Nfld. & Labrador

Risks of moving Marine Atlantic head office from St. John's too significant, says CEO

A report examining the case for relocating Marine Atlantic's head office from St. John's to Port aux Basques, N.L., or North Sydney, N.S., has exposed some serious risks associated with such a move.

Report reveals most, if not all, of 20 staff would refuse move to Port aux Basques or North Sydney

Marine Atlantic operates the constitutionally mandated ferry service between Nova Scotia and the island of Newfoundland. In 2019-20, the service carried more than 300,000 passengers, 120,000 passenger vehicles, and 82,000 commercial vehicles. Marine Atlantic operates a fleet of four ice-class ferries. (Marine Atlantic)

If Marine Atlantic decided to uproot its head office from St. John's and relocate it to either Port aux Basques, N.L., or North Sydney, N.S., it's likely the Crown corporation would do so without the people currently occupying senior roles in Newfoundland and Labrador's capital city.

Most, if not all, of the 20 staff currently working in St. John's would leave their jobs instead of moving.

That was just one of the conclusions of a final report that examined the business case for consolidating operations, and potentially shifting Marine Atlantic's head office to one of the corporation's port communities.

As a result, there will be no changes to the current structure, says Marine Atlantic president and CEO, Murray Hupman.

"We see the risk of doing that type of move to be too significant," Hupman told CBC News in a telephone interview Wednesday afternoon.

While stopping short of nixing the concept, the report detailed some serious risks associated with such a move.

One of the potential consequences? The possibility the Crown corporation might not be able to fulfil its constitutional mandate because of the challenges of recruiting and retaining highly qualified executives, managers and other specialists.

"The reality is that, in general, it is easier to recruit these types of positions to larger centres," the report reads.

The report was initiated by the Marine Atlantic board of directors, and completed by a consulting firm called HDR Inc. in February 2020.

It was obtained by CBC News through an access-to-information request.

St. John's staff will not relocate

The review explored two options: maintaining the head office in St. John's, where it's been located for more than two decades, or a full or partial consolidation of shore-based administration offices in Port aux Basques or North Sydney.

The final report did not make a definitive recommendation.

But one of the most eye-raising findings? When interviewed by the report's authors, staff in St. John's said they would not relocate.

"Many have a spouse with a career in St. John's and or/children that they would not want to move from schools/activities," the report reads.

One of the common themes from executive and management staff? That Marine Atlantic "will not be able to effectively recruit and retain talent in the port communities."

Murray Hupman is the president and chief executive officer of Marine Atlantic. (Marine Atlantic)

The report said there is a risk that recruiting challenges might lead to what's known as "credential shrink," where candidates with a lower level of education and experience are hired to fill positions.

According to the report, "this could result in Marine Atlantic Inc. being unable to execute its mandate" of managing and operating the constitutionally mandated ferry service between the island of Newfoundland and Canada's mainland.

"The reality is there is no existing precedent for a federal Crown corporation the size of Marine Atlantic Inc. locating its head office in a community the size of Port aux Basques or North Sydney," the report states.

Hupman echoed some of the report's findings, saying specialists in law, information technology and computer systems, marketing and communications "seem to be more abundant and the market seems to be much better in the St. John's area than in the smaller communities."

Head office an 'ivory tower'

However, the report also exposed a difference of opinion, with the board of directors appearing to favour relocation.

Interviews with unnamed board members revealed "there is a sense of disconnect between staff in the port communities and head office with a notion of head office as an ivory tower."

Board members felt "innovative recruiting" and "staff development" could overcome the challenges that might arise from moving the head office.

There is a sense of disconnect between staff in the port communities and head office with a notion of head office as an ivory tower.- Unnamed Marine Atlantic board members

When asked about the "ivory tower" comment, Hupman said it was likely made before the board members had a full understanding of how the corporation operated.

"It was early in the game, without the knowledge and background people have today," he said. 

"I don't believe that was intended to be a criticism straight up in the sense that here we got these people that are operating and living quite differently than the rest of the organization."

The issue of head office location has long been a thorny one, with community and political leaders in Port aux Basques long arguing that the head office should be located in the community on Newfoundland's southwest coast — the primary port of entry into the province for those arriving by sea.

The counter-argument is that the head office is better situated in St. John's, where the vast majority of suppliers and specialty services such as law firms, government agencies and media outlets are located.

According to the report, many corporations are locating head offices in larger centres in order to attract talent.

The report singled out the Stephenville-based College of the North Atlantic. There have been seven different occupants in the president's chair for the public college system since 2006, according to the report, with one person serving three different times.

And when the provincial government decided to relocate its Crown Lands division from St. John's to Corner Brook in 2017, only seven of the 32 employees made the move, according to the report.

If Marine Atlantic decides to move its head office from St. John's, and loses the executive and management team there, the report said such a scenario could "lead to productivity losses and inefficiencies that can take years for the organization to overcome."

Big severance cost a potential

The severance cost could also reach as high as $2.5 million, the report found, with another $500,000 in recruiting and relocation costs to fill the vacancies created by the exodus.

Most Marine Atlantic employees are based in Port aux Basques or North Sydney, and according to the report, the corporation is already facing challenges replacing highly skilled specialists for its fleet of ships.

"Sourcing professionals in the rural communities in which the corporation operates, or attracting candidates to relocate to these communities, also poses challenges," the report states.

Marine Atlantic could save nearly $200,000 annually in travel cost by relocating its head office, the review found.

Pursue a lower rent option

The corporate headquarters has been located in St. John's for more than two decades, and occupies most of two floors at the Baine Johnston Centre downtown. 

According to the report, Marine Atlantic spends $460,000 on office space in St. John's, with the lease scheduled to expire on Aug. 31.

If the corporation decides to keep its head office in St. John's, the report recommends that Marine Atlantic look for space at lower cost.

Hupman confirmed that Marine Atlantic will begin the process this fall of exploring the real estate market in search alternative office space in the St. John's area.

According to its most recent annual report, Marine Atlantic spent $242.5 million in 2019-20. The federal subsidy for the service was $135.3 million.

Read more from CBC Newfoundland and Labrador

ABOUT THE AUTHOR

Terry Roberts is a journalist with CBC's bureau in St. John's.

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