International business. Case study

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9A97C002 SPRINT — LA CONEXION FAMILIAR (B)1 Daniel D. Campbell prepared this case under the supervision of Professor Ann Frost solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 1997, Ivey Management Services Version: (A) 2010-02-03 At noon on July 14, 1994, the loudspeaker at Sprint’s “La Conexión Familiar” (LCF) telemarketing operation in San Francisco told workers that their plant would be closed and that “Your position will cease as of this date.”2 The action was not expected and its effects were devastating to the LCF employees. Newspapers across the country recounted events in the wake of the closure: Teresa Rosario Dadin fainted. Other workers burst into tears. Sandra Gonzalez remembers her whole body and all of her emotions going numb. It was only later that she would fall into a deep depression.3 Many of the women had to go on welfare, some developed emotional difficulties, one attempted suicide, others were evicted from their homes.4 The president of the Communication Workers of America (CWA) Morton Bahr also commented to the press: “If it doesn’t tear your heart out to hear what these women went through, then you’re made of stone.” Of the 235 laid off workers, 150 took part in Sprint-sponsored out-placement services and 135 found other jobs. Despite the obvious devastation to the LCF workforce, Sprint management contended that the losses being incurred by the operation gave them no choice but to close its doors.

1This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Sprint Corporation or any of its employees. 2“In America; A Broken Conexion,” The New York Times. August 21, 1995. 3Ibid. 4“Are we creating a Hispanic Underclass?”, The San Diego Union-Tribune. January 2, 1996.

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NLRB INVESTIGATION On July 18, four days after the plant closure, the CWA filed an unfair labor practice charge with the National Labor Relations Board. The CWA claimed that Sprint illegally closed LCF to prevent the organization of its workforce. The NLRB carried out a two month investigation and then filed a complaint that charged Sprint with more than 50 violations of the National Labor Relations Act. The NLRB also petitioned the U.S. district court for an injunction that would have forced Sprint to re-open LCF immediately. The petition was denied, forcing the workers to wait for a full hearing in November of that same year. On November 8, 1994, the NLRB hearing began before Administrative Law Judge Gerald Wacknov. During the hearing, Sprint was forced to admit that management at LCF had committed numerous violations of the NLRA including threatening workers with the closure of the facility if they unionized. Sprint held, however, that the operation was closed due to financial concerns. Sprint claimed that if business had continued to deteriorate throughout 1994 as it had during the first three months of the year, revenues would have been less than half of what had been budgeted. Specifically, management claimed that LCF would have suffered a loss of $4 million instead of the projected profit of $8 million. It would be several months before Judge Wacknov would render his decision but neither Sprint nor the CWA waited idly. ALTERNATIVE VEHICLES OF INFLUENCE In addition to considerable media coverage throughout the United States, the CWA looked for other ways to put pressure on Sprint. In October 1994, 64 members of the U.S. Congress signed a letter to Sprint Chairman, William T. Ersey, that expressed their concern over the charges pending against the company and asked Sprint to settle the dispute with its workers quickly. Internationally, union representatives on the board of Deutsche Telekom, a large German telephone company with which Sprint had developed a $4.2 billion alliance, convinced their company to adopt a resolution demanding that respect for union representation be a basic operating principle for all joint ventures with Sprint. NAFTA and the North American Agreement on Labor Cooperation In November 1993, Canada, Mexico and the United States entered into the North American Free Trade Agreement (NAFTA). Under the NAFTA, tariff and non-tariff barriers to trade between the signatories would gradually be reduced over a period of years. In the months leading up to passage of the agreement through the U.S. Congress, labor groups throughout the country actively campaigned against the ratification of the agreement. Labor groups were concerned about differences in purchasing power parity and the failure of the Mexican government to enforce their domestic labor laws. It was expected that child labor and the illegal suppression of organized labor would make Mexican workers artificially more competitive, stealing jobs from the higher paid U.S. labor force. As a result, U.S. labor groups actively campaigned against NAFTA’s passage via public condemnation and funds provided to anti-NAFTA lobby groups.

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In an effort to bring labor groups on-side with the bill, the Clinton administration negotiated a side agreement to the NAFTA that specifically addressed labor issues within the signatory nations. The side agreement outlined common concerns about labor in the three nations and established mechanisms both to study labor activities within the trading block and to eliminate disputes as they arose. Commission for Labor Cooperation and the Labor Secretariat Under the provisions of the side agreement, signatory nations were responsible for enforcing labor laws within their borders. Because labor issues were growing increasingly transnational in nature, signatories were also responsible for the creation of the Commission for Labor Cooperation comprised of the labor ministers from each of the countries. The commission was, in turn, responsible for the development of a tri-national Secretariat and the appointment of an Executive Director for its management. The Secretariat formed the permanent administrative body under the Commission. Its functions included providing support to the Council as directed and actively studying labor developments in the signatory nations. National Administrative Offices Each NAFTA country was responsible for establishing its own National Administrative Office (NAO). The NAO served as the point of contact with domestic governmental agencies, NAOs of other countries, and the Secretariat. Each NAO designated a Secretary, responsible for the administration and direction of the NAO. If a nation wished to dispute a labor practice in another of the NAFTA signatory countries, that dispute would often begin in the NAO. This dispute could pass through several administrative levels, and then, if still not resolved, move to a tri-national Arbitral Panel. In order for the panel to suggest action, it was necessary that it determine that there was a persistent pattern of failure by the party complained against to effectively enforce its laws governing occupational safety and health, child labor, or minimum wage labor standards. It was not generally believed that a panel could be convened if the labor violations fell outside of these categories. If the panel returned a positive determination, it would outline a plan to be followed by the offending nation to correct the violations. If the plan was not adhered to within certain guidelines, disciplinary action including fines or trade sanctions could be imposed against the offending country. SPRINT/TELMEX JOINT VENTURE In December 1994, Sprint entered into a memorandum of understanding with Mexico’s largest telecommunications carrier, Telefonos de Mexico S.A. de C.V (Telmex), to form a strategic alliance. Telmex was the dominant provider of telecommunications services in Mexico with sales of over US$7 billion and profit margins of 43 per cent. Based on the agreement, the parties expected to enter into a definitive agreement to provide seemless cross-border services between Mexico and the United States by the second quarter of 1995.5 5“Sprint and Telmex Form Strategic Alliance,” PR Newswire Association, December 13, 1994.

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Sindicato de Telefonistas de la Republica Mexicana El Sindicato de Telefonistas de la Republica Mexicana (STRM) represented over 50,000 workers in the telecommunications industry in Mexico. Nearly all of them worked for Telmex. The Telmex union was one of the strongest unions in the country whose influence was felt throughout the national economy. A relatively minor disagreement with the union was enough to send the Telmex stock price into a downward spiral. This was significant, as the size of the telephone utility made it the dominant figure on the Bolsa de Valores, Mexico’s primary equity trading exchange. As a result, a movement in Telmex’s stock price had a large impact on the Bolsa and sent signals to the world financial community regarding the stability of the Mexican economy. Events in the treatment of telecommunication workers in the United States, particularly those of Hispanic origin, were of key interest to the Telmex union. Under the NAFTA, the telecommunications industry would gradually be opened to other North American companies. In addition to Sprint’s own pending joint venture, many other U.S. companies were also planning entrance strategies into the Mexican market, and searching for domestic partners. STRM ACTION AGAINST SPRINT In February 1995, the STRM, acting on strong encouragement from the CWA, filed a complaint with the Mexican NAO against Sprint under provisions of the NAFTA labor side agreement, claiming that Sprint had violated its workers’ rights at LCF. This action achieved extensive media attention. Given the identity of the original proponents of the NAFTA labor side agreement, no one anticipated that one of the first challenges under the agreement would come from the Mexican side of the border against a U.S. company. Ministerial Consultations and Public Forum At the request of his Mexican counterpart, U.S. Secretary of Labor Robert Reich agreed to Ministerial Consultations as provided by the labor agreement. They agreed that more information was required about the effects of plant closing or threat of plant closing on the right of workers to organize and arranged for a public forum on the topic to take place later in February 1996. Speakers during the two days of testimony included senior representatives from the CWA and STRM, government officials from all three NAFTA countries, a representative from the German Post and Telephone Workers, as well as several ex-LCF employees. Sprint sent an assistant professor of Law from the University of Denver to speak on the company’s behalf. JUDGMENT RENDERED BY JUDGE WACKNOV In September 1996, Judge Wacknov found Sprint guilty of 50 violations of law, but agreed that Sprint was justified in closing LCF on financial grounds. He ordered Sprint to cease and desist from the unfair labor practices he had found them guilty of at the now closed LCF operation. Sprint was not required to re-open the facility.

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Appeal The judge’s decision was appealed and overturned in December 1996. A three-member panel determined that Sprint managers were not justified when they closed LCF for financial reasons. The panel ordered that Sprint rehire all of the past LCF employees with full back-pay retroactive to the date of the LCF closure. Furthermore, the panel also said Sprint had practised “widespread misconduct, demonstrating a general disregard for the employees’ fundamental rights.” It issued an order to the entire company to cease and desist from illegal anti-union activity.6 Sprint immediately filed an appeal in federal court in Washington, D.C. and, according to Sprint Spokesman Bill White, if the company loses, it will have to decide whether to appeal to the U.S. Supreme Court.

6NLRB comments as printed in The San Francisco Examiner, December 31, 1996.