Simplot's simmering sabotage

Productivity Spectator

Simplot Australia is our biggest food processor. Its managing director Terry O'Brien is the first Australian company chief to publicly reveal the cancer that is dramatically forcing so many long established food processing and other manufacturing plants to close.

He believes Simplot has about 20 per cent of its manufacturing staff with such huge retrenchment payouts that they want Simplot plants to shut so they can be paid out.

Given Business Spectator's leadership in the drive for Australian productivity, O'Brien contacted me to explain his frustrations. He explained that having so many of your work force wanting the plant to shut was like having a "Trojan Horse” in your operation. Attempts to improve productivity have had very limited effect. I believe that the CEOs of Heinz and other food processors faced similar problems but kept their mouths shut and simply shifted key operations to New Zealand and other offshore places.

Rather than put his younger workers onto the dole and bankrupt hundreds of farmers O'Brien has decided to bring the whole situation into the open. And he will not be demanding a cap on retrenchment payouts until 2014 by which time the Simplot "Trojan Horse” horror will be understood by all Simplot employees, farmers and local communities.

How did it happen? In decades gone by weak managers would give into unions knowing that they could pass on the costs to the supermarkets. When Pacific Dunlop owned the plants (Simplot purchased them in 1995), PacDun executives were under performance pressure and very anxious to avoid industrial trouble.

A great many Australian manufacturing managers had the same short-term policy and it was easy to give in to more and more retrenchment benefits when it would be someone else's problem.

But eventually the contingent liability becomes so huge that the plants shut – many insolvent.

Simplot, of course, is a prosperous global US-based family company so $100 million in labour payouts if it stopped manufacturing, in theory, is an incentive not to close plants But you can't justify the big investments required to modernise and combined with bad work practices you can't gain big improvements in productivity. Worse still, a big part of the workforce has good reason not to want productivity improvements. Some employees are becoming incapable of undertaking a full day's work.

Terry O'Brien has been beside himself wondering how to break the vicious circle. Contacting Business Spectator and bringing the issue into the open was the way he decided to go. He will cop severe criticism, particularly in Bathurst where Simplot has its largest and oldest plant.

It would have been so much easier for him to shut most of the Simplot plants, pay the proportion of the $100 million that applied to those closed plants and blame the supermarkets, the dollar, the high power prices, and even the carbon tax … everything but the real truth. In other words, do a Heinz.

O'Brien decided to tell the truth and the local communities in NSW, Victoria and Tasmania now have 18 months to understand that some of the Simplot workers are working to shut these plants for personal gain.

Maybe O'Brien's action will inspire other CEOs to tell the truth and expose the fact that very generous redundancy – as distinct from fair redundancy – kills plants, employment and local communities.