March 03, 2015

JOSE P D

DOW IN INDIA: RELIVING BHOPAL

“It's not in my power to take responsibility for an event 15 years ago with a product we
never developed at a location we never operated.”
Frank Popoff, Chairman, Dow (1992-2000)

"They knew about this waste and the suffering it causes when they bought Union
Carbide. They've spent billions of dollars on their business, but they've not contributed
anything to Bhopal.
Rashida Bee, Bhopal Gas Victim (2012)2

Introduction

In early December 2014, the management of Dow Chemicals was seized with the issue of how
to deal with the escalating problems that had risen out of its acquisition of Union Carbide in
2001. The 30th anniversary of Bhopal Gas Disaster on December 2nd had only intensified the
conflict between the company and the various activist organizations lobbying against it. Major
newspapers all over the world had covered the anniversary and the public opening of the
Remember Bhopal Museum founded by Remember Bhopal Trust near the now inoperative
Union Carbide plant. The events of the Bhopal tragedy had been brought into light again by
protests in various places and by the Museum displaying belongings, pictures and recorded
testimonials of the victims.

On the day of the 30th anniversary, five organizations of Bhopal survivors had also written to
President Obama an open letter asking him to acknowledge and express regret for the historical
mistakes of the US government and drawing attention to fact that Dow Chemical Company had
recently failed to report to the Bhopal District Court on November 12, 2014 in response to
notice issued by the Court. Equally worrying, Dow had become a target of criticism for
renowned universities and other academic institutions. That same day, the Cambridge City
Council had adopted a Policy Order to disinvest from Dow stocks in order to “divest from all
manner of engagement with Dow”. Three decades after the infamous Bhopal Gas Tragedy, the
nightmare was at its height for UCC’s owner Dow Chemical.

Union Carbide and Bhopal

Founded in 1917 as the Union Carbide & Carbon Corp., Union Carbide Corporation (UCC)
was one of the oldest chemical and polymers companies in the United States. UCC’s operations

2
Ted Jeory 'Bhopal tragedy was like a dance of death. How can London 2012 take blood money.?'; Sunday Express
December 4, 2011

PD Jose, Associate Professor and Sarah Pellegrini, Research Associate, prepared this case for class discussion
from public documents. This is a short case based on a longer version of the case co-written by PD Jose and
Puja Ahluwalia. This is not intended to illustrate correct or ineffective handling of an administrative situation.

© 2015 IIM Bangalore

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in India were managed under its subsidiary Union Carbide India Limited (UCIL), which
manufactured the pesticide ‘Sevin’ in the Bhopal factory.

On the night of December 2-3, 1984 water leaked into a tank of methyl isocyanate (MIC) during
a routine maintenance operation. The runaway reaction that resulted vaporized a massive toxic
cloud of MIC gas. The impact was magnified in the absence of adequate warning systems for
Bhopal’s population. While the estimates of long-term mortality as a result of exposure to gas
vary, there was no doubt that the consequences were horrific in terms of human and
environmental costs.

Several explanations about the cause of the accident surfaced in the aftermath of Bhopal. While
activists pointed to corporate negligence and inadequate safety measures, UCC maintained that
the accident was a wilful sabotage by a disgruntled employee. While the cause of the accident
would be contested by the activists, government and the company for years, it was clear that the
effects of the leak would linger on for generations.

In the aftermath of the accident, numerous litigations were launched against UCC in the US and
in India. On September 5, 1986 the Indian Government filed a US $3.3 billion claim on behalf
of all the gas victims with the Bhopal District Court. After a protracted court battle, the India’s
Supreme Court announced a surprise ‘out of court’ settlement of $470 million ($1,500 per
death) with UCC and absolved it of all future civil and criminal charges on February 14, 1989.3
Activists slammed that decision and called it a “sell-out to maintain a desirable investment
climate for attracting Foreign Direct Investment”.4

As a part of the settlement, UCIL commenced cleanup of the Bhopal site under the supervision
of the state and central regulatory agencies. Eventually the Bhopal site was handed over to the
Madhya Pradesh state government in 1998. Thereafter the local government assumed the
responsibility for further remediation. However, tons of toxic chemical wastes remained at the
site. These wastes, which leeched into the ground water, posed significant health risks to the
neighboring communities. The Justice for Bhopal campaign took wings with the active
involvement of the many domestic and international organizations that worked in Bhopal, such
as the International Campaign for Justice in Bhopal (ICJB).

Bhopal and Dow

Dow Chemical International was present in approximately 180 countries In 2014 Dow’s sales
from over 6’000 products in its portfolio exceeded US $58 billion with a net income of over US
$3 billion5. The UCC acquisition as a wholly owned subsidiary for US $11.6 billion in February
2001 was a part of Dow’s strategy to transform itself into a well-diversified chemical company.
Union Carbide India Limited was not a part of this deal since it had ceased to exist as of 2001.
Dow’s own due diligence before the acquisition concluded that "there was absolutely no
outstanding liability in relation to Bhopal.”6

3
Partial Chronology of Union Carbide's Bhopal Disaster. CorpWatch, May 15th, 2003
http://www.corpwatch.org/article.php?id=6768
4
Bhopal Survivors Confront Dow. They Say Dow Execs Lied to Shareholders. CorpWatch
May 15th, 2003. http://www.corpwatch.org/article.php?id=6748
3
Source: 2014 Dow Annual report (Found at http://www.dow.com/en-us/investor-relations/financial-reporting/earnings/)
6
Statement of the Dow Chemical Company Regarding the Bhopal Tragedy.
http://www.dow.com/environment/debate/d15.html
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Dow, while sympathizing with those affected by the tragedy, also refused to accept
responsibility for cleaning up the erstwhile Union Carbide facility. The company’s view was that
UCC had only leased the factory site in Bhopal. Since that lease had expired, and the land
reverted back to the state government of Madhya Pradesh, the responsibility for further cleanup
lay with the state government.7

This denial of responsibility outraged the organizations spearheading the Bhopal movement,
who argued that as a 100 percent owner of UCC, Dow was responsible for cleaning up the toxic
site and ground water. Back in the US too, the pressure on Dow kept mounting. Dow’s
shareholders started expressing concerns about the possible financial impact on the company
and feared that the company’s assets in India could be attached in the ongoing case against
Union Carbide. Dow then engaged in some intense corporate diplomacy efforts to counter
those pressures and get rid of the Bhopal legacy by lobbying with Indian executives and
government to get exempted from any liability issue.

Dow in India: Bhopal Once Again

The question of liability remained unresolved. Dow kept repeating that "as there was never any
ownership, there are no responsibility and no liability — for the Bhopal tragedy or its aftermath.
Hence, Dow bears no responsibility to clean up a mess it did not make.” On the other hand,
activists pointed out that Dow’s position was inconsistent. It had taken on Union Carbide's
liabilities in Texas, where asbestos related litigation was expected to cost the company hundreds
of millions of dollars8.

The Indian government’s position also remained unclear. India’s Ministry of Chemicals &
Fertilizers had earlier asked Dow to deposit US $22 million to cover the cleanup costs at
Bhopal. While the company agreed to pay for the cleanup costs as a goodwill gesture it also
wanted the Government to absolve Dow of all future liabilities arising out of Bhopal. After
intense deliberations, the Government concluded that it was not in a position to waive those
potential liabilities9. In the light of that note, several large investors urged the company to
address the Bhopal issues. Dow’s shareholders were also starting to put pressure on the
company to resolve the Bhopal legacy because they were concerned about the firm’s assets
involved.

As the debate raged on, backlash against Dow for its position on Bhopal spread outside Bhopal.
In India, prestigious Indian Institutes of Technology (IITs) refused to allow Dow to recruit on
their campuses and returned sponsorship funds. In 2010, Dow’s US $100 million sponsorship
deal with the International Olympic Committee caused outrage among the activists, some
British lawmakers and the Indian Olympic Association (IOA). The intense pressure culminated
in the resignation of Meredith Alexander from her position as the Chairperson of the ethics
committee of the London Olympics.

The Bhopal tragedy was also at the core of many documentaries, Indian and Hollywood movies
such as “Bhopal a Prayer for Rain”. Those only swelled the ranks of activists worldwide, who

7
In various judgments India’s Supreme Court had ruled that, the absolute liability for harm to the environment
extends not only to compensate the victims of pollution but also of restoring the environment degradation.
8
Bhopal Survivors Confront Dow. They Say Dow Execs Lied to Shareholders. CorpWatch
May 15th, 2003. http://www.corpwatch.org/article.php?id=6748
9
Dow Chemical: Liable for Bhopal? May 28, 2008, BusinessWeek.
http://www.businessweek.com/magazine/content/08_23/b4087000856552.htm?chan=top+news_top+news+in
dex_top+story
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kept organizing campaigns and protests to “express their collective outrage over what was
happening in Bhopal as well as globally amplify the voices of the survivors”10.

Even in the last years Dow was unable to exorcise the Bhopal ghost. On 23 July 2013, a Bhopal
court summoned Dow to explain why UCC had repeatedly ignored court summons in the
ongoing criminal case, despite it being a wholly owned subsidiary of Dow11.

Advocates for the victims argued that Dow had acquired both the responsibilities as well as
liabilities of UCIL with the acquisition of UCC. The implication was that Dow would not only
have to pay for the cleanup of the factory site but also be prepared to accept any further
financial or criminal claims brought upon the company in the future. While Dow was
committed to doing the best possible for the victims of the Bhopal gas tragedy, it also needed to
consider the interests of its shareholders. The prolonged litigation was taking its toll on the
management and the reputation of the company. It was also necessary to see how the
continuing problems in Bhopal, the survivor’s sufferings, the court’s verdicts, government’s
policies and activist organizations pressure tactics would affect the company’s Indian and global
operations as well as its profitability.

10
http://twocircles.net/2013dec04/harvard_students_launch_yearlong_fast_bhopal_gas_disaster_survivors.html
11
Ray of hope for survivors of the Bhopal disaster, http://livewire.amnesty.org/2013/08/07/ray-of-hope-for-survivors-of-
the- Bhopal-disaster/
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 Annexure 1: Dow Statement on Bhopal Accident12

(Extracted from the statements provided to BBC by Union Carbide and Dow Chemical in response to
research conducted for the BBC programme, One Night in Bhopal.)

Dow Chemical's response

1. Will Dow Chemical co-operate in any future court proceedings in the USA or India?
… Dow never owned or operated the Bhopal facility, and the company has neither a connection to
nor legal liability for the tragic events of the 1984 gas release.

Dow did not acquire the shares of Union Carbide until 16 years after the tragedy, 10 years after
Union Carbide’s legal settlement was affirmed by the Indian Supreme Court, and two years after the
state government of Madhya Pradesh took control of the site.

… Dow India did appear before the court and explained that it has no authority to order Union
Carbide (a separate corporation) to take such action.

2. Does Dow Chemical have any plans for further assistance to the people of Bhopal?
Financially or in kind?
We do have philanthropic initiatives in India…. These initiatives are not specific to Bhopal as we do not
own or operate a facility there.

Union Carbide's response

1. Does Union Carbide believe the compensation paid to the people of Bhopal is adequate to
cover the economic, health and psychological damages they have suffered as a result of the
gas leak?
Immediately following the gas release, Union Carbide Corporation (UCC) began providing aid to the
victims and established a process to resolve their claims.

In 1989, Union Carbide and Union Carbide India Limited (UCIL) entered into a $470 million legal
settlement with the Indian Government, settling all claims arising from the incident. The settlement was
affirmed by the Indian Supreme Court, which described it as "just, equitable and reasonable." The
money was promptly paid to the Government of India by Union Carbide and UCIL.

2. Should Union Carbide Corporation participate in any future court proceedings?

.. The settlement was affirmed by the Indian Supreme Court, which described it as "just, equitable and
reasonable." The money was promptly paid to the Government of India by Union Carbide and
UCIL. No further legal claims are outstanding against Union Carbide.

3. Does Union Carbide Corporation have any responsibility for the ongoing contamination of
the Union Carbide site in Bhopal?
After the incident, UCIL began cleanup work at the site under the direction of Indian national and
State government authorities. After the sale of UCIL stock in 1994, the renamed company, Eveready
Industries India Limited, continued cleanup work at the site until 1998.

The government of the State of Madhya Pradesh took over the facility in 1998 and assumed all
responsibility for completing any further remediation. Since that time, media reports indicate no
further cleanup work has taken place.

12
http://news.bbc.co.uk/go/pr/fr/-/1/hi/programmes/bhopal/4023447.stm Published: 2004/11/25 16:43:28 GMT
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Exhibit: Campaigns against Dow-Carbide

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