CASE PROBLEM LIVING AND DYING WITH ASBESTOS: WHAT HAPPENS WHEN YOU FIND YOUR MOST PROFITABLE PRODUCT IS DANGEROUSAN ETHICAL DILEMMA FOR THE FINANCIAL MANAGER Much of what we deal with in financial management centers around the evaluation of projects when they should be accepted and when they should be terminated. As new information surfaces regarding the future profitability of a project, the firm always has the choice of terminating that project. When this new information raises the question of whether or not it is ethical to produce a profitable project, the decision becomes more difficult. Many times ethical dilemmas pit profits versus ethics. These decisions become even more difficult when continuing to produce the product is within the law. Asbestos is a fibrous mineral used for fireproofing, electrical insulation, building materials, brake linings, and chemical filters. If one is exposed long enough to asbestos particlesusually ten or more yearsone can develop a chronic lung inflammation called asbestosis, which makes breathing difficult and infection easy. Also linked to asbestos exposure is mesethelioma, a cancer of the chest lining. This disease sometimes does not develop until 40 years after the first exposure. Although the first major scientific conference on the dangers of asbestos was not held until 1964, the asbestos industry knew of the dangers of asbestos 60 years ago. As early as 1932, the British documented the occupational hazards of asbestos dust inhalation.1 Indeed, on September 25, 1935, the editors of the trade journal Asbestos wrote to Sumner Simpson, president of Raybestos-Manhattan, a leading asbestos company, asking permission to publish an article on the dangers of asbestos. Simpson refused and later praised the magazine for not printing the article. In a letter to Vandivar Brown, secretary of Johns-Manville, another asbestos manufacturer, Simpson observed: The less said about asbestos the better off we are. Brown agreed, adding that any article on asbestosis should reflect American, not English, data. In fact, American data were available, and Brown, as one of the editors of the journal, knew it. Working on behalf of Raybestos-Manhattan and Johns-Manville and their insurance carrier, Metropolitan Life Insurance Company, Anthony Lanza had conducted research between 1929 and 1931 on 126 workers with three or more years of asbestos exposure. But Brown and others were not pleased with the paper Lanza submitted to them for editorial review. Lanza, said Brown, had failed to portray asbestosis as milder than silicosis, a lung disease caused by long- term inhalation of silica dust that results in chronic shortness of breath. Under the then-pending Workmens Compensation law, silicosis was categorized as a compensable disease. If asbestosis was worse than silicosis or indistinguishable from it, then it too would have to be covered. Apparently Brown did not want this and thus requested that Lanza depict asbestosis as less serious than silicosis. Lanza complied and also omitted from his published report the fact that more than half the workers examined67 of 126were suffering from asbestosis. 1 See Samuel S. Epstein, The Asbestos Pentagon Papers, in Mark Green and Robert Massie, Jr., eds., The Big Business Reader: Essays on Corporate America (New York: Pilgrim Press, 1980), pp. 15465. This article is the primary source of the facts and quotations reported here. Meanwhile, Sumner Simpson was writing F. H. Schulter, president of Thermoid Rubber Company, to suggest that several manufacturers sponsor further asbestos experiments. The sponsors, said Simpson, could exercise oversight prerogatives; they could determine from time to time after the findings are made whether they wish any publication or not. Added Simpson: It would be a good idea to distribute the information to the medical fraternity, providing it is of the right type and would not injure our companies. Lest there should be any question about the arbiter of publication, Brown wrote to officials at the laboratory conducting the tests: It is our further understanding that the results obtained will be considered the property of those who are advancing the required funds, who will determine whether, to what extent, and in what manner they shall be made public. In the event it is deemed desirable that the results be made public, the manuscript of your study will be submitted to us for approval prior to publication. Industry officials were concerned with more than controlling information flow. They also sought to deny workers early evidence of their asbestosis. Dr. Kenneth Smith, medical director of a Johns-Manville plant in Canada, explained why seven workers he found to have asbestosis should not be informed of their disease: It must be remembered that although these men have the X-ray evidence of asbestosis, they are working today and definitely are not disabled from asbestosis. They have not been told of this diagnosis, for it is felt that as long as the man feels well, is happy at home and at work, and his physical condition remains good, nothing should be said. When he becomes disabled and sick, then the diagnosis should be made and the claim submitted by the company. The fibrosis of this disease is irreversible and permanent so that eventually compensation will be paid to each of these men. But as long as the man is not disabled, it is felt that he should not be told of his condition so that he can live and work in peace and the company can benefit by his many years of experience. Should the man be told of his condition today, there is a very definite possibility that he would become mentally and physically ill, simply through the knowledge that he has asbestosis. When lawsuits filed by asbestos workers who had developed cancer reached the industry in the 1950s, Dr. Smith suggested that the industry retain the Industrial Health Foundation to conduct a cancer study that would, in effect, squelch the asbestos-cancer connection. The asbestos companies refused, claiming that such a study would only bring further unfavorable publicity to the industry and that there was not enough evidence linking asbestos and cancer industry-wide to warrant it. Shortly before his death in 1977, Dr. Smith was asked whether he had ever recommended to Johns-Manville officials that warning labels be placed on insulation products containing asbestos. He provided the following testimony: The reasons why the caution labels were not implemented immediately, it was a business decision as far as I could understand. Here was a recommendation, the corporation is in business to make, to provide jobs for people and make money for stockholders and they had to take into consideration the effects of everything they did, and if the application of a caution label identifying a product as hazardous would cut out sales, there would be serious financial implications. And the powers that be had to make some effort to judge the necessity of the label vs. the consequences of placing the label on the product. Dr. Smiths testimony and related documents have figured prominently in hundreds of asbestos- related lawsuits, totaling more than $1 billion. In March 1981, a settlement was reached in nine separate lawsuits brought by 680 New Jersey asbestos workers at a Raybestos-Manhattan plant. Several asbestos manufacturers, as well as Metropolitan Life Insurance, were named as defendants. Under the terms of the settlement, the workers affected will share in a $9.4 million court-administered compensation fund. Each worker will be paid compensation according to the length of exposure to asbestos and the severity of the disease contracted. By 1982, an average of 500 new asbestos cases were being filed each month against Manville (as Johns-Manville was now called), and the company was losing more than half the cases that went to trial. In ten separate cases, juries had also awarded punitive damages, averaging $616,000 a case. By August, 20,000 claims had been filed against the company, and Manville filed for bankruptcy in federal court. This action froze the lawsuits in their place and forced asbestos victims to stand in line with other Manville creditors. After more than three years of legal haggling, Manvilles reorganization plan was finally approved by the bankruptcy court. The agreement set up a trust fund valued at approximately $2.5 billion to pay Manvilles asbestos claimants. To fund the trust, shareholders were required to surrender half the value of their stock, and the company had to give up much of its projected earnings over the next 25 years.2 Claims, however, soon overwhelmed the trust, which ran out of money in 1990. With many victims still waiting for payment, Federal Judge Jack B. Weinstein ordered the trust to restructure its payments and renegotiate Manvilles contributions to the fund. As a result, the most seriously ill victims will now be paid first, but average payments to victims have been lowered significantlyfrom $145,000 to $43,000. Meanwhile, the trusts stake in Manville has been increased to 80%, and Manville has been required to pay $300 million to it in additional dividends.3 Adapted by permission: William Shaw and Vincent Barry, Moral Issues in Business, 7th ed., pp. 224-227. Copyright 1995 by Wadsworth, Inc.

QUESTIONS 1. Should the asbestos companies be held morally responsible in the sense of being capable of making a moral decision about the ill effects of asbestos exposure? Or does it make sense to consider only the principal people involved as morally responsible, for example, Simpson and Brown?

2. Simpson and Brown presumably acted in what they thought were the best profit interests of their companies. Nothing they did was illegal. On what grounds, if any, are their actions open to criticism? 2See Robert Mokhiber, Corporate Crime and Violence (San Francisco: Sierra Club Books, 1988), pp. 28586; and Arthur Sharplin, "Manville Lives On as Victims Continue to Die," Business and Society Review 65 (Spring 1988), 278.

3 Asbestos Claims to Be Reduced Under New Plan, Wall Street Journal, November 20, 1990, p. A4; and MacNeil-Lehrer Newshour. December 18, 1990. 3. Suppose that Simpson and Brown reasoned this way: While it may be in our firms short-term interests to suppress data about the ill effects of asbestos exposure, in the long run it may ruin our companies. We could be sued for millions, and the reputation of the entire industry could be destroyed. So we should reveal the true results of the asbestos- exposure research and let the chips fall where they may. Would that be appropriate?

4. If you were a stockholder in Raybestos-Manhattan or Johns-Manville, would you approve of Simpson and Browns conduct? If not, why not?

5. Hands of government proponents would say that it is the responsibility of government, not the asbestos industry, to ensure health and safety with respect to asbestos. In the absence of appropriate government regulations, asbestos manufacturers have no responsibility other than to operate efficiently. Do you agree?

6. Does Dr. Smiths explanation for concealing from workers the nature of their health problems illustrate how adherence to industry and corporate goals can militate against individual moral behavior? Or do you think Dr. Smith did all he was morally obliged to do as an employee of an asbestos firm? What about Lanzas suppression of data in his report?

7. It has been shown that spouses of asbestos workers can develop lung damage and cancer simply by breathing the fibers carried home on work clothes and that people living near asbestos plants experience higher rates of cancer than the general population does. Would it be possible to assign responsibility for these effects to individual members of asbestos companies? Should the companies themselves be held responsible?