Trouble has been brewing for several years at P&O; indeed when they were bought for £322m back in 2019, auditors KPMG issued a stark warning that “unprecedented levels of uncertainty” meant that “they could not guarantee that the company will continue in operation”.
The onset of the Covid-19 pandemic, however, provided a temporary respite for the ferry company, allowing it to continue operating – albeit on a smaller scale – thanks in part to the help of fiscal support from government and the significantly reduced operating costs associated with a reduced timetable.
P&O Ferries: A PR disaster
As government support was withdrawn, however, and operating costs slowly began to return, the P&O board took the decision to embark on a cost-cutting exercise which has turned into nothing short of a PR disaster.
The sacking of 800 British crew members only to immediately replace them with agency staff has garnered extensive negative media attention and received widespread criticism across the maritime industry and beyond. Since its inception in 1977, P&O has built up an enviable reputation and with it a level of trust from the public. However, this hard-won reputation has been utterly destroyed over the past month due to the way the restructuring of the business has been handled. While tough decisions do have to be made when the future of a company hangs in the balance, reputational risk needs to be given extensive consideration before any action is taken.
Restructuring for simplicity
Businesses do not exist in a vacuum and, therefore, they aren’t immune to outside forces which may require them to pivot their operations as a result of economic changes, shifting customer expectations, industry changes, or indeed external events such as Brexit or Covid-19. These factors – many out of the control of the business owner – can lead to a need to embark on a formal restructuring process.
Utilised correctly, restructuring can go a long way to improving both the financial and operational efficiency of a company, safeguarding its long-term future, and protecting jobs in the process. However, the implementation of any restructuring decisions should always be done carefully and sensitively, and include a strong communications strategy and a thorough reputational risk analysis.
Over time, company structures can become overly complex, particularly when the business has experienced rapid growth or expanded through a series of mergers and acquisitions. These unnecessary layers can not only hinder operations, but can also be a drain on finances. A process of business simplification can help alleviate the problems associated with cumbersome and unsustainable business models by identifying non-performing areas of the business, divesting the company of these unprofitable channels, and consequently allowing time, money, and resources to be directed at more profitable areas of the business.
Streamlining company operations can reap unquantifiable benefits and maximise stakeholder value; however, it can also lead to redundancies being necessary if the overall position of the company is to be maintained. Ensuring this this is handled in a sensitive manner is absolutely paramount – not only to staff wellbeing, but also to upholding brand image. Reputational damage can be just as challenging to a company’s ongoing viability as the financial problems leading up to the need for restructuring in the first place and, if not swiftly rectified, high-profile public pressure akin to that which is being applied to P&O can have the potential to take a company beyond the point of redemption.
Only time will tell whether P&O’s handling of their organisational restructure will ultimately prove to be its downfall. The reputational damage suffered could well be insurmountable, and if the public decide to vote with their feet and express their distaste in how the situation has been handled by opting to use alternative carriers for their journeys, P&O’s current problems may just be the tip of the iceberg.
Specialist advice on corporate restructuring
Corporate restructuring is not a one-size-fits-all process: what may work for one company, may be wholly unsuitable for another. In order to be effective, any restructuring process needs to involve the input of a business turnaround expert working closely with the company’s management team and other key stakeholders to plot a way forward which maximises the ongoing viability of the company, preserves stakeholder value, and leaves the reputation of the company intact.
Keith Tully and Jason Greenhalgh are Partners at Begbies Traynor’s Liverpool office and they are on hand to provide sound and actionable advice to directors on all matters of corporate, as well as personal financial distress. For immediate help and advice, you can contact them today on their directors’ confidential helpline – 0800 056 1059 or find out more by clicking HERE
