Nestlé’s modern economic colonialism: YOU HAVE BEEN NESTLED!*
* *
When you find yourself nestled in your comfort zone, waking up is the farthest thing from your mind. When you find yourself nestled in your usual ways and cozy in your old habits, change is the last thing that you would want to consider.
From the 15^th to 20^th century, colonialism was practiced by stronger countries to conquer the territory, wealth and power of the weaker ones. In principle, this practice no longer exists in contemporary times. However, abusive multinationals have replaced the system with economic exploitation to expand their sphere of control and dominance.But here is something worth considering.
Observe the practices of food processing giant Nestlé. Although it is considered one of the most successful and globally dispersed corporations in the world, having overseas operations in Africa, Americas, Europe, Oceania and Asia, its “management style” toward its own products, employees and traders is closely scrutinized by critics, labor organizations and media outfits worldwide.
John Richardson of Global Investment Watch opines, “Nestlé has a darker side with respect to its conduct as a corporate citizen. From a human rights perspective, we consider the company to be a high risk investment.”
*Other side of the coin*
The Respectful image of the Vevey, Switzerland-based maker of milk and other food products is overshadowed by criticisms that it earned through the years, and the controversies that seeped through its facades and false projectionsand criticisms it engaged and created through the years.
Back in September 2003, Nestlé workers in Korea held a strike when its management refused to include in the new Collective Bargaining Agreement (CBA) negotiation the issues of staffing levels and subcontracting. Instead of opening the free discussion of these important matters, the company locked-out its workers in the manufacturing facility, warehouse and distribution centers, and issued threatening statements of disinvestments in Korea.
Two years later, the company faced a lawsuit filed by the International Labor Rights Fund (ILRF) and several civil rights groups for its alleged involvement in the forced labor of children who cultivate and harvest cocoa beans in Africa (Ivory Coast).
In the same year, a complaint was filed by the Nestlé Japan Labor Union, the National Confederation of Trade Unions and the Hyogo Prefectural Federation of Trade Unions for its violation of the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises.
Nestlé lived up to its record of unfair and illegal labor practices, when it openly defied a Philippine Supreme Court’s decision, dated August 2006, to resume the Retirement Plan negotiations of its 600 workers, through a CBA.
*Back to the wall strategy*
Nestlé is not only involved in unresolved labor concerns, it is also entangled in unscrupulous commercial trade dealings, where among its small and medium company partners-distributors end up being NESTLED.
In its Philippine operations, the company used coercion to terminate the contract of FDI Forefront II Trading Corp. (FDI 2), a Filipino-owned small-scale enterprise engaged in the distribution of its products in 2007.
FDI 2 was lured to do business with Nestlé in 2003, with incentives and initial assistance in the form of money, equipment, services, and good early net earnings. In 2006, after the unsuspecting distributor poured in substantial financial, manpower, and equipment investments into the business.
Under the guise of imposing additional banking and financial requirements, Nestlé surreptitiously passed on to FDI 2 all the financial risks entailed by the business.
When the distributors of Nestlé products, such as FDI 2, could no longer meet the 30-day payment deadline for their trade receivables, mainly due to the onerous transfer of financial risks to them, Nestlé “went for the kill” by transferring the financing of the inventory from an in-house arrangement into a clever bank financing scheme.
Through this scheme, Nestlé forced its distributors to deliver the profits to them in advance, and left its distributors with the burden of collecting from the customers, that even Nestle, historically could not squeeze. They called this tripartite scheme the Nestlé-Bank-Distributor revolving promissory notes line (RPNL). In sum, Nestlé covertly uploaded all the profits to its coffers, and downloaded all the risks to its “partners.”
“The transfer of inventories financing by Nestlé paved the way for reducing its receivables by 46.38 percent, or from P6.9 billion ($134.5 million per Philippine Central Bank’s annual average exchange rate) in 2006, to P3.7 billion ($80.2 million) in 2007. Its financing costs also dropped 60.8 percent or P734 million ($14.3 million) to P288 million ($6.2 million) for the same period,” explains Atty. Lorna Kapunan, legal counsel of FDI 2. Before its distributors could complain, Nestle has “tucked away the honey,” and left its partners out in the cold.
Nestlé did not only insulate itself from the losses due to non-payment by wholesalers, it also injected the “RPNL poison” into the hearts of its ailing distributors; thus, sinking them deeper into financial comatose.
Worse, Nestlé did not disclose to the banks that some of its distributors were experiencing financial difficulties.
*Unfair trade and distribution practice *
Distributors cry foul over Nestlé’s demand for unattainable sales volumes (quotas), under threats to terminate distribution contracts, if their targets were not met. Consequently, distributors had to swallow the bitter pill of giving huge discounts to their customers in order to meet their quota; and consequently finding themselves irreversibly plummeting into deeper debt.
Aggravating the situation for distributors like FDI 2 is the fact that the big clients of Nestlé like the huge groceries, supermarket chains, and wholesalers could dictate the prices of goods’ or the trade discounts. The distributors were sucked into “price wars” that they had little chance of winning.
Atty. Kapunan stresses: “The undeclared price war started in 2004 by Nestlé Food Service distributors selling grocery packs, and sustained by the company’s key accounts that are entitled to VAT (value added tax)-free purchases, and who are selling some of their excess inventories in the distribution areas.”
In this country, the trade in fast-moving consumer goods is, by nature, a high-volume and a low-margin business. Even if a certain distributor hits its sales volume quota, profit-sharing between the producer of the goods and the distributor is always uneven, and always in favor of the producer, and in this case, Nestlé.
“Because the current Nestlé distribution system leaves little room for profitability, an average distributor earns the 1% to 1.5% EBIT (earnings before interests and taxes) by managing its tax liabilities, particularly the local government or municipal taxes,” Atty. Kapunan underscores.
*Adherence to the Principle of Transparency*
Nestlé pays lip service to the principle of transparency, even as it ordered the pull-out of its Bear Brand (milk) products in April 2009, without full public disclosure of the reasons for the pull-out. Nestlé callously justified the order by saying it was a “mere simulation exercise” to measure the response time of its distributors.
The Swiss corporation’s colonialist savvy has taken advantage of yet another loophole to conceal its indifference to the health and welfare of the Filipino Consumers.
The Filipino public has a right to know, not only because the lives of its children hang in the balance, but also because Nestlé has built and fortified its empire on the foundational trust of Filipino consumers. And we, as a people, should collectively discern and re-evaluate the basis for that trust, and whether the repositories of our trust, continue to adhere to the principles and values that we, as a people, stand for.
*Conflict of interest *
FDI 2 was named and acclaimed by Nestlé as its “Distributor of the Year” for consecutive periods of 2005 and 2006. The Area Sales Manager of FDI was also given the distinction of “Area Sales Manager of the Year” for the same period.
After the recognition, Nestlé further increased FDI’s 2007 sales target to P776 million ($16.8 million) from P561 million ($10.9 million) in 2006, a 38.3 percent increase in peso. Ironically, Nestle’s own sales growth from 2006 to 2007 was a mere 8.3%. This clearly demonstrates that Nestlé’s imposition for FDI 2 to increase its sales volume by 38.3% is “patently unreasonable and unconscionable.”
According to Atty. Kapunan, in increasing FDI 2’s sales target, “Nestlé did not take into consideration FDI 2’s limited working capital that was already strained by an ever-growing past due accounts receivables, mainly due to Nestle’s RPNL scheme.”
The ever-increasing impositions by Nestlé led FDI 2, under its then President, to incur continuing substantial losses, especially after the transfer of other slow and poorly paying accounts to FDI 2, even though they are not covered by the original distributorship contract. This was successfully implemented by Nestlé’s Area Sales Manager who was assigned to the account of FDI 2.
More debts were subsequently incurred by FDI 2, prompting its owners to investigate the matter. They found out that the Nestlé Area Sales Manager and the FDI 2 President were having an illicit affair, the latter being a married man. FDI 2 immediately called Nestlé’s attention to this patent conflict-of-interest situation, where its area sales manager conveniently exercises power to demand higher sales targets from the FDI 2 President, being his lover at the same time.
The owners brought the issue to Nestlé’s management, but no consideration was given to them. Nestlé did not even conduct an investigation and described the relationship as a “purely personal affair between two consenting adults.”
*Corporate Social Irresponsibility*
Nestlé did not only violate its own Code of Business Conduct, it also revealed the real “corporate values” that it adheres to, when they went so low as to blackmail a distributor that is at the brink of corporate extinction. Nestlé demanded the immediate termination of the distribution agreement with FDI, under pain of losing the distributorship agreement of its sister company, Service Edge Distributors Inc. (SEDI).
Nestlé employed coercion to terminate the contract of FDI Forefront II Trading Corp. (FDI 2), a Filipino-owned small-scale enterprise engaged in the distribution of its products in 2007.
In December 2007, Nestlé secured the termination of its distribution agreement with FDI 2, and this resulted not only in the demise of FDI 2’s business, but also adversely affected the individual lives of its eighty (80) employees as well.
To pay off its increasing debt, and the unpaid wages, 13th month pay and separation benefits due to its employees, FDI 2 filed a claim for reimbursement from Nestlé P11,070,773.20 ($239,886), for inventory and advances for promotional activities, based on the provisions of its distributorship contract. FDI 2 also claimed a total of P930,920.84 ($20,171) by way of refund of the withheld EVAT (expanded value added tax) for 2007.
In March 2008, after the lapse of three (3) months, and without any explanation for the delay, Nestlé’s legal counsel demanded FDI 2 to sign a Release and Quitclaim, as a pre-condition to the payment of inventory and advances for promotional materials.
All Nestlé’s had to do was to evaluate the validity and soundness of the bases for FDI 2’s claim for reimbursement. Instead, it chose to prey on the dire circumstances that FDI 2 found itself in. Barely two years from being exalted by Nestlé as its “Distributor of the Year,” FDI 2 found its back against the wall, without an inch of respite or relief from its multinational “partner,” and being pressed against that wall by the same hand that lured it into that deadend.
The owners did not agree to sign the Release and Quitclaim, for there may be additional items/claims that the auditor may later uncover in its then on-going validation audit. However, Nestlé’s legal counsel promised that the company would recognize and pay whatever bona fide claims that the forensic audit may later establish. With this verbal assurance, one of FDI 2’s owners—unaccompanied by their lawyer—signed the Quitclaim document.
Nestlé’s legal counsel notarized the signed document in spite of having participated in the preparation of the document, a legal no-no.
FDI 2 has filed a complaint in the Supreme Court, seeking the disbarment of the Nestlé legal counsel for serious misconduct, violation of the lawyer’s oath and violation of the code of professional responsibility.
After the forensic audit, FDI 2 claimed an additional P235 million ($4.9 million) in losses, plus P252.6 million ($5.3 million) in cost of money, legal and other professional expenses incurred from September 2008 to March 31, 2009. Reneging from its previous commitment, Nestlé now refuses to recognize these claims by saying that the FDI 2 account is a closed case. They now seek to evade liability using the Quitclaim document that they obtained using false promises, unethical practice of law, and underhanded machinations.
FDI 2 was “nestled” into believing that Nestlé would live up to its promise and commitment to acknowledge and pay all the bona fide claims established by the forensic audit.
Such valid claims, based on Nestlé’s “word of honor” and its other contractual obligations of Nestlé, remain unpaid up to this day.
“My client [FDI 2] has delivered to Nestlé, even at the expense of its own financial demise. But instead of rewards, it [Nestlé] delivered to our client a veritable death blow,” laments Atty. Kapunan.
In this day and age, there should be no room for unbridled profit-seeking by strong and powerful multinational companies at the expense of workers and small businesses.
Let us serve notice to our aspiring colonial masters that we are declaring economic independence. Let Nestlé know that we believe in their creed of “trust, integrity and honesty” more than they do. And that we intend to hold them responsible by the very same measure. Lest we all be comfortably “Nestléd” into sheltered scenarios being painted by Nestlé, let us all consider all the cheating, coercion, corporate bullying, business hostage-taking, window-dressing and cover-ups of Nestlé.
And let us finally consider being un-settled, un-rested and un-nestléd from Nestlé.
