Henry Ward Johns was the founder of Johns-Manville Corporation(J-M) and inventor of asbestos. His company would survive him to be involved in one of the longest lawsuits in history. The victims of the cancer caused by exposure to his invention are the plaintiffs in the numerous cases that would be litigated for decades. This paper will highlight the facts surrounding this case, provide an analysis and the position of the parties, discuss the issues surrounding social responsibility for J-M and then conclude on the degree of social responsibility that the J-M corporation is responsible for. First, lets examine the history of Johns-Manville Corporation (J-M) and the events leading to the lawsuits over the cancer causing asbestos products.
Henry Ward Johns, died in 1898. Later to be found out that he died a victim of the product that he had created. In the same year that Henry Johns died, a British factory inspector noticed a common ailment among the workers: “In the majority of cases the evil is very insidious. The worker falls into ill-health and sinks away out of sight in no sudden or sensational manner.” Many other discoveries of this nature were also reported in medical literature in 1924, 1928, and 1930, with the disease being named, asbestosis, in 1927. Before the start of the third decade in the 20th century, J-M was defending lawsuits for asbestos deaths.
In 1930, a second generation of J-M managers took over operations and remained in the company into the late 60’s. The Senior officials that remained with the company into the late 1960’s, stated in court documents that the workers in the lawsuits had assumed the risks of employment, knew or should have known the dangers, and were contributory negligent in the cases. This company attitude would continue through to the end of the century with numerous physicians of the coming years stating their finds in study after study and their counterparts refuting any knowledge of them.
As stated previously many lawsuits were filed against J-M for asbestos health. In the 1980’s the smoking gun of the lawsuits filed would be the correspondence of those senior officials of J-M in the 1930’s. Memos such as those by Brown, who stated in 1935, “I quite agree that our interests are best served by having asbestosis receive the minimum of publicity, ” were the norm of the times at J-M. In these lawsuits, the company would claim that they did not know of the affects of exposure to asbestos until 1964. This was the corporate position and they would defend this claim for the next two decades. This was also the first year that caution labels were put on certain products, but the most profitable bags of asbestos fiber that was distributed around the world would not be labeled for another five years. The first big lawsuit lost by J-M would finally come in 1972. Next, a former J-M medical director, Smith, would testify to his prior knowledge and research on asbestos and health in 1976. Asbestos-Health(A-H) attorneys found the memos of the 1930’s in April 1977.
All during this time the company was diversifying itself into “clean” businesses by acquiring other companies. First fiberglass, then other unrelated companies such as plywood. The company went through many changes in leadership during this time but each focused on eliminating the liability of the lawsuits. At this time the company was listed as defendant in 623 A-H lawsuits, though no mention was listed in their financial statements annual report. In 1981, J-M changed its name to Manville Corporation and reorganized by segregating into separate divisions. During these years, juries awarded the first $1 million punitive damage rewards to victims. Profits would decrease 20 percent by 1982 and profits disappeared completely. Their auditors would qualify their opinions on the company’s financial statements for 2 years running and Standard and Poor’s and Moody’s downgraded Manville’s debt. Their insurers would argue back and forth on who was responsible for paying the liabilities with all refusing to pay claims.
This set the stage for the company to file Chapter 11 on August 25, 1982. The company was well prepared for it. First, they were separated into incorporated divisions. Second, a large part of Manville, Olinkraft, was never in the asbestos business (accomplished with all those acquisitions into “clean” businesses). Third, management was tough, long tenured, rich with lawyers and together in their beliefs during attacks on the company. Fourth, the firm had competent counsel, strong leadership, and access to the nations most debtor friendly bankruptcy court and judge when the case was file in the Southern District of New York with Burton R Lifland, chief judge. Lastly, the company’s debt was almost all unsecured and the debtlike preferred stock would not have to be repurchased, assuring plenty of cash and borrowing ability to them. They would end up with over $2 billion in unencumbered assets. The company would not emerge from the bankruptcy until 1986. All creditors were paid with 12 percent interest. A trust was setup to pay lawsuit claims and Lifland would issue an injunction, which shielded the company, its past, present and future managers and directors; its insurers; and even its codefendants from asbestos claims. The $1.65 billion bond the trust received would be run out of money after the first property-damage claims. Lifland would limit the funding for P-D claims with the rational: “Blood and bones are more important than bricks and mortar.”
By this time the managers from the 1930’s to 1960’s had retired with generous bonuses along with pension packages in the millions of dollars. Some would, upon leaving the company, arrange to purchase some of the earlier segregated assets. In 1988, magazines would feature one of the last groups of senior officials, Stephens, as the savior of Manville Corporation and Roach, CFO, as its redeemer, with substantial increases in their pay over the years. Several victims of asbestos would die before seeing the first A-H trust payments in 1989, with A-H seeming to come onto the side of Manville with national advertising campaigns forced on potential claimants. The trust had spent several thousand dollars on salaries, offices, and expert help, about 50 percent more than would be paid to the victims in the same years. The average payment to victims in 1991 was only $43,902 each, after lawyers’ fees, just $20,487. The trust was in chaos by the time of the 1992 Annual Meeting were Stephens would show were the company was going in the future and would finally set the firm’s attitude toward the asbestos claims. This would come after decades of fighting and thousands of victims. The victims of this product are just now seeing their just remuneration.
Since the invention of asbestos products, an inhumane working condition has been and still is a reason for concern. Although the textile industry safety has increased and Labor Laws are being enforced, there is still an issue of Accountability and Social Responsibility. J-M approach to the first 20,000 asbestos cases out of 200,000 filed by 1992 had received compensation of about $20,000 each. However, new cases that were being filed had a 23 year long wait to be compensated. J-M, almost insolvent, filed bankruptcy shielding their assets from claimants, in hopes to become profitable again. Good portions of the saved funds were used to the sole benefit of the managers and directors whom are not exposed. This begs the question is J-M acting ethically by accepting accountability for the lives lost and the irreversible effect of asbestos. The company was highly insensitive to their workers and customers. Through their own admission “Application of a caution label identifying a product as hazardous would cut out sales.” In 1929, J-M said employees knew the dangers and was contributory negligent. Employees with no alternative would be forced to choose a hazardous work environment in order to make a living for their families. Additional life insurance is not an option because insurance companies did not want to take the risk. The company filed bankruptcy to rid themselves of medical claims. CEO Stephens thought the company would escape their claims after filing bankruptcy. CFO Roach announced the company’s wrong doings and efforts to grow in order to pay past victims. Keep in mind the company had grown enough that some director’s salaries were more than doubled in a 5-year span. The company social responsibility was directed to the shareholders only. The company was morally wrong and didn’t take responsibility for their actions. Bottom line after all the facts presented in this case, J-M did not act socially responsible to their employees nor their customers.