Light on the Hill: Industrial Relations Reform in Australia
The Robe River Affair
In December 1983 Peko-Wallsend Ltd took over the Australian public company, Robe River Ltd, thereby acquiring a 35 per cent interest in the Pilbara-based Robe River iron ore mining and shipping joint venture. The Peko-Wallsend Board was told at that time by Peko management that the project employed considerably too many people for the level of output, and had a reputation for buying industrial peace by making concessions to union demands too readily---in particular, in order to meet its shipping program without delays.
In the course of 1984 Peko management made an assessment of employment levels at Robe River, by comparison with a variety of similar projects elsewhere in Australia and overseas. It was confirmed that over-employment was indeed considerable, and at all levels throughout the project.
This assessment was discussed with the management of the project, who rejected Peko's conclusions and instigated its own assessment using a firm of management consultants. Peko was subsequently told that the consultants had confirmed the project management's views. However, no report was ever made available for Peko to study.
At all times the project management was at best very reluctant to allow Peko to pursue its own investigations into employment matters, or to discuss what were termed to be 'industrial relations sensitive matters', particularly at the work site or with employees or union officials.
Towards the end of 1985 it became apparent to Peko that the US parent of the Robe River management company was interested in selling its 53 per cent ownership of that company, which in turn held 30 per cent of the joint venture. By acquiring control of the management company, Peko in January 1986 brought its total beneficial interest in the project to 50.9 per cent, with Japanese companies owning 45.5 per cent and other investors 3.6 per cent.
At the time of this acquisition great concern was expressed by the Western Australian Government and by the Japanese companies that there should not be any changes to the management team or to the project. Peko agreed not to make any immediate changes, but said that it would be unrealistic for such a commitment to be binding into the future. Peko repeatedly stressed that its majority interest in the management company, and in the overall joint venture, gave it ultimate responsibility for the management of the project.
During the previous two-and-a-half years that Peko had associated with Robe River, the senior project management had been known to spend a large proportion of available time in taking a series of initiatives with union officials designed to achieve improved production and better understanding. With the creation in 1984 by the Federal and State Governments of the Western Australian Iron Ore Industry Consultative Council, even more management time was devoted to these seemingly worthy objectives. However, it was clear to Peko that while management was absorbed in these initiatives, the actual work performances were deteriorating alarmingly. Union demands were continually increasing, and were being met without the need to resort to strike action. The apparent level of time lost through industrial stoppages was therefore very low by Pilbara standards.
Through unrelenting pressure on management, the efforts of union convenors of the larger unions to avoid performing normal work were rewarded with a de facto situation of non-working full-time convenors . Additional facilities were progressively conceded to the convenors---filing cabinets, access to telephones, their own offices with telephones, assistance with car transportation and other benefits. Convenors and delegates achieved positions of eminence on site. Any award employee with a complaint would take it to the union delegate or convenor, rather than to his foreman. With the threat to industrial pressure, and the common knowledge that, in the final analysis, management would not want any loss of production, the site delegates could always override the supervisory staff. Very simply, 'they ruled the roost'
At the time of the acquisition of the controlling interest by Peko, there were two months (January and February 1986) of relatively good production, but the output then deteriorated seriously with each successive month. Peko was now better informed than previously as to the reasons, including the many extraordinary concessions being made in the face of union demands. By June the project was making a loss, major maintenance had been seriously disrupted, and union bans that ensured low levels of stockpiles at the port were the cause of long delays to shipping, with costly demurrage charges.
Peko management was also concerned that a large part of a heavy Robe River capital expenditure program was related to conditions demanded by unions---for changes to production methods and to community services. The project was about to embark on an additional 'optimisation program' of capital expenditure of nearly $60m over the following 18 months, in order to meet customers' indications of additional purchases of iron ore---again with large expenditures to meet union demands. At the same time the rapid changes to world currency exchange rates, particularly the increased value of the Japanese yen, could be expected to change iron ore sales conditions adversely and increase the need for competitive cost control.
Furthermore, Robe River had in late 1985 acquired the additional ore reserves urgently needed for the early 1990s and beyond, for which the forward planning of extraction would be greatly dependent on the freedom of management to introduce new and more competitive working methods. The need for closer examination of Robe River by Peko became increasingly urgent. In May 1986, during the course of negotiations for a new industrial agreement, Peko had sent its own industrial relations management to be in attendance for a few days. Both the unions and the Robe management had been extremely hostile to this attendance, and at about that time Peko became aware that the phrase 'Peko paranoia', reportedly coined by a Commissioner of the Western Australian Industrial Relations Commission, was in common use. The phrase apparently expressed a widespread concern that Peko was much stronger in its dealings with unions than the existing management, and was prone to take civil legal actions against unions. It was no doubt well-known by then that Peko had reached its own conclusions that there was serious over-employment at all levels. The Robe management was very nervous about any proposals for visits to the mine and port sites by Peko management personnel.
Late in May 1986 the news was received by Peko of the suspension and punishment of the Cape Lambert power station superintendent by Robe management, for taking a simple and entirely safe action during a national strike, in order to maintain power supplies to the town of Wickham. In accordance with 'accepted practices', the superintendent should have called for an award employee on strike to return to work to take the simple action in the power station---if such a suitably qualified person could have been found that day! In accordance with established practice, an apology was sent by Robe management to the union. Nonetheless, the union went on strike for a further 5 days in protest. This extraordinary incident finally triggered the decision to send a fact-finding mission of 12 experienced persons from Peko to Robe River to investigate thoroughly every aspect of the project.
This time the Robe management was not effective in keeping information from the members of the mission, and the subsequent report disclosed an appalling state of affairs, including the list of 284 restrictive work practices already compiled by the Robe River staff, and the outrageous food concessions which later attracted such public attention.
The record showed that the 5 months to the end of July 1986 were disastrous, with industrial disputes causing substantial disruptions to production. There had apparently been considerable debate within the management at the time as to whether the almost continuous but seemingly unconnected disputation was part of an orchestrated industrial campaign against Peko, or whether it was a coincidence. Whilst many of these disputes were too short to go before the Commission to be resolved, some were dealt with by the Commission. The term 'Peko paranoia' was coined during one of these hearings.
Peko management decided to recommend to the Peko Board that in the light of the evident failure of the Robe management to arrest the decline of the project, it was necessary to make a virtually complete change of senior management, and to put in place a much smaller team of well-proven people from Peko operations around Australia, as the first essential step towards making a complete change of management policy at Robe River.
On the same day that the management changes were made, all staff and award employees were informed that employees were henceforth to work strictly as directed within the registered awards and agreements, and in accordance with the various laws in relation to safety and good practice. Due notice of cancellation was given of all side agreements about practices and conditions which constituted restrictive work practices.
Union site convenors were told that they must now work at regular jobs, with time allowed by their supervisors for union business, rather than being, in effect, full-time paid agitators supplied with the free facilities of offices, telephones, and even petrol allowances.
It was also announced that application would be made for Federal award coverage, in place of the existing State awards. No retrenchments of surplus people were proposed immediately because time was needed to assess the position, with full co-operation between the existing staff and the new senior management.
During the fact-finding mission early in July, there had been numerous very direct questions put to Peko staff by Robe River staff as to when Peko would take action, and even as to why Peko was so slow in doing so.
Despite this widespread expectation at Robe River that Peko would take some action to bring about change, when the day came, on 31 July 1986, the swiftness of the exercise, starting with the dismissal of the senior management in Perth, shocked almost everyone into compliance with the new management policies.
For a few days work continued very satisfactorily. Apparently union officials decided not to strike for a number of reasons. Peko was known to be prepared to use unusual and strong tactics in response to union pressure, and the unions needed time to decide what to do. The unions were concerned that a strike would play into Peko's hands. Both then and for months later the unions played up the extraordinary story that Peko's real objective was to close down the project. It was never made clear whether it was to be restarted with different staff and employees, or left closed! Nor was it made clear why Peko would have invested hundreds of millions of dollars in order to close Robe River down.
At the time Peko took action, a government trade mission was on its way to Japan to assure the Japanese steel mills of the success of Federal and State Government initiatives through the Iron Ore Industry Consultative Council in reducing disputes in the industry. (The timing of this mission had not been known to Peko in its planning.)
There was undoubtedly widespread recognition in the workforce that the work restrictions and unusual privileges at Robe River, even apart from the blatant extortions and other corrupt practices, were so outrageous that they could not be expected to continue under firm management. They had to end some time, and that time had clearly come. As the new management settled in to assess the detailed position which would result from freedom from restrictive practices, changes were made to place people in more appropriate work, and in many cases to work on different shirts. Some jobs were clearly not needed, and the people displaced were given work in general 'yard gangs'---a phrase which gave rise to the quite untrue accusation in the media that 'tea ladies were being asked to use picks and shovels'.
After one week it was assessed that if 189 people (out of 1,180 award employees) could be induced to leave voluntarily, under the very generous industrial agreement provisions for redundancy, then any further reductions in employment that might prove to be warranted as conditions settled down, could be accomplished as people left of their own volition and were not replaced. The redundancy scheme would have provided lump-sum payments ranging from 6 to 12 months' pay.
Immediately the offer of voluntary redundancy was made, acceptances poured in, and many more people were known to be waiting only to see whether the unions would react. React they did, by threatening that anyone accepting such an offer would never get another job in that union in Australia again. Strong words, and enough to frustrate the redundancy scheme. At the same time the Western Australian Industrial Relations Commission stepped in to give its Orders.
The first Order, on 5 August, was ambiguous in that it required maintenance of the 'status quo', and was largely directed to preventing management from making any further changes. An Appeal against the Order was lodged, and a stay Order requested. As management showed no signs of heeding the ambiguous first Order from the Commission, on 11 August at 5.30 pm a second Order was issued, directing that the 'status quo' existing prior to 31 July be restored in its entirety by 11.00 pm that night, at the start of night shift .
Not only was that an impossible Order to obey, given the widespread changes to jobs and shifts that had been made in so many scattered work locations, not only were there very real questions of work safety involved in the confusion which would undoubtedly have followed any attempt to obey the Order, not only was the Order quite unusual in that no time at all was allowed in which to lodge an Appeal, but the Order was clearly designed to reverse totally the whole purpose of the Peko action on 31 July, which was simply to assert management's right---and responsibility---to manage, in accordance with registered awards, agreements, and normal operating practices.
For the new management to accede to this Order, and then to have to await the hearing of the disputed restrictive work practices before the Commission in the ensuing weeks and months, with all the restrictive practices in place during that time, would have constituted a complete victory to the unions, and a complete defeat of management's right---and responsibility---to manage.
While management's response to this ultimatum by the Commission was being debated that evening, senior members of the staff seriously advised that if the Order were to be obeyed, the situation could be so adverse to stability in the two communities of Wickham and Pannawonica, that they wished to take their wives and families away immediately.
With this very real concern for safety at work and in the communities, with the inevitability of great confusion at the various work places, and with the very heavy statutory responsibilities borne by registered mine managers and others under the government mines regulations, it would have been quite unrealistic for Peko to refuse the clear recommendation of management that the only course of action left was to dismiss promptly the entire award workforce of 1,180 people that evening, lodge an appeal against the Order the next day, and then start to get people back to work again on the terms set by management on and since 31 July. To have acceded to the Commission's Order would have lost all the initiative which had been achieved on 31 July.
Next day the shock waves reverberated around Australia. So many people had been dismissed, and apparently in defiance of an Order by an industrial tribunal! However, the precipitate fall in the Australian dollar during the month of May, together with the huge monthly overseas current account deficits, had prepared most Australians for the fact that changes had to be made to improve the competitiveness of our mineral export industries. At Robe River these changes were now frustrated--- not by the unions directly, but by a statutory arm of government in the form of an industrial relations commission. The people of Australia understood very clearly what was at stake. The employer was both unable and unwilling to comply with the Order of the Commission, and for good and proper reasons.
The analogies drawn in the media about Peko 'not accepting the umpire's ruling' deliberately ignored the simple fact that industrial relations is not just a game played with a given set of rules---it is real life in a hard world. Those who condemned Peko's action most loudly were the same people who themselves incited or condoned the same actions by unions, such is their cynical contempt for 'rules'.
For these next 3 weeks, from 11 August, Robe River was to command extraordinary media attention around Australia, while management and unions sought to win the next rounds before the various Commissioners, before the Commission in Court Session, before the Full Bench of the Commission, and before the Industrial Appeals Court---to get the workforce back to work on enduring terms. During the week commencing 11 August, the Acting Minister for Minerals and Energy, Mr Dowding, requested that the Peko Chief Executive go to Perth to discuss the situation. However, on 17 August the Minister, Mr Parker, returned from overseas through Sydney, where he met the Peko Chief Executive. Agreement was reached that management would offer to take back the dismissed employees and work in accordance within the existing registered agreement and awards---that is, without the restrictive work practices. Mr Parker proceeded to the Robe River work sites to put this agreement to the workforce, but it was not accepted.
On 21 August the Commission in Court Session ordered re-employment of the workforce under the 'status quo' conditions.
This Order was again ambiguous, and relied on recent legislation which had not previously been tested. On appeal to the Industrial Appeals Court of the Supreme Court of Western Australia, the Order was reinterpreted on 3 September to enable management to agree to the Commission's conditions, and work recommenced later that day, without the restrictive work practices. In any event, production by members of the staff had commenced earlier that same day.
From 21 August management had issued repeated invitations to the workforce to return to work under the 31 July conditions, but union officials were able to prevent any early return by continued picketing and intimidation.
Even when there was a return to work on 3 September, effectively on management's conditions subject to further hearings by the Commission, union officials were still so confident of ultimate victory that work performance was very disturbed, with many bans and limitations in place.
On 22 August the Full Bench of the Commission upheld management's appeal against the Order issued on 5 August, but it was not until 30 September that the Order issued on 11 August was withdrawn. This was the Order which had forced management to dismiss the workforce in the first place. In making both these Orders, the Commissioner had exceeded his jurisdiction---with momentous consequences!
Before the return to work of award employees, Robe River management had made a condition Of employment for staff that they would perform productive work or maintenance work normally performed by award employees when required, and if they were competent to do so. This action established which staff members were prepared to stand firm with the new management. Those very few who did not were dismissed. Management had signalled strongly to the unions that if award employees went on strike, Robe River would continue in operation.
During the August stoppage 145 people left their employment with Robe River of their own accord, without the benefit of the earlier offer of voluntary redundancy payments. A total of 520 people left in August, September and October, and few were replaced. The unions had deprived those former members of any additional redundancy benefits!
With the return to work, the Commission then continued the long series of hearings in Karratha and Perth to determine the issue of restrictive work practices. Management had originally listed 284 such practices but had withdrawn the list because management did not see its task as being to ask for removal of a restrictive practice---its task as management was to direct people how to work, not how not to work. This fundamental principle was denied by the unions, who in turn tabled 700 items for which they sought the endorsement of the Commission.
The Commission knew that most items in dispute would, if considered for arbitration, either breach the Commission's own wage-fixing principles, or not stand serious examination when seen against commonly accepted work practices in industry. The only hope for these claims by the unions to be granted would be for management and unions to agree to be conciliated by the Commission to accept the claims.
Throughout the entire period of Commission hearings about the restrictive work practices, from early August to mid-October, the Industrial Relations Commission seemed to be quite unable to come to realise that the Robe River management was not prepared to be conciliated. The management's clear policy was to leave it to the Commission to arbitrate, and eventually the Commission proceeded to do so on 32 selected items.
On 30 October, nearly 3 months after it had first intervened in the Robe River dispute, the Commission, in a 204-page judgment, effectively conceded all that management had sought to do on 31 July and made an Order against strikes and bans to have effect until 31 December. It awarded compensation in lieu of wages lost between 11 August and 4 September, but failed at first to take into consideration the notice period of one week for which wages had already been paid, and would make no allowance for dole payments received. More recently the Deputy Commissioner for Taxation has ruled that the compensation payment in lieu of wages should not be taxable in the hands of the recipients!
During November and early December, Robe River operated very effectively, with excellent levels of production despite a total workforce of 1,250 people---430 down from the 31 July level of 1,680. As the Christmas period approached, the Commission needlessly deferred a decision on a vital manning issue concerning shovel drivers until well into the New Year. At the time that the Commission deferred its decision, it was well known that the union was in close agreement with management on this issue.
Due to absences on annual leave, casual absenteeism and sickness, there were now insufficient shovel drivers available, and management asked for relaxation of the union rule through the holiday period until the Commission would recommence hearings. On 8 December the shovel drivers refused to agree, and went on strike in protest against the work then being done partly by staff. A particularly heavy shipping program was to commence on 15 December. The first ship was then delayed until 16 December, and on that day a total strike commenced for no given reasons and in defiance of the Commission's Order against strikes until 31 December. For the first time the shipping unions were involved, so that even though staff and award strike-breakers continued to operate most facilities, ships could not be loaded.
The President of the Iron Ore Mining Unions Association, Mr Jack Marks, claimed publicly that the objective of the strike was to destroy Peko-Wallsend. From an office in the Ministerial Offices of the Minister for Minerals and Energy, Mr Marks had the use of the telex and facsimile machines of the Minister for sending and receiving messages about the strike. The strike lasted for more than 5 weeks until resolved with no tangible gains to the unions after the intervention of the President of the ACTU. The management had taken out writs for damages against the unions and union officials, which were then withdrawn as a condition of resumption of work. The Industrial Relations Commission would not enforce its own Order against the strike nor would it accept that the strikers had abandoned their employment by striking. The latter ruling by the Commission is still the subject of legal Appeal by Robe River.
During the strike, although ships were not loaded, staff and award strike-breakers carried out all other operations so successfully that a total of 250 people employed on production showed themselves capable of achieving nearly three-quarters as much as the 850 people normally employed on such work---even without the former restrictive work practices.
It became very apparent to the other award employees that they did not have the monopoly of the means of production that they had been led to believe.
Since the conclusion of the strike on 25 January 1987, operations have proceeded very well. The workforce has remained at about 1,250, a total reduction of 430 since 31 July. Production levels have been well above those regarded as sustainable before 31 July, and port stockpiles of ore ready for shipment have been maintained above designed capacity.
The additional 'optimisation' capital expenditure of nearly $60m scheduled by the previous management to be spent during 1987 and 1988, to increase output from 15.5m tonnes per year to 18m tonnes, has been reduced to $17m.
The date of commitment to a further $200m of capital expenditure to move to new mining areas has been deferred for several years, and will even then be subject to major revision.
In the meantime, with improved organisation of production and maintenance, output has increased steadily. For the month of May 1987, a production rate equivalent to 21m tonnes per year was achieved, and ore was shipped to markets at an annual rate of 23m tonnes. Productivity was twice that achieved before 31 July 1986.
In addition, in April 1987 Robe River broke its own Australian shipping record by despatching 242,777 tonnes in one cargo, to Scotland.
Five months later, the Industrial Appeals Court of the Supreme Court of Western Australia found that the strikers had abandoned their employment.
On 31 July 1986, Peko-Wallsend Ltd exercised its ultimate responsibility for control of the Robe River iron ore mining and shipping joint venture, by replacing the management, and stating that employees should work as directed within the registered agreements and awards and laws of safety. A major Australian export enterprise, valued at $1.5 billion, with annual sales in excess of $200m, was being allowed to lose its competitiveness essential for survival due to union domination, associated with blatant extortion and intimidation.
In one swift action, the new management asserted its responsibility, and proceeded to bring about proper order and effective working. The workforce responded with relief that the party was over and sensible life could be lived, without the outrageous circumstances that had progressively become worse and worse.
The results are now clear to see. Productivity has doubled. Huge savings have been made in capital expenditure, as well as in operating costs. The customers are supporting the project strongly at a time when the world's steel industries are facing great difficulties. They see Robe River as an effective and competitive supplier when the pressure is on.
That is what we set out to achieve at Robe River. Whatever the future may bring---good or bad---we have shown that our judgment was correct, and that our industrial relations tactics were successful. Any half-hearted efforts to change work practices would certainly have resulted in long-drawn-out strikes and bans, and, judging by previous Pilbara experience, would have achieved little, if anything. Despite the continuing attempts in the media, and even in some professional publications, to portray our actions as bad or wrong, we know that all that we did will stand any scrutiny whatsoever, and we welcome honest scrutiny.
What this group of people assembled here today might
care to consider, in the light of the Robe River experience,
is why certain people and certain institutions stood
in the way. That is what the H R Nicholls Society is
about. In conclusion I should say how much I was inspired
by that memorable weekend in Melbourne early in 1986,
when this Society had its first meeting, and gave me
the responsibility to open the proceedings. You all
played a vital part in giving me the encouragement
to initiate what we did at Robe River, and in turn
to give encouragement and support to the wonderful
team of people who carried it through.