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Corporate Moral Responsibility: The Bhopal Incident

by Richard T. De George

You might well ask why a philosopher should be talking about business corporations. After all, philosophers are known for being like blind men in a dark room looking for a black cat that isn't there. One of my colleagues claims that those of us who find ethics in business find the non-existent black cat. I do not believe that. Without a moral social backdrop business would not be able to function. Corporations are an integral part of our society, and they reflect our values as surely and as well as any of our other institutions. Yet, there is great confusion when it comes to discussing values -- especially moral or ethical values -- and business. People in business rarely do so publicly, and non-business people who raise the issues seem to do so polemically -- either to attack business or to defend it.

Enter here the philosopher. As you know, I teach and write about business ethics. My role, however, is not to preach to business people about how to be moral; nor is it to cast moral stones at corporations. Rather, what I see as my task is primarily the clarification of issues so that we as a society can discuss them fruitfully and rationally, and perhaps come to some consensus. I do not claim to have greater moral insight than most corporate executives, nor do I claim to know how corporations should act in all circumstances. What I claim to be able to do is pick out the strands of some very complicated issues. I will often have strong views on these issues, but unless I can muster the arguments that lend support to my views, I do not and should not expect anyone to take them very seriously. To the extent that I can and do defend them, they may provide a starting point for discussion.

Rather than abstractly approaching some of the problems that interest the philosopher in business ethics, I shall try to illustrate a number of issues that arise in dealing with a particular case. I have chosen the incident of the Union Carbide plant last December [1984] in Bhopal, India because it is an incident that many of you may remember from newspaper and magazine accounts, because the case is still unresolved, and because a number of hasty and ill-informed judgments have been made concerning it. It also nicely shows the complexity of cases. I shall use the case as a vehicle to raise and help clarify four separate issues. In dealing with them I hope my analysis will help you see how a philosopher tries to clarify problems by making distinctions. The four groups of questions I shall address are:

1. What are the responsibilities of a corporation and how are the different kinds of responsibilities related? In the Bhopal incident, the question is doubly complicated because we have two corporations -- Union Carbide, Inc., which is the American parent corporation, and Union Carbide, India, which is a quasi-independent Indian firm.

2. Can a corporation, in this case Union Carbide, be held morally responsible for anything, and if so, what does that entail? The general question of the moral status of corporations is a hotly contested one.

3. What legal responsibility and liability does Union Carbide have in the Bhopal incident, and what is the relation of its moral and legal responsibility in this case?

4. What is the general responsibility of First World corporations in building and operating a hazardous industry in a Third World country? Any answer to this question implies some view of the general responsibility of any corporation, and of the relation of risk analysis to safety.

The Responsibilities of a Corporation

On December 3, 1984, one of the worst industrial disasters of all time occurred in Bhopal, India. During the early hours of the morning a poisonous gas, methyl isocyanate (MIC), used in producing the pesticide, Sevin, leaked from a Union Carbide plant. The gas was borne by the wind and hovered for a while over the desperately poor, very overcrowded shanty town that had grown up around the plant. By the time the gas dissipated it had killed at least 2,000 people and injured over 200,000 others. The incident shocked the world. The Union Carbide plant was clearly causally responsible for the harm done. Under Indian law both a corporation and its officers can be held criminally liable. The Indian Government arrested the plant manager on charges of "culpable homicide through negligence." When Warren Anderson, Chairman of the Board of Union Carbide arrived in India from the United States, he was charged with "negligence and criminal corporate liability" and "criminal conspiracy." The Indian Government is still conducting its investigation and has yet to release its report, but from the investigations of the New York Times, and of Union Carbide, we can learn some of the salient details of the gas leak(1).

The pesticide, Sevin, which Union Carbide made at Bhopal, was distributed in India. It is used on corn, soybeans, cotton, alfalfa, and other crops. Its use in India resulted in crop yields of about 10 percent higher than before the pesticide was used. This meant food for about 70,000,000 Indians who would otherwise have faced starvation or severe malnutrition. Union Carbide did not build the plant in Bhopal to increase profits. It could have supplied India with Sevin made in the United States more cheaply than it was able to produce it in India. In 1984, the Bhopal plant operated at a loss. It was underutilized, producing only one-third of its capacity. It was reducing costs through manpower reductions, and it was up for sale. The plant was entirely run by Indian managers who operated the company as a separate entity.

The methyl isocyanate, from which Sevin was produced at Bhopal, was kept in liquid form in large steel tanks. In May, 1982, an inspection of the Bhopal plant by Union Carbide safety officers revealed ten major deficiencies in the MIC tanks. The Wall Street Journal (Dec. 11, 1984, p. 2) reported that by July 25, 1984, backup instrumentation to prevent overflowing of the tank had been ordered, but it was not clear whether it had been installed. Local management determined the frequency of local safety audits. Although there had been no inspection of the plant by Union Carbide for the two and one-half years since May, 1982, Union Carbide, India had sent reports indicating that either the safety defects had been repaired, or were being repaired.

There were five safety devices installed to prevent what happened on December 3, 1984: a vent gas scrubber, a flare tower, a water curtain, a refrigeration system, and a spare tank. All of these devices were under repair, or failed to operate. The scrubber, filled with a caustic soda solution to detoxify leaks was under repair. The 30-ton refrigeration unit had been shut off or six months. The metal barrier in a pipe intended to keep water from leaking into the MIC liquid had been removed and had not been replaced the day before the disaster. Chloroform, 32 times the required concentration needed, was present in the solution. The concentration should have been monitored daily, but had not been monitored for six weeks. The MIC operator noticed at 11:00 p.m. on December 3 that the pressure in the tank had risen to 55 pounds. The temperature of the liquid MIC rose to a range of 59-68 degrees Fahrenheit, instead of the proper 32-41 degrees. At 2:30 a.m. on December 4, the liquid MIC turned to gas. Two low-level employees failed to take counter-measures and fled. A supervisor finally hosed the tank with cold water 45 minutes after the leak started, and stopped it. According to one report, the supervisor finished his tea before taking action. The Soviet Union lost no time in casting moral stones at Union Carbide, a capitalist multinational, for exporting hazardous industries to underdeveloped countries, for using less safe equipment in India than that used in the United States, and for taking too few precautions with the lives of people in the Third World. Many people made similar moral judgments.

The case is a dramatic, interesting, and complicated one. In order to answer the question of what the responsibility of Union Carbide was in this incident, we should first get clear what sorts of responsibilities corporations have in general. People often speak of "corporate responsibility" and the "social" responsibility of corporations. They do not usually speak of corporate moral responsibility. There are actually four different types of responsibilities that corporations have. They are related and often overlap. But unless we take the time and trouble to distinguish them we, and corporations, cannot know how to weigh and meet them. The four kinds of responsibility are corporate, moral, social, and legal. Purely corporate responsibilities stem from the goals of a corporation and the interests of those who own or work for it. Making a profit is a corporate demand of shareholders and the Board of Directors of any corporation. Thus, management has the corporate responsibility to make a profit. Unless it does so, the Board may replace the present managers with others who can do better. However, the responsibility to make a profit is not a moral, social, or legal responsibility. If, in a bad year, Union Carbide fails to make a profit, its shareholders may be unhappy. Failure to make a profit is not immoral, or illegal, in itself, but since Union Carbide, India, was running at a loss, and since it had been laying people off, those running the company understandably felt an obligation to cut other costs to the extent possible. One action lower management took was to shut down the expensive refrigeration equipment cooling the MIC storage tanks so they could use the freon elsewhere in the plant.

Moral responsibilities stem from the moral law. The obligation not to steal, not to cheat, not to lie are all examples. We must treat people as ends in themselves, not harm them, and see to it that the working conditions are safe. Such moral obligations remain, regardless of whether they are enacted into law, or whether they are socially mandated. Moral obligations, and the corresponding moral responsibilities, take precedence over corporate responsibilities. That is part of what it means to call them moral responsibilities. Shareholders have no right to ask that managers act immorally, and they have every right to expect that managers will act morally. If acting morally leads to a loss instead of a profit, shareholders have no right to claim that management should have acted immorally so as to meet their demands for a profit. Adequate protection of worker safety, and the safety of the public, are moral requirements. When companies do not adequately protect the safety of workers and the public, sometimes a social mandate develops in the form of newspaper campaigns or calls for tighter legislation. If firms react to such public demands, they can be said to accept a social responsibility.

In the Union Carbide case, if safety measures were not taken that should morally have been taken, then the desire to cut costs at the expense of safety cannot be justified. As a result of the incident, many people in the United States are discussing what laws to pass to more tightly control hazardous industries. Such laws may demand more than morality demands. In this case, the laws would form legal responsibility that goes beyond moral demands. This does not mean they would be immoral; simply that they would not be morally required. For example, not all OSHA regulations, or U.S. government mandated regulations, are morally required. The government may require more of companies than morality demands. These legal demands need not necessarily be adopted by foreign companies operating in countries other then the U.S. Morally mandatory demands, however, apply across national borders.

In India, the 1973 Foreign Exchange Regulation Act specified that foreign companies in India must be at least 60 percent owned by India, or Indian interests. It also required that the plants be run by Indian personnel. In the case of the Bhopal plant, India allowed Union Carbide to maintain 50.9 percent interest in the Indian company. Nonetheless, India required that the plant be manned entirely by Indians, including all levels of management. This was not a moral demand, but a legal one. We thus see many different responsibilities that Union Carbide faced, and we can understand many of its actions as attempts to respond to and fulfill these responsibilities. Critics have zeroed in on the moral responsibilities because, in general, moral responsibilities are overriding. This means they properly take precedence over other responsibilities. It is clear that Union Carbide, India, was the cause of a large number of deaths and injuries. Is it morally blameworthy for those deaths and injuries, as many nations and individuals claim? Before we join the critics in judging from a moral point of view, we should get clear whether it is appropriate to use moral language in the case of corporations. This is the second issue I said I would discuss.

Can a Corporation be Held Morally Responsible?

The question of the moral status of the corporation is a question that has received a good deal of discussion in the business ethics literature. One view of the corporation, represented by Milton Friedman among others, is that a corporation is a legal entity only. Hence, Union Carbide can have no moral responsibility for what happened. The corporation can only be held legally responsible. Perhaps its officers or workers can be held morally responsible, but the corporation itself can have no moral responsibility.

A second view holds that corporations are moral persons, comparable to human moral persons. Human beings are morally responsible for actions they perform knowingly and willingly. Insofar as corporations have an internal decision procedure, they act knowingly and willingly. Hence, they are moral beings. According to this view, Union Carbide could be held morally responsible for its actions, providing they were done knowingly and willingly. The extent of its moral responsibility is a function of its intent and freedom. It could, of course, also be held legally liable in this view.

The third view denies that corporations are moral persons, but claims they are moral actors. They are not fully moral persons since they have no moral worth in themselves, and since they are artificial entities established for limited purposes, they are not bound by the full range of moral norms that apply to moral persons. However, since they act, they can be held morally responsible for the harm they do. They are morally obliged, to the extent that they act, not to harm people. They can, of course, also be held legally liable for their actions.

Warren Anderson, as Chairman of the Board of Directors of Union Carbide, stated that Union Carbide was "morally responsible" for the tragedy. What did he mean by this? Moreover, was it Union Carbide in the United States that was responsible, or Union Carbide, India?

Mr. Anderson refers to the incident as an accident. In ordinary usage, one is not morally responsible for accidents. One is morally responsible for what one does knowingly and willingly, that is, for what one does intentionally. No one intends accidents. One can be morally responsible for untoward or harmful results of an accident, however, if one was culpably negligent. The moral culpability comes from not taking the care the ordinary person in such a position knows should be taken. Although we can ask whether Union Carbide, or individuals within Union Carbide, were morally culpable in this sense, Mr. Anderson made no such statement. He has left ambiguous, moreover, whether Union Carbide was in any way morally culpable through negligence, or whether Union Carbide is morally liable to make compensation because Union Carbide, India, was morally culpable through negligence. From a moral point of view, if Union Carbide is morally blameworthy, it is either because it was negligent with respect to the safety of people in the plant's environment -- perhaps by not exercising control over the Indian plant that it should have exercised -- or it is blameworthy in the sense that parents accept the responsibility for the damage done by their children. In any event, it is clear that Warren Anderson does not hold the first view of a corporation, according to which a corporation is only legally responsible for its actions.

In saying that Union Carbide would accept moral responsibility for the damages caused by the incident, Mr. Anderson meant, at least, that the American corporation would accept liability and pay appropriate compensation to those damaged. He did not attempt to restrict payment of damages to what the Indian company could afford, but pledged the resources of the American parent company. What remained unspecified was the amount that he felt the company had a moral responsibility to pay.

Anderson offered a million dollars immediately to relieve the greatest harm. The Indian Government refused to accept it, although it did later accept $5 million in disaster aid from Union Carbide. The Indian Government has made no public announcement of this in India, nor has it identified the aid from a relief fund established by Union Carbide workers throughout the world. Failure to acknowledge the source of such aid seems politically motivated, and it can be seen as misrepresentation by the Indian Government. To the extent that India delays a settlement for political purposes, it further harms those who have already been harmed.

If this analysis is correct, it lends at least some indirect support for the third view of a corporation's moral status and its moral responsibility. If Union Carbide is at all morally responsible -- as Anderson and most others agree is the case -- then the proponents of the first (or Milton Friedman) view have to explain away the overwhelming sentiment espousing the idea that companies have moral responsibility. The fact that people do not expect Union Carbide to act from moral motives, even in fulfilling its moral obligation to give compensation to those it has harmed, indicates that general opinion views corporations as having moral responsibilities without being moral persons. Such sentiment does not solve the debate over the moral status of corporations, but it does lend the support of public opinion to the third view, and thus requires stronger arguments from those who support the second view.

What Legal Responsibility Does Union Carbide Have?

The damage done in Bhopal was done by the Indian plant. The causal responsibility lay with the Indian plant. Since the plant and the harm done were both in India, if there was to be a legal suit filed against the plant, it should logically be filed in India. After the incident the plant was closed, and it has now been closed permanently at the insistence of the Indian Government. This, in effect, is the end of Union Carbide, India. Any civil suit against Union Carbide, India, if successful, would be able to recover damages only to the extent that the company still has assets. It is bankrupt, and if it can sell off any of its assets, those harmed will only get a small amount, if anything.

To make matters worse, the lower Indian courts are in great disarray. They are extraordinarily overloaded with cases, and even relatively simple cases take years to reach resolution. These courts could not possibly handle suits involving over 200,000 plaintiffs. Moreover, suits are frequently not filed in Indian courts. For instance, no suits were filed in India after the crash of an Air India Boeing 747 in 1978, in which several hundred persons died, or after 365 people died from drinking contaminated liquor in 1982.

Because Union Carbide, owned 50.9 percent of Union Carbide, India, the Indian Government decided to sue Union Carbide in U.S. courts on behalf of those injured. The legal situation is complex. U.S. courts do not have to accept such suits, since the location of the plant and those injured is India. U.S. courts could refuse to hear the case, unless they determine that the case could not adequately be handled in India. U.S. courts will probably accept the case, although thus far they have only recommended negotiations between India and Union Carbide to achieve an out-of-court settlement.

It is more likely that those injured can recover damages under U.S., rather than under Indian law. In India a number of other smaller incidents have occurred involving the death of up to several hundred people. No damages were received for those killed. The Indian Government typically pays $794 to survivors of disasters for which it is responsible. In the United States, based on damages awarded in previous cases, the relatives of those killed would get about $500,000. Prime Minister Rajiv Gandhi, on the principle that an Indian life is worth as much as an American one, claims that India will press for the same compensation for Indians as if they had been Americans killed in the United States. He will also press for punitive damages, which often exceed compensatory damages, even though Indian and other foreign courts do not award punitive damages.

Two commentators have argued that since the per capita gross national product of India is 1.7 percent that of the United States, it is likely and appropriate that the damages awarded by the court, if any, be similarly reduced. This would mean that the Indian relatives of those killed would receive about $8,500. Injured Indians would get an average of $1,100. Both figures are more than is customary in India. If punitive damages are awarded and similarly reduced(2), the total will still be a judgment of $2 or $3 billion dollars. The former judgment would probably bankrupt Union Carbide. Indian claims, filed in court, have totaled over $15 billion. The total assets of Union Carbide are $10 billion.

The question raised by Mr. Gandhi of whether an Indian life is worth as much as an American life is, strictly speaking, beside the point. No price can be attached to any human life. To claim otherwise is to condone slavery, and to treat human beings as objects only. Compensation paid for wrongful death is not the same as putting a price on human life. The compensation is token and is intended primarily to ease the effects of the death on the remaining relatives, especially those dependent on the deceased. Any figure is arbitrary. One way of determining compensation is calculating the average earnings of the average person over his working life and taking half, or some other portion, of that. The assumption is that this amount will at least make possible a transition from dependence on the former wage earner to relative independence some years after his death. Clearly the amount appropriate according to this scheme varies according to the cost of living, the standard of living, and the average wage of workers in a particular country. That less compensation is paid to Indians than to Americans in no way implies that American lives are worth more than Indian lives. Since the Indian Government typically pays only $794 for wrongful death, Mr. Gandhi is clearly using rhetoric for political purposes in this instance. Because the average annual Indian wage is $127, a settlement of $8,500 might even be considered generous.

Warren Anderson has indicated that if the suit goes to trial, Union Carbide will fight it and place blame on Union Carbide, India. Its defense will be that implementation of safety procedures is a local responsibility, and if there was negligence, it was negligence on the part of the Indian managers and workers at the Bhopal plant. There is much evidence of lack of enforcement of safety measures.

As I noted, if the matter went to the Indian courts, Union Carbide, India, might end up paying little or nothing. If the case is decided in the American courts, it is difficult to predict the outcome. It will take many, many years before all the appeals are completed. In the process, many lawyers will reap rich returns. How the victims will fare is not known in detail.

Moral pressure on both Union Carbide and the Indian Government to reach a quick, equitable settlement would lead to the greatest amount of good for all concerned. If the matter is settled by the courts, there will be procedural justice, but not necessarily overall justice. Punitive damages in this instance will serve little, if any, positive good. They might well mean bankruptcy for Union Carbide, Inc. The chemical industry and Union Carbide, Inc. have already received the message sent by Bhopal. They do not need punitive damages to teach them the need for increased care. Nor was the institution of punitive damages established to cover a case of damage done by a U.S. company operating abroad. Imposing punitive damages on U.S. companies abroad would put them at a clear competitive disadvantage, since non-American firms are not subject to such judgments.

In this instance, the moral, as opposed to the legal route, is the preferable one to follow. More good than harm will be done by making payment to the victims as soon as possible to relieve the harm they have suffered. The pressure posed by the legal route applies additional reason for Union Carbide to agree to a fair settlement. Union Carbide will pay a fair settlement, not only for moral reasons. Paying will help restore its good name and reputation, will help reassure people who live near its plants that it is a good neighbor, and in the long run, will help its profits. The moral motivation should not be ignored, however, nor the fact that the reaction of the public is explicable primarily because it perceives the actions of Union Carbide as morally appropriate, even if performed from a variety of mixed motives.

The General Responsibility of First World Corporations

The question of the proper relation between multinational parent organizations and their subsidiaries in Third World countries with respect to potentially dangerous industries is the fourth issue with which I shall deal. It is a difficult one to which no easy answer is possible. The complexity of the issue is demonstrated by the Bhopal disaster.

If Union Carbide were only a 40 percent owner, rather than a majority owner, would it have the same responsibility it presently has assumed? Is the solution to liability to accept less than a majority holding? Would a company act in a morally responsible way if it designed a plant with all the required safety features, and then turned the plant over to a local government or manager without any attempt to insure that the safety features continued to be implemented? National pride sometimes motivates a country to demand control of dangerous operations, using the local population, which has its own culture. Is it morally responsible of the host country to make such demands? The Bhopal incident raises such issues in a dramatic way and poses dilemmas for both multinationals and for Third World host countries.

Law provides little guidance in answering these questions, and policies vary from country to country. Ethics cannot determine the best solution, or prescribe what should be done. It can, however, circumscribe the possibilities. There are moral restraints that encompass any situation. I shall suggest three principles.

First, majority control imposes moral responsibility for the firm with respect to subsidiaries. This principle assigns responsibility to those having financial control. In the Union Carbide case, there seems to be little rationale for Union Carbide to have insisted on 50.9 percent of the shares of the Indian company, unless Union Carbide did have control. The majority share was an exception to the Indian Foreign Exchange Regulation Act. The plant was built by Indians according to the parent company's design, which was modified in accordance with Indian desires.

The issue of effective control was not clear. Union Carbide could, and did, inspect periodically. In this instance, its inspections were less frequent than those of other major U.S. chemical companies operating subsidiaries abroad. Yet, those other companies exercise control that Union Carbide might not have been able to exercise. Evidently, reports from the Indian company to Union Carbide's Danbury headquarters were either false, or exaggerations, or statements of intentions presented as fact. If Union Carbide had reinspected the Bhopal plant, it could not actually perform the needed repairs or install the needed equipment. This had to be done by the Indians. Whether it could, and should, have inspected and closed the plant until repairs were made is not clear. Such action might well have been resisted by the plant's managers and workers, and by the Government.

Nonetheless, the principle that control implies responsibility remains valid. It should be applied in this case. Failure on the part of Union Carbide to have effective control is no excuse. Hence, it is appropriate that Union Carbide assume responsibility for the Bhopal disaster, even though the Indian managers and workers were primarily responsible. Union Carbide, as the majority shareholder, should have exercised greater control over safety than it did.

Second, not all responsibilities fall on the multinational corporations. Each country has responsibility for its citizens, and for what it allows within its borders. Moreover, if a country requires and obtains majority control of a firm, then it is responsible for the actions of the firm. It cannot have control, and not have responsibility. This principle simply follows from the first principle. If majority control is indigenous, then primary responsibility is indigenous.

Third, if a company builds a hazardous plant, it has the obligation to make sure that it is safe. This principle holds that one is morally precluded from providing a dangerous product or plant without some reasonable assurance that it will not cause harm -- intentionally or unintentionally. One may not morally sell a gun to someone the seller knows intends to murder someone else. Similarly, this principle applies to building potentially -hazardous plants. Bhopal makes clear that one cannot simply transfer plants without consideration of the people who will run them, the culture, and similar factors. The implementation of safety must be negotiated with the host country. The responsibility of the firm is to build a safe plant and instruct workers on how to use it properly. Unless the firm is reasonably sure that the plant will be safely operated, it has the moral obligation to refuse to build it. Otherwise it knowingly and willingly takes part in the production of harm.

The implementation of this principle may, in some instances, be an affront to the host country by seeming to imply that its people are less competent. Nevertheless, unless one is reasonably sure that the plant will be run safely, the obligation not to build remains. A corollary is that technology cannot simply be transferred from First World to Third World countries. It may have to be completely redesigned, taking into account local customs, traditions, and capabilities. In the case of Sevin, it is now possible to produce it by a new process that precludes another Bhopal disaster by storing only very small amounts of MIC at any one time. Transferring such a plant is different from transferring the plant that was established in Bhopal.

Bhopal raises a great many questions beyond the area of multinationals. At stake is the issue of moral responsibility of corporations in what have become known as fail-safe industries. The issues are serious and deserve close attention. As you probably know, in recent months the Union Carbide plant in Institute, West Virginia, has leaked non-lethal gas, injuring a number of people. This not only leads people to ask whether Union Carbide has taken sufficient safety precautions, but also to ask whether it is possible for large chemical companies to be fail-safe.

Bhopal and related incidents have brought the moral responsibility of corporations to the attention of both corporate leaders and the public. The responsibility is real and the issues involved are pressing. By accepting and facing up to their moral responsibilities, corporations can reaffirm the best of American values and the American heritage. As part of the general public, we all can and should encourage them to do so.


(1) The "Bhopal Incident" that Professor De George uses as a case study in this writing continues to be recognized as one of the worst industrial disasters in world history. Legal proceedings involving the case continued until 1991, when a settlement for $470 million was reached between Union Carbide and the Indian Government.

(2) Douglas J. Bersharov and Peter Reuter, "Averting a Bhopal Legal Disaster," The Wall Street Journal, May 16, 1985: 26.