The IFC’s worker shareholder failure
4 min read 30 Apr 2018, 10:01 PM ISTThere are lessons to be learnt from the IFC's failure to successfully support the model with its investment in Assam and West Bengal tea plantations
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Almost exactly nine years ago, on 27 April 2009, the World Bank’s private sector arm—the International Finance Corporation (IFC)—invested in Amalgamated Plantations Pvt. Ltd (APPL), which has 25 tea plantations in Assam and West Bengal. The IFC owns 16% of APPL, while tea workers themselves, some 16,500 of them, own 9% equity. The Tata Group retains a majority 66% stake through Tata Global Beverages and Tata Investment Corp. Ltd.
The IFC predicted that the worker share ownership programme would “empower employees by making them stronger stakeholders". The hope was that the IFC’s social and labour standards would help improve labour conditions, and the investment would support over 155,000 people that live and work on the plantations.
Sadly, that vision has not been realized. In November 2016, the IFC’s independent watchdog released an investigation report in response to complaints from workers. It found the IFC had failed to take steps to remedy low wages, restricted freedom of association, poor housing and sanitation, and dangerous pesticide exposure at APPL. It also found failures in the shareholder programme with respect to consultation and information disclosure. As a result, the majority of workers today do not understand what shares are, or their rights as shareholders. They have been kept ignorant about their role in selling shares, electing directors, and approving their pay packages, all of which are crucial to holding the board accountable.
There are key lessons to be learned here for the worker-shareholder model in general. Getting this right will bring tangible social and financial benefits.
The central flaw with the APPL worker share programme has been the failure to provide information in an accessible manner, so workers can be informed participants in the company, and jointly improve APPL’s profitability. APPL has posted losses three years’ running. From the outset, workers describe that the share programme was presented in an overtly positive way, with limited discussion of the risks of participation. Some workers describe management resorting to coercion to ensure shares were purchased.
The structure of the share programme was not easy for workers to understand. In 2010, workers were offered 800 preference shares for Rs10 each. Initially, workers were guaranteed their capital and an annual dividend of 6%. But in February 2014, the preference shares were converted to ordinary shares, without any of the guarantees to capital or dividends. Today, many workers continue to believe their shares are capital protected and express concern when they learn otherwise. Workers do not know the value of their shares, and are unaware of APPL’s financial performance. Many workers are frustrated with the whole process, but are unclear on how to sell their shares as a means to obtain economic benefit from their investment and exit, having become dissatisfied with the management.
Most workers are also in the dark about their right to attend APPL’s annual general meeting (AGM), either in person or via proxy, and to vote on important aspects of corporate governance, such as the election of directors and the remuneration policy. Every year, APPL handpicks one worker from each plantation to attend the AGM in Kolkata, but these workers have struggled to understand what goes on. Some workers describe farcical electronic voting processes, where they are asked to say yes or no with little information on the purpose of the vote. In the end, a manager presses the voting button.
Finally, workers are unaware of their rights under the Companies Act, 2013 to approach the National Company Law Tribunal if company affairs are conducted in a prejudicial or oppressive manner. Generally, much of the information workers have received is in English. When literacy rates are low and Adivasi workers are most comfortable speaking in the Sadri language, this has shut out a large segment.
All this said, there is evidence to suggest that worker share ownership can create the incentives for greater effort and cooperation from workers, which contributes to company productivity. This is said to stem from greater corporate transparency, and increased access to information and participation in workplace decisions.
The IFC-APPL experience is instructive of the need to provide workers with comprehensive financial literacy training to reap these benefits. While some training was conducted at APPL, it had limited impact. Financial literacy training should include practical guidance on the workings of the company and how workers can exercise shareholder rights, including how to exit from the programme. This requires time, resources and goodwill, especially when literacy rates are low and the shareholders number in the tens of thousands. In formulating the most effective and inclusive training and electronic voting procedures, businesses should consult with workers and their supporters.
Businesses should also conceive of innovative ways to proactively embrace workers’ voices, including through the appointment of an independent director on the board dedicated to workers, and elected by them. Workers are more likely to be motivated if they have a direct say in how the company operates. Additionally, as those closest to the product, workers have invaluable insights that can improve the quality of the board’s decision-making and the company’s bottom line.
Anirudha Nagar is South Asia director at Accountability Counsel.
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