P&O Ferries - wholesale 'fire and rehire'

If it is true that - as reported - P&O Ferries has been losing up to £100m per annum, I can begin to imagine how the conversations have gone behind closed doors.

Leaders fearing to be held accountable for a complete collapse have begged their off-shore masters for the money to invest in upgrading their crumbling infrastructure (have you been on a P&O ferry recently?) only to be told that they have to show equivalent savings and the prospect of a return to organic profit before the purse strings will be loosened.

In such cases, the options are reduce services (which will likely be impossible to recover) or reduce overheads. And what's the single biggest overhead every business has to manage? Salaries.

And someone, somewhere (who is probably a member of this professional body, almost certainly FCIPD) has been brought in to come up with a clever plan to reduce salary costs by the largest amount in the shortest possible time with the least possible impact upon services. And this is what they came up with.

Faced with the same scenario, in a technical sense, it's hard to see what else could have been done. Yes, the use of redundancy measures to mass-fire 800 staff is of questionable legality, but the risk assessment will have been as to what the potential costs might be if it were found to be unfair dismissal and, if those costs were within acceptable parameters, it would be appraised as a tolerable risk. Of course, there is also a moral component with respect to *how* the mass firing was conducted (a 3-minute, pre-recorded message to all staff speaks to the lack of moral courage possessed by those responsible) which is just salt in the wound. Also on the moral side, it might have been more acceptable if the decision-makers acknowledged their own strategic failure in reaching this point and, therefore, announced their own resignations. But in a publicly-traded company - in which the largest shareholders expect dividends - to announce mass-firings is invariably positive for share prices, whilst mass resignations of leadership has the opposite effect. So there is an objective justification for what appears to be moral cowardice.

Finally, there is the question of public perception. The fact is that the majority of P&O's customer base won't notice this news. Of those that do, the majority will have forgotten it by next month. Of those that notice and don't forget, a good number will still use their services because they remain either the only option or the most cost effective option amongst their competitors. So in terms of impact upon business, this decision is likely to have no discernible impact - particularly when measured against the savings to be achieved in overhead costs and the boosts to share price and dividend payouts.

Does this all mean that I approve of how this has been done?

No, of course not. But it isn't "the unacceptable face of capitalism" - it is the *only* face of capitalism: publicly-traded businesses will tend do not what serves their employees or even what serves their customers but, rather, what serves the short-term financial interests of their investors and key stakeholders.

Robey said:

it is the *only* face of capitalism: publicly-traded businesses will tend do not what serves their employees or even what serves their customers but, rather, what serves the short-term financial interests of their investors and key stakeholders.

Whilst I understand must of the preamble to this I strongly disagree with this last statement. It is not the only face of capitalism and that is an incredibly cynical and sad view. Organisations can and do prosper by balancing the long terms needs of their various stakeholders, decisions aren't only made in terms of short-term fiscal interests. (Indeed, it can be argued that even this decision isn't to do with short term financial interests but a longer-term strategic view of the cost base of the company and an opportunity to change the long term cost base ). 

Organisations that tend to repeatedly elevate one stakeholder group above others tend ultimately to fail. The Companys we admire and respect (and indeed those who tend to have longevity) do not take this view but seek to serve customers, engage employees and return an acceptable return to their investors.

Robey said:

it is the *only* face of capitalism: publicly-traded businesses will tend do not what serves their employees or even what serves their customers but, rather, what serves the short-term financial interests of their investors and key stakeholders.

Whilst I understand must of the preamble to this I strongly disagree with this last statement. It is not the only face of capitalism and that is an incredibly cynical and sad view. Organisations can and do prosper by balancing the long terms needs of their various stakeholders, decisions aren't only made in terms of short-term fiscal interests. (Indeed, it can be argued that even this decision isn't to do with short term financial interests but a longer-term strategic view of the cost base of the company and an opportunity to change the long term cost base ). 

Organisations that tend to repeatedly elevate one stakeholder group above others tend ultimately to fail. The Companys we admire and respect (and indeed those who tend to have longevity) do not take this view but seek to serve customers, engage employees and return an acceptable return to their investors.

Never envisaged I'd be wholeheartedly disagreeing with Robey and concurring with the views of this (right wing) Conservative party former Transport Minister:

"Sir John added: "Don't let anyone tell me this is the free market. The free market put little girls in factories and boys down mines, and both at risk on the high seas; we thought those dark days had gone - P&O are either too dim to see that or too dastardly to know it."

If said minister believes that the free market doesn't still put children to work in factories and down mines, he is fooling himself. The fact that we no longer do this in the UK isn't because "the free market" shied away from doing legal but unethical things out of the goodness of its heart, but because government intervened and made it illegal to do so.

Even a cursory examination of the supply chains of the garment industry - as just one example of many possible examples - will show you that the free market will still use whatever means are available to it to obtain the highest possible profits in service to its shareholders.

Steve is right that this is, ultimately, destructive to individual companies - but this is an irrelevant consideration for those who hold a financial interest in those companies, because *there will always be another company*.

Ah! Robey - that's alright then, now I understand - as you yourself put it before, "it's hard to see what else could have been done..."