Dow Chemical and the Bhopal Disaster - Case Study Example

Dow Chemical and the Bhopal Disaster TABLE OF CONTENTS Introduction 2 Dow Chemical and its CSR/Sustainability Practices 3 The Dow / Union Carbide Relationship 5 The Bhopal Incident 7 The Responses to Bhopal by Union Carbide and Dow 8 References 10 Introduction In 1984, a Union Carbide plant in Bhopal India suffered a devastating chemical disaster as a result of an explosion that released toxic methyl isocyanate (Hood, 2004, pp 353-354). The incident caused the passing of 25,000 individuals as a result of chemical complications and to this day an estimated 150,000 people suffer from medical problems related to that fateful day (Ansell and Tinsley, 2011, p. 1). In exploring that incident this study looks at the manner in which Corporate Social Responsibility was exercised in terms of responsibility as well as ethics.   In approaching the subject matter with regard to CSR implications as to how the events were handled from an ethical as well as corporate responsibility point of view, consideration was given concerning the time frame. The term Corporate Social Responsibility was first coined and developed in the latter part of the 1970s by Archie Carroll (1998, p. 2). At that time CSR referred to four areas: economic, legal, ethical as well as philanthropic (Carroll, 1998, p. 3). Going back to the roots of CSR is important in this instance as it provides the context for understanding the climate regarding this area as it applied in 1984. As a recent case (2010) was filed by the government of India against all the parties connected to that incident and associated parties as a result of acquisitions, sell-offs and other business moves during the 28 years since (The Hindu, 2010), the question of CSR with respect to Union Carbide and Dow Chemical takes on meaning. In terms of the latter, Dow Chemical, it became embroiled in this latest suit as a result of it acquiring Union Carbide in 2001, thus necessitating they be named in a suit against its (Dow’s) subsidiary.   As shall be explained, Union Carbide did not act ethically in its handling of the Bhopal Incident in 1984 under a CSR environment in its evolutionary stage that nevertheless did clearly point to the areas of acting appropriately in an economic, legal, ethical and philanthropic manner. The reasons for making the above statement are contained in this examination and are briefly explained as Union Carbide electing to avoid taking responsibility through placing blame on a disenfranchised employee (Los Angeles Times, 1986). The fact the company did not have safety or security precautions precluding the alleged worker’s actions represented an ethical (Responsibility in today’s terms) breach it did not acknowledge. Regardless of the circumstances, the company is responsible for operating a secure plant. In addition, Union Carbide, as shall be shown herein, shrugged its legal and ethical implications (termed Corporate and Social today) in its handling of the cash damages.   By today’s standards and international acceptance of CSR as a model of proper corporate behaviour, assumption of responsibility and its role in society as a good corporate citizen, Union Carbide’s actions in the handling of the Bhopal incident was shameful. As the parent company, Dow Chemical has been caught up in an event that preceded its acquisition of Union Carbide by 17 years. This represented and represents a unique application of CSR that as indicated herein represented a legal as opposed to CSR issue for the parent company. Dow Chemical and its CSR/Sustainability Practices In looking at Dow Chemical with regard to its position, and statements on CSR/Sustainability, an understanding of these terms shall be explored prior to reviewing Dow Chemical’s stance. Corporate Social Responsibility (CSR) represents internal self-regulation by corporations that are a part of their strategy, operations, and business models as to conduct (Matten and Moon, 2005, pp. 327-328). As a concept, the term CSR came into usage in the late 1960s and early 1970s as a result of the growing recognition and use of the term stakeholder as a word as well as a concept (McWilliams and Siegel, 2001, p. 301). The preceding term (stakeholder), referring to people, communities and or organisations the corporation’s activity impacts or has an impact on (McWilliams et al, 2006, p. 3).   As a diversified chemical company that specializes in “…electronics, coatings, plastics, health, and agricultural sciences fields and more” (CSR-reporting, 2009) Dow is located in 37 different countries and employing in excess of 52,000 people. Dow Chemical has been actively engaged in CSR reporting as a public service since 1997 when this function was basically in its infancy (csr-reporting, 2009). As a means to gain insight into Dow’s CSR the independent analysis provided by csr-reporting (2009) represented a more balanced approach than one gleaned from the corporation’s website that understandability would be biased in its favor. Evidence of the company’s achievement of stellar results in this area are demonstrated by is winning the CSR Award for its water reuse project in Terneuzen, the Netherlands at the company’s Benelux plant (Whitfield, 2008). In 2012 the company was a winner at the “… Seventh Annual Corporate Social Responsibility (CSR) Awards Ceremony” in Shanghai, China (American Chamber of Commerce – China, 2012).   The report by CSR-reporting (2009) praised Dow Chemical for its depth in reporting standards. In addition to the above, Dow was named for the eleventh time to the Dow Jones Sustainability Index (CSRwire, 2011). The recognition of Dow Chemicals in this regard by an external source speaks volumes concerning the nature and quality of its CSR commitment. As an indication of Dow’s standards, in 2011 the company achieved the highest score in the sector relating to corporate governance (CSRwire, 2011). The company recorded an overall CSR score of 87 percent that was 30 points higher than the industry average for its group, and Dow was one of ten chemical companies that were recognized by the World Index (CSRwire, 2011). The consistent placement of the company at the higher levels in Sustainability ranking by external sources is proof of the commitment and achievement of the company.   Dow’s (2012) corporate CSR website makes the interesting statement that “While we continue to learn, we are making progress”. This view, more than any other is telling as the company acknowledges CSR as an evolutionary function that can and should be improved on as opposed to having the perspective a company has it right and can rest on its laurels. The company states its CSR philosophy is built on eight principles it strives to make continuous progress on (Dow, 2012). The above represent 1. Product Stewardship where the company endorses, promotes and fulfills “… Responsible Care Guiding Principles and Codes of Management Practices worldwide” (Dow, 2012). The second is Stakeholder Partnerships and Dialogue where the company seeks to promote as well as seek input from its partnerships with nongovernmental organizations, local communities as well as key stakeholders (Dow, 2012).. Dow’s (2012) third principle is Eco-Efficiency it seeks to achieve through product design and facilities that consider energy and natural resource use. The company’s fourth principle represents Eco-Integrity that seeks to understand and implement “… regenerative capacity of eco-systems and protect valued areas of recognized ecological and cultural significance” Dow, 2012). In explaining its fifth principle Dow (2012) refers to Local Versus Dow Standards where it seeks to apply the more stringent safety requirements in the countries it operates as represented by local government or Dow standards. Under the sixth principle, the company under Equity and Quality of Life states it seeks to “… create shareholder value through environmentally sustainable economic development, social equity and ethical behavior” (Dow, 2012). The seventh Dow (2012) principle is Employee and Public Outreach where it seeks to enhance the potential of employees using education to aid in furthering the development of public policies under sustainable development. Under the eighth and last principle Transparency, Dow (2012) pledges to report on the state and status of its progress in a manner that is transparent as well as open.   The above principle, on the heels of external comments and ratings of the company, represents a means to understand Dow Chemical does strive to uphold the highest standards in CSR / Sustainability. The Dow / Union Carbide Relationship As a subsidiary of Dow Chemical, Union Carbide since the date of its acquisition in 2001 has been and is bound by the parent company’s CSR / Sustainability principles and guidelines. The 2002 The Dow Global Public Report was accessed as this represented the first document after the acquisition of Union Carbide (Dow, 2002). The Report states every subsidiary is accountable for operating under the defined principles and policies of Dow’s CSR / Sustainability practices as well as Environmental, Health and Safety objectives (Dow, 2002). The statement and position of the parent company is clear in this regard as a subsidiary, Union Carbide is bound by all of the CSR / Sustainability mandates as put into policy by the parent company. The severity of the Bhopal incident has represented an ongoing nightmare for Dow Chemical despite the fact all legal claims with regard to the cause, the incident itself, legal claims and other factors occurred 17 years prior to its acquisition.   In assessing the situation today, 28 years later, one needs to be cognizant Dow Chemical acquired Union Carbide in 2001, which was seventeen years after the 1984 Bhopal event. The issue being raised today is India legal action is claiming Dow Chemical as liable for the acts of Union Carbide as the case concerning its culpability was still ongoing and unresolved when Dow acquired the company (Kripalani, 2008). At the core of the present controversy is the fact the Indian courts have yet to rule on several issues involving the incident (Kripalani, 2008). While the victim’s compensation case settlement has been handled, there is the contention on the part of Indian authorities when Dow acquired Union Carbide it took responsibility for the incident as the surviving company (Kripalani, 2008). What makes this ascertain even more interesting is Union Carbide sold off the remainder of its interest in the Bhopal plant ten years prior to the Dow acquisition (Kripalani, 2008). The point the Indian government is making is the site was never properly cleaned up, thus the lines of responsibility and liability were attached to Union Carbide when Dow acquired it (Kripalani, 2008).   Union Carbide’s handling of the incident suffers from a number of noteworthy mistakes, omissions and questionable CSR practices that were recognised to exist in 1984. As brought forth in a prior segment Carroll’s (1998, p. 2) CSR principles of Economic, Legal, Ethical and Philanthropic elements bound Union Carbide to act in a responsible manner. Under Economic responsibility, Union Carbide was bound to have the financial capability and reserves to undertake corporate activities as a hedge against possible or potential actions it might have to rectify (Carroll, 1998, p. 2). With regard to Legal, it was bound by responsibilities to conduct operations within the law as represented by the countries it does business in as well as internationally accepted behaviour and actions (Carroll, 1998, p. 2). The Ethical facet is the understanding a company should seek to do more than what the law dictates as ethical behavior signifies doing what is not only right but just (Carroll, 1998, p. 2). Philanthropic activities represent a means for a corporation to give back to the communities and countries it does business in as a good member of society (Carroll, 1998, p. 2).   The above aspects bound Union Carbide in 1984 and the seventeen years prior to its acquisition by Dow Chemical. As a subsidiary, it is now bound by the CSR and Sustainability policies and principles of its parent company. The next two segments of this study will illuminate the Bhopal disaster and the legal as well as ethical responsibilities of Union Carbide and Dow Chemical as represented by a balanced and objective view of the facts and law. The Bhopal Incident In looking into the Bhopal event, one needs to be cognizant in occurred in 1984. As a result, an understanding of the CSR climate for that period will serve to provide context to this examination. This aspect was set forth under Carroll’s (1998, p. 1) four key principles of economic, legal, ethical and philanthropic facets described above.   In examining the Bhopal incident with regard to CSR, a few facts need to be illustrated as a means to enter into a meaningful discussion and analysis. In 1984 the Union Carbide plant in Bhopal, India represented a joint ownership consummated in 1969 by the company (50.9%) and a consortium of Indian financial institutions as well as private investors (Ansell and Tinsley, 2011, p. 1). The disaster occurred as the result of water seeping into a tank containing approximately 40 tonnes of methyl isocyanate (MIC), a toxic gas that undergoes rapid expansion and thus exploded (Ansell and Tinsley, 2011, p. 1). The toxicity level of MIC is rated as 500 times more lethal than cyanide with the end result of the water and MIC mixture causing the deaths of between 8,000 and 10,000 on the first night, with more than 25,000 people succumbing to complications by 1994 (ten years later) (Ansell and Tinsley, 2011, p. 2).   In analyzing the implications of CSR as they relate to the Bhopal disaster, a further understanding of the term and its legal implications is necessary. The foundation behind CSR is companies must consider the environmental, social as well as economic implications of their business activities and operations (Bevan et al, 2011, pp. 172-173). In looking at the legal implications, the Conseil des barreaux Europeans (2008) (Council of Bars and Law Societies of Europe) confirms all that has been thus far presented herein on CSR and adds or clarifies a few more aspects. The globalization of markets means corporations are expected to act in an ethical manner that is held to an international standard taking direct responsibility for the manner they (companies) manage their social as well as environmental impacts Conseil des barreaux Europeans (2008).   The above parameters indicate the government of India should have acted with more resolve in terms of the Bhopal incident and refused a $470 million settlement when it initially filed for $2 billion in damages (Ansell and Tinsley, 2011, p. 1). The case and event represent reprehensible behavior on the part of Union Carbide in seeking the cheapest resolution of the issue where the victims received an average of $500 USD for lifelong injuries, disfigurements, and suffering (Polgreen and Kumar, 2010). The timing of the incident and case was in Union Carbide’s favor as the United States and India were in the middle of a dispute over the signing of the Nuclear Nonproliferation Treaty that capped liability for U.S. Companies operating in India at $100 million (Polgreen and Kumar, 2010). Deliberation ascertained the case be adjudicated in India, thus the acceptance of the $470 million settlement from Union Carbide represents a product of that court system despite issues with the United States concerning the above Treaty (Bhopal Information Center, 2010). The Responses to Bhopal by Union Carbide and Dow The area Dow is using concerning it ascertain it is not liable represents it acquired a company free from outstanding legal claims (Kripalani, 2008). This represents an interesting point when Dow acquired Union Carbide it acquired its assets and liabilities as well as any potential future actions brought on by product recalls, legal cases pending or arising out of past issues or actions of the company (Lawyers.com, 2011). In another confirming view regarding assets, liabilities and pending legal action on mergers and acquisitions, Evans (2000) advises the due diligence phase equates any and all pending or potential legal actions as a part of the acquisition prices in consideration of the values of assets and other liabilities. In a ruling reached in 2012 United States District Judge John Keena in Manhattan, New York he dismissed claims of liability against Union Carbide for the 1984 Bhopal disaster (Dow Jones Newswire, 2012). The court ruling was based on the fact Union Carbide sold its stake on the Indian plant in 1994 (almost a decade before Dow Acquired it). He ruled the company is not liable as that liability transferred with the sale of the asset (Dow Jones Newswire, 2012). The new owner, McLeod Russel (India) Ltd. purchased the plant (Union Carbide, 2011), and as indicated under merger or acquisition legal precedent, the new owner assumes liability for the asset and pending or future legal claims.   The reopening of the Bhopal case in 2010 by the government of India was undertaken to seek more compensation from Dow Chemical and two Indian companies for the 1984 incident. As a result, Dow Chemical’s acquisition of Union Carbide in 2001 meant it took over a company that had no ties, interests or any other association to the Bhopal Plant, excepting its prior ownership, which it divested itself of. The Supreme Court of India in 2011 revisited the Bhopal case and served Union Carbide, Dow Chemicals and others they were seeking added compensation from for the tragedy victims that was over and above the settlement of $470 million (Sarangi, 2002, pp. 91-92). The settlement figure was considerably less than the $2 billion figure initially put on the event by Indian courts (Sarangi, 2002, pp. 91-92). The $470 million settlement was accepted by India in 1989 at the directive of the Supreme Court of the country and Union Carbide made payment ten days after the figure was accepted (Bhopal Information Center, 2011).   The above historical recounting of the events, decisions, acquisitions and M&A laws has been conducted to provide a clear perspective on the issue as opposed to one side or the other. The core of this study seeks to examine Corporate Social Responsibility in the context of the Bhopal disaster. The aim represents exploring the values of CSR with regard to this incident to ascertain and acceptable social, environmental and ethical behavior to the events. The information as provided herein has portrayed the facts of the incident where Union Carbide and Dow Chemical have been found to no longer be liable. References American Chamber of Commerce – China (2012) Dow Chemical, Intel, KPMG and Atlas Copco Recognized at Seventh Annual AmCham Shanghai CSR Awards Ceremony. Accessed on 29 June 2012 from http://markets.financialcontent.com/stocks/news/read/20799421/Dow_Chemical Ansell, R., Tinsley, A. (2011) Bhopal’s legacy. The Environmentalist. October. p. 1 Bevan, D., Corvellec, H., Fay, E. (2011) Responsibility Beyond CSR. Journal of Business Ethics. 101(1). pp. 172-173 Bhopal Information Center (2010) The Incident, Response, and Settlement. Accessed on 29 June 2012 from http://www.bhopal.com/incident-response-and-settlement Carroll, A. (1998) The Four Faces of Corporate Citizenship. Business and Society Review. 100(101). p. 2 Conseil des barreaux europeens (2008) Corporate Social Responsibility and the Role of the Legal Profession” A Guide for European Lawyers. Brussels, Belgium. Conseil des barreaux europeens csr-reporting (2009) Dow Chemical’s CSR Report 2009. Accessed on 28 June 2012 from http://csr-reporting.blogspot.com.es/2010/08/dow-chemicals-csr-report-2009.html CSRwire (2011) CSR Press Release. Accessed on 28 June 2012 from http://www.csrwire.com/press_releases/32864-Dow-Named-for-Eleventh-Time-to-Dow-Jones-Sustainability-Index Dow (2002) The Dow Global Public Report 2002. Accessed on 29 June 2012 from http://www.corporateregister.com/a10723/dowcc02-pub-usa.pdf Dow (2012) Our Company. Accessed on 19 June 2012 from http://www.dow.com/company/corp/corp.htm Dow Jones Newswire (2012) Court rules Union Carbide not liable in Bhopal case. Accessed on 28 June 2012 from http://news.morningstar.com/all/dow-jones/us-markets/201206272115/000714/court-rules-union-carbide-not-liable-in-bhopal-case.aspx Evans, M. (2000) Course 7: Mergers and Acquisitions. Accessed on 28 June 2012 from www.exinfm.com/training/course07-1.doc Hood, E. (2004) Lessons learned? Chemical plant safety since Bhopal. Environmental Health Perspectives. 112(6). pp 353-354 Kripalani, M. (2008) Dow Chemical” Liable for Bhopal? Accessed on 28 June 2012 from http://www.businessweek.com/stories/2008-05-27/dow-chemical-liable-for-bhopal Lawyers.com (2011) Business Basics of Mergers and Acquisitions. Accessed on 27 June 2012 from http://business-law.lawyers.com/buying-selling-businesses/Business-Basics-of-Mergers-and-Acquisitions.html Los Angeles Times (1986) Carbide Blames Worker for Bhopal Leak. 11 August. Los Angeles Times Matten, D., Moon, J. (2005) Corporate Social Responsibility. Journal of Business Ethics. 54(4). pp. 327-328 McWilliams, A., Siegal, D., Wright, P. (2006) Corporate Social Responsibility: Strategic Implications. Journal of Management Studies. 43(1). p. 3 McWilliams, A., Siegel, D. (2001) Corporate Social Responsibility: A theory of the firm perspective. Academy of Management Review. 26(1).p. 301 Polgreen, L., Kumar, H. (2010) 8 former executives guilty in 84 Bhopal Chemical Leak. 7 June. The New York Times Sarangi, S. (2002) Bhopal gas tragedy 1984 to? pp. 91-92 The evasion of corporate responsibility. Environment and Urbanization. 14 (1). pp. 91-92 The Hindu (2010) Bhopal gas tragedy case: MP Gov't to file appeal. The Hindu. 9 June. Union Carbide (2011) History. Accessed on 28 June 2012 from http://www.unioncarbide.com/history/ Whitfield, M. (2008) Dow Chemical's award-winning entry saves water and energy through an innovative collaboration to recycle municipal wastewater. Accessed on 29 June 2012 from http://www.icis.com/Articles/2008/10/13/9162810/icis-innovation-awards-dow-chemical-wins-csr-category.html Read More