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Carbide Has Long History of Difficulty : Accidents Reflect Its Reputation for Aimless Management

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Times Staff Writer

When Union Carbide transferred its headquarters several years ago from Park Avenue to a rural Connecticut glade 70 miles away, the company thought the move symbolic of innovative management.

The venture became a symbol of a different sort, however. Carbide took a bath in selling its old building, which it put on the block at the bottom of a New York office market that would be booming just two years later. That, and the modernistic new building’s isolation from even New York’s remoter suburbs, is emblematic of what many observers of the company consider its long history of disappointing and lackluster management.

Union Carbide’s performance--financially, but mostly in its attention to safety--has come under unprecedented scrutiny now for tragic reasons. In December, more than 2,000 people died from a poison gas leak at a Carbide subsidiary’s pesticide plant in Bhopal, India, and last week scores of people were injured by a gas leak from a sister plant in Institute, W.Va. Days later, a chemical spill from a third plant in South Charleston, W.Va., fouled local water supplies.

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Further Doubts

The company’s response to all three events has inevitably raised questions about its commitment to industrial safety. That the Institute plant suffered a serious toxic leak only months after Carbide moved to install equipment designed to avert a Bhopal-type accident has engendered further doubts about its ability to manage adequately the delicate and dangerous processes of chemical manufacture.

“Given the extraordinary scrutiny of Carbide in the wake of Bhopal, there is obviously some level of failure in the system,” says Ellen Silbergelb, a toxic-substances researcher for the Washington-based Environmental Defense Fund.

The two major accidents represent far more than a public relations problem. Rather, they reflect the company’s reputation for aimless management and its penchant for promising positive results and delivering mediocrity. In a prescient report on the company dated July 2, Paine Webber stock analyst Peter E. Butler argued, “poor management performances beget bad luck as well.”

Carbide officials declined to be interviewed for this story, citing the pressures of dealing with the most recent problems in West Virginia.

The accidents at Institute and Bhopal may so consume the time of top Union Carbide executives that they delay implementation of a long-promised corporate restructuring.

The company has been suggesting for several years that it would shed some of its least profitable businesses to concentrate on its most productive areas--particularly the consumer markets in which such Carbide products as Eveready batteries, Glad bags and Prestone antifreeze hold commanding market shares. The critical restructuring, which may have to await a legal settlement with the Bhopal victims, may be years off.

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Bhopal and Carbide’s drifting performance also may be the last career challenge for its chairman and chief executive since 1982, Warren M. Anderson, 63, a chemist and lawyer who has spent his entire working life at Carbide and earned $961,000 last year.

Anderson, wrote Paine Webber’s Butler in a stern appraisal, “has a clear choice: Either he can continue the ‘status quo’ management that has steered the company along the disappointing course of the last several years and retire next year, leaving a poor legacy, or he can salvage his place in history by finally implementing the long considered, strong, dramatic measures required to bring the company under control.”

Environmentalists and public-interest professionals who have dealt with the company say its behavior on safety issues is not noticeably worse than that of other major chemical makers--but not arguably better, either.

“What’s happening to Carbide could happen to anyone else tomorrow morning,” says Anthony Massocchi, former legislative director of the Union of Oil, Chemical, and Atomic Workers. “The chemical industry has been allowed to determine its own standards, and production takes precedence over safety.”

Praise From Some Activists

Still, Carbide does receive praise from some activists for the initiatives it has taken in marketing pesticides responsibly in the Third World--a major concern of environmental groups that contend the chemical industry encourages inappropriate use of dangerous compounds in developing countries.

Through Robert Oldford, director of the company’s division of agricultural chemicals, Carbide helped form a group including industry and public-interest representatives to develop marketing guidelines for the Third World. Among other things, the company agreed to make no safety claims in advertising for the inherently hazardous pesticides, to label containers with nonverbal warning symbols or in the vernacular, and to avoid advertisements showing people using pesticides without safety clothing.

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“Carbide played a major role in the dialogue group,” says Karim Ahmed, research director and senior staff scientist for the Natural Resources Defense Council, another participant in the discussions.

Yet Carbide has also angered environmentalists and occupational safety specialists by joining, if not leading, the chemical industry’s campaign against so-called right-to-know laws, which require makers or users of hazardous compounds to inform workers and local authorities of the nature and quantity of toxins in use at each work site. The industry is supporting a federal version that public interest activists say is weaker than many local proposals and would preempt localities from passing their own laws.

Moreover, like most other chemical makers, the company has failed to reach an entente with its unions over safety issues. In its response to the accidents at Bhopal and Institute, union representatives say, Carbide has shown less than the forthright concern it has tried to communicate to the public at large.

“They never asked us to be a party to their investigations of these accidents,” said George Robinson, safety director of the International Assn. of Machinists, which represents many workers at Institute. “Even after Bhopal, they were very stubborn. They kept our safety committee out of their meetings in Institute after Bhopal. It was the same old attitude that had been there for years.”

Silbergelb of the Environmental Defense Fund notes that the poor reputation of many chemical makers tends to be “chemical-specific”--based on problems that arise in the use or toxicity of individual products. Monsanto, for instance, has been suffering a blackened reputation from PCBs, polycarbonated biphenyls, a class of electrical insulating compound that the company manufactured until the late 1970s, when they were discovered to be highly carcinogenic.

The corresponding Waterloo for Union Carbide appears to be Temik, a highly toxic pesticide manufactured by a reaction involving methyl isocyanate, the compound involved in the Bhopal disaster, and aldicarb oxime, a reagent that escaped into the atmosphere at Institute.

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Temik gained notoriety this summer as the contaminant that forced the recall of thousands of California watermelons following evidence that it was used improperly on melon fields. But long before that, problems arose after its application on the potato fields of Long Island poisoned the drinking water of as many as 12,000 residents.

The Environmental Protection Agency banned Temik from the potato fields in 1980, shortly after a class-action suit alleged that it was leaching into the underground springs from which most people on the suburban island--a 150-mile-long sand bar--draw their water. Since then, Union Carbide has agreed to a settlement that involved paying a total of $250,000 in cash to about 2,400 residents whose wells are contaminated, reimbursing $300,000 in legal fees, and installing and maintaining filtration and testing equipment for them.

Plaintiffs in the suit say Carbide should have known when it began selling the compound in 1975 that it was inappropriate for the region’s loose, sandy soil and high water table.

“We believed they had evidence that, had they extrapolated, would have shown exactly what would happen,” says Peter Berle, former director of the New York State Department of Environmental Conservation, who brought the case as a private attorney. Berle’s group was prepared to submit such evidence to the court, but settlement negotiations began shortly after the suit was filed.

Carbide’s financial performance also has been disappointing, analysts in New York say. The entire chemical industry has been mired in a slump for several years, but Carbide’s results are worse than most, consistently trailing those of other major chemical makers.

For each $100 worth of shareholder investment, the company generated an after-tax profit of $6.80 in 1984--well below the industry average of $11.50 and that of such rivals as Dow Chemical ($10.70), Du Pont ($12), and Monsanto ($11.80).

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“The operating performance of Union Carbide management has been sub-par, they have a below-average profitability for the industry, and they have had more than their share of disappointments,” says Leslie Ravitz, a chemical industry expert for the investment house of Salomon Bros.

Carbide’s 1984 profit of $341 million was only 3.6% of its total sales of $9.5 billion, the lowest profit margin among chemical makers of its size. The profit figure does not include an $18-million write-off the company took late in 1984 to cover expenses from the Bhopal disaster--mostly because of missed shipments, canceled orders and plant shut-downs.

The company’s ultimate liability from Bhopal has not been determined. In addition to dozens of private lawsuits filed on behalf of Bhopal victims, the government of India sued Carbide in April, alleging that the company was negligent and seeking unspecified actual and punitive damages. Company executives still contend that the Bhopal accident will not have a particularly significant effect on its financial condition.

In the first three months of this year, the company earned $71 million on sales of $2.2 billion, a 34% drop in profits from the same period a year ago.

Observers say Carbide has been unable or unwilling to pare away less profitable operations that drag its performance down. A key trouble spot is its metals and mining division, where pretax profits slid to $31 million last year from $291 million in 1981.

The division’s decline is no surprise: Its largest customer is the sickly U.S. steel industry. Now, businessmen say, it is too late for Carbide to sell off the division without a financial bloodletting.

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“Clearly there was a market for those assets when they were profitable, but they did not divest,” says Ravitz. “The deterioration of that market was evident for several years, not just in the last six weeks.”

Even Carbide’s aggressive steps have had baleful results. In the early 1980s, the company invested millions in a new, cheaper process for the manufacture of ethylene derivatives, the raw materials for polyester, antifreeze and polyethylene plastics.

Headquarters Bungle

“They thought they’d drive the other, higher-cost producers out of the market,” says Donald A. Pattison, a chemical industry analyst for Cyrus J. Lawrence, an investment management firm. Instead, Carbide’s competitors stayed in the market. The result: a worldwide oversupply of ethylene derivatives, which plunged in price. The pretax results of the division making the products dropped from a $131-million profit in 1981 to a $39-million loss the following year.

Then there is the headquarters bungle. After deciding to move, Carbide sold its Park Avenue skyscraper in 1977 to Manufacturers Hanover Trust Co. for $110 million, or $92 per square foot. The big bank chose not to sell its own Park Avenue building nearby until 1981, when the New York City fiscal crisis had passed and it got a price of $161 million, or $333 a square foot.

These consistent disappointments are compounded by the company’s habit of optimistic predictions. At one time, the company forecast that it would earn $13 per share by 1983. When that date arrived, the per-share profits came to $3.11.

“In 1984, they earned one-third of what they earned in 1974,” says Pattison. “When you talk about performance, that’s what you talk about.”

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Carbide’s ailing divisions mask some real opportunities in its better businesses. The company is a leader in the supply of industrial gases such as oxygen, nitrogen and argon, which are sold to the oil, chemical and metallurgical industries, among other customers. And its consumer products division boasts some of the strongest brand names in the country.

But to capitalize on its chances, financial analysts say, Carbide will have to move with a vigor it has not shown in a decade. The company should sell its petrochemical operation and others to raise at least $1.5 billion, says Butler of Paine Webber.

As Carbide deals with the Bhopal and Institute accidents, it faces the prospect that other companies will try to take advantage of its weakened condition. GAF Corp., a competitor, has bought 5.6% of the company in recent weeks, and that may lead, GAF says, to some sort of “business combination.” Wall Street has speculated that GAF may pressure Carbide to sell it certain assets.

“In 1984, they earned one-third of what they earned in 1974. When you talk about performance, that’s what you talk about.” Donald A. Pattison, chemical industry analyst

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