Public Interest or Vested Interest

Robe River Revisited

Charles Copeman

On 31st July, 1986 the majority shareholder in the Robe River Joint Venture, Peko-Wallsend, exercised its responsibility for the joint venture by taking certain actions to terminate work practices by employees and to institute a policy of 'work as directed by management'.

The actions taken, and the subsequent events during the course of the next six months, drew considerable public attention to Robe River and to some of the people involved. It is timely now, four years later, to look at what has resulted from those actions, and what broader conclusions can be drawn about industrial relations in Australia.

Let us first of all look at the material facts relating to this major iron ore exporter, before 31 July and since. Figure 1 shows the production levels achieved in each year (April to March), compared to the rated capacity of the plant. Figure 2 shows the productivity per employee Figure 3 shows the incidence of industrial disputes.

With continuing improvement in methods of work, shipments have recently been at a rate of 30 million tonnes per year, and work is in hand to increase to 36 million tonnes per year. Productivity per award employee can now be as much as four times that being achieved before 31st July, 1986.

Figure 4 shows the number of lost-time injuries over a number of years. In the year in which action was taken by management, 1986, this accident rate peaked at 147. In 1990 it was 22! Furthermore the cost of workers' compensation is only a fraction of that incurred in 1986.

In other words, productivity has been increased enormously hand-in-hand with dramatic improvements in safety. These results fly in the face of the intense political and union criticism that management sought production at the expense of safety.

Further improvements to both productivity and safety are continuing to be made.

Of course the rapid increases in tonnages shipped to export markets---effectively doubling in four years---would not have been possible without the willingness of the overseas customers to take the increased shipments.

Iron ore markets were very depressed in 1986, and continued to be depressed into 1988. Increased tonnages could only be sold if the customers were assured of quality, competitiveness and reliability. Robe River has a low quality ore which cannot economically be improved. Before the actions were taken in July, 1986 Robe River had lost money, and could have been expected to incur further losses. Whatever reliability it showed was at the expense of heavy costs of shipping delays. Robe River was actually losing markets by its poor performance.

As soon as the customers could see that the new management policies were working, and that cost reductions had made Robe River very cost competitive, and that control of industrial relations would give greater reliability, orders for shipment increased rapidly despite the depressed market and the natural disadvantage of low quality ore.

The position was then dramatically improved, from loss of markets to rapid growth of deliveries to double their previous levels.

Let me remind you of the other circumstances existing when Peko acquired majority ownership and ultimate management responsibility six months earlier, in January, 1986.

The Western Australian government and the existing Robe River management team, were concerned to advise Peko to 'make no changes'. Without Peko suggesting that any changes were needed, or contemplated, there arose a fear that Peko would make changes (unspecified!). It was said quite plainly by the existing management that to make any change would bring disaster!. It was asserted that such was the delicacy of the relationship with the unions that any attempt to change could only lead to a worse situation.

From whatever sources, it had become fixed in the minds of the State government and the management that Peko would try to make changes. The phrase 'Peko paranoia' was coined by an Industrial Relations Commissioner to describe the apprehension on the part of the unions.

For my part, while wanting to improve the performance at Robe River I was far from clear as to what should be done. All the advice to do nothing only raised my curiosity to find out why there was such concerted advice to do nothing, and gave me further reason to believe that there was much to be put right at Robe River.

As the months went on, with more information about the unworkable industrial relations climate, and the deteriorating production performance, we came to suspect that, as commonly happens, the new owner Peko was being tested for weakness. For Peko not to step in would have been judged as weakness, and we could then expect further deterioration as the 'rorts' multiplied.

The events of the ban on critical maintenance at Easter, 1986 and the Power Switch incident on 28th May, brought home most forcibly the appalling state of affairs.

When the Peko team sent to Robe River in June 1986 reported not only the list of 284 restrictive work practices compiled by the site management, but also the pleas from staff for Peko to do something to end the anarchy, it was clear we could wait no longer.

Not only were we already losing our markets on the margin of our contracts, not only were we tolerating an intolerable management industrial relations scene, but we were facing the need for very large capital expenditures just to maintain our present (unprofitable) volume of production. We knew very well that with better working methods the existing equipment could give the production levels needed, and that the move to a new mine site could be delayed and planned more effectively. We knew that if we had continued as we were, we would be asking boards of directors to approve these large capital expenditures in the face of lack of profitability in a depressed market.

As responsible ultimate managers of Robe River, we had to find a better way.

The existing management had, with the best will in the world, spent about all its time reasoning with the unions for better performance. In Peko, with a 35 percent joint venture interest, we had already had nearly three years watching these futile negotiations. We had no reason to believe that a Peko team could achieve more from further negotiations of the same form. We had every reason to believe that such further negotiations would be taken as a sign of weakness.

We decided to take the unusual step of removing the senior Robe River management team from their positions, and replacing them with a Peko team whose members were attuned to the way we had kept other Peko operations alive when union demands would have closed them.

Some members of the existing Robe River management team had made it plain to me personally that only they could handle Robe River's problems, and that Peko's attitudes and methods were quite wrong. That made it easier for me to conclude that we should make a complete change of the 'management culture'.

We wanted the Robe River staff and award employees to see immediately that we were not blaming the individual employees. We were putting that heavy responsibility on the senior management. 'There are no bad soldiers ---only bad officers'.

We believed that the removal of the senior management would show the unions and the employees that we were very resolute to achieve effective change. We were not prepared to let the need for change drift along inconclusively as had happened in the past.

When the Peko management team took over, the future manning of the operations was assessed, and 189 voluntary redundancies were requested from the total award workforce of nearly 1,200. The unions immediately threatened that anyone accepting the very generous redundancy package would 'never get another job in that union in Australia'. Although many wanted to take what would have been about one year's pay, no-one to this day has done so. In the event 530 left within three months, of their own accord. Management had assured the workforce that any further reductions beyond 189 would take place by not replacing people who left. Robe River had no intention of penalising the workforce.

When some weeks later the award workforce was dismissed (temporarily) it was in response to a wrongly-given Order from an Industrial Relations Commissioner. However it was to be some time before that wrong Order could be appealed and withdrawn.

After four years it is still very apparent that the subsequent onslaught against Peko and Robe River by politicians and union officials, with their great influence on the media, has left many Australians troubled that Peko did something 'wrong' at Robe River. Many senior members of the business community and of the Liberal Party seem to be of that view, although they are invariably people who have evidently not troubled themselves to find out the facts.

It is tempting to reach the conclusion that it is fashionable to decry Robe River in order to keep on good terms with those who had a deep interest in opposing what we did. Furthermore at Robe River we had exposed the weakness of Australian management by dismissing the previous management as a first step. Having exposed that weakness, and having succeeded so dramatically in improving Robe River's performances on all counts, Robe River now stands as a very public indictment of those managements of Australian industries who condemned our actions.

As each year the performance improves further, and the publicity is continuing to refute the earlier allegations of wrong-doing by the Peko-appointed management, the more egg appears on the faces of our detractors; and they do not like it.

It is my view that this evidence of management weakness is at the very heart of Australia's poor economic performance.

Business, particularly big business, simply will not stand up for itself against the forces of big governments and big unions. So much of business 'leadership' is in fact no more than a commercial bureaucracy, acting without the conviction of responsibility which owner-managers cannot avoid without immediate peril to their own pockets.

Much the same can be said about many politicians on all sides of the political arena. It is my view that Australian senior management and politicians are both naive about, and afraid of, industrial relations.

This adverse feature of the Australian economy is strongly reinforced by the existence of the immense bureaucracy of industrial commissions and tribunals, all of whom have a vested interest in the status quo.

In the aftermath of Robe River many people have claimed that it was part of a watershed, along with Dollar Sweets, SEQEB, Mudginberri etc. My own view is that the forces opposed to change have closed ranks again, and that in fact very little has changed. The present adverse economic conditions may force more change as businesses struggle to survive. However unless radical changes are made to cut away that enormous proliferation of vested interests known as the Industrial Relations Club, there will continue to be many more losses than gains to the Australian economy. At best, changes will happen after much damage has been done---in my view that damage is utterly needless. Robe River proves the point magnificently.

Why HR Nicholls?