What went wrong at Thomas Cook?
Rachel Sharp, October 31, 2019
With the shock collapse of British tourism giant Thomas Cook, fingers are being pointed at executives and the government. Meanwhile employees abroad go unpaid
Thomas Cook, the 178-year-old British institution, collapsed on 23 September, plunging 21,000 jobs worldwide and 9,000 in the UK into jeopardy and leaving 150,000 UK travellers stranded overseas.
Right up to the 11th hour it was hoped that a rescue deal was on the cards. But after failing to secure funds from banks its directors finally threw in the towel.
Reports emerged that even in the days running up to the collapse staff were told it was ‘business as usual’, only to find out through social media or breaking news that the firm had gone into compulsory liquidation. It seems recruitment was also still in full swing.
Jake Atkin joined Thomas Cook as a user experience designer in March this year. Atkin tells HR magazine that the message from the company when he came on board was that, while the tour operator business was “struggling”, the airline “didn’t have much cause to worry because it was profitable”.
“There was no real indicator that the company was in dire straits,” he recalls.
Atkin says his teammates were also new; like him they were recruited to build a new user experience team. “They were still hiring up to the Friday before it collapsed. Everything was rosy on Friday – with some rumblings – and then by Monday we had no jobs,” he says.
Like thousands of others, Atkin says he wasn’t paid for September and had to apply for statutory pay through The Insolvency Service and for Jobseeker’s Allowance – his first payment was just £10.45.
“I think everyone thought it would be saved,” he says. “Which makes you lose a bit of faith in what they were doing at the top.”
Scrutiny inevitably soon turned to senior leaders and whether they’d run the business in the best way. Around 1,000 unionised and 100 non-union former employees are pursuing legal action against the firm under the Protective Award.
Aneil Balgobin, head of employment law at Simpson Millar, the law firm leading the action, explains that employees are entitled to compensation if they are made redundant from a workplace of more than 20 staff without a consultation period.
“Thomas Cook employees basically rocked up to work and were told to pack their stuff,” he says. “There was a growing concern with Thomas Cook, so a month or so before it should have put people’s jobs at risk.”
Even if a rescue deal had materialised Balgobin says there “would have had to be cutbacks”. Not all jobs could have been saved and senior leaders would have been all too aware of this, he says.
Bosses are also facing pointed questions over corporate governance, accounting and executive remuneration practices. On 15 October Thomas Cook’s CEO Peter Fankhauser was the first former boss to face a grilling from a cross-party committee of MPs over the firm’s collapse and a bonus payment of £500,000, amid calls to repay it.
Fankhauser insisted the reasons for the collapse were not “one-sided”, that he did not receive a 2018 bonus, and that a third of his 2017 £750,000 bonus was in shares that are now worthless.
Roger Barker, head of corporate governance at the Institute of Directors, says that “superficially Fankhauser doesn’t seem to have been overpaid relative to other similar-sized companies”. But it’s important to scrutinise “not just the amount but the structure and the incentives it was creating,” he says.
So does this mean that Thomas Cook became the latest victim of poor corporate governance?
This is the key question the government inquiry should answer, Barker explains: “In retrospect it seems likely the board – and not just the current board – made decisions that failed. But were those reasonable decisions that didn’t work out or were they failures of governance?”
Based on what’s known so far Barker believes it was “the former” rather than “major flaws”.
However, some feel the government also has questions to answer. It chose not to save the company, saying it didn’t want to set a precedent for bailing out struggling firms. But it then emerged in the inquiry that no ministers spoke to the British firm in the six days leading up to its collapse, unlike ministers from Bulgaria, Greece, Spain and Turkey. Labour’s shadow business secretary Rebecca Long Bailey described this as “a clear dereliction of duty” and called for an inquiry into the government’s actions.
Boris Johnson’s decision to prorogue parliament during this crucial time could have played a part, says Balgobin. “Usually there would be questions when a business is going under but parliament was suspended so there were no urgent questions in the House.”
The events of the last two months have been largely reminiscent of Monarch Airlines’ 2017 collapse, where almost 2,000 employees lost their jobs.
Pauline Prow was chief people officer at Monarch at the time and is now HRD at Hitachi Rail Europe. While Prow says Thomas Cook leaders “will have been troubled” by where the business was heading, she believes they “would have been optimistic they could get it over the line”.
According to Prow it’s important that leaders – and the HR team – now rally to support the workforce. At Monarch HR helped wind down the business. But Prow also took the “unusual” step of requesting that HR be allowed to provide “outplacement support” for employees, including careers fairs and workshops to help with applications, interviewing and CV writing.
“The first few weeks are a massive outpouring of grief and people feel more comfortable being upset in an environment that is familiar to them, so us hosting events in various locations and with familiar faces was all part of helping people come to terms with the situation,” she says.
While Atkin has found HR at Thomas Cook “really helpful” since the collapse, there’s been challenges with HR systems because unpaid suppliers have discontinued access. “So my holiday pay has been declined because there is no record of it anymore,” he says.
The struggle is also far from over for many staff overseas. One worker in Spain, who wishes to remain anonymous, said around 1,000 staff on Spanish contracts with Thomas Cook’s subsidiary In Destination Incoming are still required to go to work even though they have not been paid since August.
She tells HR magazine that she has worked as a resort manager in Spain for 17 years and was transferred from a UK contract to a Spanish contract a few years ago.
“There’s no people left in the resort on a UK contract but we haven’t been dismissed,” she says. “Under Spanish law we have to come into work and do eight hours because if we don’t it’s classed as abandonment of our jobs and they’d take it as resignation – and we’d lose all chances of getting any money if we quit.”
Because staff are still employed they can’t claim state benefits or find other paid work, she says. One colleague risks being made homeless because the landlord who owns the staff accommodation she lives in hasn’t been paid by Thomas Cook.
“We can’t close this chapter in our lives – we’re stuck in limbo,” she says.
Hopefully a solution is found quickly for workers in this predicament. And hopefully lessons are learned to avoid similar casualties in future. After all, as Balgobin warns: “Thomas Cook isn’t going to be the first company to go bust in this fashion.”