The rolling hills of Munnar: KDHP's participatory management model is unique in a state riddled with labour unrest

Muniswamy, Sasikala, Ramalaxmi and Mahalaxmi are four shareholders of Kanan Devan Hills Plantations Company (KDHP Co), a conglomeration of 17 tea estates scattered across 23,784 hectares of plantation land on the green rolling hills of Munnar in Kerala. Like any shareholder at any corporate entity, these four small investors are part-owners of the private limited company they've invested in, and stand to gain their respective share of profits generated, via dividends.

Unlike most common shareholders, Muniswamy, Sasikala, Ramalaxmi and Mahalaxmi have a representation on the management and in the operations of KDHP Co, and can actually contribute to decision-making.

Unlike most common shareholders, Muniswamy and company are also employees of KDHP- they're just four of the 11,400-odd field workers who pluck away daily in the tea plantations on Munnar's High Range, earning on an average a little over Rs 2,000 per month in wages (excluding a host of benefits like free housing, free medical aid for family, bonus, gratuity and free primary schooling).

Green fingers: Both worker and land productivity have gone up

Unlike most employees of India Inc., a little over 97 per cent of the 12,000-strong workforce at KDHP-including field workers, staff and management-have taken the gamble of their lives; they are contributing 74 per cent of the Rs 13.5 crore subscribed equity capital of KDHP Company Private Ltd, a tea-producing business that showed a loss of Rs 9.6 crore last year, when it was a division of Tata Tea.

Registered on March 15 and commencing operations on April 1, following Tata Tea's decision to exit the losing plantations business (Tata Tea now holds just 19 per cent of the equity), each of these former Tata employees has on an average invested Rs 3,280 for 328 shares of KDHP Co. Other than the field workers, the employees include the 600-strong staff, like Management Assistants S. Selvaraj and S. Gurudas, who take home a monthly salary of Rs 7,000. An upbeat Selvaraj has mopped up 30,000 shares, risking Rs 3 lakh in the collective endeavour to turn around the plantations' business. The commitments get larger on the upper rungs of the ladder at KDHP House, the registered office of the company. For instance, 35-year-old Chaco P. Thomas, Head, Non-Tea Operations, who's worked for 13 years at the Tata Tea plantations, has pitched in with Rs 11 lakh. And then there's MD T.V. Alexander, probably the biggest reason for the workers agreeing to this extraordinary game plan: He's contributing Rs 20 lakh to the capital base of KDHP Co.

"KDHP's model is the best option for the workers. They get to keep their jobs at a time when elsewhere tea gardens are closing down" T. V. Alexander Managing Director/ KDHP Company

Welcome to arguably the world's most unique model of participatory management, inimitable not just because of its elements, but also because of its sheer audacity, the incredible intensity of employee-commitment it elicits, and the high risk it comes with- which is only lower than the levels of confidence visible on the faces on Munnar's High Range. "Our hard work will make a difference. We will get a return on the money we've invested in the first year itself," says Sasikala in Tamil, a field worker at the Chokanad factory on one of the estates (most of the workers are fourth-generation Tamilians, since Munnar in the pre-Independence era was accessible only from Tamil Nadu; this prompted the British to make it mandatory for every planter to learn the Tamil language). Adds Selvaraj: "It's the same team (all ex-Tata Tea), only the sense of ownership is more now. Our expectation is that in five years, Rs 10 will become Rs 100." (The shares have a three-year lock-in, after which they can be sold to other employees.)

That may well happen, but it won't be a breeze. To be sure, the choice of the participatory management model wasn't made because of the romantic or utopian connotations that come along with it. Rather, in many ways it's the final roll of the dice for KDHP, which operates in an industry that's buffeted by oversupply, the lack of pricing power, as well as poor land and labour productivity. "It's the best, and only, option for the workers: They get to keep their jobs, and continue to get the same benefits, at a time when tea gardens are closing down one after the other," points out Alexander, a veteran of over three decades at KDHP, even before the Tatas bought into the plantations from its English owners in the mid-seventies.

The Tatas, for their part, had their strategic reasons for exiting the plantations, which have run into losses for four straight years, 2000 onwards. "The model of an integrated tea company isn't right for us at a time when consumers are redefining ingredient requirement almost on an overnight basis," reasons Percy Siganporia, MD, Tata Tea. "If we have to grow our branded business, we needed to find a solution to the plantations' business."

Staff members, (from L to R) Nair, Gurudas, Selvaraj and Abraham: The team is the same, only the sense of ownership is more

The most obvious solution would have been an outright sale, but since the estates are sprawled over concessional land, its value would be lower than that of freehold land (the original deal for the estates dates back to 1877 when the Poonjar chief gave a grant of 1.4 lakh acres to an Englishman for agricultural purposes for a princely down payment of Rs 5,000 and an annual fee of Rs 3,000). But as Alexander points out, for the Tatas, two concerns larger than the valuation were the welfare of the workers and the fragile eco-system. "We had our doubts whether a new owner would have those priorities."

A second way out was a cooperative model, but a three-month trial on one of the estates didn't work, with productivity and quality both falling. Perhaps a combination of desperation and ingenuity resulted in the workers themselves propounding the participatory model. In February 2004, a small group was constituted at KDHP to take this idea forward. When Siganporia visited Munnar, the proposal of an employee buyout was thrown at him. The MD, in turn, took the idea up to the board, to Director N.A. Soonawala and Vice Chairman R.K. Krishna Kumar, who duly gave the go-ahead. KDHP Co was on its way.

Even the unions are upbeat, which is nothing short of miraculous in a state riddled with labour unrest and in an industry notorious for striking workers. "I am happy for three reasons: Continuous employment is guaranteed, the industry survives, and employees can now look forward to returns," grins R. Kuppuswamy, President since 1956 of the INTUC-affiliated South Indian Plantation Workers' Union.

Field workers (R to L) Muniswamy, Sasikala, Ramalaxmi and Mahalaxmi: They have bought over 300 shares each and expect returns in the first year itself

Workers, staff, management, unions-and even the local politicians-exuding such optimism in the face of such Herculean adversity could make you wonder whether it's one big delusion (fuelled perhaps by the languid use of a particular weed that sprouts liberally on Munnar turf). After all, here is a business that's been reeling under losses for four years now-a business that even the house of Tatas was unsuccessful at bringing to heel. What's more, not much has changed since the Tatas drove out of the High Range-the workers are the same, as is the management, as is the dismal state of the tea plantations industry. Just how is KDHP going to sail into the black, and dole out dividends to employees even as it begins to wipe out its huge debt? The plantations have been valued at Rs 68 crore, with icici Bank providing a primary loan of Rs 25 crore and Tata Tea pitching in with a subordinated loan of Rs 35 crore. (icici Bank has provided a first-year mortarium, after which KDHP begins paying back at 8.5 per cent; the Tata Tea loan payback begins between the 11th and 20th year; if cash flows are strong, KDHP plans to begin paying Tata Tea back from the fifth year, and if all goes according to business plan, KDHP could be debt-free any year between the 12th and the 15th).

At the heart of the can-do mindset at KDHP Co is the genuine belief of the worker that he is also an owner of the fields he toils in. The commitment, too, is highly contagious. Yet, the turnaround story isn't being scripted just by rushes of emotion and adrenalin; there's some clear-cut common sense strategy involved too. If, for instance, worker productivity is up 58 per cent and land productivity up 28 per cent in the first two months of the current financial year, it has as much to do with the new-found sense of ownership as it has to do with a retirement scheme that rightsized the organisation by 3,300-odd (a near-impossible feat to pull off in unions'-dominated Kerala). What's also helping boost the output is a new wage formula that's linked to productivity and prices.

CSR HERE IS AS OLD AS THE HILLS

Workers at Athulya: Community welfare is a way of life here Recently the Aranya natural dyes welfare unit, tucked away in Srishti Complex, amidst the dense flora and foliage of KDHP's Nullantanni tea estate, received a rather significant order: Four shirt lengths of 2.5 metres each needed to be dyed using pomegranate and indigo as raw material (available in plenty in the virgin forest of Munnar). For the young, talented bunch of handicapped workers at Aranya, every order is greeted with enthusiasm, but this one was clearly special. It had come from one Ratan Tata. An order straight from the Chairman of Tata Sons is doubtless the best indicator of the attention the group showers on its workers. And that straight-from-the-heart interest is reflected in adequate measure in Munnar at the various vocational training centres within Srishti Complex. Like the Development Activities & Rehabilitation Education centre, where 65 students make 70,000 bottles of High Range Strawberry Preserve annually, which Tata Tea markets nationwide. Then there's Athulya, where 25 youngsters make stationery that's supplied to the KDHP and Tata Tea. And there's also a unit of the Tata Tea Wives' Welfare Association, comprising employee wives, who make laundry bags for the Taj hotels and spray-coats for the plantation workers. The Tatas spend Rs 3 crore annually on welfare in Munnar, with the referral hospital (there are also 30 estate hospitals) accounting for Rs 2.4 crore of expenses and the 497-student strong High Range School running a Rs 90 lakh annual tab. With Tata Tea now just a 19 per cent shareholder in KDHP Co, the onus is to make each of these units self-sustainable-Tata Tea will continue funding them till then-after which they could well begin making meaningful contributions to KDHP Co. The 160-bed general hospital, for instance, which provides free healthcare and medication to employees, will attempt to generate income by either starting a nursing school or foraying into medical tourism or offering additional surgical procedures. But in this quest for new revenue streams, the foremost priority won't be lost: To cater to the community's needs. Self-sustainability comes later. In Munnar, faddish buzzwords like CSR are indeed as old as the hills.

With Tata Tea out of the picture, KDHP gets a huge leg-up on the overheads front. "KDHP now doesn't have to bear my cost, the cost of an expensive board or the cost of our international operations," says Siganporia. That's how overheads have come down by Rs 12-14 per kg of tea produced (KDHP produces 21 million kg of tea annually). And that's one big reason why Alexander is in a position to project a net profit of Rs 9.4 crore for the current year. In the April-May period, KDHP booked a profit of Rs 2.95 crore.

However, if KDHP Co has to sustain profitability in the years to come, it has to veer away from the vagaries of the tea business (currently 50 per cent of revenues accrue from low-margin auctions). Alexander talks about a foray into the loose tea segment, but clearly KDHP's future rests squarely on a legislation expected to be passed in the ongoing session of the Kerala Assembly, which will allow plantations in Kerala to use 5 per cent of their land for non-plantation activities. The KDHP top brass expects this legislation to sail through soon enough, after which it can move ahead with its various diversifications, which will be more profitable than tea in three-to-five years (in the current year, the non-tea activities are expected to contribute Rs 1.2 crore to KDHP Co's profits). There's plantation tourism, with KDHP's 24 heritage bungalows (vacated by managers who opted for retirement) translating into 70 rooms replete with an old-world feel (teak and rose wood furniture for instance). Floriculture is a longer-gestation business from which Alexander expects decent returns, as are horticulture crops, winter vegetables and medicinal and aromatic plants, all for which Munnar's climate is ideal.

Meantime, every attempt is being made to squeeze revenues out of each operation of KDHP Co, be it the retail outlet in Munnar or the Tea Museum, which boasts a scaled-down version of the tea manufacturing process-a hot draw with tourists. Also, the pace of revenue at the welfare units, still funded by Tata Tea, is being stepped up, the medium-term objective being to make them self-sustainable, and eventually contributors to the KDHP Co P&L (see CSR Here Is As Old As The Hills). Alexander isn't known to boast, and when he says "kdhp's operations shouldn't be confined to Munnar," you want to hear more. "We should look at acquisitions of plantations-which is our core strength- even abroad," he suggests. He goes on to talk about the possibility of taking KDHP public in three-to-four years, thereby creating a broader market for its shares. Such ambitions are still but a gleam in Alexander's eye, but it's doubtless a sparkle that the 12,000 KDHP Co employees on the High Range have little trouble aligning with.