July/August 1989 - VOLUME 10 - NUMBERS 7 AND 8
C O R P O R A T E P R O F I L E
Politics, Pollution and Profitby Stuart Gold
In the early 1970s Armand Hammer, chairman and CEO of Occidental Petroleum, struck a deal with Libya's revolutionary ruler, Muammar Qadaffi. Hammer relinquished majority control of Oxy's oil holdings and in the process broke the stranglehold the oil companies had on Libyan oil. Qadaffi rewarded Oxy with major oil concessions while "Big Oil" chastised the company for abandoning the team position. The Libyan deal marked Occidental's entrance into competition with "Big Oil."
Occidental was not always capable of taking on the big boys and winning. Under Hammer's tutelage the company has diversified into a huge energy conglomerate encompassing oil and gas production, petrochemicals, pipelines, mining and agribusiness. Oxy's growth has been staggering; in 1956 Hammer bought the company for $120,000, today Oxy is the 14th largest industrial company in the United States with revenues of almost $20 billion and profits of $302 million in 1988.
This growth is a direct result of Hammer's business acumen. His story is one of riches to more riches; one which began in the Soviet Union in the 1920s. His business dealings with the USSR began with Lenin's New Economic Policy (NEP) and, excepting Stalin's rule, have persisted to this day. This relationship resulted in crucial economic ties to the West for the Soviet Union and a bonanza for Hammer in the form of asbestos and coal mining concessions. He also operated as an agent for Soviet trade with the United States. Even when NEP was ceased in 1925, ending almost all foreign concessions, Hammer was given a pencil-making factory. When Stalin consolidated his power in 1929 and proceeded to nationalize the remaining foreign concessions Hammer traded in his concessions for priceless Russian art previously owned by the czars. Where other foreign businesspeople lost money, Hammer was able to sell the art work for $11 million during the Depression. Hammer's "Midas" touch allowed him to profit in the face of a potential pitfall.
Hammer's public persona has many dimensions. Hammer is a world renowned art collector and a self-described world citizen promoting "peaceful coexistence." The same Armand Hammer was censured by the Securities and Exchange Commission (SEC) for falsely claiming both that there was a gold deposit on Oxy held land and that Oxy "may have one of the largest iron ore deposits in the Western part of the United States." Hammer also pleaded guilty to an illegal campaign contribution given to Richard Nixon in 1972 and received a suspended sentence. Despite Hammer's attempts to portray himself as a benevolent and enlightened CEO, Oxy, the company that has been the main source of his wealth, is a despicable corporation.
The most infamous stain on Oxy's record was exposed in 1978 when the Love Canal area of Niagara Falls, N.Y. was declared a health emergency, forcing its evacuation. Hooker Chemical, an Oxy subsidiary, had been responsible for dumping tens of thousands of tons of toxic chemical wastes in a dump that bordered a residential area. Almost 11 years after it was exposed, Love Canal still stands out as a monument to corporate indifference and deceit.
Occidental has never admitted responsibility for the Love Canal fiasco, citing the fact that the dumping occurred prior to Oxy's purchase of Hooker. This line of reasoning, however, does not hold up under scrutiny. According to Eugene Martin-Leff, assistant attorney general for New York State, the "evidence shows [that Oxy made] an effort to abandon the landfill [in order] to avoid responsibility." Oxy "refuses to recognize any responsibility for the site," Martin-Leff added.
The battle between the residents and the state on the one hand and Occidental on the other continues because, as Martin-Leff points out, Occidental has fought "tooth and nail" by "throwing tremendous legal resources and scientific consulting costs into the defense of every single issue.n He adds that, "As I soon as [Oxy's] evidence has been demolished they come with a new scientific consultant and a new theory of how the chemicals" escaped the confines of the dumpsite. Martin-Leff says it is difficult "to be working hard to disprove one theory and [then] have [Oxy's] lawyers admit casually that it wasn't a viable theory."
The delays and legal wrangling stand in stark contrast to the description of Occidental's behavior provided in Hammer, the 1987 biography of Armand Hammer. In this book Hammer says that "When in the late 70s the scope of the damage became clear, Occidental moved as quickly and expeditiously as possible, under the complex circumstances to ameliorate the situation, even though Occidental had had nothing to do with the cause of the trouble." Employees of New York's Department of Environmental Conservation, however, offer a different version of events. For instance one source told Multinational Monitor that "There's a very definite corporate policy for delay" regarding the clean up of the Niagara Falls area. Occidental is "taking years and years," the source continued, "and [has] done nothing. I can't believe that it's not been by design."
The latest development in the case came in February 1988 when the court declared Occidental liable for the cleanup at Love Canal. Martin-Leff said the state is trying to prove that Hooker's original sale of the land to the school board was so reckless that Hooker should pay punitive damages. The state is seeking $270 million in punitive claims and another $70 million in expenses, including the purchase of new homes for the more than 300 families who were forced to move. Martin-Leff believes it could be five more years before the case is finally settled. "Love Canal is not the biggest, just the best known" instance of Occidental's dumping of highly toxic wastes, according to Marco Kaltofen of the National Campaign Against Toxic Hazards (NCATH). Occidental Chemical is regarded by environmental groups as one of the worst polluters in an industry where the competition for that position is fierce.
Many of OxyChem's problems arise from its product line. Unlike much of its competition Oxy has moved into the production of halogenated hydrocarbons which contain chlorine, fluorine and carbon tetrachloride. "Chlorinated chemicals have a tremendous amount of byproducts, 150,000 well known, persistent, biocumulative toxic byproducts," according to Kaltofen. "If you wanted to maximize pollution, you'd adopt Oxy's product line," he added. Hammer's view of his company's behavior sounds more like wishful thinking or self-delusion than reality. "We believe that corporate responsibility demands we guard the public health and safety, and to that end we have spent many millions of dollars on environmental protection. We will never cease doing so," he asserts. Unfortunately, such claims don't jibe with the facts.
Oxy's well known problems with chemicals have not prevented the company from expanding its chemical operations. In fact, OxyChem has become the top earner among the company's subsidiaries, accounting for more than two thirds of its after tax profits in 1988. According to Mike Young, an international oil analyst for Smith-Barney, "chemicals account for a disproportionate amount" of Occidental's profits. Despite the fact that analysts believe chemical prices have peaked, Oxy has been "building up the chemical business very aggressively," according to Robin Shoemaker, a domestic oil analyst for Shearson-Lehman. In light of Oxy's history of violations, this build-up has ominous implications for the environment. As Kaltofen puts it, you would have to "work hard to pick a larger chemical polluter worldwide."
OxyChem may be Oxy's greatest profit maker, but its agribusiness subsidiary is its largest source of revenue. In 1988 IBP, Inc. accounted for more than $9 billion of Occidental's revenue (almost 50 percent of total revenues). With 24 percent of the domestic fresh beef market and an 11 percent share in fresh pork, IBP is the largest meatpacking business in the country.
IBP, like OxyChem, has some problems. IBP holds a lions share of fines from the Occupational Safety and Health Administration (OSHA). In May 1988 OSHA announced fines of more than $3.1 million against IBP for wilfully exposing the workers at its flagship plant in Dakota City, Neb. to cumulative trauma disorders, especially "Carpal Tunnel Syndrome," resulting from highly repetitive motions with meat cutting knives. OSHA's investigation revealed that IBP knew about these problems but "did not attempt to devise or implement solutions." In addition, OSHA investigators report that "the company often aggravated a disorder by placing an employee who had been treated for such a disorder back in the same job once the symptoms subsided."
Corporate behavior of this sort has led to years of strained labor relations at IBP, according to Al Zack of the United Food and Commercial Workers (UFCW). Since 1969, every new contract has been accompanied by a strike or lockout. The most recent dispute began in December 1985 when IBP locked-out the workers for 15 months because, Zack argues, IBP wanted to avoid paying compensation for plant renovations. When the plant reopened in March 1987, the lockout turned into a strike which lasted until August 1987.
Capturing the relationship between Occidental and IBP, Zack said "Parents have to be responsible for [their] kids. Oxy didn't make [IBP] more responsible and that's their failure." Speaking of Armand Hammer, Zack said it is "ironic [that] this man is the friend of the worker's paradise, the Soviet Union, and yet is so indifferent to his employees. Armand Hammer as a businessman," he elaborated "is a far cry from the Armand Hammer of the society pages." As far as Zack is concerned, Occidental does not inculcate responsible behavior in its subsidiary, it only collects the profits.
Zack did, however, acknowledge that as a result of an internal shakeup at IBP there has been a marginal improvement in labor relations. He said that in the latest round of negotiations management behaved differently. It was the "first time they really respected their workers." Those talks were connected to negotiations with OSHA over IBP's 1988 fines. As part of a detailed three-year plan designed to reduce occurrences of Carpal Tunnel Syndrome IBP agreed to pay OSHA $975,000. That reduced figure included the resolution of another fine of $2.6 million in 1987 for poor record keeping on health issues. The $975,000 was almost $5 million less than the combined total of the two fines.
The cumulative impact of Occidental's legal and regulatory problems on its financial status is difficult to quantify. Smith-Barney analyst Young did say that when dealing with a company that has a product line like Oxy's it is necessary to "consider it as a skeleton in a closet that could come out." In addition to Love Canal and the other Niagara Falls landfill problems, Occidental's Cities Service (now OXY USA) subsidiary was fined $708 million in 1988 for violating the Department of Energy's (DOE) petroleum price regulations. In January 1989, Occidental reached an agreement with the DOE whereby it will pay $40 million up front and another $164 million over the next eight years. Shearson-Lehman's Shoemaker argues that even though Oxy has more of these problems than most companies he does not "think any of it will become a major problem for the company. It won't damage the value of its shares." That's good news for Armand Hammer, but bad news for those affected by Oxy's operations.
Armand Hammer said in his book, Hammer: "In all my time and in all my actions, I have tried to accomplish something of a lasting benefit to the world; to add what I can to the riches of the planet and to share with all people the beauty and the delight of life." Such rhetoric mocks those who have gotten caught in Occidental's path. Ask the victims of Love Canal what Armand Hammer has shared with them; it is certainly not the "beauty and the delight of life." From his lofty perch, Armand Hammer is insulated from the harm his company has inflicted upon too many communities. It's time for Hammer to face the reality of Occidental's irresponsibility.
Hammer's WastelandThe following examples round out the picture of a callous company hiding behind a colorful leader.
Occidental's own board produced a memo revealing that the company had also paid a Nigerian Consul $295,000. In addition $3 million was transferred to the Bahamas, allegedly to bribe Venezuelan officials, according to Epstein. "Hammer characterized these charges by his own committee as 'unproven allegations.' He points out that an oil company is often obliged to pay intermediaries in underdeveloped countries, and it cannot then prevent them from using these fees to bribe government officials."
Not everyone agrees with Hammer's assessment. A lawyer formerly employed by Occidental filed a suit alleging that Occidental "engaged in and sought to conceal corrupt practices in the countries of Venezuela, Trinidad, Peru and other countries."
Another former employee, John Shaver, filed a complaint that he was fired from his job in Latin America because he refused to "engage in illegal, unethical and corrupt practices, namely, the bribery of officials of the government of Guatemala." These examples are too numerous to be dismissed.
Source: Corporate Shadow Boards, Americans Concerned About Corporate Power, 76 pp., April 17, 1980. Available for $5 from the Center for Study of Responsive Law, P.O. Box 19367, Washington. D.C. 20036.