Dark Waters, starring Mark Ruffalo and Anne Hathaway, launches in Europe on February 28. It tells of the toxic spills scandal that ultimately led to US chemicals giant DuPont paying US$671 million (£516 million) to settle more
Dark Waters, starring Mark Ruffalo and Anne Hathaway, launches in Europe on February 28. It tells of the toxic spills scandal that ultimately led to US chemicals giant DuPont paying US$671 million (£516 million) to settle more than 3,500 lawsuits in 2017.
The company’s plant in Parkersburg, West Virginia had been contaminating the local water supply with perfluorooctanoic acid (PFOA), also known as C-8, which is used to make products such as Teflon. The contamination had a “probable link with six illnesses” among the local population, including kidney and testicular cancer.
DuPont had used C-8 since the 1950s. It had known since the early 1980s that the chemical was toxic to humans, but only agreed in 2006 to phase out its use. Though the company continued to deny wrongdoing, it has become one of the classic cases in which business leaders pursued a strategy that could cause human harm long after the risks had come to their attention.
So why do corporations continue to think they can “do well by doing harm”? To answer this, we need to look at the why and how of corporate wrongdoing.
DuPont started using C-8 in its Teflon production at the Parkersburg factory in 1951. In 1954, DuPont employees noted that this chemical was likely to be toxic. The company confirmed its toxicity in animals in 1961 and then humans in 1982. Samples from the Ohio River in 1984 showed toxicity levels of the compound eight times higher than normal, which had made its way into the drinking water supply of residents in Ohio and West Virginia. By 1989, many DuPont employees were diagnosed with cancer and leukaemia.
Yet while these events were detailed in internal corporate documents, the media only reported the toxic spills in 2000. In 2001, a class action lawsuit was filed on behalf of Parkersburg residents. On February 13 2017, DuPont agreed to pay US$671 million to settle the case. This was well below Wall Street’s US$1 billion predictions, so DuPont’s share price actually increased by 1% that day and by 4% some two weeks later.
While the stock prices of companies do sometimes drop when some kind of wrongdoing or failure comes to light, these losses are frequently recouped within a short timeframe. One reason why companies might continue to behave irresponsibly after they become aware of corporate harm is that they expect this sort of limited effect on the share price.
Another part of the explanation, as documented in this recent study, is that corporate reputation often doesn’t suffer from wrongdoing. It depends on where the wrongdoing takes place. Company stakeholders such as customers, suppliers and investors care most strongly about what takes place in their own backyard. They tend to respond with more emotion and empathy towards individuals in their home country. Such incidents are more likely to remain in their collective memory and surface when they are reminded of them. This is sometimes referred to as a “distance bias”.
This is perhaps why the DuPont incident was considered to be of sufficient interest to Americans to justify a major movie, even though it unfolded a long time ago. For the same reasons, Hollywood will probably never make a movie about, say, the historic child labour abuse of Nike and Nestlé in the factories of their suppliers in developing countries; or the Jebel al-Zayt oil spill off the coast of Egypt.
Nike and Nestlé both made commitments to eradicate abuses in their supply chains after they came to light, but the cases are reminders that company wrongdoing is not only about day-to-day operations. It often crops up through outsourcing, strategic alliances and mergers and acquisitions. Companies frequently subcontract activities to legally less stringent parts of the world, for instance, and there have been many cases in which they have been able to plead ignorance over abuses within their supply chain. No doubt they benefit from the distance bias here.
Distance bias or not, however, foreign ventures can still sometimes lead to trouble. For example, when Dow acquired Union Carbide (UCC) for US$11 billion in 2001, it was the largest chemicals deal in the world. UCC had paid US$470 million to settle the notorious 1984 gas leak at its pesticides plant in Bhopal, India – but after the acquisition a second Bhopal disaster concerning water contamination came to light, which further damaged UCC’s reputation an