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CORPORATE RESPONSIBILITY IN

DISASTER MANAGEMENT

by

JODI MAHARDI

With the advance of technology in telecommunication, transportation, along with the democratization of financial sectors, Multinational Companies now able to operate across borders, basically anywhere in the world. The decision for an MNC to decide where to operate can be influence by many factors such as political, social, and financial stability of a country or its government adherence to the rule of law and its commitment to uphold it. But in most cases companies choose the location of their operation simply on the basis of where the most profit can be obtained from. Whether the means of obtaining the profit are inline with corporate ethical responsibility guidelines sometimes do not constitute as an important factor of a decision making.

The many options available for MNC where to channel their investment can create an environment of harsh competition among countries especially for developing countries who carry most of the burdens of global production because of the low cost of production as accumulation of cheap labors, lax regulations, low value property etc. 

Foreign Direct Investment does provide the necessary resources for developing world. It provides continuation of revenue to the host country as well as employment opportunities, transfer of technology, improvement of lifestyle, and improvement of local infrastructures. But the presence of MNC can sometimes contribute to the degradation of environment and health in the host country especially from the heavy industries. The reason why most MNC choose to relocate their factory to the developing countries is not only because the shifting of low tech to high tech industry in the developed countries or the disparity of labor cost between developed and developing countries but also because that in operating in the developing countries, the MNC has the ability to operate with sub par standard compare to those that were required in developed countries.

By operating without meeting the high level of safety and precaution standards, accidents sometimes in the level of disasters do happen across the world. We can list many disasters related to corporate negligence such as the Bhopal Gas Tragedy in India (Union Carbide); Exxon-Valdez; BP Deepwater Horizon oil spill; and Sidoarjo Mud in Indonesia among others. That is not to say that all companies are selfishly looking for profit and the cause of most human suffering, we must not exclude the contribution of MNC and the private sector in general to the advancement of global economy and global living improvement. The proportion of industrial disaster to the benefits contributed by these industries in term of economic progress is small however we should not turn a blind eye to the potential impact of  such disaster to the environment and people all around the globe. We couldn’t also afford to be permissive to the companies who have failed to prevent their industries from causing such disasters as it means we are allowing irresponsible corporate behavior in the future.    

The major problem for any country to implement a stricter and enforceable laws and regulations to prevent industrial disasters to happen is that globalization with its advancement in technologies and how the global financial structure is reshaped gives company the ability to move their capitals and industry practically as they please.  The mobility of international capital also means governments around the world must open up their industries and their economies to much greater participation from the private sector. No longer can state monopolize certain industries or to centralize their economy, they are now required to decentralize and deregulate to adapt to the dynamic pace of globalization.

What this means now MNC and large company have more influence to dictate government on how their national regulations should be adapted to convince these companies to stay or to relocate to. Despite of the political system, whether it’s a democracy or one party system, the ever increasing global competition for FDI force governments to deregulate. A democracy needs to feed its vocal population, while the authoritarian one needs its population refrain from being hungry to legitimize its rule.

We have seen now the growing of protests against irresponsible corporate actions around the world, but it has not been successful in creating direct change in creating a globalized corporate ethics and responsibility or norms. The transnational nature of huge corporations means that when facing a legal issue they can utilize the different legal systems in the world according to their need and interests.

On 2 December 1984, the Bhopal tragedy happened in the City of Bhopal in India Northern State of Madhya Pradesh, when the pesticide plant owned and ran by Union Carbide India Limited, the Indian subsidiary of Union Carbide Corp., a US Company (which is now a subsidiary of Dow Chemical Company) began leaking a methyl isocyanate (MIC) gas and other toxins from the plant. Approximately 3,000 people thought to died because of the incident and 15,000 injured or death related to the incident (Govt Madhya Pradesh). “A government affidavit filed in the Supreme Court in 2006 stated that of the 558,125 cases of injury resulting from the disaster, 516,406 (92.5%) were minor, 38,478 (6.8%) were temporary partial disablement while 0.7% (~3,900) were severely and permanently disabled. The government's classification was criticized after the deaths of people who were classed as having minor injuries”. (Dubey, 2010)

According to a report the abandoned chemicals from the closed UCIL plant still producing pollution that threaten the safety and health of the region groundwater and the population.  Greenpeace, an organization that advocates ecological protection has accused Union Carbide for its failure to protect the safety of the plant by ignoring the recommendation from the safety audit conducted in 1982 on the Bhopal plant to fix 30 possible hazards found on the plant while it latter decided to fix the sister plant in the US instead (Greenpeace). If the allegation is based on a fact than the Union Carbide action was a form of discrimination by discriminating the potential impact of the disaster on the Indian population and those in the US.

To counter several arguments alleging UCC and UCIL’s failure to maintain the safety standards and the plant’s equipments in good standing, UCC has defended itself and tried to dissociate itself from responsibility by insisting that the plant was built and ran fully by the Indian subsidiary. UCC also claimed that a sabotage act by one of its employees was the cause of the incident (Union carbide, 2009).

The UCIL Bhopal plant was build jointly by the Indian Government and UCC partly as a result of several Indian Government policies in the 1970 to attract foreign investors to India. In the 1970s India was one of the poorest country in the world, foreign direct investment is important for economic growth of India. UCC owned 50.9 percent of the plant, while the government of India own 22 percent and the rest of the share belong to the local investors (Eckerman, 2001).

The Bhopal site was chosen because of its central location and the needed transportation infrastructure despite of its close proximity to densely populated areas. It is against common sense and local regulations to place such hazardous facility in a densely populated areas, only government intervention which could easily pushed when the economy is in need that could let this happen. It was decided by the government that the plant would be allowed to operate in the area because it was designed only to form pesticide based on component chemicals including MIC that were to be imported from the parent company in the US (Broughton, 2005).

As competition grew the Bhopal plant decided to manufacture the raw materials itself.  When the local agricultural industry is in decline the demand for the pesticides went accordingly forcing the company to close and sell the plant. During this time key production units were dismantled for shipment to another countries and safety and maintenance standards declined in order to cut costs. The local government reluctant to enforce heavy standards on safety and maintenance for feared it would limit foreign investment (Broughton, 2005).

After failing to obtain trial in the US, the victims of Bhopal brought their case to India. In February 1989, the Supreme Court of India directed a final settlement of all Bhopal litigation in the amount of $470 million. The Government of India, UCC and UCIL accepted the Court’s direction. Ten days after the decision, UCC and UCIL made full payment of the $470 million to the Indian government. (Broughton, 2005). Some say its fair except perhaps for the dead and those who will still suffer because of the remaining pollution.

On May 2006, PT. Lapindo Brantas, a joint venture oil and gas company owned in majority by Bakrie, one of the largest conglomerate group in Indonesia conducted a natural gas drilling in district of Sidoarjo in the Province of East Java in Indonesia. Either solely because of the drilling or also caused by a distant earthquake in Central Java, the drilling caused the expulsion of mud volcano of 30,000 m2 (1 million cubic feet) of mud every day until present. This mud is expected to flow for the next 30 years (Lovett, 2007).

While the mud flow didn’t resulted in any deaths the scale of the disruption on local economy and to the daily life of the population is enormous. Approximately 11,000 people became homeless, schools were closed, and people lose their jobs.  Even though the mud flow has been contained by levees since November 2008, occasional breakouts still disrupt transportation network in the area and the local economy.

Mud flow systems are common on earth and particularly abundant in East Java, Indonesia while also rich in oil and gas. The Brantas Production Sharing Contract in Sidoarjo consists of three oil and gas fields shared by Santos Corp (18%); Medco Energy Corp (32%); and Lapindo Brantas Corp (50%), with Lapindo as the operator . “On May 28, 2006, PT Lapindo Brantas targeted gas in the Kujung Formation carbonates in the Brantas PSC area by drilling a borehole named the 'Banjar-Panji 1 exploration well'. In the first stage of drilling the drill string first went through a thick clay seam (500–1,300 m deep), then sands, shells, volcanic debris and finally into permeable carbonate rocks (Noorden).  At this stage the borehole was surrounded by a steel casing to help stabilise it. At 5:00 a.m. local time (UTC+8) a second stage of drilling began and the drill string went deeper, to about 2,834 m (9,298 ft), this time without a protective casing, after which water, steam and a small amount of gas erupted at a location about 200 m southwest of the well. (Geological Society of America)

Lapindo Brantas has been denying any responsibility for the mud flow claiming that the earthquake in Central Java that occurred the day before in Central Java, 300 kilometers away as the cause of the cracked on the ground that led to the mud flow. A Geologist from Western Australia's Curtin University, Mark Tingay said that the eruption is expelling enough mud to fill 50 Olympic-sized swimming pools each day and the situation is going to get worse, if continues for years it will impact 100,000 people that live in the area (Geological Society Australia). It will also harm the environment because large amount of the mud has to be diverted into the nearby river system that flows to the sea nearby (Geological Society Australia), and will eventually damage the local fisheries that so many locals depend their livelihood on.

A recent analysis by Durham Energy Institute in a paper published on Journal of Marine and Petroleum Geology stated that “The disaster was caused by pulling the drill string and drill bit out of the hole while the hole was unstable, and this triggered a very large kick in the well, where there is a large influx of water and gas from surrounding rock formations that could not be controlled”.  Lapindo Brantas the subsidiary of the Conglomerate Group Bakrie, owned by the former Coordinating Minister for People’s Welfare, Aburizal Bakrie who is also the current chairman of Golkar, the second largest party in the parliament. Bakrie had tried to sell the company to Freehold Group in British Virgin Island owned by a powerful lobbyist in the US, thought by many as a move to free itself from any responsibility, but the transaction was blocked by BAPEPAM the equivalent of SEC in the US.

The government through its court has ordered Lapindo Brantas to pay approximately US$240 million in compensation. Unfortunately, the government also has declared that the mudflow is a natural disaster caused by the Central Java Earthquake a day earlier and not caused by the drilling, providing the opportunity for Bakrie Group to be relieved from any future liability. The government has founded the Sidoarjo Mudflow Management Agency (BPLS) to manage the mud and to oversee the rehabilitation and reconstruction process of the impacted area. Its annual budget is approximately US$150 million borne by the government. 

International standards for safety that encompasses all range of safety priorities: environment, human, and facility are imperative. Environment safety is particularly very important because of the potential impact it would create and the long term effect. International regulations and sanctions that govern corporate conducts in relation to safety and public health will also preclude states from having to gain competitive advantage by deregulation in public safety and health and will eventually empower states to demand proper measures or responsibilities from companies violating the standards.

Companies should allocate enough money to manage and fund community programs and projects that can potentially help to increase community awareness and preparedness to prevent or overcome future disasters. Programs and projects like: i) containment and mitigation preparations; ii) community awareness; iii) safety infrastructures; iv) capacity building; and v) formulation of contingency plan related to specific potential disaster that may cause by the company are all vital programs and projects.

While government contingency plan is part of a national operational plan used as a guideline on how to response to a potential emergency disaster or following a disaster, private sector contingency plan should focus on how to contain an emergency in its facility from becoming a threat to the surrounding population and should become part of government contingency plan. 

According to the National Response Framework (NRF), resilient communities begin with prepared individuals and depend on the leadership and engagement of local government, NGOs and the private sector. In this regard, partnership with all stakeholders is important especially when a company is operating trans-nationally to make sure the preparedness program is implemented within the local regulations and laws as well acceptable to local culture, tradition, and needs.