Twenty20 at Crossroads ?
Hurun
Report has published the list of billionaires from India in 2015. Sixteen of
the 296 Indians in that list are from Kerala. Among them three people are
newcomers: Sabu M. Jacob (Kitex Garments); Thomas Mani (Paragon); and Thomas
George Muthoot (Muthoot Fincorp).
Sabu Jacob runs
what he describes as a recession-immune business, that of kids apparel. His
company, Kitex Garments, a Kerala-based exporter of kids wear, is the world’s
second-largest manufacturer of apparel and sells to some of the world’s biggest
retailers including Amazon, Walmart, Gerber, Mothercare, Carters, The
Children’s Place and Target, among others.
The 54-year-old who
runs his factory from Kizhakkambalam, a non-descript village near Kochi in
Kerala has one centralised manufacturing
facility, and export a million units of kids wear a day to over 28,000 stores
in the US. Their nearest competitor is a
Chinese company that has over 15 manufacturing facilities. Today, almost 99
percent of the company’s products are sold to the US market, with just 1
percent going to European markets. When the
2001 recession hit, the last area where parents will look to cut down on costs
is their child’s clothes.
Kitex Garments is part of the larger Anna-Kitex Group, run by
Sabu and his older brother Bobby. While Sabu runs the export-oriented infant
wear business, Bobby’s diversified business includes manufacturing aluminium
ingots, kitchen utensils, spices, and school bags. The group has an annual
turnover of ₹1,500 crore, of which Kitex garments rakes in ₹1,050 crore, while
Bobby’s business has a turnover of ₹500 crore.
From aluminium scrap to school bags
Much of the group’s success began in the late 1970s, when MC
Jacob, a public works contractor who had dabbled in numerous businesses
including soap and trading in areca nuts, forayed into manufacturing aluminium
and related products. The failure in
soaps business forced Jacob to look at aluminium products and utensils, which
were finding takers in Kerala. Back then, companies based in Tamil Nadu and
Karnataka made aluminium utensils with scrap from the INDAL plant in Kerala and
sold the finished goods there. “This aluminium had a high level of lead, which
is poisonous,” adds Sabu. “But they were selling it rather cheap, and my father
couldn’t compete with that. But he knew he couldn’t cheat customers.”
In 1968, after mortgaging some properties, Jacob started
producing aluminium, using scrap from homes and the INDAL factory. Over the
next four years, Jacob, who started with 10 employees, built up a huge stock of
aluminium, so that when Tamil Nadu and Karnataka were hit hard by power
outages, leading to an aluminium shortage in Kerala, he had enough inventory.
“Until then, a kilogram of aluminium was being sold at ₹6 per kg, which shot to
₹24,” says Sabu.
Over the next few years, the group began focussing on aluminium
utensils and found a steady market in Kerala. The company was named after
Annam, MC Jacob’s mother, while its cookware range Chaksons was named after his
father, Chacko.
By
the late 1970s the group forayed into textiles and spices, with Kizhakkambalam
Textiles (shortened to Kitex later) and Saras curry powders. Kitex focussed on
making bedsheets and lungis. “The idea was to give permanent employment to
people,” Sabu says. “My father had grown up seeing unemployment, and he wanted
to ensure he provided jobs.”Organic farms along the
Ambunadu-Kadampra canal in Kizhakkambalam village is proof of quality of effluents discharged
out of its factory.
Since
time immemorial CSR as a term lacked a precise definition, structure,
criteria‘s and transparency. All Central Public Sector Enterprises (CPSE) were
following the CSR guidelines issued by the Director of the Ministry of Heavy
Industries and Public Enterprises since 2010. However the Companies Act, 2013
brought an end to the long wait by inserting Sec. 135 under the Companies Act
2013.
Every company having net worth of rupees five hundred crore or
more, or turnover of rupees one thousand crore or more or a net profit of
rupees five crore or more during any financial year shall constitute a
Corporate Social Responsibility Committee of the Board, have a CSR policy
published on its website, report its CSR spend in annual report. The CSR budget
is clarified for every financial year, at least two percent. of the average net
profits of the company made during the three immediately preceding financial
years, in pursuance of its Corporate Social Responsibility Policy
The Government of India
notified amendments to the Companies (Corporate Social Responsibility) Rules, 2014 and Section 135 of the Companies Act, 2013 on January 22nd, 2021, bringing clarifications on
utilization of funds in activities mentioned in Schedule VII and penalty on
defaulting officers.
Kitex Garments had a turnover of Rs 783.57
crore in 2019-20 before Covid-19 hit the market. Its net profit had touched a
high of Rs 108.67 crore. 
Yet,
Sabu has been having some sleepless nights of late because, as Kerala gears up for the local
civic polls in October, a bellwether for the Assembly elections in 2021, a
political party firmly backed by the 54-year-old and his brother will contest
in five panchayats, with 74 candidates. Their opponents cut across established
political parties who are likely to put up a united fight.
Politics isn’t unfamiliar territory for the brothers. In 2015, 17 of the 19
candidates backed by them won against a unified opposition in the panchayat
elections. That was perhaps the first time in India’s electoral history that a
company openly backed candidates. Since then, the Anna-Kitex Group has won
acclaim for helping build houses, roads, canals, promoting organic farming, and
a supermarket where products are sold at 80 percent discount for the 36,000
residents of their village.
“We have shown that when you don’t look to
make profits and abuse power, you can make a change,” Sabu says. “As we have
expanded, we have formed a political party, Twenty20, that will contest the elections.”
In 2013, the group had formed a charity arm, Twenty20 Kizhakkambalam, as an NGO
registered under the Travancore Cochin Literary Scientific and Charitable
Societies Registration Act, 1955. The Jacobs had used their personal funds, and
money from their companies’ Corporate Social Responsibility funds to help in
the functioning of the NGO.
In 2015, Twenty20 Kizhakkambalam backed
independent candidates in the panchayat elections. “We have been brought up
with a firm belief that when the business grows, the community and locality
should grow with us,” Sabu says. “That’s the reason we decided to foray into
politics. We have now shown what a corporate panchayat can do.”
Improving Local
The group’s foray into local politics, Sabu
claims, happened due to their father’s desire to improve the lives of villagers
in Kizhakkambalam, where the family is based.
“We had started with medical treatment and
set up a camp where some 5,000 people had come,” says Sabu. “Around that time
we realised that in a village of over 36,000 people, some 220 did not have
electricity, 280 didn’t have toilets, and nearly 1,000 didn’t have a proper
roof, and were using tarpaulin sheets.”
The Jacobs then called an all-party meeting
to discuss the situation. “Initially everybody agreed to work together,” Sabu
says. “But as time went by, many began skipping these meetings.” Fed up with
the lack of concern from the authorities, the group launched Twenty20
Kizhakkambalam in 2013 to make Kizhakkambalam a model village by 2020. The NGO
began by ensuring water supply by digging borewells, which was later blocked by
the panchayat, which was ruled by a coalition led by the Congress. “Around
2,000 people marched to their office to remove the stay,” Sabu says.
An initiative to provide household items at
discounted rates during Onam (2020) also ran into trouble after people thronged
the 40,000 sq ft facility, forcing authorities to shut it down. “It was
becoming difficult, and we realised that unless the village authorities didn’t
change, no good was likely to happen,” Sabu says. But the group had found huge
admiration from the villagers and decided to support independent candidates for
the local election.
Of the 19 candidates they supported, 17 won
gram panchayat seats and two of the three block panchayat seats. The candidates
were selected through an elaborate screening process that begins with four
households selecting a high power committee member. From about five high power
committee members, one area secretary is selected, after which 20 area
secretaries select a ward committee comprising a president, two vice presidents
(male and female), two secretaries (male and female), and two patrons. The
committee then makes a recommendation for a candidate and the names are
proposed to a board comprising 12 members including Sabu, which puts forth the
suggestion and gives adequate time for the public to approve.
The victory was repeated in 2020 when it won 18 of the 19 seats in the
panchayat and also swept to power in neighbouring panchayats — Aikkaranadu,
Kunnathunad and Mazhuvannoor.
Since the election (2015), Twenty20 Kizhakkambalam has
built some 600 houses, with the companies’ CSR funds. “The panchayat
gives only ₹2 lakh per house. It costs ₹14 lakh to make these houses,” says
Sabu. Besides, the NGO has also set up a supermarket where vegetables,
groceries, food items, and other essentials are sold at a 50 percent discount.
During festive seasons when the prices of vegetables, fruits, and other
groceries skyrocket, the supermarket also gives a discount ranging from 50 to
70 percent. Currently, about 30 percent of the funding for the NGO comes from
the CSR funds of the group, while the rest is from the personal savings of the
brothers.
“The political party and the NGO are
separate,” says Sabu. “A lot of the work we do at the panchayat level is from
the CSR funds and our money. Across the world, governments alone cannot do all
the work. Private-public partnership is the way to go, and that’s what we are
doing.”
Then, there are other initiatives such as
organic farming, road construction, ground water conservation and building
check dams on canals in a region where rain is aplenty and floods have become
the norm. “We began by clearing up the canals and building dams. Now, during
the monsoon season when there might be floods, we never face any trouble,” says
Sabu.
With the Kitex Group announcing its Rs 1,000 crore project in Kakatiya Mega
Textile Park, it has all become certain that Telangana has gained from Kerala's
loss. The announcement that Kitex was moving its Rs 3,500-crore worth project
from Kerala followed a series of inspections and raids on its garment
manufacturing/processing units in the state by various government departments.
In the last six months, there have been 11 raids by various departments on the
company.
National Human Rights Commission (NHRC) has served notice on all
the concerned departments, such as industry, health and labour. The NHRC acted
upon a complaint registered by Benny Behannan, senior Congress leader and
Member of Parliament from Chalakkudy constituency, where the company is
located. The report of an inspection, following an order from the (NHRC), conducted (July 08, 2021) by the labour
department has alleged that Kitex violated various provisions of seven
labour related laws including the Minimum Wages Act and the Maternity Benefits
Act.
Minimum wages were not paid, proper sanitation and accommodation
facilities were not provided to workers, and they were forced to live in tiny
and untidy rooms, said the report submitted by the District Labour Officer to
the Kerala government. The women workers were not paid maternity benefits and
the workers were asked to work overtime without any additional wages, it added.
Thousands of
employees of the Kitex group of companies joined a mass demonstration dubbed
the ‘flames of protest’ on Monday 05 July 2021 against ‘outside interference in
the affairs of the company, which will ultimately end up jeopardising their
livelihood.’The employees’ protest comes in the wake of allegations that the
Kitex group was violating labour laws. The Labour Department had issued a
notice to the company while a group of MLAs, led by P.T. Thomas, had levelled
charges of environmental pollution.
After rising by nearly 20% on Friday 10 July 2021 , the stock price
spiked another 20% on Monday when Sabu said his company would not make any more
investments in Kerala, and that he was in discussions with Tamil Nadu, Andhra
Pradesh and Karnataka for his future expansions. The company’s stock price has
increased from Rs 108.9 a piece to Rs 168.65 on Monday, an astounding rise of
55 per cent in a matter of just five trading sessions. As the stock price
rose, Kitex chairman and managing director Sabu Jacob became richer by Rs 222
crore in the last seven days as he owns 55% in the BSE-listed company.
The total
value of Kitex touched Rs 1,121.52 crore, an increase of Rs 408.32 crore from
last Tuesday. The spike in stock price of Kitex, which is the world’s
third-largest infant garment maker, is surprising given that the company’s net
profit has been coming down. For the quarter ended March 2021, its profit
after tax plunged by 53.06% to Rs 8.27 crore from Rs 17.62 crore during the
same quarter the previous year. Total sales had also declined by 23.65% to Rs
111.70 crore in the quarter ended March 2021.
Days after he was flown from Kochi to Hyderabad in a
chartered plane, Kitex Group Chairman Sabu Jacob said that Telangana has
offered his company several incentives without ‘inspections’, which was the
bone of contention between the textile behemoth and the Pinarayi Vijayan-led
Communist government in Kerala. “We are still discussing this method
(single-window clearance) which was implemented by other states at least 25 years
ago," he said. Jacob continued his tirade against the Left government on
Monday (July 12), calling the Kerala Industries department a ‘frog in the
well’, unaware of the investor-friendly atmosphere in other states.
The Pollution Control Board and the Department of
Agriculture conducted surprise inspections at Kitex company on Friday 27 Aug
2021. This was the 13th recent
government inspection taking place at the company. The announcement of
the Industries Minister that there would be no surprise inspections in
industrial establishments proved to be futile. "11 inspections were
conducted within a period of one month,neither did the officials find any
irregularities nor did they issue any notice," Sabu said.
Questions
1.
Define
a.
Corporate
Social Responsibility
b.
Stakeholders
c.
Corporate
Citizenship
d.
Sustainability
2.
List
the laws and state the major provisions that dealing with corporate social
responsibility in India
3.
List
the three major theoretical perspectives to CSR
4.
Examine
the different stakeholder relationships and comment on the conflict of
interests, if any. How would you solved the situation
5.
State
the drivers of CSR and examine which of these are more applicable to KITEX
6.
Enumerate
the benefits of CSR and examine which of them are true in the case of KITEX
7.
List
the dimensions of CSR and examine how best KITEX has made use of these
8.
Examine
Carrol’s definition of CSR in the light of happenings at KITEX
9.
Which
theoretical perspective to CSR do you find KITEX is following? Substantiate
with reasons from given information.
10. The stakeholdertheory is extended beyond reasoning by KITEX. Substantiate your views
11. KITEX trying to
emerge as Corporate Citizen in its strategic approach to CSR. Substantiate your
views.
12. Do you think
sustainability is at the core of KITEX strategy? Substantiate your answer.
13. What regulatoryframework for CSR is available in India? How far KITEX has fit in it according
to you ? Substantiate your view.
14. How do you
attribute the Political Theories of CSR to that practiced by KITEX? Substantiate your answer in view of
happening at KITEX
15. How do you
relate CSR and Corporate Governance? Substantiate your views in the light of
events at KITEX
References
1. https://www.khaleejtimes.com/international/india/yusuffali-tops-hurun-list-of-richest-keralite
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