Thursday, June 10, 2010

Lessons from the Bhopal Verdict: Four Simple Ways to Hold Corporations Accountable

Speaking to media after the court announced it's decision in the Bhopal gas case, Robert Blake, the US Assistant Secretary of State for South and Central Asia said  he hopes "this verdict helps to bring some closure to the victims and their families." Given the ridiculously small sentences awarded--a maximum of two years in prison with bail already granted--it is hard to imagine Bhopal victims using the word "closure" anytime soon.  Especially since Warren Anderson, the former Union Carbide chairman, is still absconding and will likely never face justice.  The government is promising a tough new law to deal with man-made disasters, but it's difficult to have much faith in that effort, given the government has so little to enforce the laws that already exist.

The Bhopal verdict is very bad news not only because it is a case of justice denied.  It's also bad news because it teaches corporations the wrong lesson.  And that's not a safe thing to do!

The problem is that corporations are not, in fact, people, though you might not know that, given the rights they are often accorded under the lawCorporations are legal entities, charged with making money for their shareholders. It's important to be clear about this fact, because it has real implications for how we understand corporate behavior--and what we should do to keep corporations behaving well.  

Because corporations are not people, it makes little sense to appeal to their sense of right and wrong.  After all, corporations did not grow up learning to look out for their brothers, sisters, classmates.  They were not taught to be polite to the Auntie upstairs. No one explained to them when they were young that when they grow up they will be expected to take care of the generations that preceded them or the ones that will follow.

To be fair, some corporations are run by people who want to do good things in the world.  But we can't protect ourselves from dangerous corporate behavior by assuming all corporations will be "responsible corporate citizens".  And we mustn't forget that at the end of the day, even a corporation run by good people is still judged by the profits it delivers to it's investors. If it doesn't deliver, chances are it will either go out of business or undergo a change of management.

I'm not an economist, but from what I can tell there are basically four ways you can keep corporations from doing dangerous things:  

1. Pass and enforce laws to make sure corporations don't engage in unsafe behavior in the first place.  This requires having strict safety laws and agencies that can enforce them.  The recent incident involving radioactive material finding it's way into a Delhi scrap market is an example of what happens when these mechanisms don't work.

2. Punish corporations financially when they do unsafe things that result in death or damages. Corporations understand financial consequences, because they cut into profits, so they will do what it takes to avoid them.  On the other hand, if you limit corporate liability, as the government is trying to do with the nuclear liability bill, you tell corporations it makes sense to take risks, since you haven't got much to lose!  After all, you can save a lot of money by cutting corners!  This is just common sense and the same principle operates in gambling, because successful gamblers are actually rational.  They know that if they have little to lose and much to gain it makes sense to take chances.  On the other hand, if they have a lot to lose, they won't make risky bets as often.

3. Punish the people responsible for unsafe corporate behavior.  Corporations are not people, but they are run by people.  And if those people think that there is a chance they might end up behind bars for negligence, then they are less likely to do unsafe things.  This is why the Bhopal verdict is such bad news.  It tells corporate leaders not to worry; after all, if your company causes the worst industrial disaster in the history of the world (not including NAZI gas chambers and acts of war like the atomic bombs dropped on Japan), at most you will be treated like an unsafe driver. 

4.  Insure that corporations account for long term environmental and environmental and health costs that may result from their work. Writing in The Guardian this week, George Monbiot uses the example of oil companies to suggest a way to do this:
"...the governments in whose territories oil companies work should force them to pay into a decommissioning fund. The levy should reflect the costs that economists are able to calculate, plus a contingency for those we can't yet foresee."
The problem with not doing this is that you allow big corporations to take their short term profits and give them to their shareholders, ignoring their long term liabilities.  Then when a corporation does something really stupid, it can claim it doesn't have the money to pay for what it's done; it's given it all away to their shareholders.  Monbiot says it better than I can--read his explanation here.

Back to Bhopal.  If you want to get involved in the fight to hold Dow Chemicals, the current owner of Union Carbide, accountable, here are some places you can go:
  • Lots of information; a good place to give money: 
  • Students for Bhopal explain how to Dump Your Dow!
  • I'm a Bhopali--bloggers bring the attention back to December 3, 1984 
  • Join one of the many Bhopal-related  Facebook groups here.


  1. About point 2, the question is how much financial responsibility should be placed. An example now is BP. Even if the financial cost is high - say $10 billion, it's still less than one year of BP's profits!

    In my opinion, the financial liability should be either 3 years of profits or $10 billion whichever is higher. This way no matter how big the corporation is, it will be hit hard.

    Another idea is to take the courts at their word. If the corporation is indeed to be treated like a person, they they can be jailed for several years (suspended from operating) or put to death (unmade, broken down, destroyed)!

    Ideally, they should be fined AND jailed. If not killed. Not so nice to be a person now is it?

    If these things can't happen then it's not fair to be called a person and face none of the dangers that ordinary people have to deal with.

  2. @Bhagwad, you are making sense, as usual. The price big corporations like BP should pay must be very high indeed in the event of a disaster. Otherwise there is no deterrent and other corporations will continue to take unsafe risks. I also think Monbiot's piece in the Guardian is instructive. Why allow corporations to pay out dividends based on "profits" that don't take into account long term costs they are liable for?

    The sad thing is that the government is going in the opposite direction even today by further watering down the nuclear liability bill.

  3. super lucid piece. this "anything goes" attitude has honestly gone too far. human life is cheap. so cheap. it's disgusting :(

  4. @ janice--thanks. it seems that the current government cares a great deal about sending corporations like Dow the "right message." It's just too bad that message is so...wrong!

  5. Followed a link here from the Dec 2 post.

    I'm not an economist myself and Monbiot's article was very insightful. Way I see it, raising the financial liability won't act as much of a deterrent. They will have to worry about paying the liability only after an exceedingly long judicial process. It may even work in their favour as Monbiot pointed out about Exxon getting its fine of $2.5 bn in 1989 dropped down to $507 mn in 2008.

    The decommissioning fund sounds like a fine idea. Wouldn't it also be better to refine the cost and operations audits for these industries like oil and gas or mining, to include long-term environmental effects of their operations? Or is this already being done?

  6. @Krishnakumars, nice to see you here. I don't think anyone is doing much to make companies take into account the long term costs of what they do.Getting the money up front in some kind of a decommissioning fund makes the most sense, you are right. Liability is not the full solution. But the problem with limiting liability is that it tells them right up front: don't worry!


What do you think?