Philips India - Labor Problems at Salt Lake

They (unions) should realize that they are just one of the stakeholders in the company and have to
accept the tyranny of the market place.
Manohar David, Director, PIL in 1996.
SELLING BLUES
The 16th day of March 1999 brought with it a shock for the management of Philips India Limited
(PIL! " #udgement of the $olkata
%1&
'igh (ourt restrained the company from gi)ing effect to the
resolution it had passed in the e*traordinary general meeting (+,M held in -ecember 199.!
The resolution was to seek the shareholders/ permission to sell the color tele)ision
((T0 factory to $itchen "ppliances Limited1 a subsidiary of 0ideocon! The
#udgement came after a long drawn1 bitter battle between the company and its
two unions Philips +mployees 2nion (P+2 and the Pieco 3orkers/ 2nion (P32
o)er the factory/s sale!
P+2 president $iron Mehta said1 4The company/s top management should now see
reason! 5urs is a good factory and the sale price agreed upon should be
reasonable! 6urther how come some other company is willing to take o)er and
hopes to run the company profitably when our own management has thrown its
hands up after in)esting 7s!89 crores on the plant!:
Philips sources on the other hand refused to accept defeat! The company immediately re)ealed its
plans to take further legal action and complete the sale at any cost!
SOURING TIES
PIL/s operations dates back to 19;91 when Philips +lectricals (o! (India Ltd!1 a subsidiary of 'olland
based Philips <0 was established! The company/s name was changed to Philips India P)t! Ltd! in
=eptember 19>6 and it was con)erted into a public limited company in 5ctober 19>8! "fter being
initially in)ol)ed only in trading1 PIL set up manufacturing facilities in se)eral product lines! PIL
commenced lamp manufacturing in 19;. in $olkata and followed it up by establishing a radio
manufacturing factory in 19?.! "n electronics components unit was set up in Loni1 near Pune1 in
19>9! In 196;1 the $alwa factory in Maharashtra began to produce electronics measuring
e@uipment! The company subse@uently started manufacturing telecommunication e@uipment in
$olkata!
In the wake of the booming consumer goods market in 199A1 PIL decided to moderniBe its =alt Lake
factory located in $olkata! 6ollowing this1 the plant/s output was to increase from a mere ?9999 to
A!8. lakh (T0s in three years! The company e)en e*pected to win the Philips 3orldwide "ward for
@uality and become the source of Philips +*ports in "sia! PIL wanted to concentrate its audio and
)ideo manufacturing bases of products to different geographic regions! In line with this decision1 the
company relocated its audio product line to Pune! In spite of the mo)e that resulted in the
displacement of 699 workers1 there were no signs of discord largely due to the unions/ in)ol)ement
in the o)erall process!
Cy 19961 PIL/s capacity e*pansion plans had fallen way behind the targeted le)el! The unions
realiBed that the management might not be able to complete the task and that their #obs might be
in danger! PIL on the other hand claimed that it had been forced to go slow because of the
slowdown in the (T0 market! 'owe)er1 the uncon)inced workers raised )oices against the
management and asked for a hike in wage as well! PIL claimed that the workers were already
o)erpaid and under producti)e! The employees retaliated by saying that said that they continued to
work in spite of the irregular hike in wages! These differences resulted in a A9Dmonth long battle
o)er the wage hike issueE the goDslow tactics of the workers and the declining production resulted in
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huge losses for the company!
In May 199.1 PIL announced its decision to stop operations at =alt Lake and production was halted
in Fune 199.! "t that point1 P32 members agreed to the 7s 118. wage hike offered by the
management! This was a climbdown from its earlier stance when the union1 along with the P+2
demanded a hike of 7s A999 per worker and other fringe benefits! P+21 howe)er1 refused to budge
from its position and re#ected the offer! "fter a series of negotiations1 the unions and the
management came to a reasonable agreement on the issue of the wage structure!
SELLING TROUBLES
In the midD1999s1 Philips decided to follow Philips <0/s worldwide strategy of ha)ing a common
manufacturing and integrated technology to reduce costs! The company planned to set up an
integrated consumer electronics facility ha)ing common manufacturing technology as well as
suppliers base!
-irector 7amachandran stated that the company had plans to depend on
outsourcing rather than ha)ing its own manufacturing base in the future! The
company selected Pune as its manufacturing base and decided to get the =alt
Lake factory off its hands!
In tune with this decision1 the employees were appraised and se)erance packages
were declared! 5ut of 8>9 workers in the =alt Lake di)ision1 ;91 workers opted
for 07=! PIL then appointed 'ong $ong and =hanghai Canking (orporation
('=C( to scout for buyers for the factory! 0ideocon was one of the companies
approached!
Though initially 0ideocon seemed to be interested1 it e*pressed reser)ations about buying an o)er
staffed and under utiliBed plant!To make it an attracti)e buy1 PIL reduced the workforce and
modernised the unit1 spending 7s 8!1 crore in the process! In =eptember 199.1 0ideocon agreed to
buy the factory through its nominee1 $itchen "ppliances India Ltd!
The total )alue of the plant was ascertained to be 7s A. crore and 0ideocon agreed to pay 7s 9
crore in addition to taking up the liability of 7s A1 crore! 0ideocon agreed to take o)er the plant
along with the employees as a going concern along with the liabilities of 07=1 pro)ident fund etc!
The factory was to continue as a manufacturing center securing a fair )alue to its shareholders and
employees!
In -ecember 199.1 a resolution was passed at PIL/s annual general meeting (",M with a >1G )ote
in fa)or of the sale! Most of the fa)orable )otes came from Philips <0 who held a ma#or stake in the
company! The group of 6I shareholders comprising LI(1 ,I( and 2TI initially opposed the offer of
sale stating that the terms of the deal were not clearly stated to them!
They asked for certain amendments to the resolutions1 which were re#ected by PIL! (ommenting on
the 6Is opposing the resolution1 company sources said1 4it is only that the institutions did not ha)e
enough time on their hands to study our proposal in detail1 and hence they ha)e not been able to
make an informed decision!:
-efending the company/s decision not to carry out the amendments as demanded by the financial
institutions1 7amachandran said that this was not logical as the meeting was con)ened to take the
appro)al of the shareholders1 and the financial institutions were among the shareholders of the
company! 6ollowing this1 the 6Is demanded a )ote on the sale resolution at an +,M! "fter
negotiations and clarifications1 they e)entually )oted in fa)or of the resolution!
The workers were surprised and angry at the decision! $iron Mehta said1 4The management/s
decision to sell the factory is a ma#or )olte face considering its efforts at promoting it and then
adding capacity e)ery year!: =!<!7oychoudhary of the Independent +mployees 6ederation in
(alcutta said1 4The sale will not profit the company in any way! "s a manufacturing unit1 the (T0
factory is absolutely stateDofDtheDart with enough capacity!
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SELLING TROUBLES contd...
It is close to $olkata port1 making shipping of components from 6ar +astern countries easier! It
consistently gets I=5 9999 certification and has skilled labor! "lso1 PIL/s ma#or market is in the
eastern region!:
The unions challenged PIL/s plan of selling the (T0 unit at Hsuch a low price of 7s
9 crore/ as against a )aluation of 7s ;9 crore made by -alal (onsultants
independent )aluers! PIL officials said that the sale price was arri)ed at after
considering the liabilities that 0ideocon would ha)e along with the ;69 workers of
the plant!
This included the gratuity and lea)e encashment liabilities of workers who would
be absorbed under the same ser)ice agreements! The management contended
that a 07= offer at the (T0 unit would ha)e cost the company 7s A1 crore!
7efuting this1 senior members of the union said1 4There is no way that a 07= at
the (T0 unit can set Philips by more than 7s 9!A crore!:
They e*plained that PIL officials1 by their own admission1 ha)e said that around A99 of the ;69
workers at the (T0 unit are less than ?9 years of age and a similar number ha)e less than 19 years
work e*perience! The unions also claimed that they wrote to the 6IsI about their ob#ection!
The workers then approached the -hoots of 0ideocon re@uesting them to withdraw from the deal as
they were unwilling to ha)e 0ideocon as their employer! 0ideocon refused to change its decision!
The workers then filed a petition in the $olkata 'igh (ourt challenging PIL/s decision to sell the
factory to 0ideocon!
The unions approached the company with an offer of 7s 19 crore in an attempt to outbid 0ideocon!
They claimed that they could pay the amount from their pro)ident funds1 cooperati)e sa)ings and
personal sa)ings! Cut PIL re#ected this offer claiming that it was legally bound to sell to 0ideocon
and if the offer fell through1 then the union/s offer would be considered along with other interested
parties!
PIL said that it would not let the workers use the Philips brand and that the workers could not sell
the (T0s without it! Moreo)er the workers were taking a great risk by using their sa)ings to buy out
the plant! (ountering this1 the workers said that they did not trust 0ideocon to be a good employer
and that it might not be able to pay their wages!
They followed it up with proofs of 0ideoconIs failure to make payments in time during the course of
its transactions with Philips! In )iew of the re#ection of its offer by the management1 the union
stated in its letter that one of its ob#ection to the sale was that the ob#ects clause in the
memorandum of association of $itchen "ppliances did not contain any reference to production of
(T0s!
This makes it incompetent to enter into the deal! The union also pointed out that the deal which was
signed by 7amachandran should ha)e been signed by at least two responsible officials of the
company! "s regards their financial capability to buy out the firm1 the union firmly maintained that it
had contacts with reputed and capable businessmen who were willing to help them!
In the last week of -ecember 199.1 employees of PIL spoke to se)eral domestic and multinational
(T0 makers for a #oint )enture to run the =alt Lake unit! $iron Mehta said1 43e can always enter
into an agreement with a third party! It can be a partnership firm or a #oint )enture! "ll options are
open! 3e ha)e already started dialogues with a number of domestic and multinational T0
producers!:
It was added that the union had also talked to se)eral former PIL directors and employees who they
felt could run the plant and were willing to lend a helping hand! (larifying the point that the
employees did not intend to takeo)er the plant1 Mehta said1 4If Philips India wants to run the unit
again1 then we will certainly withdraw the proposal! -o not think that we are intending to take o)er
the plant!:
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In March 19991 the $olkata 'igh (ourt passed an order restraining any further deals on the sale of
the factory! Fustice =!$!=inha held that the transfer price was too low and PIL had to )iew it from a
more practical perspecti)e! The unrelenting PIL filed a petition in the -i)ision bench challenging the
trial court/s decision!
The company further said that the matter was beyond the trial court/s #urisdiction and its
interference was unwarranted1 as the price had been a negotiated one! The -i)ision bench howe)er
did not pass any interim order and PIL mo)ed to the =upreme (ourt! PIL and 0ideocon decided to
e*tend their agreement by si* months to accommodate the court orders and the worker/s agitation!
U!GE"ENT !#$
In -ecember A9991 the =upreme (ourt finally passed #udgement on the contro)ersial Philips case! It
was in fa)our of the PIL! The #udgement dismissed the re)iew petition filed by the workers as a last
ditch effort!
The #udge said that though the workers can demand for their rights1 they had no
say in any of the policy decisions of the company1 if their interests were not
ad)ersely affected! 6ollowing the transfer of ownership1 the employment of all
workmen of the factory was taken o)er by $itchen "ppliances with immediate
effect!
"ccordingly1 the ser)ices of the workmen were to be treated as continuous and
not interrupted by the transfer of ownership! The terms and conditions of
employment too were not changed! $itchen "ppliances started functioning from
March A991!
This factory had been designated by 0ideocon as a ma#or centre to meet the re@uirements of the
eastern region market and e*port to +ast "sia countries!
The =upreme (ourt decision seemed to be a typical case of Hall/s well that ends well!/ "shok
<ambissan1 ,eneral (ounsel1 PIL1 said1 4The decision taken by the =upreme (ourt reiterates the
position which Philips has maintained all along that the transaction will be to the benefit of Philips/
shareholders!:
'ow far the =alt Lake workers agreed with this would perhaps remain unanswered!
%UESTIONS &OR !IS'USSION(
1! H(hanges taking place in PIL made workers feel insecure about their #obs!/ -o you agree with this
statementJ ,i)e reasons to support your answer!
A! 'ighlight the reasons behind PIL/s decision to sell the =alt Lake factory! (ritically comment on
PIL/s arguments regarding not accepting the union/s offer to buy the factory!
;! (omment on the reasons behind the =alt Lake workers resisting the factory/s sale! (ould the
company ha)e a)oided thisJ
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