Philippines Graphic responds to Nestle

"Nestle response has no legal basis - NPI distributors"

by Joel Pablo Salud

Published in Business Mirror and Philippines Graphic on 21 April 2011

(Original article available online here)

"Nestlé Philippines, Inc.’s (NPI’s) response to accusations of predatory pricing appears to be based on unfounded generalizations than what is actually founded on law.

Atty. Lorna Kapunan, counsel for Nestlé’s distributors, said what Nestlé has is a “vertical price agreement,” which is a competition restriction between firms that governs products made by NPI. This agreement “is still considered predatory pricing.”

Nestlé’s distributors have accused the biggest food conglomerate of predatory pricing, and ending distributorship agreements without so much as fundamental basis based on Philippine laws.

“The practice of vertical restraints are closely monitored by international courts, with many of the agreements being ruled as unlawful per se. NPI currently engages in the practice of setting a minimum price by which its Filipino distributors are required to sell their products. This does not take into consideration the operational costs shouldered by Filipino Small and Medium Enterprises to distribute the products. Decent profit margins are therefore very difficult to attain, considering capital outlay and the lack of marketing and promotional support from NPI.”

Counsel added that non-compliance with the low prices results in NPI threatening to end the distributorship agreement. Thus, small- and medium-scale entrepreneurs (SMEs) like FDI2 find themselves scrambling to reach break-even status by trying to honor the terms of agreement.

Nestlé Philippines’ head of Corporate Affairs Edith de Leon acknowledged in the reply that Nestlé products are not the cheapest in the market and that competition among lower-priced products remains intense. De Leon’s statement allegedly avoids the issue of vertical price agreements with its Filipino partners.

De Leon also stated that Nestlé complies with the country’s laws and standard trade practices, a statement Atty. Kapunan quickly puts in context. Kapunan stressed that NPI knows there are no standards on vertical price agreements in the Philippines.

The Senate is now in the thick of addressing this matter and other issues regarding antitrust through the promulgation of various bills in the Upper House.

According to Atty. Kapunan, by Swiss standards, NPI’s distributorship model is patently illegal. The standards laid down by the Swiss Competition Council in Switzerland would make NPI’s existing distributorship agreement here restrictive of trade, thus subject to penalties.

Similarly, she mentioned, that the case mentioned by de Leon filed with the Department of Trade and Industry (DTI) was dismissed, not for lack of merit as she previously stated, but for lack of jurisdiction on the part of the DTI.

“While FDI2 has filed a motion for reconsideration of DTI’s decision, the case itself is public domain and anyone may see that DTI did not even delve into the merits of the case. To date, no case against NPI, with the exception of the one filed by FDI2 in DTI, has been dismissed,” Kapunan explained.

Moreover, accusations made against Nestlé by its distributors may not be quite as unfounded as the company would have the public believe.

In the case of “Nestlé Philippines, Inc. vs. FY Sons, Inc.” (05 May 2006, G.R. No. 150780), the Supreme Court ruled that FY Sons, also a Nestlé distributor, was lured to invest huge sums of money, time and effort in order “to abide by such distributorship agreement, and to develop market areas for [Nestlé’s] products.

Thereafter, Nestlé breached the distributorship agreement by committing various acts of bad faith such as, but not limited to, failing to provide promotional support, and concocting falsified charges to cause the termination of the distributorship agreement without just cause.”

These incidents are not new, Kapunan explained, as NPI executives John Miller, Shahab Bachani and Doreswamy Nandkishore have been charged with “perjury for issuing conflicting statements in their affidavits with respect to the policies of Nestlé in agreements with their distributors and other Filipino partner firms.”

Cases against Nestlé are now pending in the courts of Quezon City and Makati City. G"

Manila Standard response to Nestle Philippines' statement

From "To The Point" column by Emil Jurado, MANILA STANDARD TODAY, 12 April 2011
(Full column available online here)

"***

Last month, I had a nice “exchange” with Ms. Edith de Leon, head of corporate affairs of Nestle Philippines Inc. over a column I wrote about predatory pricing charges leveled against the food and beverage giant. I mentioned some of the reasons why Nestle is now regarded as the poster boy of corporate bullying in the Philippines. Ms. De Leon reacted by writing an official letter to this paper denying everything.

Without going through the exact nuances of the issue again (I wrote a detailed rejoinder to her reply in my column last March 23) I have to say that the way Nestle has replied to the issue of predatory pricing, clearly a violation of the law, has left me somewhat bewildered.

For the sake of brevity and uniformity, Nestle’s letter to the Manila Standard Today was practically the same one it sent to other newspapers that wrote about the pending cases. That’s perfectly understandable until you consider that the company’s official reply was wrought with inaccuracies and misleading statements. I tackled these one by one in my March 23 column, and Nestle has been silent since.

Silent, that is, until a reliable source called me about the articles I had written. Obviously, he spoke on the condition of anonymity, and emphasized that no one from Nestle (apart from Ms. De Leon) was authorized to comment on the issue.

What he told me, however, made my senior citizen skin crawl. My gulay, talk about a snake pit of corporate intrigue and conspiracy allegedly happening at Nestle!

***

It seems that NPI is fully aware that it is standing on weak ground on the pricing and ethics controversies filed against it. This is compounded by the fact that several of its bankrupt distributors have gone to the Department of Trade and Industry to file their complaints. Moreover, a number of the company’s top executives – John Miller, Shahab Bachani and D. Nandkishore - are facing perjury charges in both Quezon City and Makati courts.

Nestle has reportedly realized that the facts are simply too glaring to be argued away or reasonably disputed. In other words, the company has dug itself a hole that it can’t seem to climb out of. There’s also jurisprudence working against Nestle since the Supreme Court ruled against the company five years ago (Nestle Philippines Inc. vs. FY Sons Inc., G. R. No. 150780), for exactly the same things it is now being accused of.

The problem lies in the company’s annual stockholders meeting this coming April 14. If someone should bring up the situation in the Philippines, how would that be addressed? And here’s the jaw-dropping fact: Nandkishore—the very same person facing perjury charges in local courts—now sits on Nestle’s Executive Board occupying a very sensitive position as head of Nutrition.

Allegedly, Nestle’s solution is not to find a way out of the mess. What it is doing now is finding a best possible scapegoat, and Nandkishore has purportedly been singled out. Santa Banana, it seems that his own company is about to throw poor Nandu under the bus!

My source claims that Nandkishore fits the bill perfectly, since the monumental chaos in the Philippines happened under his watch (he used to be the CEO of NPI until he got promoted). Moreover, there are many executives who supposedly questioned his being named to such a senior post within the Executive Committee. Surely, Nandu’s fall from grace only means good things for their job prospects.

Watch your back, Nandu, or you may find yourself crying over spilled milk."

Manila Standard responds to Nestle allegations

"That party line on impeachment" by Emil Jurado
Published on 23 March 2011, Manila Standard Today, TO THE POINT (original article may be viewed online here).
*In reaction to Nestle's response here.

"Allow me to congratulate Nestle for its 100th year in operation in the Philippines. According to its CEO John Miller, “one hundred years of service to the Filipino consumer is a great source of pride within Nestle Philippines,” and that the company’s centennial “signifies its continuing commitment to the country.”

Well said, Mr. Miller. Unfortunately, there are many Filipinos—ironically, your very own distributors—who assert that your presence here in the Philipines has been anything but a service. These entrepreneurs initially held on to the promise of your company’s international reputation, only to find out latter on that Nestlé operates quite differently here in the country.

I summarize many of the woes experienced by Nestle distributors in my column last March 11. Edith de Leon, head of Nestlé’s corporate affairs office, wrote the Manila Standard Today an official response “categorically rejecting the assertions” mentioned in my column.

I read the points cited by Ms. De Leon very carefully, hoping that Nestlé could provide some clarity on the issue. More importantly, I wanted to hear what they had to say about the company’s being constantly regarded as the poster boy of corporate bullying in the Philippines. However, she must have had too much Nestlé coffee as her reply was filled with generic motherhood statements, as well as some “facts” which left me scratching my head. Santa Banana, is this what we can expect from Nestlé in the next 100 years?

* * *

Let’s rewind a bit and analyze Nestle’s rejoinder to my column. First, Nestlé implies (quite creatively) that the cases filed against it by Service Edge Distribution Inc. (SEDI and Forefront II Trading Inc.) were dismissed by the Department of Trade and Industry for “lack of merit.”

The fact is, the Order dated Jan. 5, 2011 clearly stated that the dismissal was due to “lack of jurisdiction.” I also understand that not a single case filed by SED1 and FD2 against Nestle has been dismissed.

Perhaps, it is the same tactics that have gotten several perjury cases filed in Quezon City and Makati courts. These cases were filed against top Nestlé executives that include, aside from Mr. Miller, Shahab Bachan and Doreswanby Nandkishore. My gulay, is the Nestlé head office in Switzerland aware of what’s happening here?

Second, to dismiss the complaints filed by these distributors as “unfounded” is to have a rather short memory. It was only five years ago that the Supreme Court itself (Nestle Philippines Inc. vs. FY Sons Inc. May 5, 2006 G.R. No. 150780) ruled that FY Sons (yet another distributor) was “lured to invest huge sums of money, time and efforts” by Nestlé only to have the latter “breach the distributorship agreement by committing various acts of bad faith such as, but not limited to, failing to provide promotional support, and concocting falsified charges to cause the termination of the distributorship agreement without just cause.”

If this sounds painfully familiar, it’s because Nestlé distributors are still singing the exact tune now. Fact two.

Third, Nestlé claims that it cannot possibly be accused of predatory pricing simply because its goods are not the cheapest in the market. Likewise, there is this assurance that its pricing policy are “compliant with the laws as well as recognized standards of trade practice in the country.”

* * *

At last, Nestlé and I agree on something: its goods are certainly not cheapest in the market. But if a company imposes vertical price restraint agreements with its distributors, isn’t that predatory pricing as well? My friends, who are experts in marketing, point out that this practice of setting a minimum price by which its distributors are required to sell Nestle products does not take into consideration the operational costs which are shouldered by the Filipino SMEs. Turning out a profit then becomes an immense struggle, considering capital outlay and lack of marketing and promotional support from the multinational.

Furthermore, how can Nestlé possibly be “complying with the country’s laws and standards” when there is no standard on vertical price agreements to begin with? To date, Philippine courts have no actual guidelines for determining whether or not predatory pricing has occurred or whether a vertical price agreement is restrictive of trade and monopolizes competition. Fact three.

Finally, the company assures the public that its activities are conducted “in compliance with Nestlé Corporate Business principals adhering to fairness, transparency and compliance to laws and regulations.” Perhaps as far as Nestlé Philippines is concerned, yes. But, considering its main headquarters is in Switzerland, a vertical price restraint is patently against the standards of the Swiss Competition Council.

Santa Banana, this appears to be a case of the hand doing something that the head is not aware of!"

Oh what a tangled web you weave

Nestle claims dismissal on the merit and rejects predatory pricing. Similar articles were sent by Nestle to Business Mirror and Manila Standard (see below). Responses by Manila Standard here.

Nestle's idea of fairness and transparency

"Nestle's idea of fairness and transparency"
by Ducky Paredes
22 March 2011, Malaya (original article available online)

“BDO charged that Nestle ‘acted in utmost bad faith and in wanton, fraudulent, reckless, oppressive and malevolent manner.’”

WE wish to assure the public that our activities are conducted in compliance with the Nestle Corporate Business Principles, consistent with universally accepted practices adhering to fairness, transparency and compliance with all applicable laws and regulations. These same principles have governed the way Nestle has done business in the Philippines for 100 years, allowing us to earn the trust of our consumers all these years. In turn, we expect our partners to be guided by the same principles."

This is the assertion of Ms. Edith de Leon, the Head of Corporate Affairs of Nestle Philippines, Inc. (NPI), a Switzerland-based multinational company producing and marketing a wide range of consumer products.

De Leon was reacting to media articles critical of the company’s business practices that, among others, included unjust termination of agreements, predatory pricing, perjury and offering false testimony in evidence.

The particular complaints in this regard were filed by two of its major distributors, Service Edge Distribution, Inc. (SEDI) and FDI Forefront II Trading Corporation (FDI 2).

"Adherence to fairness, transparency and compliance with all applicable laws and regulations." Grandiose words, nice to hear but, if not sincerely meant, amount to nothing.

But how does her company’s actual actuations square with her lofty Corporate Business Principle?

Was Nestle Philippines being fair and transparent when, it ‘’knowingly and deliberately provided false and fraudulent information’’ in 2009 to Banco de Oro regarding the financial status of its distributor, Interbrand Logistics and Distribution, Inc. which was then renewing its loan and credit facility with the bank?

The bank renewed Interbrand’s credit facility and extended it a series of 19 loans totalling P123.25 million in the second half of 2009 on the strength of Nestle’s repeated positive endorsements and certifications about its distributor’s financial stability and payment performance. It turned out (eventually) that Nestle knew all along that Interbrand was in serious financial trouble; yet, just the same, Nestle participated in what amounted to a cover-up in order to protect and advance its own business interest.

Banco de Oro took Nestle to the court, accusing it of having "knowingly made a false representation with intent to mislead the bank into renewing Interbrand’s credit facilities and allowing Interbrand to make further availments under the same to finance the purchase of (Nestle’s) products which would eventually lead to (Nestle’s) benefit."

BDO charged that Nestle "acted in utmost bad faith and in wanton, fraudulent, reckless, oppressive and malevolent manner."

Referring to the complaint on predatory pricing filed by SEDI and FDI 2, De Leon said this was dismissed by the Department of Trade and Industry. True or false?

According to the two distributors, what actually happened was that the DTI declined to make a definitive ruling on the merits of the case supposedly because it did not have jurisdiction over the complaint, due to the lack of applicable jurisprudence and the absence of pertinent laws on predatory pricing and unfair trade practices.

This is precisely why several anti-trust bills seeking to curb these abusive practices have been filed in the Senate and in the House of Representatives.

The fact is that top Nestle officials are also facing perjury charges before courts in Quezon City and Makati City and these are now being evaluated by prosecutors of the Department of Justice. Named respondents are Nestle chairman and CEO John Martin, chief financial officer Peter Noszek, business executive manager for liquid beverages Shahab Bacani and regional sales manager Jose Ceballos.

Was Nestle also being transparent when it quietly shipped out Peter Noszek, who is now reportedly in the US? Of course, there was no Hold Departure Order for him, but Nestle insiders say that Noszek’s departure was kept so hush-hush that they only found out about it one morning via an office advisory.

It may be assumed that the company also did not inform the DOJ officials concerned about Noszek’s departure. So he is now effectively out of reach of the country’s judicial system. Neat, isn’t it? Sure it would be -- for a criminal organization but, for a legitimate business? One has to wonder if similar "reassignments" are also in the works for chairman and CEO John Miller and other officers.

De Leon also asserts that Nestle’s pricing policies are compliant with the laws as well as recognized standards of trade practice in the country. But does Nestle include in these "recognized standards" the distributors’ expenses in distributing and delivering Nestle’s products to the wholesalers, dealers and other retail outlets? Does it also take into account the financing cost and high interest rates that distributors have to shoulder in purchasing Nestle products?

Both SEDI and FDI 2 claim that the price bulletins issued by Nestle for its products are so inflexible and do not take these factors into consideration.

They were allegedly also ordered by a Nestle regional sales manager to give unrealistic discounts to a favored group of wholesalers.

They also allege that Nestle’s unfair price strategy, aggressive sales targets and unilateral suspension of in-house financing arrangement caused them to incur heavy losses and placed FDI 2 in dire financial straits. This purportedly prompted Nestle to demand that additional capital be infused into FDI 2, which was complied with, using borrowed money.

In spite of having complied with the demand for additional capital, Nestle allegedly terminated the distributorship agreement on December 21, 2007. This forced the company to cease operations, with the result that it was unable to pay its employees, or to give their 13th month pay.

Again, was Nestle adhering to ‘’fairness and compliance with all applicable laws and regulations" in the case of its distributor, FY Sons, Inc.?

Nestle sued FY Sons before the Makati Regional Trial Court in relation to a dispute over supposed unpaid accounts. But the court handed down an adverse ruling against Nestle and ordered it to pay FY Sons P1 million in actual damages and P200,000 as exemplary damages and attorney’s fees. Nestle elevated the case to the Court of Appeals but to its chagrin, the CA upheld the lower court’s ruling and even raised the penalty to P1.5 million.

It was established in both the Regional Trial Court and the Court of Appeals that Nestle "indeed failed to provide support to respondent; unjustifiably refused to deliver stocks to respondent; the imposition of P20,000 fine was void for having no basis; that petitioner failed to prove respondent’s alleged outstanding obligation; that petitioner terminated the agreement without sufficient basis in law or equity and in bad faith; and that petitioner should be held liable for damages."

Nestle took the case further up -- to the Supreme Court but Nestle again received a stinging rebuff when the High Tribunal sustained the CA decision. The SC ruled that Nestle failed to prove that FY Sons owed it the sum of P995,319.81 and that the seizure of the distributor’s time deposit of P500,000 was improper.

The Court ordered Nestle to refund the amount, with interest.

Furthermore, the SC castigated Nestle for "being at fault and in bad faith" and rejected its plea for moral damages and attorney’s fee from FY Sons.

In effect, the Supreme Court said Nestle was guilty of violating certain laws and of committing unfair trade practices.

This is what Ms. De Leon calls Nestle’s "adherence to fairness, transparency and compliance with all applicable laws and regulations?"

***

Corporate Hypocrisy: A Study in Contrasts

Per the Filipino press article (inset), Nestle Philippines Inc. just embarked on strengthening its human resource pipeline through its Management Immersion for Leadership Excellence or MILE program (I really don't know why acronyms are "in" thing in corporations but then that's a another story). The top executives of the company were presenting Nestle business cases to the students/would-be employees in a bid to recruit them to be the next generation business leaders of this giant multinational company. Their selling point - "This is how we build champions." Their theme -" See the Nestle difference." Wow. Great salesmanship. Great program. Great company.

Or is it?

Did they include in their business case presentations anything that has to do with Corporate Ethics? How does Nestle treat its Filipino SME partners?

Yup, they do build champions - Champions of corporate greed, Champions of bullying the small companies, Champions of anti-trust practices, Champions of covering their own asses.

Yup, we see that Nestle difference - how to use size to bully, prolong and weasel itself out of clearly ethical, moral and legal issues it gets involved in.

Just look at the previous articles of this blog to see what kind of Champions Nestle builds and the difference Nestle makes.

Is there any better form of showing hypocrisy by Nestle than putting out press releases that contradict its own actions? Or by creating a student recruitment program without disclosing its own violations of its values? Please, Nestle, please show the recruits, the students, and us more of who you are.