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August 17, 2002
It should never have happened to Lord Paul. The
71-year-old Labour supporter is head of a steel firm, Caparo, which is
subject to one of the first strikes in defense of a company pension scheme
in the UK.
While many top firms have closed their pension schemes to new workers in
an effort to cut costs, most have pledged to honor their commitments to
existing employees. Caparo, which employs 2,400 workers in some of the
most depressed areas of Britain, said in April that its final salary
scheme would be frozen. Like most manufacturers, it has been hit by the
high pound and collapsing exports.
Workers would be shifted into a personal pension-style stakeholder scheme
that would rise and fall with the stock market. The plan had the benefit,
for Caparo, of shifting the risk of providing adequate pensions to its
Staff in three of its plants reacted angrily to the proposals, believing
an offer of talks was made in bad faith. Independent trustees had already
been found for the new scheme, which union officials took to mean the deal
was set in stone.
A work to rule and overtime ban followed. The company reacted with an
offer to reinstate a watered-down version of the final salary scheme. The
compromise deal would cap the company's pensions liability. But union
officials rejected the offer and pressed ahead with industrial action this
week - with more to follow next week.
Swraj Paul has been a Labour supporter from the moment he arrived in
Britain in 1966. He has sat at the party's top table for 20 years, first
with his long time friend and mentor Michael Foot, then with Neil Kinnock,
John Smith and Tony Blair. They have all listened to the quiet-living
vegetarian teetotaler and his consistent message that manufacturing is the
route to economic success. He has told them that success can be built on a
commitment to look after staff as if they were an extension of his family,
even when profit margins are wafer-thin and competition intense. Tony
Blair's appreciation extended to telling John Major that Mr Paul should be
made a life peer, as he was in 1996.
Today he seems less a Labour supporter and philanthropic entrepreneur than
an old-style steel baron.
Engineering union boss Sir Ken Jackson, a moderate who is close to the
prime minister, accused him of "appalling treatment". His union,
Amicus, has so far refused to strike, but the steel union ISTC, which
ranks as another moderate union, is backing the industrial action.
Officials have accused Lord Paul of bullying workers into accepting cuts
in their pensions.
Spotting a political opportunity, Tory pensions spokesman David Willetts
has pointed out the irony of a prominent Labour businessman fighting
unions over the introduction of a Labour policy - stakeholder pensions.
But Lord Paul is unapologetic about his determination to cut costs and his
handling of the dispute. He points to the decline in the revenues and
profits across most of Caparo's businesses. What was once a listed company
boasting revenues of ё500m and operating profits in excess of
ё50m is now struggling to keep out of the red, with revenues of
"For any business a final salary scheme is an unlimited liability. We
are not trying to cut costs; the intention was always to maintain the
current level of pension contributions, but we cannot afford to give a
pension that is two-thirds of pay.
"We wanted to bring in a pension that gives the workers something and
allows the company to keep going. We proposed a stakeholder pension, but
that was to be the beginning of discussions.
"The union was told to respond within two months. It asked for a
one-month extension and we gave it. During discussions, we presented a
compromise that meant keeping the final salary scheme and also contracting
in to the government's state second pension. It means some of the
liability for guaranteeing pensions is shared with government.
"Now we have something that is almost the same as the scheme put
forward by the union. I don't think the ISTC is looking after the
interests of its members because it is bringing about a situation where
the factories could close and nobody will gain."
From the mouths of many industrialists these comments would be considered
threats, designed to inflame a dispute where factory closures are the
Lord Paul says this could not be further from the truth. He founded the
company in 1968 after two years in the country looking after his daughter,
Ambika. He and his wife had brought their youngest child to Britain in
search of doctors who could cure her leukaemia. Their attempt to save her
failed. Lord Paul says that, to occupy him while he grieved, he set up his
Passage from India
Business life in India during the 1960s had become stifling, he says, with
increasing corruption and cronyism. More than 10 years in the family steel
firm in India had given him many contacts in Europe. He began trading in
steel. Within a few months, he had borrowed ё5,000 and bought a
factory in Huntingdon, making steel tubes for the gas industry.
His sense of social justice brought him into Labour party circles, and it
was Michael Foot who persuaded him in the mid-1970s to build a steel
factory in Tredegar, south Wales. By this time his empire was growing
quickly, mainly through the judicious use of his own money and government
grants designed to boost areas of high unemployment.
The 1980s saw his empire extend to the US, where he is still the largest
producer of steel tubes. He listed the company and sold 20% of the stock,
using the proceeds to extend his reach to the European mainland and back
to India, at the invitation of then prime minister Indira Gandhi.
He shocked workers and unions during this period with demands for flexible
working and continual cost cutting. If anything, he says he met more
resistance in the US than in Britain, and often his most conservative
opponents were executives keen on building empires supported by
unnecessary layers of management.
In fact, most of his criticism of British business relates to the failure
of management. In the present dispute, he says he cannot be seen as a
"here today, gone tomorrow" executive who wants to pillage
company funds for bonuses and share options. As non-executive chairman he
lives on his pension. He says that when sales began to slide three years
ago he persuaded his three sons, who have held the top three executive
positions since 1996, to cut their salaries by almost 40%.
"Tell me who else has taken these kinds of cuts in salary? Everything
I have and they have is in the company. The unions have said the company
saved money by taking pension holidays for several years. But all the
money we have saved has gone into the business. No money has gone out of
the business. When there have been pension deficits, we have topped them
In his autobiography, Beyond Boundaries, published in 1996, he lambasts
management consultants and praises firms that train their own and stick to
their purpose. He recalls how he once listened to their advice and bought
the Fidelity electronics company. He was going to be the saviour of the
British electronics industry, but it all came to grief after he found the
company riddled with fraud and improper accounting. He famously accused
the auditors, Touche Ross, of misleading him and sued them. He lost, but
it set the tone for the current debate on auditor liability.
In defence of his credentials as a promoter of social justice, he also
denies claims that he is a member of the tax dodging community following
the decision to keep his 100% holding in Caparo International registered
in the British Virgin Islands. He delisted the company and in 1991 bought
back the 20% he did not own.
"I paid tax on my salary and I pay tax on my pension. All the
subsidiaries are owned by Caparo Limited in the UK and they pay tax. We
don't export profits abroad, like other companies."
So why register the shares abroad? "I only did it so that if I should
sell the company for someone else to run I don't pay tax. But if they want
to sell any of the assets, the new owner must pay tax because they are
registered in the UK."
The likely new owners are his twin sons Akash and Angad, 42, and Ambar,
32. Ambar has a liking for the film business and was a producer of Lock,
Stock and Two Smoking Barrels. He may opt out if his film business
Friends say the twins are more committed but could be at the root of the
dispute, using it to establish their own credentials as tough managers.
Lord Paul denies that they have mishandled talks with the unions. But they
may be trying too hard to follow a tough act.
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