Ethics @ QANTAS

Alan Joyce: “My priority is to do the right thing by Qantas.”

Qantas extraordinary grounding of its entire fleet on Saturday raises some meaty ethical issues that most commentators attempt to avoid (see Michael West for example). No-one seem to want to be seen talking about ethics. Perhaps it is preferable to talk about interests because that is the “bottom line” of what motivates people to do things, anything else smacks of hypocrisy. But so much of our conversations deal with ethical issues. Qantas_AirlinesNewspapers have been polling the public asking if they think Mr. Joyce did the right thing. However, avoiding talking explicitly about the ethics of the matter we are left with very partial arguments that often do not get past self-interested rationalisations and spin. So for fear of hypocrisy we embrace corrosive cynicism.

Example…. Claiming “to do the right thing”, Mr Joyce remains vague about what he means by “Qantas”. It very probably does NOT mean the workers, the pilots, the engineers, the people who handle the luggage and many other services. He most probably means the shareholders, maybe extending to the decision-making circles: upper management and the board. But in the ethical realm, “doing the right thing” must extend to others affected by what the actor does. For this reason, many businesses talk about “stakeholders” not just “stockholders”. Part of stakeholder capitalism is a recognition of the importance of a “social license to operate” that may be withdrawn if the society where the business operates comes to the opinion that the business is damaging that society. The common practice of a stakeholder responsible business is to consult those who are likely to be materially affected by decisions of the business. It seems that ‘Qantas’ did not do that about the grounding of the fleet. And that lack of consultation/warning caused a lot of discomfort, inconvenience, cost and possible harm to thousands of passengers, not only those going to business meetings and holidays but also to funerals and sick relatives or are sick themselves. It is also causing wide-spread social backlash for Qantas itself. One particular stakeholder is extremely angry: the Australian Federal Government; an anger, it seems compounded by Mr Joyce afterwards claiming that he did advise Minister Albanese.

Disruption to clients has been caused by the unions, too. But there are disputes about how much is due to whom, as is the nature of such fights and the unions claim to have been very careful to limit the disruption to pasengers.

However, some people are happy. After Fair Work Australia decided to order the termination of the industrial action on both sides, Qantas shares began to rise against the trend in the Australian market.

Some, Tony Abbott among them, think that the Federal Government should have acted earlier using its powers to intervene where the dispute is affecting the nation’s economy. (See Peter Hartcher) Qantas is a big company, for some a flag-ship company with a very large share of the Australian domestic market. The Global Financial Crisis highlighted only too painfully that there are many companies now with a claim to be in the “too big to fail” basket. Being so big if not itself unethical is certainly an ethical risk: that you use your size unfairly to get what you want. It is the nature of human beings and institutions to find the temptation too much. Perhaps it is up to the rest of us to ensure that others are not put in temptation’s way! Nor does it makes sense from the point of view of the functioning of the market because it encourages anti-competitive behaviour. In the case of the big American banks, for example, the Government’s tacit recognition of their “too big to fail” status has effectively given them a license to continue the very risky behaviour that got them and the whole financial system into such a deep crisis. Most commentators agree that Mr Joyce is taking big risks and that means putting a lot of people and structures that go beyond Qantas at risk also. Society cannot bank upon a cowboy’s instincts at the roulette wheel! Those who play the stock market tend to be gamblers, however…. they do recognise the behaviour and know how those games are played.

Another series of elements which are of ethical relevance concerns the outcomes. Mr Joyce says Qantas (sic) is fighting for survival. It lost $220m on its international flights, he says, despite turning in a $552m profit last year ($249m after tax). Once again the figures are disputed. The Unions have been claiming for some time now that Qantas has been picking up some of JetStar’s tab. Once again a bit difficult to prove. So “survival” might be overstating it. On the other hand, many airlines have gone bust and Qantas hasn’t paid a dividend in two years. The airline industry is a difficult place to make reliable profits (see Warren Buffet’s famous quip), yet it needs to provide a reliable service. It is a bit of a bind, isn’t it?

Qantas’ international routes have to compete with state-owned airlines which are undercutting Qantas, probably at a loss. So what are the prospects of beating them? Qantas may have to go up against some very deep pockets indeed, especially if Etihad and Emirates are anything to go by. The only way to compete, so they say, is to cut costs, usually meaning labour. This ready-made and oft repeated solution does tend to ignore the big revolution in the skies in the last decade: aeroplane efficiency. However, cutting labour costs is another way of saying shifting the pie of Qantas’ earnings from staff to shareholders. This way of looking at the issue presumes that the workers are, unlike Mr. Joyce’s view, a part of Qantas and central stakeholders affected by management’s decisions. In corporate world, the gap between the top end of town and the rest has been growing very quickly: UK; US. In Australia, income from profits have risen by an average of about 11% pa for the last decade or so, while income from wages has risen by only 3%. The argument that this is merely the market at work is a little thin since these gaps can be shown to follow regulatory changes such as those that enabled the crisis to happen and the structure of the tax regime, and so on. If you were to vote on what would be a fair distribution of the pie, how would you think about it?

There are other approaches possible. Johnson & Johnson, many years ago, set out its its values in its “Credo”. It sets out its varied responsibilities to its stakeholders, clients first, employees also, and so on. It concludes, “When we operate according to these principles, the stockholders should realize a fair return.”  Clearly this is not the description of a high risk high return stock. But this is a description of a company that must provide a highly reliable service. This is not a cowboy company watched keenly by the punters on the stock exchange.

The problems Qantas, in the large sense of Qantas, faces are cultural and structural and both of these are of concern to ethics. While Mr Joyce, the board and the shareholders believe, (a cultural idea) that they and they alone make decisions without reference to any other stakeholder, the company, the problems will persist until, perhaps, they manage to divest Qantas of its flagship, high safety and reliability characteristics so that they might replace them with high risk, high gain ones. The vision behind this attitude seems to be that staff, particularly unionised staff are the competition. It is a vision that creates and fights many conflicts, real conflicts of interest. The structural problems related to these cultural would include those where returns to some of Qantas (upper management, even more so than stockholders!) are remunerated under incentivised calculations while the rest are considered to be costs that need to be cut.

Ethically, one might ask why those at the top seem to get carrots and those at the bottom seem to get sticks? If carrots work at the top, why wouldn’t they work all the way through? Improved efficiency and innovation are not the sole preserve of the leaders, entire teams can contribute to them. We do need structures, from an ethical point of view, that attempt to find a way forward where interests are cooperative rather than in conflict.

Profit sharing based bonuses for the staff might be a beginning. Greater transparency and reasonable argumentation, which includes considerations of fairness, about differences of pay might also help. Large, stable and reliable companies can show the way but only if they turn their backs on the gamblers’ lure of big gold.

If this model still does not work for an international airline, then perhaps commercial models will not. Certainly, it will be bad for passengers if the only viable commercial model is at the expense of the quality of service. (Anyone who has flown on a domestic US airline recently could probably tell some tales of woe.) Many other carriers have tried and failed, perhaps Emirates and Singapore do have a more practical answer.

4 Responses to “Ethics @ QANTAS”

  1. Jonathan Tyler Says:

    Thank you for your insightful article.

    But I wonder about the ethics of a successive Federal Governments who have opened the international air routes up to foreign competition and a commensurate transfer of jobs overseas.

    I wonder of my ethics and many of the travelling public who buy tickets on overseas carriers and who employ overseas workers and thus cause a transfer of jobs overseas.

    And the ethics of the unions who announce a campaign of rolling of strikes and produce uncertainty so many of us are forced to buy tickets on other airlines because of the uncertainty of the Qantas plane flying.

    The ethics of protecting Australian jobs and depriving workers in developing countries of work.

    The ethics of attempting to maintain high salaries which are the legacy of a highly protected international airline policy and a cosy duopoly nationally. Why should Qantas pilots be paid so much more than a similar qualified/experienced Jetstar pilot flying the same aircraft.

    The ethics of workers having job and wage security but the shareholders having a share price fall from $6 in November 2007 to about $1.60 that is profit and LOSS sharing.

    Why do you want one group to take all the risk and another to take no risk but share in the upside. No workers no airline, no money invested no airline also. Too low pay no workers, too low a return for the risk no capital.

  2. admin Says:

    Hi Jonathon. I think you are right to widen it out! The unintended outcomes you indicate: open skies policy intends high competition to provide best and cheapest service but if fact seems to produce loss of security and airlines unable to function; keeping highly paid jobs here at the cost of spreading some of the economic benefits to countries in much greater need, are examples of constant challenges to outcomes-based ethics.

    I’m not sure that the rolling strikes scenario is in fact the case in this instance. The disruption to passengers caused by the unions is arguably moderate, and since it’s arguable, it would seem that it’s important to make the case, not just a statement as if it were obvious.

    The JetStar comparison is also a product of Alan Joyce. What do Virgin pilots get paid? I have no idea.

    The other points, about how people should be treated, fairness and exposure to risk, are really important, too. The risk being taken by someone has to be seen in the context of how much of their own resources they are risking. To take a $1m plunge is one thing if you have several millions to play with, but a very different thing if your only resource is a big mortgage and several small children. So it is a question of balancing risk and security as everyone does. I think risks should be shared and the benefits too. Like many, I find it quite offensive that the risk takers who brought the financial crisis down upon us largely got away with it and are still in charge. We seem to have a system where, at least in some sectors, the risks are socialised and the profits are privatised.

    Workers need some security. Alan Joyce, arguably got his pay rise as “danger money” for the risk he was about to embark upon. So that idea cuts both ways. Balancing costs and gains is what every business does, I’m merely suggesting that it can have more cooperative models with employees inside the tent.

  3. admin Says:

    Found the answer to my question: “Most remarkably of all, Virgin’s long-haul pilots have agreed to be paid only half of what their Qantas counterparts receive — a decision Borghetti puts down to Virgin’s superior workplace culture.” (http://www.thepowerindex.com.au/power-move/qantas-grounding-is-virgin-s-gain/20111030631)

  4. Ed Says:

    Well written Jonathon. I have always wondered why the Qantas Board appointed Joyce rather than Borghetti as in his time at Jetstar Joyce had already demonstrated his inability to emphathise with the Qantas workforce. Part of this was undoubtably due to his being an outsider, and one whose communication skills were very poor. Instead of adopting the Branson approach and bringing the workforce along with him [in the tent] he preferred to live in the manor house. Your best point though is that Joyce seems to be totally a captive if the big end of town shareholders. Heavenn only knows why they support him. Perhaps the Board is just too lzy to do some creative thinking themselves. However, there are millions of Qaantas Frequent Flyers who have been treated miserably by the action of Joyce. They are truely stakeholders.