Defining corporate responsibility

NEW YORK (AP) – Twenty years later, the Bhopal disaster still echoes in the way companies ranging from The Dow Chemical Co. to Nike Inc. and Gap Inc. make decisions, assess risk and define corporate responsibility – overseas and at home.

The deadly gas leak at Union Carbide Corp.’s subsidiary in Bhopal, India, on Dec. 3, 1984, gave corporations a strong incentive to identify potential problems in their own operations and look for ways to reduce risk.

Today, big corporations spend millions of dollars trying to identify and mitigate risks before manufacturing overseas, outsourcing or launching new products. Companies like Nike and Gap monitor working conditions at their contractors’ operations to avoid allegations that they use sweatshop labor, while chemical giants such as Dow Chemical promote safety in their U.S. and overseas locations.

When something does go wrong, companies take the offensive. Merck & Co., facing hundreds of lawsuits over the safety of its recently withdrawn drug Vioxx, has made its chief executive available for interviews and taken out newspaper ads in hopes of repairing its damaged reputation.

"The impact on shareholder value from negative public relations can be devastating," said Jagdish Sheth, a marketing professor at Emory University’s Goizueta School of Business. "It can lead to litigation which can literally destroy a company."
Eventually, Union Carbide settled with the Indian government for $470 million, but the incident resulted in a torrent of negative publicity.

The fallout from Bhopal prompted the chemical industry to reassess the way it ran its plants and communicated with the public. Industry leaders launched Responsible Care, an initiative designed to assuage shareholder and public fears of another Bhopal by promoting safety and performance standards.

The standards are voluntary, but many companies say it would be financially and ethically irresponsible to do anything else. As a result, corporations increasingly require overseas operations – whether they own them or not – to meet the same types of safety standards as their hometown counterparts.

"You will find the same standards in our facilities overseas here as we have there," said David Graham, global vice president for environmental health and safety at Dow, Union Carbide’s current owner. "That was a decision made many years ago, and it’s a difficult one because of the competitive nature of our business."

Even in cases when Dow doesn’t have full or majority ownership of an overseas facility, Dow expects that its "standards will be met," Graham said.

"Nobody wants another Bhopal, but it goes beyond just humanitarian concerns," said Sheth, the Goizueta professor. "It’s much more about risk management, shareholder management."

Sheth said the costly litigation involving tobacco, asbestos and breast implants in recent years has given corporations another incentive to make their business as risk-free as possible.

Still, critics say most companies have yet to take enough responsibility for risk – particularly when it comes to financial matters.

"If you have someone or something bringing in a lot of money, it’s hard to stop them or say no," "said Paul Argenti, a professor at Dartmouth’s Tuck School of Business. "Things have gotten better than they were, but we still have a long way to go."

Merck’s shares have plunged roughly 40 percent since its Sept. 30 recall of Vioxx amid questions about whether Merck should have acted sooner. The company is also facing numerous lawsuits.