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Flowers at the altar of profit and power Part 4: the Bhopal 'Settlement'

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 What remains unclarified is the relationship between UCC [Union Carbide], UCE [Union Carbide Eastern] and UCIL [Union Carbide India]. After all, there has been no legal determination of who was responsible for the tragedy of Bhopal. But, even if there had been, it is unlikely - given present laws, legal doctrines and legal practice - that an adequate accounting would be the result. We can, however, address this issue of responsibility sociologically – such an analysis in fact reveals the legal posturings of UCC have plausibility only when read in the context of economic and political power rather than the realities of ownership, control and thus responsibility…


UCC, UCE and UCIL: Title, control and possession

A useful way to address responsibility - particularly in the case of corporations with subsidiaries, joint ventures, involving interlocking ownership and interlocking directorships, and so on - is to focus on three different forms of property relations found in the sphere of economic production: title, control and possession (Jones 1982: 76-8). To simplify somewhat: title refers to how economic production is financed, how investments and contracts are safeguarded, and how the distribution of profits to different title holders is determined; control refers to who has the right and ability to decide which means of production should be purchased, how they should used, and whether or not they should be disposed of; and possession refers to the day to day management of a production process including the determination of work practices. At this point it is important to return to UCC/UCE and UCIL.

As we have seen, the relationship between UCC/UCE and UCIL was the latest in a long line of such relationships that began with National Carbon Company and the Indian National Carbon. During most of this time the parent company owned 100% of the equity in the subsidiary, but by 1956 the percentage was no longer 100% but 60%, later, in 1978, reduced to 50.9%. In 1984 UCC/UCE still owned 50.9% of UCIL’s stock with the other 49.1% owned by private Indian investors and by different levels of the Indian government. This was still a majority shareholding. The significance of this to UCC/UCE and to UCIL is made crystal clear in UCC’s charter: this states unequivocally that the objectives of the corporation would be realised through a management system which distinguished between ‘Category I policies’, which provide the worldwide directives of the company, and ‘Category II policies’, which are operational procedures.

"Both types of policy are issued to subsidiaries (affiliates in which Union Carbide has more than 50% ownership) for adoption and implementation. A subsidiary cannot change the substance of any policy without review by the parent." (Muchlinski 1987: italics added)

Moreover, the exercise of UCC/UCE’s ‘constitutional right’ to require UCIL’s management to implement its policies was facilitated by its great influence on the composition of executive bodies at UCIL. Thus, while it is true that the 5 members of UCC/UCE were in the minority in the 13-member Board of Directors, they were in a clear majority on the 7-member executive committee. UCC/UCE were, in reality, the “directing mind” of UCIL. UCC/UCE played the key role in determining how to distribute profits between dividends, loan payments and new investments (UCC’s approval was necessary for any capital expenditure in excess of $500,000). Their ability to have the major say in what would be done with the fruits of the enterprise and their right to the greatest percentage of the profits meant that their title was preeminent.

Again, UCC/UCE, as the “directing mind” of UCIL, was able to determine the nature and purpose of UCIL’s production facilities and the marketing strategies they followed (Morehouse and Subramaniam 1986: 17). They had played the key role in determining the kind of production process set up in Bhopal and, in the 1970s, UCC/UCE had “insisted that large amounts of MIC be stored there over UCIL’s objections ¼ (T) he UCIL position [was] that only token storage [of the chemical at Bhopal] was necessary” (Everest 1986: 31). The continued existence of the Bhopal plant was UCC/UCE’s decision: it had commissioned a preliminary study of the cost of dismantling the MIC unit and other pesticide production facilities at Bhopal (Dinham et al. 1986: 27). Despite such a threat to its existence, UCIL was not in a position to “go to a competitor of Union Carbide and buy a pesticide plant’ ready-made; and it would be prohibitively expensive to develop a ‘pesticides plant from scratch’” (Muchlinski 1987: 582). UCC/UCE had ‘control’ over UCIL and, in particular, its Bhopal facility.

But it could also exercise possession with and through UCIL even though the workforce’s experience of the Company was largely through the UCIL management, which, formally, had extensive, indeed draconian powers, over the workforce. Nevertheless, at the Bhopal facility, UCC/UCE monitored safety procedures and UCIL was contractually required to rely upon it for technological assistance and updates. Indeed, UCC received significant revenues from its licensing, managerial, monitoring and marketing activities, a not atypical arrangement when transnational corporations [TNCs] engage in joint ventures in less developed countries (Kolko 1988: 165). UCC had the right to intervene in day-to-day matters if safety was affected. Detailed reports on safety and related matters were sent to UCC every three to six months (Everest 1987: 171). In short, then, even though it is clear that the actual social relations in the individual enterprises were ‘lived’ and fulfilled by specific Indian managerial personnel (and individual workers), UCC/UCE ‘possessed’ UCIL; or, it is perhaps more accurate to say that it possessed UCIL when it so wished.

Control and possession seem almost synonyms but they differ somewhat, e.g. while possession always presupposes control, control can be exercised without possession. A parent company may find it as advantageous to exercise as much centralised control over a subsidiary and its production processes as it might do over its own production processes. On occasion, however, it may give a subsidiary a great deal of independence in the way that it conducts its search for profits. But if it does so, it usually requires the subsidiary at the same time to abide by strict financial targets, typically a specified annual return on the capital tied up in it, and to implement the parent company’s SOPs. In these circumstances, to some extent, it has surrendered possession but it has retained control over its subsidiary.

This arrangement has two advantages for the parent company. First, it is possible to employ, relatively cheaply, well qualified and appropriately trained local managers who know how to organize themselves and others to achieve organizational goals, and who, with their extensive local knowledge and local contacts, can do business and probably make profits there effectively. Second, through such ‘government at a distance’ (Callon and Latour 198; Miller and Rose 1990) and by limiting the information that it is recorded as receiving to financial statements, the parent company may create a situation of deniability, a ‘contrived ignorance’ (Luban 1999) of any problematic activity by the subsidiary. Then, if in conducting its business, the subsidiary harms people or the environment, violates human rights, violates laws, customs or moralities etc, those prosecuted or morally censured are likely to be the local managers alone (Coffee 1981: 389). Further, in light of the goals that they are emphasising at one time or another and according to changes in their circumstances, corporations may be able to switch from one mode of organization and control to another, and back again, and so on. Whichever mode the subsidiary is in is determined by the controlling power of the parent (Pearce 2001).

There is strong evidence that from early on in the planning of the Sevin plant at the Bhopal facility a decision was made that the health of workers and local inhabitants was low on the list of priorities. As indicated earlier, in March 1972 there was a generally positive response by the Indian government to UCC/UCE’s 1970 application to manufacture MIC-based pesticides at Bhopal but there was also a requirement that a quarter of the new investment for the plant should be raised by new share offerings to Indian investors. Further, this issue was revisited in 1974-5, finally culminating in 1977-8 in the well-received exclusive offer of shares to those who were already UCIL shareholders. In 2002, important documents were unearthed which show not only that UCC/UCE was concerned about the issue of these shares, but also in their response reveal a great deal about responsibility for the disaster (Edwards and Fontenot 2007). The documents in question were prepared for the 2 December 1973 meeting of the UCE Management Committee, whose members included Warren Anderson. They consisted of a memo on the subject of UCIL’s ‘Methyl Isocyanate-Based Agricultural Chemical Project,’ a copy of a UCC report evaluating the project, and a copy of the 1972 UCC Capital-Budget-Proposal (McKenzie 2002: 1-2).

In 1972 UCC/UCE was certainly interested in profitable overseas expansion of a subsidiary and it was pleased that this project would not require it to engage in any new capital expenditure, since UCIL was going to provide all the funds. However, in the Capital-Budget-Proposal document, concern was expressed that the proposed expenditure of $28 million would entail a share issue of $7 million, thus reducing UCC’s share of equity to a point less than 53.5 % ownership of the company, meaning that its position as the majority shareholder would become increasingly precarious (the absolute minimum acceptable to UCC at this time was a 51% ownership). In response, the authors of the document advocated "negotiation with the GOI to reduce the amount of investment from approximately $28.0 million (RS 215 million) to approximately $20.6 million (Rs. 163 million). The negotiated amounts will be mainly on the Sevin project." (http://www.bhopal.net/oldsite/carbidedocuments/completepages/02dec1973capitalbudget/index.html accessed 25 Feb.2010).

It is clear that UCIL presented to UCC/UCE at least two distinct proposals for the MIC/Sevin plants at Bhopal. The first specified a set of more expensive, thoroughly tested, reliable technologies. The second proposal substituted for the first set of technologies another set which were much cheaper but which were more likely to malfunction and hence put at risk plant operatives and the surrounding communities The fact that these two sets of technologies had been under consideration is made clear in the report attached to a memo sent to the UCE management committee which included Warren Anderson, CEO of UCC:

"The comparative risk of poor performance and of consequent need for further investment to correct it is considerably higher in the UCIL operation than it would be had proven technology been followed throughout. CO and 1—Naphthol processes have not been tried commercially and even the MIC to Sevin process, as developed by UCC, has had only a limited trial run. Furthermore, while similar waste streams have been handled elsewhere, this particular combination of materials to be disposed of is new and accordingly, affords further chance for difficulty. In short, it can be anticipated that there will be interruptions in operations and delays in reaching capacity or product quality that might have been avoided by adoption of proven technology.

UCIL finds the business risk in the proposed mode of operation acceptable, however, in view of the desired long-term objectives of minimum capital and foreign exchange expenditures. As long as UCIL is diligent in pursuing solutions, it is their feeling any shortfalls cane be mitigated by imports. UCC concurs." (UCE 1972, Excerpted from

http://www.bhopal.net/oldsite/carbidedocuments/completepages/02dec1973projectproposal/index.html accessed 25 Feb.2011)

Thus UCC/UCE’s solution was to reduce costs, particularly in the case of the Sevin plant, by significantly downgrading the quality of the technologies that would be used at Bhopal. The second proposal was chosen and UCC/UCE clearly understood the implications of this choice. The report was clear that producing Alpha-Naphthol by sulfonating Naphthalene was to use an untried process, one dangerous since it also produced Beta-Naphthol as a toxic side product. There was an alternative safer program but this was more expensive (D’Silva 2006: 68). In 1982 the Alpha-Naphthol plant was closed down and UCC began importing Alpha-Nathphalene from America. But, of course, there were warnings about the MIC plant too and these were simply ignored. To read this memo and its accompanying documents, and then to re-read Article IV in the 1973 Design Transfer Agreement which claimed it was “the best manufacturing information available”, is to feel confounded by the degree of duplicity and callousness of those who owned and controlled UCC. With a grim fittingness, the memo was sent on 2 December 1973, eleven years to the day before the leak that began in the MIC unit and its storage tank, leading to the Bhopal disaster.










The Bhopal Settlement

It seems clear to us on this basis that the contentions made by UCC concerning the Bhopal disaster in its publicity and its legal arguments do not stand up to scrutiny. Let us recapitulate our argument. UCIL was not an independent company; nor was it Indian backwardness that was responsible for the poor state of the Bhopal plant and its unsafe manufacturing practices. The ‘sabotage’ theory has been presented in a number of guises, yet remains unsubstantiated. The Bhopal plant’s design and standard operating procedures were inadequate and they were the responsibility of UCC not UCIL. Bhopal was an inferior plant to that at Institute, West Virginia, but this plant was not safe either. Indeed, contrary to the version of the history of its operations presented by the Company, UCC has long been a prime example of ‘toxic capital’. Yet to a large extent it was UCC’s ability to achieve plausibility that allowed it to secure such a small settlement.

 

The initial sum demanded by the Indian government had been $3.3 billion. This was anything but excessive, and included no element of punitive damages. In fact, on 14 February 1989, UCC and the Indian government, the latter acting on behalf of the victims of the Bhopal tragedy, reached an out‑of‑court settlement of $470 million. It was agreed that this settlement would render UCC immune from all impending litigation, including criminal charges. The money was to compensate the families of the 3,329 people officially recognized by the Indian government as having died as a result of the tragedy and the 20,000 seriously injured that it accepted as bona fide surviving victims.

 

Why did UCC agree to the sum of $470 million? First, because UCC had managed to severely limit both the number of “legitimate” claimants and the level at which they would be compensated. Second, because for a company with assets of $10 billion it was no great financial burden. Insurance covered approximately $200 million of these costs (Fischer 1996: 262) and the other $270 million was covered by a retrospective levy of 50 cents on the 1988 shareholders dividend reducing it from $1.59 per share to $1.09 a share. This $270 million must be compared with the $1 billion paid out to the shareholders in 1986. But why did the government of India accept the settlement? A large part of the reason was UCC’s success in having the case tried in India rather than in the US. UCC argued that the witnesses to the disaster, the victims, the key players, the documentation and evidence were all in Bhopal, where the UCIL plant was ‘managed, operated, and maintained exclusively by Indians residing in India, more than 8,000 miles away’. The Company claimed that the real reason for the attempt to have the case tried in the US was the potential for a large settlement: ‘as a moth to the light, so is a litigation drawn to the United States’ (cited in Baxi 1986). On the question of litigation, UCC’s particular (and real) concerns have to be related to the general interests of transnational capital whose Third World operations might be threatened by any settlement with a punitive element.

 

Indeed, the Bhopal victims and the Indian government had wanted the trial in the US, providing persuasive reasons for this: that there was such a backlog of cases in India that the trial would take an inordinate amount of time; that tort law was underdeveloped and there was a lack of experienced legal experts; that there were inadequate discovery procedures in India and the laws were constructed around doctrines of negligence rather than strict liability; that this was largely due to the heritage of colonialism; that UCIL’s assets in India were worth less than $100 million; and, finally, and most important of all, that UCC controlled UCIL and the relevant documents and personnel were to be found in the US and not in India:

 

"Key management personnel of multinationals exercise a closely held power, which is neither restricted by national boundaries nor effectively controlled by international law. The complex corporate structure of the multinational, with networks of subsidiaries and subdivisions, makes it exceedingly difficult or even impossible to pinpoint responsibility for the damage caused by the enterprise to discrete corporate units or individuals. In reality there is but one entity, the monolithic multinational that is responsible for the design, development and dissemination of information and technology worldwide." (Affidavit of the Union of India, US District Court, South District of New York, 8 April 1985, cited in Hazarika 1987: 112)

 

Judge Keenan, however, decided that the trial would be held in India but with three conditions: that UCC should itself consent to be tried in India; that it should accept the judgments of the courts there; that it should be willing to be subject to discovery under the model of the United States federal rules and civil procedure (Hazarika 1987: 128).

 

UCC accepted the first two conditions – though, as we have noted in Part One of this series, neither the company nor its CEO Warren Anderson attended the court cases which confirmed their legal status as absconders while convicting local, Indian, plant management. But the company appealed against the third of Keenan's conditions, claiming that it was unfair for the Indian government to have unrestricted access to its records when its own access to the records of the Indian government was to be more limited. Keenan himself had implicitly indicated sympathy to such a plea when he wrote in a footnote that while ‘the Court feels it would be fair to bind the plaintiffs to American discovery rules, too, it has no authority to do so’ (cited in Baxi 1986: 8). Not surprisingly, UCC won its appeal so that instead of using American discovery procedures - which had made possible the successful actions against asbestos producers, such as Johns Manville - the inadequate Indian, or rather Anglo-Indian, discovery procedures obtained.

 

An apparently even-handed settlement was nothing of the sort. Essentially, the American courts had accepted UCC’s presentation of the case — that the crucial evidence and events were in India — and simply ignored that of the Indian government. Baxi summarises Keenan’s reasoning on this point

 

India’s claim was that Union Carbide was ‘the creator of the design used in the Bhopal plant, and directed UCIL’s relatively minor detailing program’, consequently only an American forum had the best access to the sources of proof. The court decides, in response, that ‘most of the documentary evidence concerning design, safety, training, safety and start‑ups is to be found in India’. In doing so, Judge Keenan relies on the affidavits of Messrs. Brown, Woomer and Dutta, all Union Carbide employees. The two agreements between UCIL and the Union Carbide (‘Design Transfer Agreement’ and ‘Technical Service Agreements’) were based on an arms-length corporate practice. (Baxi 1986: 23)

 

We have shown that to take such arms-length agreements at face value is ludicrous since it ignores the considerable evidence of the complex control exercised by UCC over its subsidiaries. Furthermore, there were also good legal grounds for deciding differently.

 

Similarly ludicrous is the fact that the American courts accepted that the interests of a sovereign (and democratic) state and a licensed (and autocratic) corporation were of an equivalent value. They did not believe that a government charged with the security of more than 650 million people had more specific and legitimate concerns with secrecy than that of a corporation. Perhaps this was related to the fact that this corporation was a large America industrial (the 35th largest in 1984), with sales of $9.5 billion and assets of $11 billion.

 

Union Carbide did, however, make one particularly telling series of claims, namely that:

 

"The Indian government may have granted a licence for the Bhopal plant without adequate checks on the plant; that the relevant controlling agencies responsible for the plant were grossly understaffed, lacked powers and had little impact on conditions in the field. More particularly, the Bhopal department of labour office had only two inspectors, neither of who had any knowledge of chemical hazards." (Muchlinski 1987: 575)

 

In other words, the Indian government bore a major responsibility for the Bhopal disaster. Now, there is strong evidence that Indian regulatory agencies were indeed inadequate (Cassels 1993; Everest 1986; Hazarika 1987). But in arguing this position Union Carbide was being disingenuous. First, because it had itself cultivated relationships with personnel at all levels of the Indian state (ARENA 1985) and seems to have itself been party to the circumvention of regulations (Granada 1986). Second, effective regulation, in what was informally a partially ‘deregulated’ country, would have curtailed UCC’s ability to export hazard; and no corporation would be left free, by the law or by its shareholders, to encourage publicly, whether altruistically or autonomously, the development of measures which would restrict its own freedom to locate production (Pearce and Tombs 1998; Jensen and Meckling, 1976; Bakan 2004). In the latter context, then, it is worth emphasising that UCC is a paradigmatic instance of ‘toxic capital’.

 

UCC’s slogan of ‘Safety at any Cost’ portrays a corporate image that is not borne out by reality - a reality which extends from the Gauley Bridge disaster in West Virginia where 476 deaths from silicosis were recorded, its role in the development and use of the carcinogen, vinyl chloride, its nuclear weapons manufacturing plant in Oak Ridge, Tennessee, its dangerous graphite electrodes production facilities in Yabucoa, Puerto Rico (Agarwal et al. 1985: 14‑23) and its plant in Alloy, West Virginia which alone puts ‘out more pollution annually than the total emitted in New York City in a year’ (New York Times, 10 September 1989). But UCC is far from alone. ‘Chemical catastrophe’ – from multi-fatality incidents to environmental degradation on an almost unimaginable scale, not to mention the plethora of silent killers to which the industry exposes workers, consumers and residents – is an inherent element of chemicals production, distribution and use across both the so-called developed and developing worlds (MacSheoin, 2010).

 

Flowers at the altar of profit and power?

In several respects, the ’settlement’ was to prove far from the end of the matter. First, while Union Carbide, now owned by Dow Chemical, paid out £250m in compensation to residents in 1989, only a part of that sum has been distributed. Successful claims have resulted in minimal payments, which began only in 1992. In July 2004, India's Supreme Court ordered the government to distribute money held in the bank, currently worth £174m, to the 566,876 Bhopal survivors and relatives whose claims have been successfully lodged. As we write, legal and political struggles over the level and distribution of the compensation package continue (see, for example, http://bhopal.net/). Second, the settlement in any case is only explicable as a sordid compromise forced upon the weak by the strong, rather than something determined according to equity and the facts of the case. Bhopal cannot be considered merely an unforeseen and unforeseeable event from which the chemical industry could learn. UCC, with the aid of the American chemical industry, the American state and the American courts had succeeded, albeit perhaps only temporarily, in avoiding responsibility for the disaster and in imposing an insulting and inequitable settlement. Third, and as we noted in Part One, the settlement itself has been challenged and attempts at legal redress were subsequently resurrected – a struggle which continues, as we write.

 

Frank Pearce, Professor of Sociology, Queen's University, Canada, and Steve TombsProfessor of Sociology, Liverpool John Moores University.

 

For Part 1, click on Flowers at the Altar of Profit and Power: the Continuing Disaster at Bhopal.

For Part 2, click on Flowers at the Altar of Profit and Power Part 2: Explaining the Disaster at Bhopal

For Part 3, click on Flowers at the Altar of Profit and Power Part 3: Was the disaster at Bhopal "unforeseeable"?

For Part 5, click on Bhopal: criminal, immoral or the cost of business as usual?

For info on the Pearce and Tombs 'column' here on CrimeTalk, click on Crimes of the Powerful and Insurgent Resistance

 

Click on References for the extensive bibliography on the Bhopal disaster used in this article and the whole series. The series makes use of ch. 6 of Frank Pearce and Steve Tombs' Toxic Capitalism: Corporate Crime in the Chemical Industry, 1998, Ashgate: Aldershot; paperback version, 1999, Canadian Scholars Press, Toronto. See also: Tombs, S. and Whyte, D. (2007) Safety Crimes. Cullompton: Willan. Support CrimeTalk by buying these books through our Shop.

A FREE pdf copy of Toxic Capitalism can be downloaded at Frank Pearce's website here.

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