Richard Turnbull: The Ethics of P&O

The P&O debacle has become a touchstone for business ethics.

Few would like to be in the shoes of Peter Hebblethwaite, the Chief Executive, who admitted in oral evidence to a joint sessions of the Transport and the Business, Energy and Industrial Strategy Committees, that he had broken the law on consultation with trade unions. He argued that without this decision there was no future for the company and 3,000 rather than 800 job losses would result. The crews would be replaced with an agency model, with levels of pay above the internationally agreed levels for the model, but considerably below the UK minimum wage provisions. It was, he said, the only decision which could be made and he would do so again.

The basic facts

The facts on the ground are relatively straightforward.

  • – P&O made redundant with immediate effect around 800 members of staff on 17th March, informed via video link after ships were recalled to port.
  • – Enhanced redundancy packages were offered.
  • – The company did not (on the admission of the Chief Executive in evidence before the two Parliamentary committees above) inform the relevant trades unions as required by law.

There are some other disputed issues – for example, the requirement to give 30-45 days’ notice to relevant flag state authorities – for which there appears to be an exemption and whether or not the Secretary of State was informed, but there appears to be no disagreement on the main three points above.

The initial responses:

  • – Karl Turner, Member of Parliament for Hull East, called it predatory capitalism of the most grotesque sort.
  • – Mike Lynch, secretary of the Rail and Maritime Trades Union demanded the reinstatement of the affected workers and greater employment regulation.
  • – A spokesman for the Prime Minister and indeed the Secretary of State for Transport, Rt Hon Grant Shapps, both called for Mr Hebblethwaite to resign.
  • – Mr Shapps, in a letter to Mr Hebblethwaite, also said the 800 workers should be offered their jobs back. He also announced legislative moves to force the payment of the minimum wage by all ferry companies operating from British ports.

What options were available to P&O?

The company had lost, according to the CEO, an unsustainable amount of money, around £100m in the last year. What then were the options open to P&O?

  • – Increase revenue by raising prices…but this would likely have led to a lack of competitiveness in the market and further damage to the company.
  • – Reduce the number of routes sailed, ceasing the most loss-making. This too would have resulted in redundancies.
  • – Make some more general redundancies.

There may have been other short-term options (property sales, loans) but in essence a company in the situation that faced P&O almost certainly has to reduce its wage bill, one way or another. Perhaps the chief executive was correct when he said that was no other decision he could make?

Nevertheless, if this is the case, why would you not follow the appropriate and required legal processes for achieving these redundancies? Why risk further damage to reputation by failing to do so?

Ethical observations

  • – There is very little that is good about how P&O conducted its business in the announcement of 800 redundancies. To announce mass job losses via a video link with immediate effect is simply an appalling way to conduct the management of an organisation. A process such as that denies human dignity, shows a leadership unwilling to face up to difficult decisions and, indeed, prima facie an unwillingness to follow the legal provisions.
  • – The initial responses, noted above, however, are also misguided. It is certainly the role of government to ensure the rule of law is followed in the commercial sector, but it is not for the government to determine who should, or should not be, the Chief Executive of P&O.
  • – Normal practice in redundancy situations is to offer packages more generous than those required by law. P&O have done this, and more than half the workers have accepted. This is the opposite of predatory capitalism.
  • – Forcing reinstatement helps nobody if the consequence is the collapse of the company and the loss of all employment.
  • – Arbitrarily requiring UK minimum wage requirements to apply would potentially damage competitiveness and ultimately lead to the demise of the company with all of the attendant consequences.

Ironically, the market may sort out both the economics and the ethics.

  • – The approach of management towards its loyal workforce, exemplified by the manner of the announcement and cavalier disregard of due process, perhaps even legal process, is enormously damaging to P&O’s reputation. Customers will vote with their feet. If they are unhappy with the conduct of P&O they will take their business elsewhere.
  • – The consequence of that may be the collapse of P&O and even more job losses. Hence the manner of the redundancies may indeed have been unethical but could potentially also be catastrophic from a business perspective; for which Mr Hebblethwaite and his board are responsible.
  • – If there was a failure to follow the due legal process of consultation with trade unions then the company should face the legally-provided consequences. If the requirement to consult the trades unions (s188 of the Trade Union and Labour Relations (Consolidation) Act 1992) is breached the union is entitled to complain to the Employment Tribunal. The Tribunal can order remuneration for affected workers to continue to be paid for up to 90 days.
  • – If there are grounds for the Secretary of State for Business to believe that Mr Hebblethwaite or any of his colleagues are unfit to be company directors (as a consequence of their behaviour and actions) they should seek the necessary disqualification order under the Company Directors Disqualification Act 1986.

My real point is not to defend P&O, but that the rule of law provides remedy.

I am not sure that I like the fact that agency seafarers are paid such low wages. Indeed, for the government to take the lead in reforming the international maritime system would be a point of moral leadership. However, to arbitrarily introduce legislation affecting only British ports could destabilise the competitiveness of British ferry companies to the detriment of all their employees.

There are some signs that the government has accepted that legislation to achieve this is not possible under international agreements; indeed, arrangements agreed with international trades unions. There also appears to be some moves afoot to declare some or all P&O directors unfit with an investigation launched by the Insolvency Service into both criminal and civil liability.

I have no comment on whether the standards are met, but it is right that the company and its directors are held account for their actions. I do not support the manner in which these redundancies were handled at all. I believe workers should be properly and generously treated, their dignity respected and that they should be well-paid. P&O have done themselves serious business damage through the impact on their reputation, for which the directors are responsible.

However, we need far more care in discerning the real issues in this and similar disputes. The rush to judgement helps nobody and usually requires backtracking.

The market has an extraordinary way of filtering out bad business practice. The employees would probably be best advised to seek alternative employment and the unions advised to help them. But I also wonder whether the shareholders want a board of directors in place that causes such unnecessary reputational damage by failing to follow due process? The consequences are entirely commercial.



Richard%20Turnbullweb#1# (2)Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME). For more information about Richard please click here.