Living and Dying with Asbestos

Employee Safety

The most basic of employee rights is the right to work without being maimed or even
killed on the job. In 1970, the Occupational Safety and Health Administration (OSHA)
was created in an attempt to protect workers from hazards in the workplace. OSHA’s
mission is not only to protect workers against possible harm but also to ensure that
employees are informed of the hazards of their particular industry and job. Let’s look at
a classic employee safety case.

COMPANY: Johns Manville

INDUSTRY: Asbestos

SITUATION

For decades, asbestos was the favorite insulator in myriad construction products. Some
estimate that over 3,000 products contained some kind of asbestos component. Millions
of homes, schools, and other buildings contained asbestos insulation; thousands of ship
workers in World War II installed asbestos in battleships and other watercraft; and
thousands of auto mechanics had fixed innumerable automobile brakes lined with
asbestos. The danger of inhaling even minute amounts of asbestos was not publicly
known until the 1970s, mainly because the incubation period for many of the asbestos-
related lung diseases and cancers is anywhere from 10 to 40 years. However, by the
mid-1970s tens of thousands of people who worked with asbestos were beginning to
suffer from the fatal diseases we now know are characteristic of asbestos exposure.

HOW THE COMPANY HANDLED IT

According to company documents, Johns Manville became aware of the adverse health
effects of asbestos exposure as early as the mid-1930s. (In fact, Prudential Insurance
stopped insuring asbestos workers’ lives in 1928.). Although some executives were
disturbe E1C10 07/09/2010 Page 375 seem to have been the senior executives and the
shareholders. The company appeared to totally ignore the obligations it had to other
stakeholder groups.

RESULTS

By 1982, more than 17,000 lawsuits had been filed against Johns Manville. That was
the tip of the iceberg. Many more thousands are expected to be filed as more workers
develop fatal diseases that were the result of exposure during World War II. Many of
these deaths are lingering ones in which the quality of life diminishes greatly over many
years. As a result of the massive litigation, Johns Manville established a fund containing
hundreds of millions of dollars to settle claims. The company filed for Chapter 11
bankruptcy protection in 1982, has been reorganized, and has been renamed the
Manville Corporation. The new corporation has a strong commitment to funding the
costs of the claims filed against its former self, and Manville executives have voiced
what appears to be a real commitment to ethics within the corporation in an effort to
prevent what happened from happening again.

COMMENTS

One of the real mysteries surrounding this case is how so many senior executives over
so many years could manage to live with themselves while keeping the awful secret of
asbestos-related illness. It’s one thing to hide something for a few years. But to keep
this devastating secret for more than 40 years, throughout many changes in
management, is a staggering notion to contemplate. Bill Sells, a manager with Johns
Manville and the Manville Corporation for more than 30 years, wrote a Harvard
Business Review article in which he analyzed what happened. He contends that
management was in denial. ‘‘Manville managers at every level were unwilling or unable
to believe in the long-term consequences of these known hazards. . . . Had the
company responded to the dangers of asbestosis and lung cancer with extensive
medical research, assiduous communication, insistent warnings, and a rigorous dust-
reduction program, it could have saved lives and would probably have saved the
stockholders, the industry, and, for that matter, the product. . . . But Manville and the
rest of the asbestos industry did almost nothing of significance—some medical studies
but no follow through, safety bulletins and dust-abatement policies but no enforcement,
acknowledgment of hazards but no direct warnings to downstream customers—and
their collective inaction was ruinous. According to Sells, the denial was fed by the
conviction that asbestos was an essential product that the world couldn’t get along
without. Managers also believed they were doing enough because Manville’s air quality
standards were higher than the allowable limit set by the American Conference of
Governmental Industrial Hygienists. But how did the company know whether the
standard was really safe? They did little to find out. And what about the need for
standards to protect those working with asbestos products,

CHAPTER 10 ETHICAL PROBLEMS OF ORGANIZATIONS 375 E1C10 07/09/2010

Page 376 Let’s look at another particularly egregious case that was profiled in the New
York Times and on public television in January 2003. such as brake shoe installers?
Nothing was being done to protect them. Another factor feeding the denial was the fact
that asbestos workers who were also smokers were much more likely to get sick.
Managers could blame the tobacco industry and avoid self-blame. In addition, short-
term financial consequences took precedence in managerial decision making. And,
finally, managers sent a ‘‘don’t tell me what I don’t want to hear’’ message. Top
managers actually may have been unaware of some of the problems. As Sells points
out, however, juries convict companies based on what they ‘‘should have known,not
necessarily what they did know

Johns Manville Corporation Asbestos Legacy: Still Paying, 2013 “They’ll be following in
our footsteps,” said Robert A. Falise, chairman of the Manville Personal Injury
Settlement Trust, which was created by the bankruptcy court to ensure a steady source
of money to pay claims filed against Johns Manville Corporation (JM) by workers
exposed to asbestos in their workplaces. The company will be responding to
outstanding claims by asbestos victims and their families for several de cades. In fact,
“as of the fi rst quarter of 2012, the trust had paid 773,990 claims in the amount of
approximately $4.3 billion, and the trust expects to receive more claims.” In June 2000,
the company was sold to Warren Buffett for $1.9 billion in cash and the assumption of
$300 million in debt. The asbestos- related trust, created to pay claimants, received
$1.5 billion. As of March 2001, the trust had paid more than $2.5 billion to 350,000
benefi ciaries. There are still more than a half million claimants and another half million
expected to fi le. Looking back, reviews of JM’s social responsibility management of the
complex web of issues surrounding its asbestos production are mixed. 220 Business
Ethics Asbestosis, mesothelioma, and lung cancer— all life- threatening diseases—
share a common cause: inhalation of microscopic particles of asbestos over an
extended period of time. The link between these diseases and enough inhaled asbestos
particles is a medical fact. JM is a multinational mining and forest product manufacturer,
and it was a leading commercial producer of asbestos. As of March 1977, 271
asbestos- related damages suits were filed against the firm by workers. The victims
claimed the company did not warn them of the life- threatening dangers of asbestos.
Since 1968, the company has paid more than $2.5 billion in such claims. And since the
1950s, it has faced hundreds of lawsuits from workers: their estimated value is more
than $1 billion. By 1982, JM was facing more than 500 new asbestos lawsuits filed each
month. Consequently, in August 1982, the company fi led for Chapter 11 bankruptcy in
order to reorganize and remain solvent in the face of the lawsuits; the firm was losing
more than half the cases that reached trial. The reorganization was approved, and a
$2.5 billion trust fund was set up to pay asbestos claimants. Shareholders surrendered
half their value in stock, and it was agreed that projected earnings over 25 years would
be reduced to support the trust. JM devised a settlement that gave the Manville
Personal Injury Settlement Trust enough cash to continue meeting claims fi led by
asbestos victims. Under the settlement, the building products division stated it would
give the trust 20% of Manville’s stock and would pay a special $772 million dividend in
exchange for the trust’s releasing its right to receive 20% of Manville’s profits. After the
transaction, the trust would own 80% of Manville and have $1.2 billion in cash and
marketable securities, plus $2.3 billion in assets. This transaction enabled JM to rectify
its balance sheet. Also, it changed its name to Schuller Corporation. After JM spent
several years operating under Chapter 11 of the U.S. Bankruptcy Code, the company
emerged with $850 million in cash, 50% of its common stock, a claim on 20% of the
company’s consolidated profi ts, and bonds with a face value of $1.3 billion. The trust is
expected to pay 10% of an estimated $18 billion in present and future asbestos claims
to 275,000 victims who already have fi led claims. JM’s social responsibility toward its
workers, the litigants, the communities it serves, and society has, at best, been uneven.
Since 1972, the company has been active and cooperative with the U.S. Department of
Labor and the American Federation of Labor and Congress of Industrial Organizations
(AFL– CIO) in developing standards to protect asbestos workers. However, Dr. Kenneth
Smith— the medical director of one of the firm’s plants in Canada— refused in the
1970s to inform JM workers that they had asbestosis. There is also the complication
and confusion of evolving and changing legislation on asbestos. The U.S. Supreme
Court, as stakeholder, has not 4 The Corporation and External Stakeholders 221 taken
a stand on who is liable in these situations: Are insurance firms liable when workers are
initially exposed to asbestos and later develop cancer, or are they liable 20 years later?
Also, right- to- know laws are not definitive in state legislatures. Does that leave JM and
other corporations liable for the government’s legal indecision? Of the original 16,500
personal injury plaintiffs, 2,000 have died since the reorganization in 1982. With Warren
Buffet’s purchase of the company and the asbestos trust solidified, the management of
this issue for the company is over. Note that companies continue to settle asbestos
lawsuits. The Mesothelioma Reporter web site ( www .mesotheliomareporter .org)
tracks and reports these settlements. For example, a recent settlement was reported for
Pfizer subsidiary Quigley Co. and others who were defendants in a trial “that alleged
that they caused personal injury by exposure to asbestos. The asbestos sometimes
caused mesothelioma.” That web site reported ABC News as stating that “Pfizer will
establish a trust for the payment of pending claims as well as any future claims. It will
contribute $405 million to the trust over 40 years through a note, and about $100 million
in insurance. Pfizer will also forgive a $30 million loan to Quigley.” As with other
corporate crises, the aftermath continues.

SOURCES Gross, D. (April 29, 2001).

Recovery lessons from an industrial phoenix. New York Times. http:// www .nytimes
.com /2001 /04 /29 /business /business -recovery -lessons -from -an -industrial -phoenix
.html. Updates can also be found on the following sites: http:// www .asbestos .com,
http:// www. claimsres.com/ and http:// www .law360 .com /companies /johns -manville
-corp . Johns Mansville (n.d.). Asbestos.com. http:// www .asbestos .com /companies
/johns -manville .php, accessed October 25, 2013. Pfizer to pay $430 million to settle
asbestos claims. (September 3, 2004). Mesothelioma Reporter. Tejada, C. (1996).
Manville settlement gives trust enough cash for asbestos claims. Wall Street Journal.

QUESTIONS FOR DISCUSSION

1. Should asbestos victims’ claims be the liability of Johns Manville or of the decision
makers who authorized the work policies and orders?

2. Who was or is to blame for the asbestos- related deaths and injuries in this case?

3. Is the declaration of Chapter 11 bankruptcy and the creation of a trust the best or only
solution in this case? Who wins and who loses with this type of settlement? Why?

4. What ethical principle(s) did Johns Manville’s owners and officers use regarding this
type of settlement? What principle(s) do you believe they should have used? Explain.