Govindkaka’s Psychological Contract With Contract Workers
Sometimes you search for a valuable thing and give up all hope of finding it. Then comes a surprise – you suddenly discover that it was so close to you. You get a feeling that you were looking at the wrong place all along!
To cut the long story short, I was so pained by the plight of the contract labour that I had given up all hopes of finding a magnanimous employer who would treat them with fairness and dignity every worker deserves. Himanshu Bhatt mentioned that Shree Ramkrishna Exports [SRK] follows the kind of policy toward workers which I have always advocated. He asked Dr Nirav Mandir, who heads HR at SRK to explain it briefly to me.
I was surprised by the stance adopted by Shree Ramkrishna Exports P Ltd toward the workers. When Dr Nirav extended invitation to visit the factory and meet Mr Govind Dholakia [Govindkaka], the Founder Director I was delighted at the opportunity it presented.
I wanted to interview the entrepreneur, they said yes. ‘Can I interview workers,’ they said yes. [See this at the end of the blog post]. There were no restrictions put on me of any kind, there need not be restrictions they said, they were so open about everything in employee relations. Openness is the key to building good relations. They have discovered it early.
So I met three workers. “I will interview you” I told them, “it will be recorded.” They were ready. The three workers had spent long innings with Shree Ramkrishna Exports [SRK], one of them had joined in 1988 on a salary of Rs 1200, another in 2000 on a salary of Rs 7000.
There are about 4500 workers who do various type of work in their factory, they cut and polish diamonds. They use mostly automated machines if not computerised machines. Some machines use laser cutting, those are high precision machines. Where did they learn this skill? It is at SRK. Did SRK give training or did they recruit skilled workers? SRK trained their workers, no recruitment directly as a skilled worker. That, among other things, helps us understand why the worker who joined in 1988 can earn Rs one lakh per month including the performance incentive. Yes, Rs 1 Lakh per month!
It is interesting to note the recruitment policy of SRK. They don’t worry about educational qualification of a worker – the single decisive factor is can he do the job after training – can he learn and apply the skill which SRK arranges to impart. This may not be possible in all industries. But we can’t dismiss this practice by labelling it industry specific. We will make a mistake if we fail to understand this practice ignoring the people philosophy of SRK. People who work here are almost there for lifetime. [See Spot Talent Not Qualification]
Recession in 2008 hit the diamond industry very hard. Several units doing diamond cutting and polishing work retrenched workers. Not SRK. Not a single worker was removed! Govindkaka, the entrepreneur who established this institution, openly declares that the business would always be conducted by practising certain values. I call SRK an ‘institution’ because it is an organisation run by practising good values. While values are declared by many an organisation, those are often observed only in their breach – SRK is different.
I interviewed three workers. They talked about their experience. That’s the ‘test of the pudding’ as they say. If you wish to find out how effectively an organisation is run, ask the first level employee. A sensitive entrepreneur produces sensitive group of employees. Govindkaka’s refusal to retrench workers begot him about a hundred letters from workers who deeply appreciated the decision. They said so by writing letters to him – I saw a bund of about hundred such letters. The tone was ‘we will remember this gesture’, ‘we will reciprocate by an action which will help the company’. I was quick to take out my phone and click photos of those letters.
We have noted so far that SRK recruits workers without considering their educational qualification, it trains them well and gives them highest sense of security. Moreover it pays them well – if a 7th STD pass person can earn Rs one lakh a month in addition to the job security, his life is made!
But everything can’t be perfect – although I would say that things are near perfect at SRK for employees. Out of 4500 workers only a handful are permanent workers and all others are engaged through contract!
So take a look again, Sir ji. ALL workers get the same benefits, same wages, irrespective of whether you are so called permanent worker or contract worker. This means all workers are enrolled in provident fund irrespective of status as permanent or contract worker. Irrespective of salary they draw. Those who are not covered by ESIS are covered by Mediclaim policy – minimum of Rs 1 Lakh [max Rs 5 Lakhs] insurance – this too is uniformly extended to permanent and contract employees. All get the same wage scales. All are beneficiaries of the same incentive scheme! In other words, both permanent and contract workers make the same earnings – and they often touch Rs one lakh per month. And nobody, none of these contract workers was retrenched when the recession hit SRK hard in 2008, providing them highest sense of security! And all of them work in a five star facility which is a fully air conditioned factory!
But then why appoint on contract? I guess the well-known apprehensions of employers must have got them to use contract route for appointment. The diamond industry has often seen swings of fortune and an employer is often weary of labour laws of our country which have fallen out of step with times. I do see this as an anomaly, but isn’t it rendered inconsequential?
We will however be doing a grave injustice to SRK if we fail to appreciate their people policies which go beyond the ‘contract.’ SRK have not hired contract workers because they can be removed anytime. They have not hired for saving labour cost. They have not treated the contract workers differently because they can!
In this process they have raised themselves to the status of a model employer. They have not copied any foreign organisation in adopting such novel practice, in fact they have showed them the way.
And they have proven many popular theories wrong. Read this with my earlier blog post ‘The Contracts of Exploitation’ to understand the difference.
There are great benefits of adopting people philosophy which is rooted in strong human values. SRK is a shining example of this approach – like a well cut and polished diamond!
A 7th standard pass entrepreneur, Govindkaka Dholakia understands that psychological contract is what binds the employer and employee. That is the real contract which works!!
Is anybody listening?
Vivek S Patwardhan
Authenticity helps realise that economic identity is not all of who we are. When humility rides with authenticity, it takes a while to cut through the maze of pretense and business insecurities and reach such genuine truths. Thanks for your journeying through, and the relaying of such beautiful relationships.
Very well written. Very experiential.
The only thought that crossed my mind was’why doesn’t SRK make others permanent too?’Though there can be several answers which many of us can guess, my thought is whether making them permanent would increase manifold the psychological contracting, and consequent bonding.
Wonderful practices on the ground; the challenge is in the mind-set of Business Leaders / HR professionals who need to understand that success can be through very basic things.
thank you for Sharing this .
sir, thanks for this story. Akelof the Nobel Laureate imparted the important psychological contract concept called “reciprocal gift”. His theory was productivity will rise without setting standards if employers have trust in their workers and extend labour standards as “gifts” and workers will surely reciprocate in ways that are beneficial for the enterprise.
The implicit contract theory informs us that workers are conditioned to believe that during hard times (recessions) the employer will not dispense them unlike the neo-classical theory which justifies such dispensing based on cost theory.
the SRK employees apparently do not place much emphasis on the “nomenclature” as they enjoy employment security and other benefits same as the so-nomenclatured permanent workers. Though the business sense is that there is a suspicion in the minds of observers that the SRK may want to insure itself from future risks created by market forces by keeping them on contract basis! one crisis they have gloriously tackled. Will they tackle several other that may occur? that is the thinking that “Mind” asks. But SRK seems to be run more by norms than by intelligence. even for this short run story SRK deserves pats especially in the era of globalization wherein even worthy big players capitalised on the crises (2008 onwards to demontisation) to layoff workers!
Kudos to you sir, for your adventures and embracing institutional perspective in post-HR career
Amazing story, why even try to question the applicability or possibility of imitation. There might be constraints of scale, industry type, but the simple story captured and narrated gives one hope that people dimensions would really not lose shine in the strategy of doing business and art of making money. As always thanks for sharing such pieces from the domain of ER, the domain of manufacturing setups
Debashish Roy of Colgate writes:
I have been reading all your blogs and find them insightful and a source of learning. Thanks for sharing this…..it makes me humble reading this kind of values and practices followed by Indian entrepreneurs without ever seeking glory for themselves. I always wonder why do we not include the blue collar employees in our definition of Talent and oft repeated Human Resources Development practices…..we seem to approach blue collar employees through the prism of IR and contracts that we have with them…..we dont do that for White Collar employees. Govindkaka’s Values and practices actually is a great study in Organisational Development…..it reminds me of Maverick by Riccardo Semmler the Brazilian entrepreneur of the 90s. Thanks for making Govindkaka visible.
Very interesting. Building trust with 4500 workers is astonishing indeed. I would like to study this further.
Very interesting. Whether the employees are on contract or regular basis, it matters little so long as the employer-employee relationship is based on mutual trust. It is the employer who should create that mutual trust by his conduct. Frank and genuine concern of employer towards employees begets genuine love and commitment of employees.
One point which was not touched upon, but very relevant, is whether the employees are unionised.
Whether the same style could be adopted in regular manufacturingorganisations/industry.
Dear VSP, As someone who has not been into Industrial Relations, your blogs on the subject of contract labour situation used to disturb me a lot even as an outsider( or may be because I am an outsider!). This blog is reassuring that a different approach is possible and of what effect at that!!
A very nice way to greet us with a positive blog for the festive season ahead. Happy Deepavali
Thanks for sharing such a wonderful example. I appreciate Govindkaka’s way of doing business by keeping values and morale very high. It is indeed a wise and obvious decision to engage contractual employees in organisation to cope up with future uncertainties.
I think, this can be a very good case study to learn more about why ‘Fixed Term Contracts’ are reintroduced and extended to all industries now by Indian Government. This move is very much welcomed and supported by most of the Employers. At the same time a stiff resistance from Labour Unions is also seen.
From this perspective, few questions stroked into my mind: If SRK workers are unionized, what has been their role contribution in forming People policy at SRK? Can effective implementation of FTC abolish Contract system (Third party Contracts) from core area of organization?
I would like to study this case further..
Thanks again for your great work and contribution !