Light on the Hill: Industrial Relations Reform in Australia
The Robe River Affair
Charles Copeman
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.
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