special resolution (75% of shareholders)?

*	What issues will need the consent of the workforce and/or the
worker directors?

*	What will be the composition of the new board? Number of
executive directors/Number of non executive directors/Number of worker
directors?

*	Decide on ownership and control issues - management's right/duty
to manage.

*	Will the employees want/need to make a direct share-subscription?

*	Ensure no one person (or group of employees) obtains a majority of
shares (limit on number of shares held by individuals).

*	Ensure that voting shares are arranged to provide for one
shareholder/one employee - one vote.

*	Provide a method for future employees to join the share scheme.

*	Secure the best possible pension provisions.

------------------
* 	Mr. Watson is Director of the Wales Co-operative Centre. He is also
the National Secretary of the Centre for Employee Ownership and
Participation.