Corporate Social Responsibility and Ethics - Case Study Example

Corporate Social Responsibility and Ethics Table of Contents Table of Contents 1 1.0 Introduction 2 2.0 Is Anderson to blame at all for this accident? 3 3.0 What aspects of corporate citizenship and stakeholder theory can be used here? 7 3.1 Corporate Citizenship 7 3.2 Stakeholder Theory 12 4.0 Conclusion 16 References 17 1.0 Introduction Dow Chemical Company (the holding company of Union Carbide Corporation) is a pesticide manufacturing company of the US which had started its plant in Bhopal about several years ago. The plant had faced tremendous challenges as well as accidental hazards due to various shortcomings in its operational instruments. In 1984, the Bhopal plant had faced a dreadful disaster for the outflow of Methyl Isocyanate from the tank. This resulted in death of thousands and sufferings from chronic health diseases. The people and neighbours nearby the plant were in great dilemma. The Corporation blamed the Indian workers and managers for such incident. Various cases were filed against the corporation and the chairman at Indian courts (Browning, 1993). In this paper, a study has been conducted based on the Bhopal gas leak disaster. One of the prime objectives of the paper will be to analyse the role of the former chairman of Union Carbide Corporation, Mr. Anderson regarding his fault in the dreadful explosion of MIC from the plant. The paper also deals with the stakeholder theory and corporate citizenship of the plant administered by Union Carbide in Bhopal, India. Furthermore, the paper will discuss about whether the corporation was successful or failed in their responsibility towards society. The stakeholder theory of the Corporation will also be highlighted by referring to the theoretical framework. 2.0 Is Anderson to blame at all for this accident? Union Carbide Corporation’s parent company Dow Chemical Company is one of the biggest producers of chemical in the United States. The corporation is operating in various countries throughout the world. The plant had started its operation in Bhopal in the year 1969 with $25 million manufacturing facility. The plant was named as Union Carbide of India, Ltd (UCIL). Since its headquarters is in the US, technical and financial operations of the plant were performed in the US. Government of India also owned a certain part of the plant. Due to the incident of Bhopal disaster in 1986 as well as pressure from the US judges, the corporation approved to pay $425 million for the victims of the incident. Later the Union Carbide changed their opinion towards the victims. Mr. Warren Anderson, who was the chairman of the corporation, visited India after such incident and said everything would be done for the victims of Bhopal tragedy. He offered $1million for such dreadful disaster and to build hospital, orphanage as well as vocational schools (Gupta, 2002). The incident was caused since proper safety measures were not adopted in the plant. The chairman was responsible to manage all the operations but he did not conduct them properly. The Carbide engineers were involved in the final design as well as construction of the plant. Due to possible limitation in the designing of plant such incident had occurred. There was inadequacy from the Union Carbide Corporation in safety measures, deficient in cooling facilities, defective alarm systems, poor maintenance and storage of excessive amounts of toxic materials. However, the corporation was not willing to admit their shortcomings and were rather blaming the workers for such damage. Various homicide charges were also filed against the top nine officers of the Corporation besides Chairman Anderson. In the US, the corporation had installed all the safety measures for the individuals working there. However, in one of the third world country, i.e. in India, Union Carbide did not adopt adequate safety measures for the workers in the plant (Browning, 1993). The deadly Methyl Isocyanate (MIC) was imported to India from the US in order to stimulate foreign direct investment. From that period onwards, the Bhopal plant started to make its production. With this Methyl Isocyanate they developed a pesticide named as Sevin Carbaryl. In 1982, a team of American experts had visited the Bhopal plant to analyse the plant and develop internal report out of it. It was found that there existed several shortcomings and lacking in the working condition in the plant. The limitation involved deficiency in instrumentations along with safety valves, careless maintenance in the procedures and there were turnover of both operational and maintenance workers (Dinham & Sarangi, 2002). The team warned Union Carbide about the limitations such as, release of toxic materials from the plants. Several related information were delivered by them, but the chairman of the corporation turned a deaf ear to such matter which in turn resulted in such disaster. The plant faced various challenges in other years, but that was not considered under the major consequence. In the year 1982, 28 workers were injured due to phosgene leak. During this period, Methyl Isocyanate was released from a broken valve as well. As a result, several workers had suffered from numerous diseases (Dinham & Sarangi, 2002). A few accidents were caused in the year 1983 due to various limitations. In spite of several accidental hazards, Chairman Anderson of the Corporation did not consider the matter seriously. The disaster of 1986 had resulted because of lack of safety measures in the plant. The plant had stored large quantity of MIC, but without precautionary measures. The storage tank containing MIC was cooled in refrigeration unit to maintain low temperature in order to avoid chemical reaction. The unit which was installed remained out of order for five months. As the refrigeration unit was not working properly, the instruments for computing the temperature as well as pressure were required to be in order but it was not as such. The emergency scrubber that had been used to deactivate the gas was not in use for six weeks. The flare tower was also exploited and was stopped working for ten days and that was the only source left to prevent excessive leakage of MIC. All these reasons may be the cause of explosion, but it may not have resulted if the top officials along with the Chairman had taken effective measures. They also did not train the worker properly in order to deal with the poor category instruments in the plants (Gupta, 2002). The workers were asked to detect the leakage through nose and eye rather than any computerised systems. The hazards regarding the new technology related to production of pesticide from Methyl Isocyanate was known to all but appropriate action was not taken (Martin, 2003). From examining and understanding the overall severe disaster of Union Carbide plant in Bhopal it can be exemplified that the whole tragedy was caused partially due to the irresponsible activities of Chairman of Union Carbide Corporation. Although, the plant was installed in a third world country, effective safety measures were not adopted to safeguard the life of the workers. The Chairman should have developed several preventive measures after recognising various incidents in the plants before severe explosion took place. On the other hand, such small occurrence had little value to the Chairman. The production of such a fatal chemical was really a matter of great danger, but irrespective of such conditions necessary actions were not taken. Thus, Anderson can be blamed to a certain extent for the occurrence of this disaster. 3.0 What aspects of corporate citizenship and stakeholder theory can be used here? 3.1 Corporate Citizenship Corporate citizenship implies moral basis for developing management practice and dedication for creating stronger relation with the corporation and the communities where they are operating. Citizenship is regarded as a core value which identify that there is an importance of building close connection between work and leisure, individual and community, individual and organisation as well as organisation and community. Corporate citizenship has three core values that encompass that it is ethical, socially beneficial and profitable (Tichy, 1997). The Carbide plant in Bhopal was neither ethical nor socially beneficial, though they were profitable in their operations. Business ethics were not maintained in the plant as a result the whole plant and the people who lived next to the place suffered tremendously (Gupta, 2002). Business ethics in business relates to three factors such as avoidance of breaking the criminal law in the work related activity; avoidance of action that may bring civil lawsuits against Union Carbide Corporation; and evading of action that may result in bad image of the company (Martin, 2003). The issues related to ethics raise from inefficiency in safety standard along with maintenance process of plant or organisation. The Union Carbide Corporation (UCC) in Bhopal did not maintain the safety standard though there was total protection of the plant in West Virginia which was a sister plant. The ‘computerised data loggers’, which was a standard protection method was installed soon after the sister plant opened, but it was not integrated in Bhopal. Moreover, the corporation did not implement any safety measures. The safety team of Operational Safety Survey which was conducted in 1982 by UCC provided no recommendation to the plant for improvement. The instruments which were used in the plant were not dependable as there was regular leakage of gas. This resulted in tearing as well as burning sensation among the workers (Online Ethics Center, 2010). The plant in spite of eradicating such shortcomings had continued to work only because of inefficient laws and regulations from the Indian government. There were various dilemmas that were associated with the maintenance process. The pressure and temperature estimation instruments were unreliable; the storage tank where MIC was stored already contained MIC and the storage tank of MIC 610 exceeded its required capacity. The warning system which was placed also closed down; the refrigeration system which was used to maintain the low temperature of MIC was not in use; and the gas scrubber in order to neutralise the dodging MIC was shut down as well (Online Ethics Center, 2010). There was defect in flare tower’s design and corroded pipe was unused as well. The water curtain that had been used to neutralise the remaining gas in the tank was short enough to reach the top portion of flare tower. The technicians of the plant were not efficient and they were not provided proper training to deal with these ineffective instruments and equipments. There was no ethical part from maintenance process of the plants (Online Ethics Center, 2010). Corporate Citizenship is also termed as Corporate Social Responsibility (CSR) that primarily refers to the responsibilities towards society. The three broad areas include environment, employees and neighbours along with consumers. These areas are presented beyond the financial responsibility of the company i.e. shareholders and investors. The environmental along with social sustainability are based on CSR activities of an organisation. There are various factors that need to be considered related to environment, employees, neighbours and consumers (Quicker Council for European Union, n.d.). Union Carbide Corporation was required to be responsible towards the environment by maintaining various factors. Rather the corporation polluted the place of operation by their incapability of maintaining the plant which resulted in emission of poisonous gases. They developed the products without considering the protection of environment all over the product life cycle and also failed to develop sustainable operations (Quicker Council for European Union, n.d.). The organisation further possessed responsibility towards their employees by considering various favourable standards but the reverse was the case. Though they avoided child labour but could not ensure employees’ health as well as safety standard and failed to provide training regularly. The other activities which were related to the employees involve collective bargaining, formation of trade union and rights of association among all the employees was not allowed totally by the corporation (Quicker Council for European Union, n.d.). Among all the responsibilities the Union Carbide Corporation basically failed to maintain the safety of the employees. The protection of employees’ life in such type of production plant is necessary as they were dealing with all dreadful chemicals (Gupta, 2002). Various activities for the neighbours and consumers are also important. However, the corporation did not bother about the neighbour rather they were connected with their own benefits. There was no regular monitoring of the operations by the top officials or the Chairman. As a result, it developed a negative impact on the local community. The other two activities towards them encompass collection of information from the people who are affected by the operation and the products need to be developed depending on the consumers’ interests. However, the corporation did not provide much importance and ultimately the whole community had suffered (Quicker Council for European Union, n.d.). The dreadful incident of Bhopal gas tragedy could not maintain the corporate social responsibility towards the environment, employees, consumers and neighbours as well. In 1984, the Union Carbide plant in Bhopal was exploited due to leakage of Methyl Isocyanate. It had led to emission of poisonous gas that affected thousands of people in the place. The corporation assured to pay full compensation to the victims, but they failed on this ground (Quicker Council for European Union, n.d.). The people are still suffering from dreadful diseases and several of them died as well. The area where the tragedy occurred also carried health risk after several years of the incident. The workers of the plant were unsatisfied and suffered from various diseases and the environment was extensively affected from their outflow of MIC. The neighbours of the plant were in great distress from the terrible accident and the consumers were also not satisfied with their operations and products (Quicker Council for European Union, n.d.). A multinational company when it enters in a developing nation bears certain moral responsibility. The corporation had sent a few workers to West Virginia in order to receive training regarding dealing with MIC, but due to economic shortage, training was not provided properly. As a result, several workers remained uninformed of the risk caused due to MIC. Though the instruments were not functioning properly, the government of India due to financial deficit allowed the operations (Online Ethics Center, 2010). UCC blamed the workers operating there and performed media blitz in order to divert themselves towards the UCIL workers. There was no ethical aspects considered in this situation and the corporation had no moral values while operating in foreign countries. As the incident took place in India and there was Indian workers running the plant, the lawsuit that was charged against UCC in the US court was rejected (Online Ethics Center, 2010). 3.2 Stakeholder Theory Stakeholder theory is considered as a technique to understand the ethics in a business. A business organisation possesses several stakeholders such as shareholders, employees, communities, customers, suppliers, competitors and governments. An organisation is based on their stakeholders for the success and failure of their business (Phillips, 2003). The stakeholder theory focuses on five criteria (i) the goal of generating value for stakeholders is particularly a pro-shareholder (ii) creating value for stakeholder creates proper incentives for managers so as to assume entrepreneurial risk, (iii) similar objective function may result in complicated government as well management, (iv) it is easier to develop stakeholder out of shareholder and vice versa, and (v) in the event of breach of contract or trust, shareholder is compared with stakeholder and possess protection by means of mechanism that involves market for shares (Freeman & Et. Al, 2004). The stakeholder theory comprises of various types but in this case of Union Carbide disaster in Bhopal, regulatory stakeholder theory has been used. The regulatory stakeholder theory comprises of rights and interests of the stakeholder groups that need to be protected by rules and regulations of government associated with business activities. The present market scenario demands ‘maximise profits while obeying law’ by fulfilling the responsibility towards suppliers, customers, employees and communities (Health & Norman, 2004). The stakeholders, who are regulatory, take similar interest in mitigating risk. As the safety is essential, thus the corporations are required to bear extra cost for it. The financial crisis in Union Turbine Corporation led to poor training regulations of the workers that caused such disaster. Company while operating in the international market needs to maintain the regulatory approaches of the business in order to reduce the substantial additional cost. Union Carbide plant when it started its operation in Bhopal did not follow the regulatory approaches for working in foreign market. The risk management is involved in regulatory system and various stakeholders are associated with it. The different stakeholders of the corporation were involved in conducting various functions (UNECE, n.d.). After the industrial disaster, the corporation faced challenges in developing relationship with their key stakeholders. Due to reputational crisis, the stakeholders of the corporation evaluated their impression of the corporation as well as the activities. The managers acted in various ways to minimise the outcomes of the crisis. The usefulness of these responses was based on three criteria: the nature of the crisis, response that had been chosen by managers as well as the former relationship between corporations and stakeholders (Phillips, 1999). In reputational crisis, dominant stakeholders are compensated and receive great amount of resources that are available. The main reason behind this is that managers are practical enough to give primary concern to the claim that is backed by stakeholders. Powerful stakeholders utilise the authority in order to claim the management group (Phillips, 1999). A good example had been cited by Bhopal for trade off between power and urgency when there was reputational crisis. Union carbide dealt with two groups of stakeholders that involve Bhopal community along with Indian Government. Stakeholders did not consider the decision of compensating and dealing directly with the victims by Union Carbide due to ‘little urgency’ but great ‘power’ and ‘legitimacy’ of them (Phillips, 1999). The more the power of stakeholders, the more will be their capability to claim on the management groups. The buffering strategy developed by the management will be constraint by the stakeholder with their great power. The plant was required to deal with powerful stakeholders such as Indian government. Thus, it can be referred that the power of stakeholder is inversely related to the buffering strategies. Stakeholders are the caretakers of the reputation of the corporation and thus the influence of the stakeholders’ reaction and explanation have an impact on the image of the firm especially during reputational crisis (Phillips, 1999). The corporation through various processes tried to convince their stakeholders. As the corporation was charged with offences of the disaster, they diverted the attention of the stakeholders from the allegations. The stakeholders were deflected towards other factors that created positive image of the corporation. The allegation against the corporation was accepted by them diplomatically and again created their goodwill among the concern stakeholders. This concept developed strong indication to stakeholders, society and employees regarding the attitude as well as reaction to allegations. As a result, it had a long lasting influence on the relation of stakeholder along with perception of investor about the corporation (Burke & Cooper, 2009). The views of stakeholders were significant throughout the crisis. The positive relation with stakeholders that were generated before the crisis resulted in positive support during crisis. An organisation in order to fit the requirement of the crisis situations should adapt the stakeholders’ views beyond their analysis. The emission of poisonous gases became the environmental issue towards the concern of stakeholders. The environmental problem led to dreadful diseases and health problems to the people (Seeger & Et. Al, 2003). 4.0 Conclusion With reference to the above discussion, it has been observed that the failure of the corporation is due to its incapability to maintain safety standards in the plant. The Indian plant was not given importance and they avoided to implement any computerised technique in the plant. The workers instead judged the probable defects manually that occurred in the instruments. The Chairman and top officials of the company were not concerned about the environment, employees and communities there. They also failed to provide requisite amount of compensation to the victims. The workers and the employees of the plant had suffered from various small injuries for the ineffective instruments before this dreadful incident took place. Though the corporation was aware about all these they did not adopt any preventive measures. The corporation’s duty and responsibility towards society and stakeholders suffered extensively. If the safety measures were developed in the initial stage, then such incident would not have taken place. This incident is one of the dreadful industrial chemical accidents among others. The corporation after this incident had faced great challenges in market share and lost image reputation. The managers of the corporation developed various steps to maintain their image during the crisis. The Corporation must improve their responsibility and activities towards society in order to keep their reputation intact in stakeholders’ mind. References Author Stream, 2010. Business Ethics. Home. [Online] Available at: http://www.authorstream.com/Presentation/dileeptheleader-648602-business-ethics/ [Accessed May 06, 2011]. Browning, J. B., 1993. Union Carbide: Disaster At Bhopal. Union Carbide Corporation. [Online] Available at: http://www.bhopal.com/~/media/Files/Bhopal/browning.pdf [Accessed May 06, 2011]. Burke, R. J. & Cooper, C., 2009. Research Companion to Corruption in Organisations. Edward Elgar Publishing. Dinham, B. & Sarangi, S., 2002. The Bhopal Gas Tragedy 1984 To ? The Evasion Of Corporate Responsibility. Environment & Urbanization, Vol: 14, pp. 89-100. Freeman, R. E. & Et. Al., 2004. The Primacy of Creating Value for Stakeholders. Stakeholder Theory and “The Corporate Objective Revisited”. 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