COVER

EXPOSING CORPORATE NEGLIGENCE

DAVID LINDORFF June 30 1986
COVER

EXPOSING CORPORATE NEGLIGENCE

DAVID LINDORFF June 30 1986

EXPOSING CORPORATE NEGLIGENCE

COVER

White-collar crime has traditionally referred to bloodless paper crimes—mainly involving money. Now, the meaning is expanding to include management decisions that sometimes result in death.

The tragic accident was officially described as the result of a massive bureaucratic breakdown. But for many critics of the recent space shuttle disaster, the fatal explosion revealed a fundamental—perhaps even criminal—weakness in business ethics. Last Jan. 28, when the U.S. space shuttle Challenger began its doomed 73second flight, engineers from Utah-based Morton Thiokol Inc.—the subcontractor for the shuttle’s huge solid-fuel booster rockets—knew that something might go wrong. Engineers testifying last February and March to the Presidential Commission on the Space Shuttle Challenger Accident, said they knew that the synthetic-rubber seals beI tween the rocket’s joints | could fail in cold weathB er. Although Thiokol’s o top engineers had protested against the launch to their own executives and to top managers at the National Aeronautics and Space Administration (NASA) the night before, NASA executives proceeded.

Harsh: The presidential commission, which reported to President Ronald Reagan two weeks ago, pilloried NASA for management practices that permitted the shuttle launch to proceed despite numerous life-threatening technical problems. But the tragedy has also come to focus a growing sentiment in North America that managers must be accountable for their decisions. In recent years in the United

States—unlike in Canada, where a more lenient official attitude prevails—the courts have taken an increasingly harsh view of corporate managers who ignore warnings from employees—particularly engineers— whose work affects the safety of other workers and the public.

As well, the traditional legal protection that incorporation affords individual executives from personal liability for their on-the-job decisions has gradually been breached. Conduct that endangers life is now viewed by some judges and jurors as amounting to criminal negligence —even murder. Said Russell Mokhiber, staff attorney with Washington, D.C.-based Corporate Accountability Research Group, which was founded by consumer advocate Ralph Nader: “If NASA and Thiokol management ignored engineers’ warnings about design flaws in the

shuttle, it could be criminal negligence.” He added, “I wouldn’t be surprised to see a criminal prosecution eventually.”

Reckless: Public demand for a harsher view of corporate accountability first surfaced in 1978, when the Ford Motor Co. of Detroit became the first American company ever to be charged with murder. That year, Ford was charged with “reckless homicide” in an Indiana County circuit court. The case involved three teenagers who died when the gas tank in the 1973-model Pinto they were driving exploded after the car was struck from the rear. The prosecution argued that as early as 1971, Ford engineers had warned against the flawed design of the Pinto’s gas tank. Company engineers had offered alternative designs, but management went ahead. Ford was acquitted after a jury trial in 1980, but the fact that the courts had permitted

the charges to stand set a precedent.

Then, last June corporate executives were actually convicted of murder for the first time. An Illinois circuit court in Chicago found Steven O’Neil, president of Film Recovery Systems Inc., and two other executives of the nowdefunct silver-recovery firm guilty of murder and reckless conduct in the death of an employee, Stefan Golab.

Threatening: A Polish immigrant who did not speak English, the 59year-old Golab had been assigned to work over an open vat of cyanide. In 1983 he died of lung failure as a result

of breathing the fumes. The court found that O’Neil, plant supervisor Charles Kirschbaum, and foreman Daniel Rodriguez knew that Golab’s task was life-threatening. The three men, each sentenced to 25 years in jail and fined $10,000 (U.S.), are free on bail while their case is under appeal.

Pressure: In the United States, one reason for the lapses in safety standards, according to critics, is that engineers and other production experts are under pressure from management to ignore or downplay their concerns. The evening before the launch of Challenger, Thiokol’s vice-president for engineering, Robert Lund, aware of what he described as near rebellion among his engineers, first recommended against cold weather launch. He testified at the presidential commission that a half-hour later, after being asked to “put on my management hat” by Thiokol senior vice-president Jerald

Mason, he reversed his decision.

The pressure on Thiokol’s engineers, according to the Corporate Accountability Group’s Mokhiber, represented a “trade-off between profits over safety, with a lot of pressure from corporate users of the shuttle, and internal pressure from NASA, to get a lot of shuttles up.” Ralph Nader described the shuttle disaster as “another example of the accelerating degradation of the status of the engineer.” He added, “Not only were the engineers overruled by management, they were so afraid of retaliation that they didn’t

go outside the chain of command.”

Engineers and others who do complain to outside authorities about faulty systems or flawed products are sometimes transferred—or fired. Roger Boisjoly, Thiokol’s top seal expert, and Allan McDonald, the senior engineer for Thiokol at the Kennedy Space Center, both testified to the commission about their safety concerns—and both received what they called “punitive transfers” as a result. Only weeks before the commission’s report was released, they were reinstated.

A similar incident arose during a senate investigation last March into the December, 1985, crash in Gander, Nfld., of a DC-8 owned by Miami-based Arrow Air Inc. The disaster resulted in the deaths of 248 U.S. soldiers and eight civilian crew members. Michael Sanjenis, a former Arrow Air pilot, testified that he had been taken off flight status and subsequently quit his

job in 1984 after he had complained about the airline’s maintenance standards to the Federal Aviation Administration. And employees who raise safety concerns outside of their companies often receive little support from their peers. Daniel Pletta, an engineering professor at Virginia Polytechnic Institute and State University, has told professional engineering societies that they should act more forcefully in defence of members who speak out.

Liability: Associations such as the 80,000-member National Society of Professional Engineers, which repre-

sents employees of large corporations, have safety committees that are supposed to investigate members’ complaints. But in a survey that Pletta did in 1984, 59 per cent of the Society’s members did not even know that such a committee existed.

The dramatic surge in corporate mergers has also aggravated the difficulty faced by safety-conscious employees. When a company involved in a complex technical process is taken over by a firm whose executives have little knowledge of its operations, safety issues may be ignored. Said Louis Clark, director of the Washington, D.C.-based Government Accountability Project, a group that assists individuals who speak out on safety matters: “The business schools preach that management is an art—once you have it, you can manage anything.” He added, “So the MBA supposedly doesn’t need any engineering expertise to run

a technical system.”

Costs: Some experts also say that the low fines imposed for safety convictions encourage businesses to take a cost-benefit view of safety—comparing the price tag of meeting beneficial safety standards to the cost of possible fines and damage payments. After taking office in 1981, the Reagan administration or; dered the Office of Management and Budget to perform a cost-benefit analysis for any new safety and health regulations proposed by federal agencies, with the aim of reducing corporate costs. In textile mills, levels of cotton dust —which causes brown lung disease— were permitted to increase by the adminis-

tration after a cost-

benefit study, completed in 1985, concluded that employee health would not be seriously affected.

Some criti.cs say the laws that now protect individuals from prosecution encourage unethical approaches to safety. Said Corporate Accountability’s Mokhiber: “The philosophy of limited liability has spread throughout the management hierarchy of the American corporation.” The consequences have often been tragic. But in the wake of the shuttle disaster, the courts may be increasingly driven to hold those executives personally accountable.

DAVID LINDORFF