Dow’s Ownership of Union Carbide- A Flawed Legal Defence Exposed
The Dow Chemical Company continues to maintain that it is not responsible for the acts of its wholly owned subsidiary the Union Carbide Corporation stating that they are entirely separate corporate entities but that is not, of itself, a sufficient statement of law to divorce Dow from UCC’s legal liabilities.
It is not possible to say, given that information, that “there is no justification for a claim being brought against Dow”.
A parent company may be held liable for the debts of its subsidiary in circumstances which vary between legal systems. But Dow has the legal power to control, and therefore the legal responsibility for, UCC’s current behaviour with regards to Bhopal.
This is because (Correct at time of writing but subject to possible change subsequent to 2017 merger between Dow and DuPont Co.) :
- UCC is a wholly owned subsidiary of Dow. UCC’s board of directors is appointed by Dow and Dow can, through its shareholding, exercise actual control over UCC. If Dow wishes UCC to take, or refrain from taking, any steps with regard to its business, Dow can in practice require UCC to take those steps.
- Dow’s relationship with UCC is much closer than a simple parent/subsidiary relationship: Dow manages all major aspects of UCC’s business: legal, accountancy, treasury, procurement, human resources, environmental, health and safety, management, etc. For all material purposes Dow runs UCC. This means that not only is Dow able to control UCC indirectly through its share ownership as a parent, it is able to control UCC directly because it manages all its business including, crucially, its legal affairs. As a consequence, Dow cannot say that it is not responsible for UCC’s current behaviour when that behaviour is controlled, directly and indirectly, by Dow itself.
- Dow elects every director to UCC’s board and the current Union Carbide CEO is a senior DOW management official.
- Dow’s and UCC’s operations are so intertwined that it is difficult to separate the two. UCC’s submissions to the US Securities and Exchange Commission present its business as a “component” of Dow’s business. UCC’s business is fully integrated with Dow’s. In addition, UCC sells substantially all its products to Dow (and Dow sells UCC’s products under Dow’s name). This means that a distinction between the two companies exists only in terms of formal “corporate personality”. In commercial and reporting terms the two companies are one.
- UCC’s behaviour actually benefits Dow in so far as not paying a debt enhances a subsidiary’s ability to pay dividends to its parent. Importantly, Dow has almost certainly procured that conduct (denying Bhopal liabilities) since it is responsible for legal and accountancy services for UCC. UCC has paid dividends to Dow since completion of the acquisition in 2001. From 2009-2011 these dividends amounted to $2200m. Dow has made the choice not to require these funds to be used to compensate Bhopal survivors or decontaminate the affected area.
- Dow is wholly responsible for the current conduct of UCC, and for how UCC chooses to deal with the “issues outstanding in Bhopal, particularly in relation to the remediation of the site”. It follows that Dow is necessarily responsible for UCC’s refusal to give further compensation to the victims of the Bhopal disaster, and its refusal to pay for the environmental clean-up of the Bhopal site. To state that “these outstanding issues are not the responsibility of the Dow Chemical Company” is therefore incorrect.
- Dow distances itself from UCC implying that it does not have a relationship with UCC but Dow provides UCC products and dealing with Dow is no guarantee that products supplied are not UCC products. Given the total convergence of Dow’s and UCC’s business, stockholders and management, there is no substantive difference between dealing with UCC and dealing with Dow. For all material purposes, including those relating to ethics and corporate responsibility, any suggested dichotomy between Dow and UCC is a false one.
- If UCC refuses to compensate victims of the Bhopal disaster, pay for the environmental clean-up, or submit to the jurisdiction of the Indian Court in criminal proceedings, those are all decisions for which Dow has direct management control and therefore responsibility (further to point 2 above).
- Dow is no less responsible for UCC’s conduct with regards to Bhopal than any other supplier would be with regards to a fully owned subsidiary found to be abusing human rights. For example, if UCC was found to be employing slave labour, then Dow, the supplier, as parent would rightly be held “responsible” for the acts of its subsidiary.
The Question of Control
Statements by UCC in court starkly contradict claims made by the company in the immediate aftermath of the disaster. "To the best of our knowledge,” explained UCC Vice President Jackson Browning, “our employees in India (emphasis added) complied with all laws and we are satisfied with the facilities and the operation of them."[i] A few weeks later, CEO Warren Anderson admitted “We have 100,000 employees in Union Carbide, and half of them reside outside of the United States”, explaining of his visit to Bhopal that “it was absolutely essential to give backbone to our India company (emphasis added).” [ii]
Establishing the degree of UCC’s control of UCIL, whilst essential for fixing liability, would also emphasise the evidentiary connection to the U.S. forum. According to the plaintiff’s legal committee: “Union Carbide… operates an integrated worldwide empire through a forged network of ownership and interlocked directors, common operating systems and procedures, global distribution and marketing and shared financial and technological resources.”[iii]
Preliminary discovery of UCC unearthed several thousand pages of supporting corporate policy documents: “it is the General Policy of the Corporation to secure and maintain effective management control of an Affiliate.”[iv] Supervision of UCC’s far flung holdings, according to its Corporate Charter, was achieved through managerial control: “The UCC management system will be designed to provide centralised, integrated corporate strategic planning direction and control”.[v] Standard UCC policies advised control of overseas subsidiaries be levied by majority ownership of company equity, and managed by careful composition of the boardroom.
Four executives of UCE, including its chairman A.W. Lutz, sat on the board of UCIL. Lutz also acted as also corporate vice-president of UCC. James Rehfield, an executive vice-president of UCC and member of its executive management committee in Danbury, Connecticut, similarly retained a seat on UCIL’s board.[vi] In all, executives of the two overseas Union Carbide companies made up the majority of UCIL’s board membership.
The Bhopal plant itself came under divisional control of Union Carbide Agricultural Products Inc. (UCAPC), another wholly-owned subsidiary of UCC.[vii] R. Natarajan, UCE Vice-president and UCIL board member, also had a coordinating role for Agricultural products in the region. Through the medium of these management officials, “UCIL’s budgets, major capital expenditures, policy decisions and company reports had to be approved by UCC headquarters.”[viii] Indian officials later claimed that every UCIL expenditure over and above US$10,000 required clearance by UCC.[ix]
Documents discovered through U.S. litigation decades later suggest UCC’s specific responsibility for the detailed design of the Bhopal plant was set out at the project proposal stage. A 1973 capital budget plan and finance proposal - approved by a senior UCC management committee in New York - noted that “UCC will provide the necessary technology and process design and review any technology developed outside UCC.”[x] The responsibility continued for the life of the project: “No design changes have been made without the concurrence of general engineering or Institute plant engineering.”[xi] A 1982 application for renewal of its foreign collaboration agreement detailed UCIL’s ongoing dependency upon UCAPC in key technical, safety and operational areas.[xii] According to Warren Anderson, “The truth is that the plant in India was built under our design criteria, and our design criteria for the Indian plant has every safety feature in it that we have over here.”[xiii]
[i] Guardian, December 7, 1984
[ii] “In the Aftermath of Bhopal, Anderson Speaks”, Hartford Courant, January 16, 1985
[iii] Memorandum of law in opposition to Union Carbide Corporation's motion to dismiss these actions on the grounds of forum non conveniens, Plaintiffs' Executive Committee, Michael V. Ciresi, Stanley M. Chesley, F. Lee Bailey, United States District Court, Southern District of New York, MDL Docket NO. 626, Misc. No. 21-38 (JFK), 85 Civ. 2696 (JFK), p.4
[iv] Memorandum of law in opposition to Union Carbide Corporation's motion to dismiss these actions on the grounds of forum non conveniens, Plaintiffs' Executive Committee, Michael V. Ciresi, Stanley M. Chesley, F. Lee Bailey, United States District Court, Southern District of New York, MDL Docket NO. 626, Misc. No. 21-38 (JFK), 85 Civ. 2696 (JFK), p.5
[v] Memorandum of law, op cit. p.5
[vi] UCC’s response to Plaintiff’s First Combined Set of Interrogatories and Requests for Admissions. MDL Docket No. 626 Misc. No. 21-38 (JFK) 85 Civ. (JFK), reproduced in The Black Box of Bhopal, pp. 250
[vii] NYS Department of State, Division of Corporations, Entity Information, accessed at http://appext9.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=591167&p_corpid=516333&p_entity_name=amchem&p_name_type=%25&p_search_type=CONTAINS&p_srch_results_page=0
[viii] Business India, December 2-15, 1985
[ix] India Today, December 15, 1987
[x] Quoted in Amnesty International,“Clouds of Injustice”, p. 47
[xi] Ibid, p. 48
[xii] Amnesty International,“Clouds of Injustice”, p. 48
[xiii] “In the Aftermath of Bhopal, Anderson Speaks”, Hartford Courant