Royal Mail boss gears up for career-defining battle

An unsteady peace at Royal Mail is in jeopardy as unions threaten the first nationwide strike since the UK postal service was privatised six years ago.

It piles more pressure on chief executive Rico Back, whose short tenure since June of last year has been marred by misfortune — from a shareholder revolt over his pay, a profit warning and the company’s relegation from the FTSE 100, the UK’s premier blue-chip index.

Since the German national took the reins, shares have tumbled as investors have lost faith in the group. The stock is down 64 per cent from its peak in May last year to 224p and is trading below the initial public offering price.

For executives and shareholders, the fear is that mass walkouts could inflict lasting damage on Royal Mail’s core UK business — just as the 500-year-old institution must transform itself to survive in the digital age.

One institutional investor said it recently sold down its significant holding in the company because of the brewing strife.

“[A strike] would be problematic,” the person added. “If people lose faith in using the mail, you hasten the decline of an already declining market.”

It has become too expensive for Royal Mail to honour that agreement

It also cited the possibility of a Jeremy Corbyn government, which could prove damaging to shareholders as the opposition Labour party leader’s socialist programme includes plans to renationalise utilities, including Royal Mail.

As a showdown between Mr Back and the Communication Workers Union over industrial action moves closer with the result of a strike ballot of more than 100,000 workers due on October 8, investor confidence could be hit further.

The CWU last walked out nationally a decade ago, in an industrial action ballot in 2017, almost nine out of 10 members voted in favour of strikes, although walkouts were averted after Royal Mail secured a court injunction.

In parallel, the Unite trade union, which represents junior and middle management grades, has said it will ballot its 6,000 members on industrial action if they reject a pay offer.

The battle of wills pits Mr Back against CWU deputy general secretary Terry Pullinger, a fiery orator who has been a postman since his 20s and a full-time union official for more than a decade.

A founder of German Parcel, a delivery outfit that was sold to Royal Mail in 1999, Mr Back shuns the limelight. People who have worked with Mr Back describe him as entrepreneurial, straightforward and direct.

“Rico started out managing a postal centre, he’s kind of one of them. He wears a shirt with a pocket on the front and pens in it,” said one former colleague of the chief executive who commutes from Switzerland.

Mr Pullinger is described as a “nice guy but very single-minded on what he wants” by one former union official.

The CWU accuses Royal Mail of not honouring the “spirit and intent” of a wide-ranging labour agreement signed last year. This was supposed to herald a new era of co-operation at a company once synonymous with industrial unrest.

“In delivery offices there has been an increase in allegations of bullying, harassment and unofficial walkouts,” said a CWU spokesperson. “It’s basically a bit of a tinderbox.”

One of the main bones of contention is a commitment, made under last year’s agreement, to reduce weekly working hours from 39 to 35 by 2022 with no pay cut.

The pledge to cut hours, which will be phased in, is subject to successful productivity initiatives in order to offset the resulting extra costs. Last year’s earnings downgrade came when efficiency targets were missed.

CWU officials fear the next hour reduction, which is due in October and set to bring down working hours to 37 a week, may not be implemented. They say a funding formula proposed by the company is unachievable.

“It has become too expensive for Royal Mail to honour that agreement,” said David Kerstens, an analyst at Jefferies. “They are targeting productivity improvements of 15 to 18 per cent. That’s higher than what they have done historically.”

Royal Mail insisted it was fulfilling the agreement and said it had granted the first hour’s reduction, despite not achieving all the cost savings needed to pay for it.

Shane O’Riordain, managing director for corporate affairs at Royal Mail, said in return it wanted “the speedy introduction of changes needed . . . to end this cycle of decline and grow”.

The challenge for Royal Mail is to increase its parcel deliveries to offset the falling number of letters being sent by Britons. But in this sphere it faces stiff competition from more nimble operators that function in the “gig economy” with inferior employment terms — and lower labour costs.

The company has cut its dividend to fund a £1.8bn investment programme over five years, as it looks to introduce new technology, win more contracts from online retailers and restore its earnings.

But investors are still unconvinced.

One top-20 shareholder said it was too early to pronounce on the specifics of the turnround plan despite Mr Back’s strong operational record.

Among executives, there is a feeling that the unions are not prepared to compromise by accepting reforms, such as the use of a digital clocking on system to increase efficiency.

In an online video broadcast, Mr Pullinger told CWU members to gear up for the “fight of your lives”. Mr Back may soon find himself facing his most serious test in a battle that defines his career.