My stint at Dankotuwa Porcelain – Episode 1

A directorship that nobody wanted

As I mentioned in a previous episode, my involvement with Dankotuwa Porcelain came about almost by accident. Looking back, it sometimes feels as if events were guided by some unseen hand. When I was appointed Chairman of the Employees’ Trust Fund (ETF) Board in May 1989, one of my early responsibilities was to reconstitute the nominee directors of the companies in which the ETF had invested.

The Secretary to the Ministry had already opted to take the directorship of Sampath Bank, a very attractive appointment. At a Board meeting, we discussed the remaining companies for which ETF nominees needed to be changed. I invited the other directors to take their pick first. Naturally, all the profitable and prestigious companies were quickly chosen.

That left one company without any takers — Dankotuwa Porcelain. At that time, Dankotuwa Porcelain had been running at a loss and had even been closed for a period. Nobody wanted to be associated with a struggling enterprise. Since I had developed an interest in ceramics during my earlier tenure as General Manager of the Ceylon Ceramics Corporation, before joining the ETF Board, I volunteered to take on the directorship myself.

The Chairman of Dankotuwa Porcelain at that time was Dr A. C. Randeni, a Central Banker who was both energetic and visionary. He had already begun the difficult task of turning the company around. The Board was well-balanced, consisting of industry leaders, government officials, and academics. The Chief Executive Officer, Mr Jagath Pieris, was both an engineer and an accountant — a rare combination — and he complemented the Chairman’s vision very well.

Within a short time, the company began to show signs of recovery. Profits improved, and the welfare facilities for workers were among the best in the industry.

A few months later, Dr Randeni invited me to lunch at a five-star hotel. During the meal, he disclosed that he had received an invitation from the World Bank to serve as a consultant to the Central Bank of a Pacific island country. Since his substantive position was in the Central Bank of Sri Lanka, he would have to leave Dankotuwa Porcelain.

He then asked me a question that surprised me. Would I be willing to take over the Chairmanship? He explained that during Board meetings, he had observed that both of us saw eye to eye on many important matters. If he left without a suitable successor, there was a risk that the Government might appoint a political nominee who could undo all the progress made so far.

I agreed in principle, but there was a complication. According to a Cabinet decision made earlier, when the Ceylon Ceramics Corporation sold its shares to the ETF Board — after CCC was unable to service the loan taken to establish Dankotuwa Porcelain — the appointment of the Chairman had to be approved jointly by the Minister of Finance and the Minister of Labour.

Fortunately for me, at that time Hon. D. B. Wijetunga held both portfolios, as he was the Finance Minister and also acting Minister of Labour. Since the ETF came under the Ministry of Labour, he signed for both ministries, and I was formally appointed non-executive Chairman.

Thus began one of the most interesting chapters of my career.

Privatisation of the company

When Dr Randeni handed over the reins to me, he warned that my tenure might be short-lived. The Government had already decided that Dankotuwa Porcelain would be sold under the privatisation programme that was then being implemented.

During this period, our Japanese technical and marketing partners invited me to visit the New York Tabletop Show, telling me, quite frankly, that I had no idea what the world’s top tableware brands looked like.

My visit to New York was a real eye-opener. I was astonished by the variety of shapes, the elegance of the designs, the quality of the finish, and the sophistication of the displays. I realised immediately how far the global market had progressed.

As soon as I returned to Sri Lanka, I organised a Tabletop Show in Colombo, with the assistance of an expert in table arrangement. I also made the strategic decision to invite Mrs Hema Premadasa (the First Lady) as the Chief Guest, and we used the media to generate significant publicity for the event.

About a week before the show, I was summoned by the Secretary to the Ministry of Labour. He had bad news. I was instructed to cancel the show.

The reason given was that the Government was in the process of privatising Dankotuwa Porcelain, and that my efforts to showcase the company’s capabilities would contradict the official position that it was in bad shape. In other words, the show would make the company look too good.

I refused to cancel it. Invitations had already been sent, arrangements were complete, and cancelling would have been embarrassing — especially to the Chief Guest. The show went ahead as planned.

For the first time, many Sri Lankans saw high-quality porcelain displayed in world-class table settings. Interestingly, all the designs we exhibited had been supplied by foreign customers. None were original Sri Lankan designs, which was a lesson in itself.

From that point onward, the Government began to treat me as someone who was obstructing the privatisation programme. I was quietly sidelined. A senior official even told me that I had been removed from the committee evaluating the company’s offers.

Soon afterwards, an advertisement appeared in the newspapers stating that Dankotuwa Porcelain was for sale and inviting interested parties to visit the factory. I had not even been consulted.

I immediately wrote to the Ministry of Finance, pointing out that we were an OEM manufacturer designing products for foreign customers and that allowing unknown parties to walk through the factory could violate strict confidentiality agreements.

The response I received was a warning. I was told that I was very close to being removed not only from Dankotuwa Porcelain, but even from my position as Chairman of the ETF Board, and that I might soon be summoned by the President. I replied that I was prepared for any eventuality.

Fortunately, the Secretary of my line Ministry was more understanding. He arranged an appointment with the President and took me along. I explained the situation and stressed that the privatisation process must be transparent and in the company’s best interests.

The President listened carefully and asked me to draft a fresh advertisement. The new advertisement appeared in the newspapers, with a note stating that the previous one had been withdrawn. In a small way, this was a victory.

I also suggested that, if the Government really wanted a world-class investor, the sale should be advertised internationally rather than only in local newspapers. This suggestion too was accepted.

Sometime later, I was summoned to the Industries Ministry at 7.00 in the morning to help finalise the Cabinet paper to select the successful bidder. A consortium of three Japanese companies was chosen.

The Transfer – Managing the Change

Having studied change management during my MBA, I was determined that the transition should be smooth and orderly.

Months before the transfer, I addressed the entire workforce and explained the Government’s decision. I told them why we needed foreign technical expertise, why international marketing links were essential, and why we should make a good impression on prospective buyers when they visited the factory.

I consciously applied David Nadler’s change management framework.

First, I created dissatisfaction with the present state of affairs.
Then I built a vision of the future under new investors.
Finally, I involved the employees in the change.

We even conducted workshops to explain what shareholding meant and how shares are traded on the stock market. Under the privatisation scheme, employees were to receive free shares equivalent to ten per cent of the share capital, based on their years of service, and the company was to be listed on the Colombo Stock Exchange.

Because of this careful preparation, the transition was remarkably smooth. At that time, several other privatisations were underway, some accompanied by protests and even violence. In contrast, the Dankotuwa transfer was later studied by an international organisation as one of the most orderly and successful examples.

Political Interference Begins

However, a new challenge soon emerged. Some politicians in the area believed that once a company was privatised, they were free to interfere in its affairs. They assumed that government rules no longer applied and that they could demand favours for their supporters.

One politician even told me openly that he had been informed that the purpose of privatisation was to place political supporters on company boards and obtain benefits for constituents. As Chairman, I found myself spending long hours resisting such demands.

One incident remains very clear in my memory. After the Japanese took control, a Minister from the area wanted one of our managers transferred to another division for reasons unrelated to the company’s needs. The Japanese directors refused firmly.

When I conveyed this to the Minister, he became extremely angry and said to me, “If you cannot send him to another division, I will send him to another world.” I understood the threat’s meaning, but the Japanese remained calm and confident that nothing would happen.

There were several such incidents, and handling them required patience, diplomacy, and sometimes courage.

The Japanese Take Over

The Japanese investors paid promptly and signed a shareholders’ agreement with the ETF Board. They visited the factory ceremonially and were warmly welcomed by the employees.

They requested that I remain as non-executive Chairman, although some of the other directors had to resign. Five Japanese directors joined the Board, but only one or two were stationed permanently in Sri Lanka.

I noticed their very close working method. During discussions, they would sit quietly, listen carefully, and write down every detail. Nothing escaped their attention.

An expansion programme was launched, and the factory capacity increased significantly. We were able to utilise the new capacity fully because our products were competitive at the higher quality level demanded by international buyers. Through our Japanese connections, we began supplying Macy’s Department Store in the United States and established several other profitable relationships.

A Japanese technical expert also helped improve our quality standards, and we began positioning ourselves as a top-tier producer of porcelain. There was one small scare when the union staged a one-day token strike over a minor issue. Later, I was told that this was a deliberate show of strength intended to remind the Japanese that the union could not be ignored.

Fortunately, the situation settled quickly.

The Change of Government

As the 1994 change of Government approached, I realised that my position would not remain secure. Once I ceased to be Chairman of the ETF Board, I would also lose my place as a nominee director of Dankotuwa Porcelain.

The Japanese, however, wanted me to remain and appointed me as their nominee director. Unfortunately, this arrangement did not prevent the difficulties that followed. A senior Minister wanted his own nominee to become Chairman. When the Japanese refused, he invited them to dinner and insisted on the appointment. When they still declined, he left, saying:

“Then don’t complain if there is industrial unrest in the company.”

The Japanese contacted me and asked what should be done. They said they wanted me to remain Chairman. My advice surprised them.

I told them that the company must come first, and that I was dispensable. I suggested that they agree to the Minister’s request to protect the company.

They offered to make me Vice-Chairman. I refused. They offered to appoint me as a full-time consultant on their payroll. I refused that too. At the next Board meeting, I said what I had to say, resigned, and left.

I felt satisfied that during my tenure, the company had gained international recognition. When I first became Chairman, banks were reluctant to deal with us. By the time I left, several banks were competing to offer facilities.

Even after I stepped down, the Japanese directors kept in touch and occasionally sought my advice.

In the next episode, I will describe the rest of the story — and how, quite unexpectedly, I returned once again as Chairman.

Sunil G. Wijesinha

Consultant on Productivity and Japanese Management Techniques
Former Chairman / Director of several listed and unlisted companies
Recipient of the APO Regional Award for Promoting Productivity in the Asia-Pacific Region
Recipient of the Order of the Rising Sun, Gold and Silver Rays – Government of Japan
Email: bizex.seminarsandconsulting@gmail.com

By Sunil G. Wijesinha