Downsizing at Pennar 13621544 - Copy (2)

8/14/2019 Downsizing at Pennar 13621544 - Copy (2)

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This case was prepared byDr M. M. Monippally ofthe Indian Institute of Man-agement, Ahmedabad, as abasis for classroom discussion

rather than to illustrate eithereffective or ineffective han-dling of an administrative orbusiness situation.

Please address all corre-spondence to: Dr M.

M. Monippally, Professor,Communications Area, In-dian Institute of Man-agement, Ahmedabad 380015, India. E-mail:[email protected]

ASIAN CASE RESEARCH JOURNAL, VOL. 8, ISSUE 1, 5778 (2004)

2004 by World Scientific Publishing Co.

Downsizing at PennarIndustries Limited*

PART I

In July 2000, Nrupender Rao, Executive Chairman and

Managing Director of Pennar Industries Ltd (Pennar), waslooking for a strategy to halve the companys wage bill to

about Rs 4.5 million a month. The company, battered by un-precedented foreign as well as domestic competition, had no

money to offer a generous severance package to the scores ofemployees who would be required to leave. Harsh methods

of personnel reduction, however, were out of the question.He had made it clear to Rama Rao, General Manager-Person-

nel, that the Pennar values of caring for people should not

be sacrificed at any cost. I can live with a 2 crore [Rs 20

million] loss, he said, but I cant let our workers be thrownon the streets. He considered himself a Theory Y manager

and a peoples man; the employees had come to trust himto protect their interests. He wanted the parting to be pain-

less for everyone including himself.

BIRTH AND GROWTH OF PENNAR

Pennar was born in November 1997 as a result of a merger ofNagarjuna Steels Limited (Nagarjuna Steels) with Pennar

*The author is grateful to Mr Nrupender Rao, Executive Chairman, and Mr T Rama

Rao, General Manager-Personnel, Pennar Industries Limited, Hyderabad, South

India, for readily providing information and facilitating meetings with the

companys employees and union leaders. Financial support for this research came

from the Indian Institute of Management, Ahmedabad.


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58 ACRJ

Steels Limited (PSL), both located near Hyderabad, South

India, and both manufacturing cold rolled steel strips (CRSS)and packaging materials.

PSL had been promoted by Nrupender Rao, an engi-neering graduate of the Indian Institute of Technology,

Kharagpur, and Purdue University, USA. Set up in Isnapur(40 km from Hyderabad), PSL started commercial production

in 198889. It achieved full capacity utilization in the second

year, made a profit, and declared dividends. It had an annual

production capacity of 36,000 tons of CRSS in Drawing, DeepDrawing, and Extra Deep Drawing qualities. By 1995, the ca-

pacity was raised to 60,000 tons a year. There was a steady

increase in production and sales from 1990 up to 1996.Nrupender Rao had ambitious diversification plans.

During the 1990s, he built up the Pennar Group consisting

mainly of PSL (the flagship), Pennar Securities Limited,Pennar Aluminium Company Limited, Pennar Profiles

Limited, Pennar Chemicals Limited, and Pennar Infotech

Limited.

Nagarjuna Steels had been set up in Patancheru (about15 km from Isnapur) in the mid-seventies. By 1995, the plant

had a production capacity of 72,000 tons of CRSS and 30,000

tons of cold rolled formed profiles. Nrupender Rao hadworked there for several years before moving out (with theblessings of the founder-chairman) to set up PSL.

Both companies had high levels of worker welfare ori-entation. At Nagarjuna Steels, the average worker-cost to the

company in 1998 was about Rs 11,000 per month while at

PSL it was Rs 8,000 per month. Before the merger, Nagarjuna

Steels had 4861 workers as against 175 at PSL.The suggestion for the merger came in the mid-nine-

ties from Nagarjuna Steels as part of a larger strategic deal.Nrupender Rao accepted the offer mainly because he and his

top managers reckoned that the merger would make Pennarone of the top ten producers of CRSS in India. They hoped

that with economies of scale they would be able to compete

1There is a slight discrepancy in the number of workers and staff quoted at different

places in this study; this is because a few employees left due to natural attrition.

There was also limited hiring for specific jobs.


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DOWNSIZING AT PENNAR INDUSTRIES LIMITED 59

better with big domestic producers such as Bhushan Steel &

Strips Ltd (Bhushan) as well as importers of cheap steel.Nrupender Rao had planned forward integration of

CRSS into higher-margin, value-added products such asautomobile components, compressor shells, pre-engineered

building systems, space frames, highway safety systems(guard rails) and prefabricated shelters. The margin on

these items was 60 to 80 per cent more than on the plain

vanilla CRSS. The merger was expected to facilitate forward

integration.The staff2 and workers of Nagarjuna Steels had no ap-

prehensions about the merger with Nrupender Raos com-

pany because he had hired the majority of them in the late70s and had been their General Manager for about ten years.Among them, he had a reputation for being kind and caring.

At the time of the merger, the Nagarjuna Steels man-agement and unions had been engaged for over a year in

an inconclusive wage negotiation. Immediately after the

merger, the Pennar management told the unions that a hand-

some wage increase was possible only if they helped bringdown the number of workers. (Upon merger, Pennar had 650

unionized workers, and 630 staff comprising 418 non-union-

ized workers/office staff, 110 Assistant Managers andDeputy Managers, and 102 Managers and above.) Theyagreed, says Rama Rao, because they trusted Nrupender

Rao and because he promised a liberal voluntary retirementscheme for the workers found surplus. (See Appendix 1 for

a brief explanation of the terms layoff, retrenchment,

and voluntary retirement scheme as used in India.) A com-

mittee consisting of union and management representativesidentified 126 surplus positions. Similarly, the Departmental

Heads identified 98 staff positions that could be eliminated.The entire process of reassessing manpower requirement

passed off without opposition from any quarter.In July 1998, a voluntary retirement scheme (VRS) was

announced. It was meant for permanent employees who had

2Staff stands for all non-unionized employees. They include managers, supervi-

sors, clerks, and also other employees who are essentially workers but who are hired

in the staff category and so are not allowed to join any workers union. Many work-

ers get bigger pay cheques than the lowest levels of staff.


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worked for at least 15 years. The terms of the VRS were so

generous (gratuity plus six times the statutory minimum re-trenchment compensation) that the workers who accepted it

got an average of almost Rs 250,000 in compensation besidesabout Rs 60,000 towards gratuity. Many more workers than

the company wanted to let go applied; but the company al-lowed only the redundant workers to leave. The redundant

staff, not entitled to any retrenchment benefits, also were

offered the same VRS compensation package.

Meanwhile, a quality initiative, with the full support ofthe unions, was launched in an effort to make production

more cost effective. Multi-skill, multi-task groups of workers

were made largely responsible for the quality of productionand routine maintenance. This, according to Rama Rao,reduced the need for high levels of supervisory staff.

While redesigning jobs, roles, and work methods in or-der to reduce costs, the management discovered that catering

and housekeeping could be outsourced at great savings. That

led to the second VRS, specifically for the 70 employees in

those two sections. The terms were the same as the first VRSbut the compensation package including gratuity was worth

just about Rs 85,000 per worker because these workers were

younger, had worked for less than seven years, and weredrawing much lower salaries an average of Rs 3,500 permonth. Many of them were initially reluctant to leave; they

wanted to be absorbed in the main workforce. Rama Rao gotthem to leave en masse partly by offering an additional incen-

tive of Rs 10,000 per worker, and partly by threatening to re-

trench those who did not leave on their own. They knew

very well that if there was retrenchment, they would be sentout first with even lower compensation because they had the

shortest periods of service with Pennar.Together, the two personnel reduction schemes cost

Pennar about Rs 55 million; but they brought down the wagebill from Rs 16 million to under Rs 10 million a month.

In 1999, Pennar acquired the facilities of Tube Invest-ments of India Ltd at Tarapur (near Mumbai) and in Chennai

(formerly Madras). This added 14,000-ton capacity for pro-ducing value-added cold rolled formed profiles for the auto-

mobile sector. The acquisition brought into the Pennar fold


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another 55 workmen and 23 staff. But the operations at these

plants were independent of those at Hyderabad and did notaffect Pennars operations or headcount in Hyderabad.

DREAMS TURNED SOUR

While Pennar appeared to be making the right moves, get-

ting ISO 9002 certification, signing tie-ups with technology

leaders, and launching high-margin formed products (sellingprice about Rs 50,000 a ton), the market was slipping from

under its feet. More than two-thirds of its production contin-

ued to be CRSS (selling price about Rs 22,000 a ton), whoseprices kept falling in a market that was by now choked withcheap steel strips from Russia, Ukraine, and Korea. To shore

up sales, Pennar lowered prices and offered its customerseasier credit terms. This led to heavy losses. To make matters

worse, the steel major, Tata Iron & Steel Company, entered

the low-end CRSS market with the installation of a giant in-

tegrated mill. Their prices were 68% lower than Pennarsand they allowed sixty days credit. Bhushan, the other major

rival, priced their products marginally higher (2%) than

Pennar but allowed customers 120 days credit.Coupled with the glut in the steel market, there was a

fall in domestic demand. Recession hit the auto and white

goods industries the major end-users of Pennars prod-ucts. Very few major government, public sector, or private

sector projects were coming up in spite of the plans for mas-

sive infrastructure development announced by the Govern-

ment. Many small steel mills and cold rolling mills closeddown.

Sensing the gloomy outlook for the steel business,banks and lending institutions reduced their exposure to it or

avoided it altogether. This made it difficult for Pennar to getworking capital and offer recession-hit customers the long

credit periods that they were looking for. The PennarGroups own finance company (Pennar Securities Limited)

folded up in 199899. It not only made access to funds diffi-

cult, but also, in Nrupender Raos words, created a negative

environment for Pennar.


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Seeing the writing on the wall, some staff and workers

started looking actively for jobs elsewhere, and left as soonas they found something attractive. But, unlike retrenchment

or voluntary retirement, a resignation would not attract anycompensation. Therefore, many stayed on, doing practically

nothing and hoping for a good compensation package to goout with. Morale was low. A few senior managers urged

Nrupender Rao to take tough measures to end the uncer-

tainty among staff and workers. He agreed that he should

downsize. But there was no money to offer a severance pack-age that matched Pennars image as a caring company and

would be a worthy follow-up to the 199899 VRS.

PART II

I could not sleep peacefully. Not because I antici-pated any violence or threat from my workers but

because images of suffering workers and their fami-lies kept coming back to me. It was painful. Some

workers came home and cried. They would not goaway They knew I would do my best to help

them. They trusted me. But there was little I coulddo for them now.

Nrupender Rao

COST CUTTING

Bewildered by the growing gap between income and ex-

penditure, Pennar adopted drastic cost cutting measures in

2000

01. The top management took a voluntary pay cut of15 per cent. Several nonessential public relations exerciseswere withdrawn. All parties, including the annual one to

which all employees were invited with their families, werecancelled. Those in senior management, who were entitled to

business class travel and five-star accommodation, were now

asked to reduce travel, fly economy class, and check into

three-star hotels while travelling. Company guests were in-creasingly accommodated at guesthouses rather than hotels.


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The union leaders at Patancheru publicly announced

that they would not let the Isnapur workers in. Violence wasexpected; the police were called in. When the Isnapur work-

ers arrived, however, there was a sudden change in thePatancheru unions strategy. They welcomed the Isnapur

workers and exhorted them to stand together to fight for agood compensation in the event of retrenchment.

With the arrival of the Isnapur workers, the

Patancheru plant became grossly overcrowded. Now there

were 325 workers where 150 were sufficient. In order to rein-force the sense of redundancy further, the management

pulled out 175 workers at random and put them in a large,

clean, air-cooled shed and asked them to relax there. Theywere provided newspapers, magazines, and cool drinkingwater. The plant was run with the remaining 150 workers.

The workers in the shed enjoyed themselves on thefirst two days. From the third day onwards, several of them

felt awkward sitting there all day, chatting, sipping tea, and

doing nothing. A few stayed back at home although they

would lose the days wages if they didnt clock in at theplant. By the end of the first week, the number of people sit-

ting and relaxing in the shed dropped significantly. In order

not to let them feel that they had been identified as the re-dundant ones, they were rotated with those working on theshop floor. The major rotation, in groups of fifty, took place

five times. There were also frequent minor rotations. If ma-chinery broke down, for instance, the operators attached to it

were brought to the shed and workers who could repair the

machinery sent to the shop floor in their place. The objective

was to convince them that the plant needed just 150 workers.

STEPS TOWARDS PERSONNEL REDUCTION

In August 2000, the company had applied formally (under

Section 25N of the Industrial Disputes Act, 1947) to the LaborCommissioner for permission to retrench up to 212 redun-

dant workers. A copy of the application was given to the

unions as required by law; another copy was displayed on

the plant notice board. The unions, however, assured the


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workers that they would not be laid off or retrenched. At no

time in the previous 45 years had a Labor Commissioner inthe State of Andhra Pradesh given any company formal per-

mission to retrench workers or close down a factory.Neither did the company expect that such permission

would be forthcoming. So Rama Rao started working on anew VRS for the workers. It would offer the redundant

workers 30 days wages (as against the statutory minimum

retrenchment compensation of 15 days wages) for every

completed year of service besides the standard retirementbenefits such as gratuity. Having already run up losses of

over Rs 100 million and anticipating at least Rs 500 million

losses by the end of the financial year, Pennar would find itextremely difficult to raise the Rs 20 million needed for offer-ing this severance package. Therefore, some senior managers

suggested to Nrupender Rao that the compensation be re-stricted to the statutory minimum. But he was determined

that the workers should get at least a little more than their

legal entitlements. He was worried about the impact of job

loss on the workers and asked the managers to find moneysomehow.

By the end of January 2001, the company grapevine3

brought to the unions and the workers news of the strippeddown VRS, which had not been formally announced yet.They did not want to accept it. They could see for themselves

that Pennars production and sales had shrunk drastically.Unlike in the past, their salaries were now being delayed by

two to three weeks almost every month. They, too, realized

that there were many more workers and staff than needed.

Many workers were ready to leave; but they wanted a repeatof the 1998 VRS. If that was difficult, the minimum accept-

able to them was two months pay for every completed yearof service. This, they felt, was a fair demand. Besides, it

was expected that Parliament would soon make 45 days paythe statutory minimum compensation for workers being

3Several workers had personal and social contacts with some senior managers as

they belonged to the same community or had come from the same village. These

managers told them about the VRS being planned.


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retrenched. They did not want to settle for anything less. The

union leaders continued to assure them of at least twomonths severance pay.

Meanwhile, the regional leaders of a national tradeunion approached the companys unions and offered to

intervene and get them a better deal; but the workers de-clined their help and refused to go along with suggestions to

strike.

By March 2001, the workers had lost their confidence

in the three unions of the company. They believed that onlyNrupender Rao would be able to tell them where they stood.

During March and April 2001, six groups of 715 workmen

met him separately. Each meeting lasted two to three hours.Similarly, five groups of staff marked out as redundant alsomet him. Some of his senior colleagues advised him to avoid

these meetings; but he never refused to meet any employee.During these meetings, several staff and workers broke

down. They did not know how soon they would get a new

job elsewhere or how they would feed their families. The job

market was depressing.Some senior managers also sought reassurance about

their own jobs. Nrupender Rao told them that he could not

promise them anything. He advised them to look for good jobs and leave when they found them. In a few cases, hehelped them get jobs in other firms.

DOWNSIZING IN 200001

a) Staff Resignations

Between January and July 2000, up to 80 staff had beenquietly persuaded to leave with six months pay as total

compensation. This was very small compared to the VRS

compensation offered in 1998. But the staff who left hadrealized that expecting a similar package was unrealistic. In

August 2000, around the time that the company applied tothe Labor Commissioner for permission to retrench 212

workers, it decided to terminate the services of 160 staff


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without giving them any severance pay other than standard

entitlements such as notice pay and gratuity. (Compared tothe workers, the staff would find it easier to get new jobs be-

cause their skills were more varied.) The Heads of Depart-ments (HoDs) were given a target percentage and asked to

decide who among their staff should leave and who shouldstay. With the help of middle managers, each HoD listed the

surplus staff. The employees knew about this move but not

the extent of redundancy. So there was a lot of speculation

even among the managers.The Heads put the staff into three sets: those who had

to be retained because of their key skills and superior perfor-

mance; those who needed to be sent away because of unsat-isfactory performance and/or attitude problems; and, therest. From within the third set, each HoD had to decide who

should be sent away and who retained to meet the staff re-duction target for his department. Eventually, 160 staff were

identified by the HoDs as redundant. These employees had

been with the company or its parent for anything from five

to twenty years. Some of them had even applied for volun-tary retirement in 1998 but had not been allowed to leave

because the company needed their skills.

There was no general announcement about staff reduc-tion. It was each HoDs job to tell his redundant staff thatthey should resign and leave. Some HoDs refused to do it.

They said that they would not be able to tell their staff to goaway without compensation. So Rama Rao sat with each

HoD concerned and met them individually. He told them

that the company had always been generous to its employ-

ees; but it was now going through such bad times that therewas no money to pay them any compensation whatsoever. If

the company retained them, there would be no money to paytheir salaries.

Once they knew that they were redundant, many ofthem started looking for jobs elsewhere, and about 40 left

when they found suitable ones. The rest could not find anyjobs. Some wanted six months to a year with full pay to find

an alternative job. The company refused, but in specialcases gave them up to four months basic pay as notice pay.


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A few, angry at being let down by the company they

had served loyally for several years, resigned quietly andleft. Three or four used highly abusive language to vent

their anger and frustration. There were, however, no casesof violence.

Several staff refused to resign. They insisted on theterms of the 1998 severance package as a condition for leav-

ing. They knew very well that while they did not have the

legal protection which unionized workers enjoyed, they

could not be easily terminated. In practice, the judiciary hadnot been supporting termination of employment under thedischarge simplicitorclause. Judges tended to treat the right to

employment as more fundamental than the validity of anycontract employees may have signed or accepted. Moreover,many companies found it difficult to prove conclusively that

there was a fair and objective application of norms in select-ing the staff to be terminated.

Nevertheless, a discharge simplicitorletter was issued to

10 staff. Eventually, they also came forward to submit their

resignations. The company accepted their resignations andwithdrew their termination letters. One brought political

pressure through a Member of Parliament to retain his job.

But later, realizing the futility of clinging on, he resigned.There was considerable pain all around, admits Rama Raoreflecting on the events, but in the end the resignations

went off quite smoothly.There was no attempt by the staff to approach the

court, either singly or in groups, to challenge the termination

of employment. However, two lower level staff who had re-

signed and left without any protest went to the labor court.They demanded the same compensation as workers. They

claimed that they were really workers with no supervisoryfunction but wrongly categorized by the company as staff

and therefore denied the benefits of VRS given to unionizedworkers. The court rejected the plea when the company pro-

duced evidence that they had some function above that ofworkers. Although it won the case, the company lost a lot of

high value managerial time and resources in defending itsposition.


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b) VRS for Workers

The new VRS for workers, open for ten days, was formally

announced on April 20, 2001. In the preceding weeks, the se-

nior managers had let their workers know informally thatthe VRS was coming and had encouraged them to opt for it.

On the day of the announcement, however, there was utterconfusion. The unions advised the workers against accepting

the VRS; they were still promising to get the compensationdoubled. Not a single worker opted for VRS in the first five

days.Anticipating resistance and suspecting that the union

leaders were giving workers false hopes, Anantha Reddy,Executive Director, bypassed the unions and addressed

an open letter to all the workmen. He also had it posted totheir homes for their families to read. Unlike the VRS docu-

ment, which was in legal English, this letter was plain,direct, and in Telugu, the local language (see Exhibit 2 for an

English translation of the letter). It had a deep impact on theworkers.

At this stage, Rama Rao, along with the other twoGeneral Managers, called a meeting of all the workers.

Almost 90 per cent of them attended. The union leadersstayed away. The General Managers spoke at length of the

general recession, the national economy, the steel industry,the CRSS sector and finally the position of Pennar in the

market. They said that, weighed down by heavy losses, thecompany could no longer support a large workforce. They

conceded that the new compensation was very low com-pared to the 1998 offer, but raising money for even the statu-

tory compensation was extremely difficult now. Banks had

stopped giving loans to CRSS companies. As everyone knewvery well, orders were down to just a quarter of what the

plant could process. Unless at least 200 workers left, the

management would be forced to close down the company. Inthat case, no one would get any compensation at all. Along

with Anantha Reddys letter, this plain talk also weakened

the workers resolve to hold on, says Rama Rao.

Seven workers with a history of poor performance andindiscipline were asked to leave by the VRS route, but they


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Exhibit 2: Letter in Telugu* from Executive Director of Pennar toworkers

Pennar Industries Limited / I.T.A, Patancheru,Medak Dist.502 319

C. H. Anantha ReddyExecutive Director April 20, 2001

Dear Pennar Operatives,

Pennar Industries has been in a crisis for a year as there is notenough demand for its products and because it is unable to competewith big companies like Tata Iron and Steel Company. Last year, the

production level of CRSS went down from 8,000 tons a month to2,000 tons a month. Owing to this, the production at the Patancheruunit had to be stopped. In the financial year 2000-01, there was aloss of Rs 35 crore [350 million]. The situation is such that we cannotprovide work for almost 200 operatives and many staff members,and we are not able to retain staff other than the essential ones.

In this scenario we are constrained to lay-off and retrenchabout 200 operatives. While retrenchment is for the leastexperienced employees, those with more experience will get anopportunity to leave under a Voluntary Retirement Scheme.

The Voluntary Retirement Scheme, released today (20 April,

2001), will be in force till 30 April, 2001. This does not mean that thenotices issued by management in February with regard to lay-offand retrenchment are cancelled. Those notices will continue to bein force to the extent necessary to control the number of operatives.

Operatives taking the Voluntary Retirement Scheme will getthe following payments:

1. Earned Leave Salary.2. Gratuity3. 30 days salary for each completed year of service as

compensation (a total sum of basic, fixed D.A. [DearnessAllowance], and variable D.A. will be considered as salary). A

minimum of Rs 40,000 will be paid as compensation.4. LTA [Leave Travel Allowance] due.

The full details of the scheme have been released through the VRSnotice. Applications for VRS will be accepted based only on theterms and conditions mentioned in the Scheme.

*Translated from Telugu to English by Shri R A N Murthy of Indian Institute of

Management, Ahmedabad


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72 ACRJ

flatly refused. They were formally charged with indisciplineand informed that there were enough grounds to dismiss

them. Such a dismissal would not only jeopardize statutorycompensation but also make it difficult for them to get jobs

elsewhere. Some who were reluctant to opt for the VRSwere told firmly that they would be retrenched if they did

not sign up.Nrupender Rao also met with different unions and

groups of workers. The unions still remained publicly op-posed to the VRS. But the workers ignored them and signed

up. Says Rama Rao, commenting on the union leaders atti-tude: The union leaders also were convinced of the

managements case, but they could not, for political reasons,

support it. When the redundant workers accepted the VRS

offer, the leaders heaved a sigh of relief in private. Theworkers who had been charged with indiscipline also

applied for VRS. The company withdrew charges against

them and allowed them to take voluntary retirement with

compensation.There were 240 applications, 25 more than the com-

pany was prepared to accept. Some of the applications were

from key workers who had job offers from other companies.They wanted to leave under the VRS so they could claimcompensation, but their applications were firmly turned

down. If they wanted to leave, they were told, they wouldhave to resign and forgo the compensation. Some good

workers resigned and left to take up other job offers. Others

decided to stay back.

Meanwhile, the company arranged for financial andcareer counseling as well as re-skilling and entrepreneurship

Our objective in writing this letter to you is to make youaware of the companys position. We ask you to see for yourselvesall the pros and cons of the scheme and take appropriate decisions

yourselves.

Yours sincerely,

[Signed ]

(C.H. Anantha Reddy)


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training programmes at the National Institute of Small

Industries Extension Training (NISIET), Hyderabad. Manystaff and workers took advantage of these programmes.

As expected, the Labor Commissioner turned downPennars request for retrenching workers. But at a meeting of

Pennars management and union leaders, he said to the of-fice bearers of the unions: I have refused your company per-

mission to retrench workers. But dont think this will do you

any good. I strongly advise you to accept the VRS and leave.

If you insist on compensation, which the company cannotpay, the management may just close shop and go, as some

others have done in your neighborhood. Pennars assets are

pledged to banks. They will get their money back by sellingPennars assets. If the company closes down, you will haveneither jobs nor compensation.

On May 2, 2001, the company let 212 workers go underthe VRS.

A RETROSPECT BY UNION LEADERS

In July 2003, the case writer interviewed three Union leaders:

Mr Bala Reddy (General Secretary during 1999

2000), MrRam Koteswara Rao (Working President during 19992000),and Mr Ram Mohan Rao, President, Telugu Desam Trade

Union Congress. Bala Reddy and Ram Koteswara Rao arestill with Pennar. Ram Mohan Rao was never an employee of

Pennar; but the workers had elected him President of their

union. He had negotiated with the Pennar management in

19992001, but later resigned because some members of theunion had been highly critical of his failure to get the work-

ers two months pay as VRS compensation.Here is a summary of the views expressed by these

union leaders while looking back at the downsizing.

Bala Reddy and Ram Koteswara Rao: There was no alterna-

tive to downsizing because the production had come downfrom 8,000 tons per month to 2,000 tons. The competition, es-

pecially from Bhushan and TISCO (Tata Iron & Steel Com-pany), was very strong. They were bigger and had newer


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technology. Our company had loans of about Rs 180 crore [Rs

1800 million] to be paid back. The management had alwaysbeen generous and trustworthy. However, we got some fi-

nancial experts to check the companys statement of accountsand they confirmed that the statements were true.

The management held several discussions with us re-garding the problems faced by the company. Although ini-

tially reluctant, we eventually accepted the downsizing

because we were convinced that the alternative would be

closure of the whole company and loss of all the jobs. In asense, no one was forced to leave; but the ones who stood to

lose most heavily if the company closed down, accepted the

low compensation offered and left. Several companies in ourneighborhood had closed down giving the workers no com-pensation whatever; so there was a real threat of Pennar also

closing down and everyone losing out.Some of those who left the company fearing that it

would close down are now returning to take up contract jobs

at lower wages. They regret having left the company, now

that Pennar is doing much better (production about 3,500tons a month). They, along with some of the others who

havent been able to get any jobs, are angry with the union

and the management. They think that they were misledinto quitting. But they were not misled; if they had not left,the company would have collapsed. We are lucky we didnt

opt out.

Ram Mohan Rao: The VRS was inevitable. The management

floated it to ensure Pennars survival, not to make biggerprofits. The workers were aware of the companys financial

position and production levels. They also knew how wellthey had been looked after when the company was making a

profit. The management was transparent. Most workers wholeft were not happy leaving; they left because they were

afraid they would get nothing if they waited indefinitely.There are two things uppermost in a workers mind

when he is confronted with job loss: Will he be able to feedhis family? Will he get another job? Mr Nrupender Rao man-

aged the downsizing better than we could have done. Hemanaged it with sympathy and pain. Better planning was


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unlikely to have saved the company. After the merger, the

CRSS market fell. There was little anyone could do.The managements refusal to let some workers go

when they asked for voluntary retirement was not right; itwas against natural justice. Once the company floated the

VRS, there should not have been any restrictions on whoshould go and who should stay.

The unions did not prepare the workers suitably for

the downsizing. They continued to give the workers false

hopes because the leaders wanted to be re-elected. They alsowanted to appear confrontational; they were afraid that if

they told the workers the truth, they might not be reelected.


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78 ACRJ

service can apply for early retirement when the scheme is

open. Usually, the schemes are voluntary. The company isnot obliged to accept every application for early retirement.

The company may not force eligible employees to opt forearly retirement either.

The main features of the various VRS offered by mem-bers of the Confederation of Indian Industry are as follows:

1. Option for employees to take compensation as pension ora lump sum.

2. Gratuity benefits in terms of the Gratuity Scheme andrules and regulations of the Gratuity Fund.

3. Disbursal of the amount standing to the credit of the

employee in his P.F. [Provident Fund] Account accordingto the rules of the P.F. scheme.

4. Encashment of leave according to the rules of the

company5. Medical Benefits according to the current Medical Insur-

ance Scheme.6. Bonus, if applicable, on pro-rata basis.

(Adapted from Confederation of Indian Industry (2002) Vol-untary Retirement Schemes in Member Companies. New Delhi.)


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Documents

Downsizing at Pennar 13621544 - Copy (2)