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THE MICHELIN GROUP INDIA: HANDLING ACCUSATIONS OF MISCONDUCT It was…
THE MICHELIN GROUP INDIA: HANDLING ACCUSATIONS OF MISCONDUCT
It was a Friday afternoon in July 2012 and Henri Leroy, a sustainability manager at the Michelin Group(Michelin), was wrapping up his work in preparation for his summer break. He was about to leave his Paris, France office when his colleague, Nathalie Martins, stepped into his office holding an envelope. She looked worried. “You might want to take a look at this before you go,” she said, as he handed him the envelope. The envelope contained an complaint against Michelin, submitted by the French non-governmental organization (NGO) Catholic Committee against Hunger and for Development (CCFD)-Terre Solidaire, the French association Sherpa, the French trade union Confédération Générale du Travail (CGT), and two Indian NGOsthe Tamil Nadu Land Rights Federation and Sangam.1The complaint accused Michelin of irresponsible conduct related to the construction of its plant in India, with allegations of socio-economic and environmental adverse impacts. Leroy was surprised. As a senior member of the Michelin sustainability team, Leroy had held several discussions with the CCFD. In his last conversation in June 2012, the month before he received the complaint, he thought he had established a healthy relationship with the NGO. While he had been informed that a short two- to three-page document would be released to “make some noise,” Leroy had been under the impression that the target of that noise was going to be the Tamil Nadu government, not Michelin. “This is impossible, “Leroy thought, as here called his last meeting with the CCFD, which he believed had brought about a successful compromise. After all, he had been explicit about Michelin’s considerable efforts in India to establish good relationships with the local community. Had there been a misunderstanding? Why was the CCFD engaging in a formal complaint against the company? Was there something going on in India that he was not aware of? How was he supposed to handle these accusations of misconduct? THE MICHELIN GROUP The Michelin company was established in 1889 by the two Michelin brothers, André and Édouard. The brothers were encouraged by their mother to turn around the family’s declining rubber business founded by their grandfather and his cousin in 1832. In the 1890s, the brothers started developing tires, shortly after pneumatic tire patent for bicycles and other vehicles was filed. In 1898, the company introduced its marketing and branding mascot “the Michelin Man,” which went on to become a world-famous logo.
Michelin’s parent company was headquartered in the French city of Clermont-Ferrand. The Compagnie Générale des Établissements Michelin (CGEM) owned both the Manufacture Française des Pneumatiques Michelin(MFPM), which managed the Group’s manufacturing, sales, and research operations in France and the Compagnie Financière Michelin (CFM), which coordinated operations outside of France.3ByDecember2011, Michelin’s total workforce included 115,000employees, with most workers employed in Europe (69,580) and North America (22,545), and the remaining 22,875 located throughout in South America, Asia, Africa, and the Middle East.4Michelin’s Vision: “A Better Way Forward “Four core elements guided Michelin’s vision “A Better Way Forward.” To begin with, the company had been historically committed to technological leadership, high-quality products, and innovation.5Michelinhad also valued growth as a key driver of the company’s activities. With three new plants in the emerging markets of Brazil, China, and India, Michelin was committed to increasing its 2012 production capacity up to 50percentby2020. In addition to this, competitiveness drove the company’s efforts for efficient processes, productivity, and workplace safety. Lastly, Michelin’s vision included a commitment to the development of its employees, through training and efforts to integrate new employees and sharing the company’s long-standing expertise, values, and capabilities.Michelin’smissionwastosecureitssustainablegrowthinordertohelpimprovemobilityandcreatevalue for customers, employees, and shareholders; its core business focused on developing tires for vehicles that ranged from cars and farm machinery to space shuttles. Overall, Michelin identified its core strengths as its brand, strong technological leadership, global nature, comprehensive range of tire solutions, and solid balance sheet.6The international expansion of Michelin started very early. In 1906, Michelin established its first plant outside France, and by 1934 it had operations in four European countries.7At the dawn of the 21st century, Michelin was to set up and strengthen its position in rapidly emerging markets such as Brazil, China, and India. Michelin’s strategic mission was also designed to tackle contemporary societal and environmental challenges. Michelin devoted part of its activities and innovations to develop safer, cleaner, more fuel-efficient, and connected road mobility.8For example, in March 2012 Michelin launched the Michelin Energy E-V Tyre, an energy-efficient tire that helped minimize the RenaultZOE’senergyconsumption.9In addition, the Michelin Performance and Responsibility Charter provided guidelines for employees on developing activities based on Michelin’s core values of” respect for customers, respect for people, respect for shareholders, respect for the environment and respect for facts.”10MICHELIN IN INDIAThecomplaintdatedJuly9, 2012concernedMichelin’s greenfield investment in the Thervoy Kandigai industrial park in the Thiruvallur district, within the state of Tamil Nadu, India. Michelin had been renting a parcel of land in that location since November 16, 2009 through an agreement with the Tamil Nadu government and the state agency, State Industries Promotion Corporation of Tamil Nadu (SIPCOT).SIPCOT was in charge of acquiring land and developing the industrial estate where several different companies, including Michelin, built their plants.11Michelin was granted a parcel of land in the industrial park to build a truck and earthmover tire plant that would encompass 117 hectares (290 acres), taking up about 25 per cent of the total industrial zone and employing approximately 1,500 workers.12For Michelin, this investment was a key part of its strategy to reach out to the Indian market and to recover its strategic position
ThisstrategicpositionhadformerlybeenimpactedbythelossofMichelin’sleadershipposition13to the Japanese multinational auto and truck parts manufacturer Bridgestone Corporation14(see Exhibit 1). In addition, it had also suffered, like many other companies in the tire industry, from the effects of the 2008financial crisis. During the calamity, Michelin had experienced almost 10 per cent decrease in sales, tightened operations, and noted employee concerns regarding the redundancy plans or retraining and placement programs, which would affect nearly 5,500 employees in Spain, France, Italy, and the United States.15By 2009, the company was committed to recovering its strategic position. With car sales declining in Europe, North America, and Japan, but rising in China (nearly 50 per cent), India (20 per cent), and Brazil (9 per cent),Michelin decided to regain its leadership by better catering to emerging markets.16While Michelin was ready to strengthen its production capacity in China and Brazil, more importantly, the company had decided to open its first facility in India by building the new plant to cater to the abundant local market. After a failed joint-ventureproject,thecompanymadea600 million17greenfield investment into the world-class plant, Michelin India Tamil Nadu Tyres Private Ltd, to produce its first tire in early 2013.18However, the greenfield investment was made in a particularly challenging context. Since 2007, the Tamil Nadu government’s development of theThervoy industrial park had been mired in local political turmoil. Indeed, in early 2009, the Indian NGO Sangam lodged several complaints against the Tamil Naduauthorities to oppose the cutting of the vegetation and the change in land use, which resulted in decisionsin favour of the NGO at the Madras High Court and the Supreme Court of India.19The region had longheld several”common lands” known asmeikal porambokeby the Thervoycommunitiesbefore the government’s decision to develop the industrialpark.20The local population usedthese lands as common areas. Historically, the resources in these areas were available to the localcommunities that had control over them.21The development project therefore triggered a conflict with the local communities and a number ofrepresentatives rose up against the industrialization of the land. Opposition included a Dalit community anda village of Indigenous people of Irula ethnicity. Up to 6,000 people were affected by the development ofthe industrial park, with some people being displaced.22TwoyearsafterMichelinbeganthenewtireplant’sconstruction,thecompanyfaceditsfirstofficialcomplaint.THE COMPLAINTThe five complainants (see Exhibit 2) argued that the Thervoy industrial park development had adverse socio-economic and environmental impacts on the local population. They further alleged that the Thervoy industrialzonehad beendevelopedatthecostof450hectaresofforest,affectingthelocalpopulations’mainagriculturalactivities and pastures (see Exhibits 3 and 4). They had submitted their complaint to the French NationalContact Point (NCP) for redress under the grievance mechanism of the Organisation for Economic Co-operation and Development(OECD) Guidelines for Multinational Enterprises(Guidelines) (see Exhibit 5).23TheGuidelines, established in 1976, were a set of recommendations addressed by governments tomultinational enterprises that operated in or from countries adhering to theGuidelines, which included allOECD countries and all other countries that signed theOECD Declaration and Decisions on InternationalInvestment and Multinational Enterprises, another international instrument. Through theGuidelines,companies were asked to conduct business responsibly. The most recent update to theGuidelinesin 2011included two chapters on how to conduct business responsibly in general, and another nine on specific topics: disclosure, which related to transparency on firm activities; human rights; employment andindustrial relations; environment; combating bribery; bribe solicitation and extortion; consumer interests;science and technology; and competition and taxation.TheGuidelinesalso included a non-judicial grievance mechanism (added in revisions made in 2000) thatpermitted any party with an interest in the matter to submit a complaint alleging that a multinationalenterprise failed to respect the recommendations.24These complaints, called “specific instances,” weresubmitted to the NCP, an agencyin each membergovernment, which decidedwhetherto offer”goodoffices”services between the submitters andthe targeted company;theseoffices were meantto supportadialogue between complainants and a company; for example, through mediation or conciliation. Companieswere not obliged to enter into mediation, as the instrument was voluntary.Under this voluntary grievance mechanism attached to theGuidelines, the submitters asked for a non-judicialmediation between them and the company over the issues in the complaint. If the French NCP for theGuidelinesaccepted the complaint, a discussion was coordinated between the parties. Because of the voluntarynature of the complaint mechanism, the company could decide whether to engage in dialogue or not.As one of the first companies to build in Thervoy, Michelin was accused of neglecting to consult and informthe local population, failing to conduct social and environmental impact studies before plant construction,and not respecting human rights. The complainants requested that Michelin: (1) stop construction work andwait for the fulfillment of the decisions taken by the Madras High Court; (2) engage with the localcommunities which were allegedly affected by the Michelin investment in order to define the terms andconditions of a social, human rights, and environmental impact assessment; and (3) conduct the impactassessments to identifythe risks and the negative impacts ofthe company’s investmenton the localcommunities and ecosystems.25ON THE GROUND IN TAMIL NADUShortly after receiving the complaint, Leroy contacted Philippe Dupont, the managing director of the plantin Tamil Nadu. Dupont, who had worked at the firm for 17 years, had been president and managing directorof Michelin India since 2009 and was in charge of providing Michelin’s best world-class facilities.ThiswasLeroy’sfirst conversationwithDupont.LeroyhopedthatDupontwouldhelpdeterminethenatureof the issues in the complaint. From Dupont, Leroy learned more about the situation on the ground, as well astheapproachDupontwasusingto managetheprojectandsomebackgroundaboutMichelin’splantinIndia.Dupont’s mission was to build the plantfromscratch:He had taken his responsibility to heart and he wascommitted to makingthe plantreputable. Dupont’s Michelin teamincluded JeanLasayette, a colleaguewith experience abroad, and Ram Anthony, the regional manager who was of Indian descent and had studiedin the United States and worked all around the world. Anthony had been very helpful in giving Dupont hisfirst”entry keys” and localcontacts.Very early in the process of setting up the plant, Dupont and Anthony decided that developing goodrelationships with the local communitieswas critical. Thisdecision was influenced byAnthony’s friendshipwith two well-known Indian activists. For Dupont, the decision was consistent with Michelin values, whichemphasized a commitment to creating “constructive contacts” with the different actors of communities.
Dupont had learned the Tamil language and was ready to put his language skills to good use. In July2009,Dupontmetalocalactivistwho wasintroducedtohimby Anthony’sfriends,who helped himcreate connections with the local population. Together, Dupont and the activist surveyed the surroundingvillages to understand how to improve road security. Dupont knew the plan was not perfect, but at leastthe company was doing something.Soon after identifying that the land rentednorthofChennaibythegovernmentwassuitableforthecompany’sstrategic needs, Dupont and his colleagues started a typical socio-economic study. This effort comprised, forexample, identifying whether people were living on the land and analyzing the hydrography of the ground inordertounderstandtheplant’spotentialsocio-economic impacts. After the findings indicated that it was safeto use the land, Dupont and his colleagues decided to move forward with the project.Michelin had agreed to carry out an impact study on human rights two years prior to the complaint, but ithad not been carried out, which meant that an ex-ante study, one completed before the plant was built, wasno longer possible.27In addition, while Michelin had informal contact with local authorities andneighbouring communities, no formal mechanism was in place for identifying and remediating potentialadverse impacts on human rights.28In fact, no formal consultation mechanisms were in place, which limitedthe opportunities for local communities to express their views.29In addition, a thorough socio-environmental impact study had been overlooked. The firm had environmentalmechanisms in place, but these mechanisms lacked the precision that would have permitted the properidentification of potential environmental impacts.30Dupont and his team had also deployed several corporate social responsibility (CSR) projects in trainingand education, health care, and infrastructure since the beginning of construction (see Exhibit 6). TheMichelin Training Centre opened in 2011 to offer educational programs to employees and local villagers.In addition, Michelin implemented learning centres for children in ten villages; deployed a health careprogram so that local villagers could benefit from eye care, pediatric, gynecologic, and general healthservices, as well as preventive school health and hygiene; implemented a road safety project, whichincluded the installation of close to thirty reflective boards; and restored irrigation channels and lakes, waterquality monitoring, and biogas initiatives. Through these actions, Dupont and his team strove to developgood relationships with the local community. They found some satisfaction when their CSR actions werereported by a journalist based in Chennai.31Nonetheless, Dupont faced several challenges. In 2009, during the negotiation process to obtain the land,Sangam had appealed to the High Court of Madras because the group opposed cutting down vegetation forthe industrial site.32The case had not been filed against the Michelin, but the ruling was of great concern.The Madras High Court eventually authorized the use of the land for an industrial park but requested thatSIPCOT and the Tamil authorities compensate the Thervoy residents.Yet, Dupont still faced uncertainty. The Sangam appealedthecourt’sdecisionin2009,andthenappealedto the Green Tribunal in 2011 and to the Supreme Court in April 2012.33And since 2009, the CCFD hadsupported some of these legal actions, notably because part of its work was to defend the rights of theDalit community, which depended on the forest that was to be destroyed.34This position was part of animportant concern by all NGOs involved in the complaint that the industrial site would jeopardize localagriculture. Further, demonstrations, arrests, and hunger strikes took place on the site as localcommunities opposed the industrial park.
In2011, Dupontreported to the localnews that”Things are improvingnow. .. . Wehave metthe villagerswho resented SIPCOT and communication between the government and the villagers is improving.”35In addition, some issues arose during the construction phase. For example, the sewage from a station thatemployed 4,000 construction workers spilled onto neighbouring fields. To manage the crisis locally,Dupont chose to speak to the neighbouring village chief.Leroy understood that Dupont and his team were trying to be as thorough as possible in managingrelationships with the communities. Dupont confessed that he was not aware of any local news articlespicking up the issues highlighted in the complaint submitted to the French National Contact Point, nor wasMichelin involved in any legal suits targeting the government.Still, Leroy had to handle the complaint, which was an indicator that the initiatives deployed failed to satisfyall stakeholders. He was further reminded that Michelin had quickly established the plant, which likely hadprevented a thorough consideration of all community needs before construction began.36Leroy was also learning that the situation on the ground was complex. His discussion with Dupont hadhighlightedsomestrongculturalandinstitutionaldifferences.Astheywerediscussingworkers’safety,Dupontexplained:”IarrivedwithmyEuropeanideas…forpeopletobeinasafesituation,they need towear safety shoes. . . . We eventually managed to get everyone to wear safety shoes, but it took time andtraining. We were working with workers who were used to working bare feet on bamboo constructions. Butwhen you have real ladders and real scaffoldings, there is a transition period for workers for them to get usedtothesafetyshoes.Sotheshoesarenotnecessarilysaferifworkersdonotknowhowtoworkinthem.”37HANDLING STAKEHOLDERS’ COMPLAINTSFrom his Paris office, Leroy also had to deal with different actors both within and outside of the company.AtMichelin’s headquarters in Clermont-Ferrand, many Michelin employees were also members of theCCFD. Given Michelin’s Catholic heritage, many Michelin employees believed thatboth organizationsheld similar values. The complaint generated considerable unease and employees wanted an explanation.How could the NGO of which they were members be attacking their company?Michelin employees on the ground in India were also affected. One night, one of the French engineersworkingin Thervoyconfessed to Leroy:”You know, Icame backfromworktonightand mykids told mepeople at school were talking about Michelin. They asked me why we were stealing the impoverishedfarmers’land. Ihad to explain to them that, although we could always do better for people, we were notdoingallthesethings theysaid atschool.Ido notwantmykids to thinkI’mworkingforaterriblecompany!I’m really eager for this to be over.”38Leroy thought to himself,”Nobodywants to hearthat.”39He therefore turned to his colleagues atheadquarters to try to make sense of the whole situation. He was not very familiar with theGuidelines, sohe contacted his colleaguesatMichelin’s legaloffice. Theirview wasclear:the complaintwasa defamationcase, and the company should consider filling a counter-suit.However, his colleagues at the communication department were more cautious. They thought entering intoa counter-suit wasrisky for Michelin’s image, whereas participating in a voluntary mechanism such astheGuidelinesmight benefit the company. While there was no easy answer, Leroy, who had worked hard on nurturing a good relationship with the CCFD for the past year, was convinced he would learn a lot frominteracting through the voluntary mechanism.While he was working on developing a solution, investors were growing anxious and questioned Leroyabout the situation in Thervoy. They had become aware of the tensions and the information had reachednational news (see Exhibit 7). They wanted to know what was going on in India. For now, Leroy reassuredinvestors:”Don’tworry, we areveryconfident. Nothingis goingon overthere. There isno case. Let’s waituntilthe NCP’s decision ismade. You willseethatwe willbe cleansedfromtheseallegations thatmakeno sense.” Leroy needed to appear confident, but a lotof work still needed to be done.The complaint reached actors at the national level of the French government, too. Leroy quickly learned that theMinistryofForeignAffairsandInternationalDevelopmentwaspuzzledbecauseofMichelin’slongstandinggood reputation in France and abroad. The ministry considered launching an independent study through its localstaff in Delhi, who were already planning to meet local mayors and general secretaries to clarify the situation.Leroy was pressured by time constraints to design an appropriate response. What was the right approach to adopt?
a. Describe the allegations faced by Michelin.
b. Why is Michelin facing these issues?
c. How might this complaint affect the firm?
d. Identify the key internal and external, market and non-market stakeholders, and describe how these stakeholders should be prioritized.
e. If you were a member of Leroy’s team, how would you help him in his decision? Identify at least four action points to share in your next meeting with him.
