Case Study: LG.Philips Displays Czech Republic s.r.o.

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Case StudyLG.Philips Displays Czech Republic
s.r.o.

• 1. Significant points in the case of the
  LG.Philips factory in Hranice.
• 2. Legal problems connected with implementing
  LG.Philips investment.
• 3. LG.Philips and CSR obligations.
• 4. Circumstances of the failure of the LG.Philips
  Displays holding.

Jirí Nezhyba Programme GARDE Global Alliance
for Responsibility, Democracy and
Equity Environmental Law Service 15. 9. 2006
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1. Significant points in the case of the
LG.Philips factory in Hranice

• LG.Philips is a joint venture of the
  multinational corporations Royal Philips
  Electronics and LG Electronics
• LG.Philips Displays Czech Republic s.r.o. is
  owned by LG.Philips Displays Holding B.V. - 96
  share, and LG.Philips Displays Investment B.V. -
  4 share.Milestones in the LG.Philips case
• March 2000 the Czech Government adopts Decree
  No. 321 on the awarding of investment incentives
  and support to Koninklijke Philips Electronics
• April - June 2000 EIA proceedings
• May - June 2000 zoning proceedings
• June - August 2000 construction permit
  proceedings

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1. Significant points in the case of the
LG.Philips factory in Hranice

• December 2003 the Board of Works in Hranice
  extends LG.Philips trial operations period.
• January 2004 the Regional Office approves the
  companys preventive security programme.
• January 2004 GARDE-EPS files criminal charges
  against the officials responsible for the
  LG.Philips permit process.
• March 2004 the Board of Works in Hranice
  issues a use permit.
• May 2004 GARDE-EPS files suit against the
  integrated permit.
• April 2005 The Municipal Court in Prague
  revokes the integrated permit.
• July 2005 The Environment Ministry revokes the
  integrated permit.

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1. Significant points in the case of the
LG.Philips factory in Hranice

• January 2006 Parent company LG.Philips
  Displays Holding declares bankruptcy.
• January 2006 - LG.Philips acknowledges
  difficulties and stops operations.
• February 2006 - LG.Philips renews production and
  begins looking for a strategic partner.
• April 2006 - GARDE-EPS files suit against the
  new integrated permit.
• September 2006 - LG.Philips announces the
  approval of a 30 settlement with its creditors
  and a tender for a new owner of the complex.

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2. Legal problems connected with implementing
LG.Philips investment.

• In September 2001, LG.Philips initiated trial
  operations without a preventive security
  programme, which means the risk of a serious
  accident was not thoroughly evaluated, nor were
  the eventual results of such an accident for the
  surrounding area evaluated. Such a programme was
  not approved with legal effect until January
  2004.
• The zoning decision and subsequent building
  permit issued in the year 2000 were therefore
  illegal.
• LG.Philips furthermore lacked the legally
  required insurance for damages resulting from a
  serious accident, which it was obliged by law to
  negotiate prior to starting trial operations.

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2. Legal problems connected with implementing
LG.Philips investment.

• In the proceedings on issuing the integrated
  permit (IPPC) LG.Philips did not have the
  technology of its centre evaluated as a whole,
  but only had one selected varnishing facility
  evaluated. The permit was subsequently revoked by
  the court. When requesting the new permit,
  LG.Philips did not respond to GARDE-EPSs
  challenge and refused to have its production
  complex evaluated as a whole.
• After another toluene leak from the factory, the
  Czech Environmental Inspection (CEI) performed a
  week-long monitoring of the facility between
  October and November 2003. On the basis of their
  results, the CEI initiated proceedings to fine
  the company for various defects per legislation
  on the protection of air, of water, and on waste.

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2. Legal problems connected with implementing
LG.Philips investment.

• The criminal investigation was thrown out by the
  Czech Police twice, but on the basis of a
  complaint by GARDE-EPS, the state prosecutor
  finally ordered that four bureaucrats be charged,
  who then in the fall of 2005 had to leave their
  posts per Section 11 of Law No. 312/2002 Coll.,
  on public officials.
• In March 2006, as a result of this outcome,
  Senator Jílek proposed that Section 11 be removed
  from the law. The Senate adopted his proposal, as
  did the Czech Chamber of Deputies.
• The investigation ended with the criminal
  prosecution being halted, so as of the summer of
  2006 these bureaucrats are able to return to
  their jobs.

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3. LG.Philips and CSR obligations.

• LG.Philips began to publish information about
  monitoring the environment on its website.
• LG.Philips published a declaration on its policy
  regarding preventing serious accidents on its
  website, as well as the overall company policy in
  relation to environmental protections and
  personal security.
• On its international website, LG.Philips Displays
  International Ltd. has a Code of Conduct.
  However, this is not listed on the website of its
  Czech branch and there are no links between the
  parent companys and subsidiarys pages.

On the basis of GARDE-EPSs engagement in the
case of LG.Philips, the company responded in the
following ways in the CSR area
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4. Circumstances of the failure of the
LG.Philips Displays holding.

• The entire founding capital, more than CZK 3.5
  billion, had been frozen on behalf of the JP
  Morgan bank in Hong Kong. At that point in time
  the parent company had to have known about the
  basic problems with producing and delivering CRT
  monitors.
• LG.Philips Displays needs to sell its Czech
  branch in Hranice in order to meet its
  obligations to its creditors.
• Instead of trying to preserve its factories for
  the production of CRT monitors, the parent
  company Philips and LG massively develop the
  production of LCD monitors in their LG.Philips
  LCD division.
• Production lines for CRT monitors are not
  exchanged for lines that can produce LCD monitors
  even though it was possible to do so. Panasonic,
  for example, managed such a transformation in its
  factory in Plsen.
• The multinationals Philips and LG build a
  completely new factory for LCD production in
  Poland, where they are offered considerable
  investment incentives.

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4. Circumstances of the failure of the
LG.Philips Displays holding.

• LG.Philips never met the conditions for being
  awarded an investment incentive, since it did not
  employ 3 250 workers as promised, but only
  approximately 1 200. It will return a maximum of
  30 of the funds it was awarded to the Czech
  Republic.
• The settlement process involves debts of a total
  of CZK 7.38 billion owed to 269 entities. The
  total amount could have been 435 entities seeking
  CZK 7.47 billion in debts.
• According to the plan that has been agreed,
  LG.Philips is to pay its creditors 30 of the
  value of the recognised debts owed by 30. 11.
  2007, either in cash, through capitalisation, or
  a combination of both options.