Bhopal a Hard Lesson in Value of Safety Rules

The $470-million damage award levied by the Supreme Court of India against Union Carbide for the 1984 Bhopal disaster is adequate by Indian standards but low by American standards. That’s one reason that corporate and government officials, both in India and the United States, wanted the case tried and settled in India.

The money is only one of the ironies and lessons of the Bhopal settlement that are worth considering as more U.S. companies do business abroad and foreign companies come here. Another is the influence Bhopal has had on U.S. business’ thinking on building new plants.

Bhopal was one of the world’s worst industrial accidents. In December, 1984, a poisonous gas used in pesticides leaked accidentally at a chemical plant owned by a company named Union Carbide India Ltd., and killed 3,330 people while seriously injuring some 35,000 others in a town 400 miles south of New Delhi.

Union Carbide India is 50.9% owned by Union Carbide Corp., the $7-billion (revenue) chemical giant based in Danbury, Conn., and 49.1% owned in India, where its stock is traded on the Bombay Stock Exchange. Small by U.S. standards, at less than $100 million in revenue, it is a good-sized company in India, where it employs more than 7,000.

Processes Have Worked

It is a 50-year-old firm governed by the foreign investment laws of India, which, like most developing countries, demands that local citizens be cut in for ownership of foreign companies. This is a good thing for leading local families, who get to make a direct investment with a multinational firm and rake in hefty returns on their money.

Until something like Bhopal happens, and then responsibility reverts to the richer parent company, which is charged and sued amid a general outcry to “get the multinational.”

But behind the rhetoric, legal and political processes have worked in Union Carbide’s favor. First, in 1986, its lawyers won a judgment that Bhopal lawsuits would be tried in Indian, not U.S., courts.

That decision made a big difference. If damage awards had reflected average U.S. household incomes of $28,000 a year, Carbide could have been hit for $1 million for each of 38,300 fatally or seriously injured victims--leaving aside the fact that 500,000 claimants in India are seeking compensation for Bhopal-related injury or illness. Even if compensation were restricted to the seriously injured, U.S. payments of $38 billion would have bankrupted the company.

But in India the per-capita annual income is closer to $300--and in the Bhopal area it is $170--so Tuesday’s settlement of more than $12,000 per fatality or serious injury is OK.

Done Behind Scenes

And certainly Carbide is OK. It said on Tuesday that the settlement will cost only a 50-cent-a-share deduction from 1988 profit of $5.31 a share. Which is why Carbide stock rose $2 to $31.125 when the settlement was announced.

Meanwhile in India, though the Indian government--which represented the victims--blustered about suing Carbide for $3 billion, matters bogged down in legal maneuvering. And Tuesday’s moderate settlement was agreed to readily--perhaps not surprisingly since the Indian government, in a sense, was on both sides of the argument.

Government institutions, such as state-owned banks and industrial and regional development funds, own 30% of Union Carbide India. “In India, things are done behind the scenes,” comments a member of a leading Indian business family.

But along with mere ironies, there were serious lessons for international business in Carbide’s Bhopal involvement. Union Carbide India is managed locally, by Indian personnel, as every good model of foreign investment, and the government of India says it should be. The U.S. parent took no hand in its day-to-day operations; indeed, it would have been criticized had it done so.

But after Bhopal, when Carbide was denounced for laxity and its chairman, Warren M. Anderson, was arrested during a visit to India, chief executives of other U.S. companies vowed to be more careful of ventures in developing countries. “If your name is on the door, you’ll be held responsible,” they told each other over business lunches.

So what has changed since Bhopal in 1984? There has been relatively less plant investment in developing countries and more decisions to build “hazardous substance plants in regulatory climates where there are inspections and educated work forces,” says Prof. Thomas Gladwin of New York University business school.

Yes, there’s a risk of much greater damage payments if a Bhopal happens in the United States. But, notes Gladwin, it is less likely to happen here--a judgment that was confirmed in 1985 at Carbide’s plant in Institute, W. Va.

The same pesticide chemical escaped in Institute as at Bhopal, but the result was vastly different. First, the amount leaking out was contained by safety equipment--installed in response to tight U.S. regulation. And injuries were averted by alert local police closing off the surrounding area.

The lesson that both advanced nations and rapidly industrializing ones, such as India, can take to heart is clear: Safety and environmental regulations, so often denounced or belittled by business people, are part of the advantages of industrial advancement.