Special to ‘Financial Chronicle’, June 29, 2010

by Praful Bidwai

Parekh put Mahindra “almost” in the same league as JRD Tata and GD Birla and regretted the judgment’s likely effect in scaring away independent directors from company boards. He said: “I agree this is our worst tragedy, but we can’t get emotional about it.” Parekh said he was under pressure from his family to quit several company boards. “If there is some serious accident in any of these companies, will I go to jail? I don’t want to be the chairman of a board. …” He also said that hazardous materials manufacturers would find it difficult to get a CEO. He noted the magnitude of BP’s oil spill damage and rhetorically asked: “Have the BP chairman or the CEO been arrested?”

Parekh’s defence of Mahindra is as illogical as his assault on the proposition that corporate directors must be held responsible for negligence which harms the public. It is ludicrous to compare Mahindra’s contribution to India’s industrialisation with JRD’s. But both this, and Mahindra’s motive in joining the board of a company with a toxic record, are irrelevant. What matters is that Mahindra presided over a corporation that ran a plant grossly under-designed for safety. The factory had been established as accident-prone through fatal mishaps prior to December 1984. Its piping was flawed. Its process used standards inferior to those deployed in Carbide’s US factory.

UCIL’s parent company (Union Carbide-US) conducted a safety audit in 1982 which found 30 flaws in the factory. These were not addressed. Instead, as the plant lost money, staff levels were cut and safety systems shut down. It is inconceivable that Mahindra was unaware of these decisions, which had public safety implications. He surely knew of the plant’s potential for toxic leaks. Mahindra, like Warren Anderson, may not have gone into the minutiae of the plant’s operation, but he knew that it had leaked fatally poisonous methyl isocyanate before 1984.

That’s where liability comes in. This has two dimensions: direct and vicarious. Nobody claims that Mahindra or UCIL CEO VP Gokhale was personally responsible for the MIC leak. But they were vicariously responsible because of their decision-making positions in UCIL: they were party to, complicit in, or endorsed, decisions and actions at the root of the disaster. They cannot hold positions of power and profit and disown the responsibility that comes with power.

Corporations are not charities. And people do no favour to society by becoming their directors. Various industrialised countries have developed laws on liability—including strict and absolute liability, no-fault liability—to cope with the menace of industrial hazards. One of India’s tragedies is that it has failed to evolve such laws.

Parekh is wrong on BP. Its directors could yet go to jail. What President Obama means by wanting to “kick ass” could well include their arrest and prosecution. The issue has gone past formal legality: legally, BP is only liable to pay $75 million. In the US, long jail terms are awarded for tax evasion and other “civil” wrongs.

The point is simple. If corporations harm society massively, they must be severely punished. Corporations are not persons in the real sense. Their directors are, because they have human agency—and associated responsibilities. Agency comes into play when directors are held culpable for civil/criminal liability. The punishment must be proportional to the magnitude of negligence and harm inflicted. It was an ugly travesty of justice that those responsible for 15,000-plus deaths and grave, lasting chemical injuries to more than 2 lakh people got off with trivial penalties.

Parekh is right: heavy liability may scare independent directors away from companies engaged in hazardous activities. So be it. Human life must take precedence over corporate directorship. If toxic chemicals producers cannot attract CEOs, then that calls for introspection by them, the government and the judiciary: are these corporations exposing society to unacceptable risk? Should they not improve their safety design and operational practices? What can be done to deter negligence?

One would have thought that Parekh, who courageously criticised Narendra Modi for the Gujarat carnage, would counsel such critical introspection while reflecting on Bhopal’s sordid outcome, which should shame us all. India, seen in 1984 as a Third World country unable to take on a First World corporation, is now viewed as a Fourth World state disinterested in defending its own citizens. At least that, if not Bhopal’s suffering, should ring alarm-bells.